Gao Haiyan v Keeneye Holdings - Court of Appeal
Gao Haiyan v Keeneye Holdings Limited
Hong Kong Court of Appeal: Tang VP, Fok JA and Sakharani J: CACV No.79 of 2011: 2 December 2011
Mr Edward Chan SC, Mr Laurence Li and Mr Eric Chow, instructed by Messrs C.L. Chow & Macksion Chan, for the Applicant, Gao Haiyan
Mr Patrick Fung, SC and Mr Calvin Cheuk, instructed by Messrs Li & Partners, for the Respondent, Keeneye Holdings Limited
ARBITRATION: ENFORCEMENT OF ARBITRAL AWARD OBTAINED IN CHINA: SETTING ASIDE: CONTRARY TO PUBLIC POLICY: WHETHER AWARD TAINTED BY APPARENT BIAS: MEDIATION CONDUCTED IN COURSE OF ARBITRATION: WAIVER
The Court of Appeal overturned the decision of the Court of First Instance in refusing to enforce an arbitral award obtained in China. Tang VP held that although a third party invited by the arbitral tribunal to conduct mediation did so over a dinner in a hotel, there was no evidence suggesting any apparent bias on the part of the tribunal. Such conclusion was reached after giving due weight to the Chinese court’s refusal to set aside the arbitral award on such basis. Further, the relevant party had waived its right so to challenge. It was aware of the circumstances which might have given rise to an impression of bias, but had chosen not to raise a direct challenge before the tribunal.
This note has been contributed by Ken To-ching Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and barrister-at-law in Hong Kong.
In 2008, the Applicants (“GH”) entered into Share Transfer Agreements (“the Agreements”) with the Respondents, Keeneye Holdings Ltd (“Keeneye”), whereby GH agreed to sell their shares in a Hong Kong company which, in turn, held interests in a coal mine in China. The Agreements stated that they were to be governed by Chinese law and that they would be cancelled at the occurrence of any events specified in the PRC Contract Law.
Subsequently, GH complained that the Agreements were entered into when they were under detention in China, and that - contrary to Article 54 of the PRC Contract Law - their then precarious position was exploited by Keeneye.
In July 2009, Keeneye commenced arbitration in the Xian Arbitration Commission (“the XAC”) pursuant to an arbitration clause in the Agreements, seeking to confirm the validity of the Agreements. GH counterclaimed for revocation of the Agreements under Article 54 of the PRC Contract Law.
In March 2010, the arbitral tribunal proposed a settlement whereby Keeneye would pay RMB 250 million to GH (“the proposal”). The tribunal appointed a Mr Pan, XAC’s Secretary General, and Mr Zhou, one of the arbitrators, to contact the parties about this proposal and conduct mediation. Mr Pan’s office communicated the proposal to GH’s lawyers. Mr Pan and Mr Zhou also met a Mr Zeng Wai over a dinner in a hotel in Xian in March 2010. Mr Zeng was “a person related to” or on friendly terms with Keeneye. He was told over the dinner about the tribunal’s proposal, and was asked “to work on” Keeneye. However, both Keeneye and GH rejected the proposal.
In June 2010, the Arbitral Award was delivered, upholding GH’s counterclaim and revoking the Agreements. Although Keeneye had not claimed for compensation from GH in the event that the Agreements were revoked, the arbitral tribunal was of the view that they had the right under the law to obtain such compensation. This included money spent in conducting litigation with respect to the underlying interests held by the Hong Kong company which they had bought. Thus, it was “recommended” that GH paid RMB 50 million as compensation to Keeneye.
Keeneye applied to the Xian Intermediate People’s Court to set aside the Arbitral Award, complaining that Mr Pan had influenced the result of the arbitration. It was alleged that he had violated the arbitration rules by joining in the tribunal’s discussions even though he was not a member. He was also alleged to have manipulated the result by informing the parties about the tribunal’s deliberations.
The Xian Court rejected Keeneye’s complaint, holding that Mr Pan was conducting mediation in accordance with Article 37 of the XAC’s Arbitration Rules.
In August 2010, Saunders J granted leave to enforce the Arbitral Award against Keeneye in Hong Kong.
Keeneye then applied to set aside the enforcement order on the basis of bias on the part of the arbitrators. The issue before the court was whether the Arbitral Award was tainted by bias such that its enforcement would be contrary to public policy under s.40E(3) of the Arbitration Ordinance (Laws of Hong Kong, Cap.341).
In March 2011, the Court of First Instance (Reyes J  3 HKC 157) upheld Keeneye’s complaint that there was apparent bias on the part of the arbitrators, and that Keeneye had not waived its right to complain about it. The enforcement order was thus set aside.
GH appealed to the Court of Appeal.
The Court of Appeal allowed GH’s appeal and set aside the order of Reyes J. The leading judgment was given by Tang VP.
Dealing first the issue whether Keeneye had waived its right to complain about bias (if any) on the part of the arbitral tribunal, Tang VP agreed with Reyes J that a party to an arbitration which 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 with the relevant rules, keeping the point of non-compliance up its sleeve for later use (see Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111). However, Tang VP was of the view that Keeneye were actually aware of possible bias on the part of the tribunal and that while they wished for a satisfactory resolution of the issue, they feared unfavourable results if they made complaints to the tribunal. Their choice instead to attack GH’s credibility by reference to the “mediation” process was no substitute for a proper complaint to be made about bias. As noted by the Hong Kong Court of Final Appeal in the Hebei case, prompt complaint might enable remedial action to be taken where necessary.
Further, by agreeing to an arbitration, a party is not only bound by the arbitration procedure, but also by the supervisory jurisdiction of the courts of the seat of arbitration. The fact that the Xian Court had refused to set aside the Arbitral Award was highly relevant to the enforcement court’s decision on its enforcement (Minmetals Germany GmbH v Ferco Steel Ltd  CLC 647). Taking into account all these considerations, Tang VP held that Keeneye had waived the right to complain about any bias on the part of the tribunal.
Tang VP went on to hold that the concern of Reyes J over the propriety of the mediation was not justified and that there was, in fact, no apparent bias on the part of the tribunal. It could be inferred from the evidence that Mr Zeng had the authority of Keeneye to attend the dinner meeting. Despite being told to “work on” Keneeye to accept the proposal, this expression did not mean (and there was no evidence) that Mr Zeng had ever pushed the parties to accept the proposal. A Mainland Court would be in better position to decide whether it was proper to conduct mediation in the way that had been done over a dinner in a hotel and whether there was apparent bias on the part of the tribunal.
The manner in which mediation is conducted during arbitration in China has always been a concern for legal practitioners from other jurisdictions, and this is underlined by the contrasting views of Tang VP in the Court of Appeal and Reyes J in the Court of First Instance. This difference in part turned on the different weight to be attached to the Xian court’s refusal to set aside the arbitral award for “manipulation” or bias. Although due weight would be given to the view of the supervisory courts on the validity of an arbitral award, as recognised in the Minmetals Germany GmbH case, enforcement may nevertheless be refused if the power of the supervisory court was so limited that it could not intervene even in case of obvious disregard of justice. That was not the case here.
On 22 March 2012, the Court of Appeal refused to grant leave to Keeneye for appeal to the Court of Final Appeal.