Arbitrator Impartiality and Third Party Influence in Philippine Arbitration Awards

The line between an arbitrator's legitimate case management and impermissible bias can be difficult to draw. In RCBC Capital Corporation v. Banco De Oro Unibank, Inc. (G.R. No. 196171, December 10, 2012), the Supreme Court addressed this tension in the context of an international commercial arbitration seated in the Philippines. The case clarifies when a losing party may successfully challenge an award on grounds of evident partiality, and it underscores the narrow grounds for judicial intervention in arbitration.

The Dispute and the Arbitration

RCBC Capital Corporation purchased 67% of Bankard, Inc. shares from Equitable-PCI Bank (later Banco De Oro) and individual sellers under a Share Purchase Agreement. Years later, RCBC claimed the sellers breached warranties on the accuracy of Bankard's financial statements, alleging overpayment of about P556 million. The contract contained an arbitration clause requiring ICC arbitration in Makati City, governed by Philippine substantive law.

A three-member tribunal was constituted. During the proceedings, a dispute arose over the parties' obligation to pay advances on arbitration costs. The sellers refused to pay their share, insisting on separate advances. RCBC paid the sellers' share to keep the arbitration alive and sought reimbursement through a partial award.

The Issue: Evident Partiality

The sellers moved to vacate the Second Partial Award, arguing that the tribunal chairman showed evident partiality by interpreting RCBC's letter as an application for a reimbursement award—an issue the sellers claimed was outside the scope of submission. They also alleged the tribunal improperly declared their counterclaim withdrawn.

The Court of Appeals vacated the Second Partial Award, finding the tribunal exceeded its powers. The Supreme Court reversed, reinstating the award.

The Ruling: No Partiality, No Excess of Jurisdiction

The Supreme Court held that the tribunal acted within its authority. Under the ICC Rules, a party's failure to pay its share of advances on costs may result in the withdrawal of claims or counterclaims. The tribunal's decision to treat RCBC's letter as an application for reimbursement was a reasonable interpretation, not evidence of bias.

The Court emphasized that evident partiality must be proven, not inferred. A tribunal's ruling adverse to a party—even if erroneous—does not establish partiality. The chairman's act of introducing scholarly materials on the cost-advance issue, while giving both parties an opportunity to comment, actually demonstrated fairness rather than bias.

The Court also rejected the argument that the tribunal exceeded its jurisdiction. The reimbursement of advances on costs was a matter necessarily connected to the arbitration and within the tribunal's power to decide.

The Standard for Vacating Awards

Philippine law, through the Alternative Dispute Resolution Act of 2004 (R.A. No. 9285) and the Special Rules of Court on Alternative Dispute Resolution, provides limited grounds for vacating an arbitral award. These include evident partiality, corruption, misconduct prejudicing a party's rights, and exceeding arbitral powers.

The Supreme Court's ruling reinforces that courts should not second-guess arbitral tribunals on procedural matters where the tribunal acted within its conferred authority. The Court also confirmed that a tribunal may consider a counterclaim withdrawn when a party fails to comply with cost-advance requirements—a consequence expressly contemplated by the ICC Rules the parties agreed to follow.

Practical Takeaways

• Arbitration awards are highly protected. Courts will vacate awards only on narrow, statutorily defined grounds. A party unhappy with a tribunal's procedural ruling cannot convert that disagreement into a claim of partiality.
• Evident partiality requires proof. A tribunal's adverse rulings, even if questionable, do not by themselves establish bias. Parties must present concrete evidence of partiality or misconduct.
• Cost-advance rules matter. Parties to ICC arbitration must take seriously their obligation to pay advances on costs. Failure to pay can result in the withdrawal of claims or counterclaims, with limited recourse afterward.
• Choose arbitrators carefully. The tribunal's composition—including the chairman—can significantly affect procedural outcomes. Parties should assess nominees' experience with cost issues and case management.
• Respect the tribunal's procedural authority. Tribunals have broad discretion to manage proceedings, including deciding related issues like reimbursement of costs. Courts will generally defer to that discretion.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.