The Hong Kong Court of Appeal has allowed an appeal against a decision of the Court of First Instance refusing enforcement of a PRC arbitral award issued by the Xi'an Arbitration Commission on the basis of apparent bias and public policy. The Court of Appeal (Hon Tang VP, Fok JA and Sakhrani J) handed down its decision last week in Gao Haiyan and Xie Heping v Keeneye Holdings Limited (unrep., CACV 79/2011, 2 December 2011) allowing an appeal against Reyes J's decision earlier this year (Gao Haiyan and Xie Heping v Keeneye Holdings Limited [2011] 3 HKC 157, 12 April 2011). The latest decision deals with the connection between med-arb and the issue of bias.
What effect does public policy have on enforceability of awards?
One of the grounds on which Reyes J based his decision to refuse enforcement of the award was that it would have been contrary to public policy to allow its enforcement. Section 40E of the old Arbitration Ordinance (Cap. 341) (the counterpart of which is found at section 95(3)(b) of the new Arbitration Ordinance (Cap. 609)) sets out that the enforcement of a Mainland PRC award may be refused if it would be contrary to public policy to enforce the award.
In deciding that the award handed down by the Xi'an Arbitration Commission does not contravene public policy, the Court of Appeal in this case elaborated public policy as being "not contrary to the 'fundamental conceptions of morality and justice of the forum'" (quoting Sir Anthony Mason NPJ in Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111). In Hong Kong, "the opportunity of a party to present his case and a determination by an impartial and independent tribunal which is not influenced, or seen to be influenced, by private communications are basic to the notions of justice and morality".
The Court of Appeal emphasised that courts "should recognise the validity of decisions of foreign arbitral tribunals as a matter of comity" (quoting Litton PJ in Hebei Import & Export Corp).
The award in the current decision was subject to setting aside proceedings before the supervisory court in Xi'an. That court refused to set aside the award for bias. The Hong Kong Court of Appeal in this case considered that more weight should have been given to that decision of the Xi'an Court, i.e. since the Xi'an Court did not see the conduct of the proceedings as contrary to public policy, any subsequent enforcing court should be very wary in coming to a different conclusion.
Is it smarter to "wait and see" or risk antagonising the Tribunal when there is mere apprehension of bias?
In Reyes J's decision in which enforcement was refused, he held that the Respondent (Keeneye) had not waived its right to object to the impartiality and independence of the Tribunal by providing a supplemental submission and continuing with the arbitration, after the event allegedly causing bias had occurred. He said that the Respondent's fear that an objection to the impartiality and independence of the Tribunal would antagonise the Tribunal, and subsequent failure to object was a "clumsy compromise" instead of waiver of objection. The Court of Appeal disagreed.
The Court determined that a clear case of waiver against the Respondent had been made out as "failure to raise an issue will result in waiver" and on this basis allowed the appeal.
The Court held that it is "not open to a litigant to wait and see how his claims turn out before pursuing his complaint of bias". The lesson to learn from this is that objections must be raised promptly for them to be entertained, even if this means leaving the Tribunal with a sour taste.
Bias in the eyes of who?
A determination of bias, whether apparent or actual, must be seen from the eyes courts of the forum.
The Court stated that "As for holding a mediation over dinner in a hotel ... a Mainland court is better able to decide whether that is acceptable", rejecting Reyes J's decision that this had undertones of bias. Even though "one might share the learned Judge's unease about the way in which the mediation [in this case] was conducted because mediation is normally conducted differently in Hong Kong, whether that would give rise to an apprehension of apparent bias, may depend also on an understanding of how mediation is normally conducted in the place where it was conducted".
The Court of Appeal also pointed out that no complaint was made to the Xi'an court as to the venue of mediation. In addition, the Court refused to comment on an alleged suspicious feature, namely why a middleman, as opposed to the Respondent's PRC lawyer, was invited to attend the mediation – in this regard, the Court was of the view that the role of a PRC lawyer was better understood in the PRC.
The Court held that no bias had been established, particularly since the Xi'an Court did not see the mediation in this case as prejudicial.
The need to have a territorial appreciation in each case was further stressed by the Court when it gave an example that if it is common for mediation to be conducted over dinner at a hotel in Xi'an, it does not mean that an award would not be enforced in Hong Kong because such conduct in Hong Kong might give rise to an appearance of bias.
The Court determined that one should not be too ready to refuse to enforce an award on the basis of an apparent bias, but this does not impinge on the notion that a tribunal must not be seen to be influenced in a manner that compromises its impartiality or independence.
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