A recent High Court decision has highlighted the difficult relationship between arbitration and mediation, as the court refused to enforce an arbitral award because of the real risk of bias by an arbitrator who acted as a mediator between the parties. For an arbitrator to adopt such a role is relatively common in China, but attitudes to what a tribunal can or should do to promote settlement between the parties vary widely across the globe. CEDR, the mediation organisation, has sought to provide a party led solution to this longstanding issue with a short set of rules for parties to adopt.
In Gao Haiyan v Keeneye Holdings Ltd(1) the court of Hong Kong refused to enforce an arbitral award made in China, citing concerns about the potential appearance of bias. One of the party-appointed arbitrators and the secretary general of the arbitral institution, the Xian Arbitration Commission, held a meeting at a restaurant with a person with connections to the defendant, Keeneye, and suggested a settlement. They asked this person to try to persuade Keeneye to agree to the proposal; however, it was ultimately rejected and it appears that it would not have been satisfactory to either party. The court found this approach to be inappropriate, as it was lacking in transparency and independence and failed to involve the whole tribunal. The award subsequently made in the arbitration was therefore found to be tainted and ruled unenforceable on public policy grounds.
While international arbitration, by its nature, involves parties from differing legal traditions, this is one area in which cultural norms divide parties along geographic lines. The involvement of arbitrators in a mediation between the parties - known in 'med-arb' - is common in Asia and expressly allowed by the largest Chinese arbitral institution, the China International Economic and Trade Arbitration Commission. It is also permitted under Hong Kong's new Arbitration Ordinance, which came into force on June 1 2011 - albeit subject to the proper conduct of such arrangements. The court was at pains to point out that it was the way in which the attempted mediation had been approached that had tainted the award, not the concept of med-arb itself.
For further information on this topic please contact Simon Morgan or Jayne Bentham at Simmons & Simmons' London office by telephone (+44 20 7628 2020), fax (+44 20 7628 2070) or email ([email protected] or [email protected]).