Here's the situation, I play rule by decree my opponent wins initiative and has bay of ice in play. Does he draw a card with bay of ice then discard down to 4 or does he discard down to 4 then draw a card for bay of ice?

He discards down to 4 and then draws for Bay of Ice. The reason for this is that Bay of Ice is a passive and Rule By Decree's effect happen during the "When revealed" framework step BEFORE passives fire. So, you must fulfill RBD before Bay of Ice's effect.