Hong Kong - Chinese award challenged on public policy grounds in Hong Kong

The enforcement of an arbitral award issued in mainland China in relation to a share transfer dispute has been challenged recently in the Hong Kong Courts in Gao Hai Yan and another ("Gao and Xie") v Keeneye Holdings Ltd and others HCCT 41/2010 on grounds that it would be contrary to public policy.

Background

In this case, Keeneye Holdings Ltd and New Purple Golden Resources Development Ltd - both Chinese - owned holding companies and the Claimants in the arbitration ("Keeneye") - alleged that one of the arbitrators, together with the General Secretary of the Xian Arbitration Commission (the "General Secretary"), had held a private meeting with one of their representatives less than three months before the award was issued. Keeneye claimed that they were informed at the meeting that the tribunal would issue an award in their favour, but that they must compensate "other parties" with a payment of RMB250 million. Keeneye refused and the tribunal subsequently found in favour of Gao and Xie.

Under Section 40E(3) of the Hong Kong Arbitration Ordinance (Cap 341) currently in force, enforcement of a Mainland arbitral award may be refused if doing so would be contrary to public policy. Keeneye argued that the private meeting amounted to seriously improper interference, including unwarranted communications, by the General Secretary with the tribunal. Although Gao and Xie denied Keeneye's version of events, they nevertheless suggested that the procedure adopted by the arbitrator and the General Secretary constituted part of a valid mediation process under the Xian Arbitration Commission's practice and procedure.

Preliminary decision of the Court of First Instance

In its preliminary decision, the Court of First Instance stated that the basic notions of morality and justice in Hong Kong would not permit ex parte communications between a member of an arbitral tribunal and a party once an arbitration process has commenced. Justice Saunders considered that "... it is an extraordinary proposition that a member of the Tribunal, in the course of hearing an arbitration, could be involved in a mediation process, ...".

The Court considered the leading authority in Hong Kong on using public policy as a basis for refusing enforcement of an award, Hebei Import & Export Corp v Polytek Engineering Company Ltd (1999) 2 HKCFAR 111. In this case, the Court of Final Appeal stated that where parties agreed to procedures that differ from those which would ordinarily apply in Hong Kong, such as the CIETAC Arbitration Rules and the PRC Arbitration Law, the Court must take into account these circumstances. Nevertheless, Saunders J observed that arguably the facts in Gao Hai Yan were "significantly more egregious" than those in Hebei Import - where an inspection of the Respondents' equipment by the chief arbitrator, and experts appointed by the tribunal in the absence of the Respondents, were procedures that may be considered unacceptable in Hong Kong.

On this basis, the Court in Gao Hai Yan declined to reject Keeneye's application to set aside the award forthwith as proposed by Gao and Xie, and instead set the case down for a full evidentiary hearing to take place in the coming months. While this decision is awaited, when agreeing to arbitrate using procedures (such as CIETAC Arbitration Rules) which are in some respects very different from those adopted by other international arbitration institutions, parties need to be careful that the procedures are not so different that they would be unenforceable in Hong Kong, if enforcement in that jurisdiction is required.

Gao Hai Yan and another v Keeneye Holdings Ltd and others HCCT 41/2010