Hong Kong High Court consider the med-arb procedure

In Gao Hai Yan v Keeneye Holdings Ltd [2011] HKEC 514, the enforcement in Hong Kong of a mainland arbitral award that was rendered (in China) following failed settlement efforts in a mediator-arbitrator (med-arb) process was challenged on public policy grounds. A med-arb is a process where a tribunal acts as both an arbitrator and a mediator in relation to the same dispute. Reyes J refused to enforce the award on the basis that certain facts and circumstances that occurred during the 'med-arb' process would cause a fair-minded observer to apprehend a real risk of bias on the part of the tribunal and that, as a matter of justice, it would be wrong to uphold an award tainted by an appearance of bias. The Hong Kong Court of Appeal has overturned this decision (see our post here). What follows is a review of the first instance decision in June 2011.Of particular interest were the court's comments in relation to the med-arb process. Reyes J held that, in principle, there is nothing wrong with med-arb and noted that the new Hong Kong Arbitration Ordinance Cap. 609 (as to which see below) expressly allows med-arb with the parties' agreement, subject to certain safeguards. However, from the point of view of 'impartiality', the med-arb process runs into self-evident difficulties, particularly because of important differences between the two processes. An example given was that a mediator typically meets individually with the parties to explore their concerns and possible settlement plans. An arbitrator, on the other hand, must avoid unilateral dealings with the parties. Reyes J held that the problems inherent in med-arb result, in practice, in many arbitrators declining to engage in the process since they view the risk of apparent bias as an insurmountable difficulty.

The new Hong Kong Arbitration Ordinance (Cap. 609) adopts a unitary regime for 'international' and 'domestic' arbitrations, based on the UNCITRAL Model Law.  The provisions allowing for med-arbs are generating a great deal of debate and have received a mixed reception from users of arbitration. Those accustomed to common law traditions have voiced apprehension at the combination of the functions of arbitrator and mediator – particularly in light of the obligations placed on arbitrators to disclose all confidential information material to the arbitration and learned during mediation, to all of the parties to the dispute. However, there are advantages where arbitrators seek to facilitate settlement of disputes, primarily the efficiency of disposing of disputes amicably. Since an arbitrator will already be familiar with the case (as well as with the parties and their counsel), he should be well-placed and well-equipped with the sensitivity required to help settle the matters in dispute – including helping the parties to choose the most appropriate time at which mediation may be attempted. Avoiding the significant legal fees incurred in substantive hearings by reaching early settlement is an obvious attraction. Finally, a settlement reached during arbitral proceedings may be recorded in the form of a consent award – which may benefit from the enforcement regime under the New York Convention.