Introduction
Pursuant to the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region, subject to certain conditions, Hong Kong courts shall enforce arbitral awards made by recognized PRC arbitral authorities; and vice versa, the designated PRC courts shall enforce Hong Kong arbitral awards. 

One of the conditions under which Hong Kong courts may refuse to enforce a PRC arbitral award is where the enforcement of the award would be contrary to public policy. The Court of Appeal decision Gao Haiyan & Anor v Keeneye Holdings Ltd & Anor [2012] 1 HKC 335 illustrates the Court’s narrow and stringent interpretation of the public policy ground for refusal of enforcement of arbitral award.

Background
By two share transfer agreements (the “STAs”), Gao transferred to Keeneye its shares in a Hong Kong Company (which held beneficial interest in a joint venture which owned and operated a coal mine in the PRC). The STAs were governed by PRC law and included an arbitration agreement which provided for arbitration at the Xian Arbitration Commission (“XAC”).

Disputes arose regarding the STAs. Keeneye claimed that the STAs were valid and Gao claimed that they were not and sought revocation of STAs. Arbitration commenced at XAC. The arbitral tribunal consisted of Jiang (Chief Arbitrator), Zhou (nominated by Gao) and Liu (nominated by Keeneye). During the course of the arbitration, a private mediation session took place over dinner at a hotel in Xian, without the presence of the parties but a person regarded as “friendly” with Keeneye, Zhou and Pan (XAC’s Secretary General). It was proposed at the mediation that a settlement be reached on the basis that the STAs were valid but Keeneye was to pay compensation of RMB 250 million to Gao. Such proposal was not accepted by Keeneye. 

The arbitration continued and during the arbitration proceedings, there were no complaints made by Keeneye in relation to the dinner incident. The arbitral tribunal found in favour of Gao. Keeneye applied to the Xian Intermediate Court to set aside the arbitral award on the ground that Pan had manipulated the outcome of the arbitration. The Xian Court held that the mediation work performed by Pan had complied with the relevant arbitration rules. Keeneye’s application to set aside the award therefore failed.

Gao then sought to enforce the arbitral award in Hong Kong.  Keeneye opposed the enforcement, arguing that it would be contrary to public policy to enforce the award as it was tainted by bias.

The First Instance Decision
The Court of First Instance accepted that the dinner amounted to mediation. However, it considered that the way in which the mediation had been conducted gave rise to an appearance of bias and it would be contrary to public policy in Hong Kong pursuant to Section 40E(3) of Hong Kong’s old Arbitration Ordinance (Cap. 341) (Section 95 of the new Arbitration Ordinance (Cap. 609)). It further held that Keeneye had not waived their entitlement to complain about bias in proceedings with the arbitration after the dinner incident. As such, the Court of First Instance refused to enforce the arbitral award.

The Court of Appeal Decision
Gao appealed. The issues before the Court of Appeal were:-

1.         Whether Keeneye had waived its entitlement to complain about bias when it proceeded with the arbitration after the dinner incident and failed to do so during the arbitration proceedings; and

2.         Whether there was an appearance of bias.

Waiver
The Court of Appeal held that a party to an arbitration who wishes to rely on non-compliance with the arbitration rules should do so promptly and should not proceed with the arbitration as if there had been compliance, keeping the point of non-compliance up one’s sleeve for later use. 

In the present case, Keeneye proceeded with the arbitration after the dinner incident without making any complaint about impropriety or bias against the arbitral tribunal or Pan. This had precluded the arbitral tribunal from dealing with Keeneye’s complaint. The Court of Appeal also considered that the refusal of the Xian Court to set aside the arbitral award was entitled to serious consideration. It decided that Keeneye had waived its right to complain about bias in the enforcement proceedings.

Appearance of Bias
While one may feel unease about the way in which the mediation was conducted as mediation is normally conducted differently in Hong Kong, the Court of Appeal took the view that whether such situation would give rise to an apprehension of bias may also depend on an understanding of how mediation is normally conducted in the PRC, the place where the conduct occurred. As such, due weight must be given to the decision of the Xian Court that the mediation had complied with the relevant PRC arbitration rules and its refusal to set aside the arbitral award.

In any event, an enforcing court in Hong Kong should only refuse to enforce an award on the ground of public policy if the relevant matter would be contrary to the fundamental conceptions of morality and justice of Hong Kong. That does not mean if, for example, it is common for mediation to be conducted in this way in Xian, an award would not be enforced in Hong Kong because such conduct might give raise to an appearance of bias in Hong Kong.

The Court of Appeal therefore overturned the Court of First Instance’s decision and allowed the enforcement of arbitral award.

Conclusion
The Court of Appeal decision in Gao Haiyan & Anor v Keeneye Holdings Ltd & Anor illustrates the importance of raising any objections to any procedural irregularity promptly as a failure to do so may result in a waiver of the right to object later.

Further, the public policy ground for refusal of enforcement of arbitral award is to be interpreted in a narrow and stringent manner. If the conduct complained of is a matter of common practice in the place where it occurred, an enforcing court in Hong Kong would not necessarily find it contrary to public policy even though such conduct would be regarded as uncommon in Hong Kong. In this regard, Hong Kong courts will give due weight to the decision of the court of the jurisdiction in which the arbitration is conducted.

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.