Briefly, this is a process under which an arbitrator undertakes a mediation while an arbitration is still on foot. If the mediation is unsuccessful, then the arbitration continues with the arbitrator taking off his or her mediator hat and putting back on his or her arbitrator hat. The concept tends to be treated with a large degree of scepticism by common law lawyers, but it is quite common in the PRC and apparently quite successful. The main attractions of med-arb are that it avoids delay if parties decide, part way through an arbitration, that mediation would be useful, and it avoids the sometimes significant costs that a separate mediation might entail.
The arbitration took place under the auspices of the Xian Arbitration Commission, PRC and concerned an argument over the validity of a share transfer agreement (“STA”). Keeneye claimed that the STA was valid and Gao claimed that it was not.
The arbitration occurred took place over two sittings, over several months. After the first sitting, the parties agreed to arb-med. Subsequently, there was a “mediation” which took the form of a dinner in the Xian Shangri-La hotel. The dinner was attended by 3 persons:
At the dinner it was suggested that a settlement be reached on the basis that the STA was valid but Keeneye was to pay compensation of RMB 250 million to Gao. The person related to Keeneye was asked to “work on” Keeneye to accept this outcome as a mediated settlement. Keeneye refused to accept this proposal. Gao also subsequently rejected it. When the award was eventually published, the result was quite different: the tribunal found the STA invalid and made a non-binding recommendation that Gao pay compensation of RMB50 million to Keeneye.
Keeneye appealed to the Xian Intermediate Court to set aside the award on a variety of grounds including bias on the part of the arbitration tribunal. The Xian Intermediate Court did not find any bias.
However, when enforcement was sought in Hong Kong, the Hong Kong court accepted, with some reservation, that the dinner in the hotel amounted to mediation . However, the circumstances gave rise to the apprehension of bias and the Court refused to enforce the arbitral award.
In its decision, the Hong Kong Court stated in unequivocal terms that “There is nothing wrong in principle with med-arb”. The issue in this case, however, was that the specific way in which the “mediation” was conducted gave rise to what the Court considered an appearance of bias.
As regards impartiality, the Hong Kong Court noted that the med-arb process runs into self-evident difficulties. The risk of a mediator turned arbitrator appearing to be biased will always be great, which is why many arbitrators do not agree to engage in arb-med. There are appropriate and inappropriate ways of conducting mediations. The mediator must ensure at all times, especially when he or she might later act as arbitrator, that nothing is said or done in the mediation which could convey an impression of bias. The Court recognised that there was nothing wrong in principle with a mediator meeting separately with a party - this is standard - but the circumstances of this case were such that the separate meeting was tainted by the appearance of bias.
Hong Kong’s new Arbitration Ordinance contains provision for med-arb (section 33) but also contains safeguards specifically to avert claims of bias in a med-arb. This section allows private communications between a party and the mediator.
If the mediation is unsuccessful, then the arbitrator must, before proceeding with the arbitration, disclose to all other parties any confidential information obtained by the arbitrator as mediator “as the arbitrator considers is material to the arbitral proceedings”. Obviously, such a rule entails significant strategic considerations being made by parties considering engaging in med-arb, and it will be interesting to see to what extent Hong Kong’s med-arb provisions are used.
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