Notes to Financial Statements - BDO

Notes to Financial StatementsDECEMBER 31, 2008, 2007 AND 2006(Amounts in Millions Except Per Share Data)31. COMMITMENTS AND CONTINGENCIES31.1 LitigationsThe Group has pending claims and/or is a defendant in various legal actions arising from the ordinary course of business operation or itsnormal business activities. Management believes that no such legal proceedings are expected to have material adverse effect on the Group’sfinancial condition.The Parent Bank is a respondent in two arbitration proceedings under the International Chamber of Commerce (ICC) arising from isolatedtransactions, i.e., the sale of its equity investments.Sale of BankardThe case involves the sale of the Group’s ownership in Bankard, a former subsidiary of then EPCIB. Dispute on the said sale is underarbitration with the ICC, which recently ruled in favor of the claimant (the Partial Award of September 27, 2007), stating among others that theclaimant is entitled to damages, subject to proof of loss. The Group has filed a motion for reconsideration to vacate the ruling at the RegionalTrial Court (RTC) level. On January 8, 2008, the RTC issued a decision affirming the ruling of the ICC. Subsequently, the Group filed a Petitionfor Review on Certiorari with the Supreme Court (Second Division) to vacate the ruling issued by the RTC. The Supreme Court (SecondDivision) issued a decision denying the Group’s petition and upholding the ruling of the RTC. On January 27, 2009, the Group filed an OmnibusMotion: (i) to urge the Honorable Second Division to elevate the case to the Supreme Court en banc in view of the novelty of the legal issuesand the resolution thereof demands for the Honorable Court en banc’s exercise of its constitutional power in respect to the promulgation ofrules and regulations concerning court procedure; and/or (ii) to move for the reconsideration of the Decision on grounds of being contraryto law and established jurisprudence; and, (iii) to clarify certain portions of the Decision, which have caused confusion in the application ofthe pertinent laws governing arbitration.The Partial Award sustained by the Second Division of the Supreme Court concluded that the Group is liable to the claimant but did notadjudicate the amount of damages for which the Group is liable to the claimant as the same shall still be proven by the claimant in the secondphase of the arbitration (quantum phase); the hearing of which has been tentatively set by the Tribunal Chairman on October 26, 2009.However, in view of the Decision and the Omnibus Motion, as well as the continuing objection the Group raised against the procedure beingfollowed by the Tribunal, the Group has requested for the suspension of the arbitration proceeding until the matters and issues are resolved.As of December 31, 2008, management believes that the above claim is without merit or that the resulting liability if any, resulting from suchclaim, will not have material adverse effect on the Group’s financial position and financial performance and will be taken up if and when a finalresolution by the courts is made on the claim.Sale of MaxicareThe Group is a defendant/respondent in legal proceedings arising from the sale of its 60% stake in Maxicare in 2007. Claimants have filedan Intra-Corporate Dispute with the Regional Trial Court of Makati (RTC). The claimants filed a Petition for Issuance of Writ of PreliminaryInjunction in Support of Arbitration proceedings with Prayer for Temporary Restraining Order (TRO) and Writ of Replevin to enjoin the conductof business of Maxicare, and if already executed, for annulment of sale of the Maxicare shares. The RTC has since denied the TRO and Writof Replevin on the ground that the petitioners have no clear and unmistakable right over the shares, as there was no perfected contract ofsale between the Bank and the claimants. Moreover, the RTC also ruled that the Bank’s sale of the shares to Pin-An Holdings is valid. ThePetitioners filed a Motion for Reconsideration (MR) which was denied since an MR is a prohibited pleading under the Interim Rules on Intra-Corporate Dispute. The RTC ruled further that its order declaring the validity of the sale of the Maxicare shares has become final under saidInterim Rules. The claimants have since filed a Petition for Certiorari with the Court of Appeals, where the case is pending.The claimants have also filed a Request for Arbitration with the International Chamber of Commerce (ICC) – International Court of Arbitration,where arbitration is currently ongoing on the same issue of the petitioners’ right to buy the shares.As of December 31, 2008, management believes that the above claim is baseless and without merit or that the resulting liability if any, resultingfrom such a claim, will not have a material adverse effect on the Group’s financial position and financial performance.OthersThe Group is also a defendant in various cases pending in courts for alleged claims against the Group, the outcome of which are not fullydeterminable at present. As of December 31, 2008, management believes that, liabilities or losses, if any, arising from these claims would nothave a material effect on the financial position and results of operations of the Group and will be taken up if and when a final resolution by thecourts is made on each claim.31.2 LeasesThe Group leases the premises of its head office and most of its branch offices for periods ranging from 1 to 15 years from the date ofthe contracts; terms are renewable upon the mutual agreement of the parties. Rent expense, reported as part of Occupancy under OtherOperating Expense account in the income statement, amounted to P1,463 in 2008, P1,391 in 2007 and P867 in 2006 in the Group financialstatements and P1,386 in 2008, P1,253 in 2007 and P698 in the Parent Bank financial statements.Thinking Ahead To Get You Ahead • Annual Report 2008 79