RCBC vs.

BDO

FACTS:

All three petitions emanated from arbitration proceedings commenced by RCBC Capital pursuant to the
arbitration clause under its Share Purchase Agreement (SPA) with EPCIB involving the latter’s shares in
Bankard, Inc. In the course of arbitration conducted by the Tribunal constituted and administered by the
International Chamber of Commerce-International Commercial Arbitration (ICC-ICA), EPCIB was merged with
BDO which assumed all its liabilities and obligations.

RCBC entered into a Share Purchase Agreement (SPA) with Equitable-PCI Bank, Inc. (EPCIB), George L. Go
and the individual shareholders of Bankard, Inc. (Bankard) for the sale to RCBC of 226,460,000 shares (Subject
Shares) of Bankard.
RCBC informed EPCIB and the other selling shareholders of an overpayment of the subject shares, claiming
there was an overstatement of valuation of accounts amounting to P478 million and that the sellers violated their
warranty.

RCBC commenced arbitration proceedings with the ICC-ICA in accordance with Section 10 of the SPA.

ICC asked them to advance cost of $350K. RCBC paid. But respondent did not pay assailing disproportionate
share because RCBC has way greater claim. RCBC paid the share of BDO in the cost.

RCBC filed an Application for Reimbursement of Advance on Costs Paid, praying for the issuance of a partial
award directing the Respondents to reimburse its payment in the amount of US$290,000 representing
Respondents’ share in the Advance on Costs and to consider Respondents’ counterclaim for actual damages in
the amount of US$300,000, and moral and exemplary damages as withdrawn for their failure to pay their equal
share in the advance on costs.

BDO Opposed on the ground that the Arbitration Tribunal has lost its objectivity in an unnecessary litigation over
the payment of Respondents’ share in the advance costs. They pointed out that RCBC’s letter merely asked that
Respondents be declared as in default for their failure to pay advance costs as that RCBC had no intention of
litigating for the advance costs.

Respondents reiterated their position that Article 30(3) envisions a situation whereby a party would refuse to pay
its share on the advance on costs and provides a remedy therefor – the other party "shall be free to pay the
whole of the advance on costs." Such party’s reimbursement for payments of the defaulting party’s share
depends on the final arbitral award where the party liable for costs would be determined. This is the only remedy
provided by the ICC Rules

Arbitration Tribunal rendered the Second Partial Award

EPCIB filed a Motion to Vacate Second Partial Award and RCBC filed in the same court a Motion to Confirm
Second Partial Award. Makati City RTC confirmed the Second Partial Award and denied EPCIB’s motion to
vacate the same. EPCIB appealed to CA.

Acting on a petition for certiorari, the Court of Appeals reversed the order of the lower court and set aside the
second partial award.

ISSUE:

WHETHER THERE IS LEGAL GROUND TO VACATE THE SECOND PARTIAL AWARD?

RULING:

YES.

The Supreme Court upheld the Court of Appeals' ruling that in treating the letter of the claimant as an application
for a partial award and in furnishing the parties with a copy of Secomb's article 1 - which favoured the claimant by
advancing its cause - the chairman acted with partiality.

“SEC. 41. Vacation Award. – A party to a domestic arbitration may question the arbitral award with the
appropriate regional trial court in accordance with the rules of procedure to be promulgated by the Supreme
Court only on those grounds enumerated in Section 25 of Republic Act No. 876. Any other ground raised against
a domestic arbitral award shall be disregarded by the regional trial court.”

Rule 11.4 of the Special ADR Rules sets forth the grounds for vacating an arbitral award:

Rule 11.4. Grounds.—(A) To vacate an arbitral award. – The arbitral award may be vacated on the following
grounds:

a. The arbitral award was procured through corruption, fraud or other undue means;
b. There was evident partiality or corruption in the arbitral tribunal or any of its members;
c. The arbitral tribunal was guilty of misconduct or any form of misbehavior that has materially prejudiced the
rights of any party such as refusing to postpone a hearing upon sufficient cause shown or to hear evidence
pertinent and material to the controversy;
d. One or more of the arbitrators was disqualified to act as such under the law and willfully refrained from
disclosing such disqualification; or
e. The arbitral tribunal exceeded its powers, or so imperfectly executed them, such that a complete, final
and definite award upon the subject matter submitted to them was not made.

The award may also be vacated on any or all of the following grounds:
a. The arbitration agreement did not exist, or is invalid for any ground for the revocation of a contract or is
otherwise unenforceable; or
b. A party to arbitration is a minor or a person judicially declared to be incompetent.
In deciding the petition to vacate the arbitral award, the court shall disregard any other ground than those
enumerated above. (Emphasis supplied)

Evident partiality in its common definition thus implies "the existence of signs and indications that must lead to
an identification or inference" of partiality

Although RCBC had repeatedly asked for reimbursement and the withdrawal of BDO’s counterclaims prior to
Chairman Barker’s December 18, 2007 letter, it is baffling why it is only in the said letter that RCBC’s prayer
was given a complexion of being an application for a partial award. To the Court, the said letter signaled
a preconceived course of action that the relief prayed for by RCBC will be granted.

That there was an action to be taken beforehand is confirmed by Chairman Barker’s furnishing the parties with
a copy of the Secomb article. This article ultimately favored RCBC by advancing its cause. Chairman
Barker makes it appear that he intended good to be done in doing so but due process dictates the cold
neutrality of impartiality.

Korea Technologies v. Lerma

Facts:
Korea Technologies Co., Ltd. [Korea Tech], a Korean corporation, entered into a contract with Pacific General
Steel Manufacturing Corporation [Pacific General], a domestic corporation, whereby Korea Tech undertook to
ship and install in Pacific General’s site in Carmona, Cavite the machinery and facilities necessary for
manufacturing LPG cylinders, and to initially operate the plant after it is installed.
The plant, after completion of installation, could not be operated by Pacific General due to its financial difficulties
affecting the supply of materials. The last payments made by Pacific General to Korea Tech consisted of
postdated checks which were dishonored upon presentment. According to Pacific General, it stopped payment
because Korea Tech had delivered a hydraulic press which was different in kind and of lower quality than that
agreed upon. Korea Tech also failed to deliver equipment parts already paid for by it. It threatened to cancel the
contract with Korea Tech and dismantle the Carmona plant.
Finally, Pacific General filed before the Office of the Prosecutor a Complaint-Affidavit for estafa against Mr. Dae
Hyun Kang, President of Korea Tech. Korea Tech informed PGSMC that it could not unilaterally rescind the
contract. Of greater importance to the present article, KOGIES also insisted that their dispute be settled by
arbitration as provided by Article 15 of their contract — the arbitration clause.
Korea Tech initiated arbitration before the Korea Commercial Arbitration Board [KCAB] in Seoul, Korea and, at
the same time, commenced a civil action before the Regional Trial Court [the “trial court”] where it prayed that
Pacific General be restrained from dismantling the plant and equipment. Pacific General opposed the application
and argued that the arbitration clause was null and void, being contrary to public policy as it ousts the local court
of jurisdiction.
The trial court denied the application for preliminary injunction and declared the arbitration agreement null and
void. Korea Tech moved to dismiss the counterclaims for damages.
Korea Tech filed a petition for certiorari before the Court of Appeals [CA]. The court dismissed the petition and
held that an arbitration clause which provided for a final determination of the legal rights of the parties to the
contract by arbitration was against public policy. Further appeal was made to the Supreme Court by way of a
petition for review.
Ruling:
The Supreme Court (the “Court”) held:
1. Re: The validity of the arbitration clause.
“The arbitration clause is valid. It has not been shown to be contrary to any law, or against morals, good customs,
public order or public policy. The arbitration clause stipulates that the arbitration must be done in Seoul, Korea
in accordance with the Commercial Arbitration Rules of the KCAB, and that the award is final and binding. This
is not contrary to public policy. We find no reason why the arbitration clause should not be respected and
complied with by both parties.”
This ruling, the Court said, is consonant with the declared policy in Section 2 of the ADR Act that “the State
(shall) actively promote party autonomy in the resolution of disputes or the freedom of the parties to make their
own arrangements to resolve their disputes.” Citing Section 24 of the ADR Act, the Court said the trial court does
not have jurisdiction over disputes that are properly the subject of arbitration pursuant to an arbitration clause.
In the earlier case of BF Corporation v. Court of Appeals and Shangri-la Properties, Inc., where the trial court
refused to refer the parties to arbitration notwithstanding the existence of an arbitration agreement between
them, the Supreme Court said the trial court had prematurely exercised its jurisdiction over the case.
The Court further emphasized that a submission to arbitration is a contract. As a rule, contracts are respected
as the law between the contracting parties and produce effect between them, their assigns and heirs.8 Courts
should liberally review arbitration clauses. Any doubt should be resolved in favor of arbitration.
2. Re: Enforcement of award in a domestic or international arbitration
An arbitral award in a domestic or international arbitration is subject to enforcement by a court upon application
of the prevailing party for the confirmation or recognition and enforcement of an award. Under Section 42 of the
ADR Act, “The recognition and enforcement of such (foreign) arbitral awards shall be filed with the Regional Trial
Court in accordance with the rules of procedure to be promulgated by the Supreme Court.” An arbitral award is
immediately executory upon the lapse of the period provided by law.
For an award rendered in domestic or non-international arbitration, unless a petition to vacate the award is filed
within thirty (30) days from the date of serve upon the latter, the award is subject to confirmation by the court.
For an award rendered in a domestic, international arbitration, the period for filing an application to set it aside
is not later than three (3) months from the date the applicant received the award, otherwise the court shall
recognize and enforce it.
3. Re: Enforcement of foreign arbitral award
In an attempt to allay the fear by Pacific General of submitting its dispute to arbitration in Seoul, South Korea
under the rules of the Korea Commercial Arbitration Board, the Supreme Court said in obiter dictum:
In case a foreign arbitral body is chosen by the parties, the arbitral rules of our domestic arbitration bodies would
not be applied. As signatory to the Arbitration Rules of the UNCITRAL Model Law on International Commercial
Arbitration of the United Nations Commission on International Trade Law [UNCITRAL] in the New York
Convention on June 21, 1985, the Philippine committed itself to be bound by the Model Law. We have even
incorporated the Model Law in Republic Act No. 9285, otherwise known as the Alternative Dispute Resolution
Act of 2004.”
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“Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually agreed upon by
the parties, still the foreign arbitral award is subject to judicial review by the RTC which can set aside,
reject or vacate it.”…. Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether domestic
or foreign, are subject to judicial review on specific grounds provided for.”
The Supreme Court finally held:
“While it (Pacific General) may have misgivings on the foreign arbitration done in Korea by the KCAB, it has
available remedies under RA 9285. Its interests are duly protected by the law which requires that the arbitral
award that may be rendered by KCAB must be confirmed here by the RTC before it can be enforced.”