Hong Kong Court of Appeal enforces Chinese arbitral award despite "unusual" arb-med procedure

In a key judgment, the Hong Kong Court of Appeal (the Court) overturned the lower court's decision and upheld the enforcement of a Chinese arbitral award – despite the fact that the Tribunal engaged in an arb-med procedure which, in Hong Kong, would give rise to the appearance of bias (Gao Haiyan and Xie Heping v Keeneye Holdings and another CACV 79/2011).

Facts

The details of the arb-med procedure in this case were, to many, rather striking.  The "mediation" took place during a private meeting over dinner at the Xian Shangri-la Hotel, in the presence of only one of the parties (in fact, the meeting was held with an independent third party thought to be "friendly" with the respondents).  It was conducted by one of the co-arbitrators and the Secretary General of the Xian Arbitration Commission, and these "mediators" made settlement proposals of their own initiative.

Decision

Notwithstanding these somewhat unusual circumstances, the Court ordered enforcement of the arbitral award (which had been subsequently rendered against the respondents) on two principal grounds.  First, the respondents had waived their right to object to the arb-med procedure because they had failed to do so in the arbitration proceedings (and as specifically required by the applicable arbitral rules).  The Court emphasised the principle that a party should not keep a complaint "up its sleeve" for possible use at a later stage.  Secondly, and in any event, the Court did not find that the arb-med procedure gave rise to apprehended bias which raised a question of public policy.  In reaching this conclusion, the Court indicated that due regard must be paid to the way arb-med is typically carried out in the place of the seat of arbitration (here, the PRC) – an approach which has been dubbed the "when in Rome" approach.  Of particular relevance here, the Court attached considerable weight to the fact that the Xian local court had refused to set the award aside on the basis of the arb-med procedure (among other complaints).

Comment

This decision demonstrates the strong pro-enforcement approach of the Hong Kong Courts and sets a very high bar for refusing to enforce awards on grounds of public policy.  In particular, enforcement will be refused on grounds of public policy only where it would be contrary to the "fundamental conceptions of morality and justice" in Hong Kong.  The judgment may also provide reassurance to parties that enforcement of Chinese arbitral awards will not be refused in Hong Kong purely because an arb-med procedure was adopted during the proceedings.

It is clear that approach to arb-med differs widely across jurisdictions, and that practices may be shaped by specific features of applicable arbitration law.  Parties and counsel should therefore take care to educate themselves as to the norms and practices of the seat of the arbitration, since a party's consent to arbitrate in a particular jurisdiction will be taken to represent an agreement to be bound by its rules and procedures.  In addition, if a party has any concerns with the arbitral procedure, it must raise an objection promptly – or risk waiving its right to so, including in subsequent enforcement proceedings.

A version of this article originally appeared in the September 2012 issue of the Newsletter of the Mediation Committee of the Legal Practice Division of the International Bar Association, Vol 8 No 1, published by the International Bar Association, London, UK. © International Bar Association.