The Supreme Court held that an arbitration award could be vacated due to evident partiality if a reasonable person would conclude that an arbitrator favored one party. The arbitrator’s conduct, specifically providing one party with legal arguments, compromised the fairness and impartiality required in arbitration proceedings, undermining the integrity of alternative dispute resolution.

Whose Side Are You On? Questioning Partiality in Arbitration

In the case of RCBC Capital Corporation v. Banco De Oro Unibank, Inc., two petitions were consolidated following a dispute arising from a Share Purchase Agreement (SPA) between RCBC and Equitable-PCI Bank, Inc. (EPCIB). RCBC claimed an overpayment for shares due to an overstatement of Bankard, Inc.’s accounts, leading to arbitration proceedings under the International Chamber of Commerce-International Court of Arbitration (ICC-ICA) rules, as stipulated in the SPA. The core issue revolved around whether the Second Partial Award, which ordered EPCIB (later BDO) to reimburse RCBC for advance costs paid to the ICC-ICA, was valid, or whether it should be vacated due to evident partiality on the part of the arbitration tribunal’s chairman.

The heart of the controversy lies in the arbitration proceedings where RCBC sought to recover alleged overpayments for shares purchased in Bankard. When a disagreement arose, the Share Purchase Agreement stipulated that it should be submitted to arbitration under the rules of the International Chamber of Commerce-International Court of Arbitration. To initiate arbitration, both parties were required to contribute to the advance costs, which EPCIB failed to pay. RCBC then covered EPCIB’s share to prevent suspension of the proceedings, later seeking reimbursement through a partial award. This request exposed a critical point of contention: whether the chairman of the arbitration tribunal demonstrated evident partiality towards RCBC.

The Supreme Court scrutinized whether Chairman Barker had shown bias towards RCBC. The inquiry was not merely about establishing bias, but whether a reasonable person, aware of the circumstances, would conclude that Barker was partial to RCBC. The court referenced the standard from Commonwealth Coatings Corp. v. Continental Casualty Co., emphasizing that tribunals must not only be unbiased but also avoid any appearance of bias. The actions of Chairman Barker, specifically furnishing the parties with a legal article, became the focal point of the court’s analysis.

The act of Chairman Barker in providing both parties with Matthew Secomb’s article, “Awards and Orders Dealing With the Advance on Costs in ICC Arbitration: Theoretical Questions and Practical Problems,” raised substantial concerns. The Supreme Court emphasized that this article “reflected in advance the disposition of the ICC arbitral tribunal.” By furnishing the parties with the Secomb article, the Supreme Court explained, “Chairman Barker practically armed RCBC with supporting legal arguments.” It appeared that Barker was aiding RCBC by offering them favorable legal interpretations, undermining the impartiality expected of an arbitrator. It’s as if the referee in a basketball game privately gave one team a playbook on how to exploit loopholes in the rules.

In its decision, the Supreme Court quoted Section 10 of the Share Purchase Agreement, stating that “substantive aspects of the dispute shall be settled by applying the laws of the Philippines.” As such, it turned to R.A. 9285, the Alternative Dispute Resolution Act of 2004, to inform its discussion. Rule 11.4 of the Special ADR Rules sets forth the grounds for vacating an arbitral award. Of particular importance to the case was section (A)(b), stating that an arbitral award may be vacated if “[t]here was evident partiality or corruption in the arbitral tribunal or any of its members.” The Supreme Court ultimately based its decision on this ground, citing Chairman Barker’s evident partiality toward RCBC.

To clarify the standard for assessing evident partiality, the Supreme Court cited the Oregon Court of Appeals, defining “partiality” as “the inclination to favor one side” and “evident” as “clear to the understanding : obvious, manifest, apparent.” Evident partiality, therefore, implies that there are “signs and indications” that lead to the conclusion that one side is being favored. The Court adopted the reasonable impression of partiality standard, requiring a showing that a reasonable person would conclude that an arbitrator was partial to a party in the arbitration. In doing so, the Court cited the U.S. Sixth Circuit Court’s decision in Apperson v. Fleet Carrier Corporation, which held that the challenging party must show that “a reasonable person would have to conclude that an arbitrator was partial” to the other party to the arbitration.

The Supreme Court differentiated its ruling from earlier jurisprudence, most notably the U.S. Supreme Court case, Commonwealth Coatings Corp. v. Continental Casualty Co., et al., which some interpreted as holding arbitrators to the same standards of conduct imposed on judges. Instead, the Court made clear that the appropriate standard is the reasonable impression of partiality. This means that an arbitrator’s conduct must suggest bias to a reasonable observer, not that arbitrators must adhere to judicial decorum. The Court then stated that this interest or bias “must be direct, definite and capable of demonstration rather than remote, uncertain, or speculative.”

Furthermore, the Court emphasized the importance of upholding the integrity of arbitration as a method of alternative dispute resolution. ADR methods are encouraged because they “provide solutions that are less time-consuming, less tedious, less confrontational, and more productive of goodwill and lasting relationship.” The most important element to arbitration’s success, the Court reasoned, is “the public’s confidence and trust in the integrity of the process.” If there is no trust in the process, then the process will not be viable.

In conclusion, the Supreme Court denied RCBC’s petition and affirmed the CA’s decision to vacate the Second Partial Award. The Court also denied BDO’s petition, finding no reversible error in the CA’s denial of a stay order or TRO against the Final Award’s execution because BDO had already settled the payment, rendering the request moot. The Supreme Court declared that the act of the Chairman was indicative of partiality, and thus the arbitration was not fair. Though ADR is encouraged, it cannot come at the cost of partiality.

FAQs

What was the key issue in this case?	The key issue was whether the Second Partial Award should be vacated due to evident partiality on the part of the arbitration tribunal’s chairman, affecting the fairness of the arbitration process.
What did the Share Purchase Agreement (SPA) stipulate?	The SPA stipulated that any disputes would be settled through arbitration under the rules of the International Chamber of Commerce-International Court of Arbitration (ICC-ICA).
Why was the arbitration tribunal chairman accused of partiality?	The chairman was accused of partiality because he provided both parties with a legal article that the Supreme Court found “reflected in advance the disposition of the ICC arbitral tribunal,” thus “arming RCBC with supporting legal arguments.”
What is the ‘reasonable impression of partiality’ standard?	The ‘reasonable impression of partiality’ standard, adopted by the Supreme Court, requires a showing that a reasonable person would conclude that an arbitrator was partial to one party.
What is the significance of R.A. 9285 in this case?	R.A. 9285, the Alternative Dispute Resolution Act of 2004, was used to inform the discussion and ultimately provided the grounds for the Supreme Court’s decision, specifically, that “[t]here was evident partiality or corruption in the arbitral tribunal or any of its members.”
Why did the Supreme Court deny BDO’s petition for a stay order?	The Supreme Court denied BDO’s petition because BDO had already settled the payment, thus rendering the request moot.
Why is maintaining trust in arbitration important?	The Court reasoned that maintaining trust in arbitration is essential because it is the most important element to the success of the process. If there is no trust in the process, then the process will not be viable.
What did the Court clarify about its ruling?	The Court clarified that its ruling adopted the standard of a ‘reasonable impression of partiality,’ which meant that an arbitrator’s conduct must suggest bias to a reasonable observer, and that an arbitrator’s bias “must be direct, definite and capable of demonstration rather than remote, uncertain, or speculative.”

This case underscores the necessity of maintaining impartiality in arbitration proceedings, reinforcing the principles of fairness and integrity in alternative dispute resolution. Parties involved in arbitration should be vigilant in ensuring that arbitrators remain neutral, thereby upholding the credibility and effectiveness of the arbitration process.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: RCBC Capital Corporation v. Banco De Oro Unibank, Inc., G.R. Nos. 196171 & 199238, December 10, 2012