The dispute between the parties concerned the validity of a transfer of shares from the applicants to the respondents. Arbitration proceedings were commenced in Xian, China. The arbitration was conducted in the form of "arb-med", in which the arbitrators acted as mediators during the course of the arbitration.

The mediation was conducted over dinner in a hotel, between the Secretary General of the Xian Arbitration Commission (SG), one of the arbitrators on the tribunal (P) and an individual (Z) closely linked to the respondents. During the dinner, the SG and P made a proposal to Z for the parties to settle by the respondents paying RMB 250 million to the applicants and allegedly asked Z to "work on" the respondents. The respondents refused the proposal and the case was heard by the tribunal, after which the tribunal made an award in favour of the applicants (that is, that the share transfer agreements were valid) and recommended that the applicants pay RMB 50 million to the respondents as "economic compensation".

The Hong Kong Court of First Instance (CFI) refused enforcement of the award on the basis that enforcement would be contrary to public policy in Hong Kong as the award was tainted by apparent bias. In its decision, the CFI found that the unorthodox way in which the mediation was conducted and the fact that the award was made in the applicants' favour, following the respondents' refusal to settle, would cause a fair-minded observer to apprehend a real risk of bias in the award (see Legal update, Chinese arbitration award refused enforcement due to apparent bias).

The applicants subsequently appealed to the Court of Appeal.

The Court of Appeal reversed the CFI's decision and allowed enforcement of the award in Hong Kong. In considering whether the way in which the mediation was conducted would give rise to an apprehension of apparent bias, the court suggested that this would depend on an understanding of how mediation is normally conducted in the forum of the mediation. In this regard, the court gave considerable weight to the Xian court's earlier decision to refuse an application to set aside the award as it considered that the Xian courts would have been in a better position to detect any impropriety or bias in the process than the Hong Kong courts.

The Court of Appeal further noted that enforcement of an award in Hong Kong should only be refused on the ground of public policy if to enforce it "would be contrary to the fundamental conceptions of morality and justice of the forum". The mere fact that the mediation was conducted differently from how mediation is normally conducted in Hong Kong would not give rise to an appearance of bias.

The Court of Appeal also reversed the CFI's ruling with respect to whether the respondents had waived their rights to complain about bias. The rules of the Xian Arbitration Commission provide that a party is deemed to have waived its right to complain about bias if it knows or should know that the arbitration is tainted with bias yet continues to participate in the process. The Court of Appeal held that by failing to raise any objection to the mediation process during the arbitration itself and continuing to participate in the arbitration, the respondents had waived their rights to do so in the enforcement proceedings.

In deciding whether the mediation process gives rise to apparent bias, the Court of Appeal placed considerable importance on context. As noted by the court, cultural differences in China and Hong Kong breed differences in the way in which mediation is conducted in the two jurisdictions, and so the court will consider such differences when considering whether a mediation process is tainted with bias.

The concept of waiver is common in various institutional arbitration rules (for example, the International Chamber of Commerce Arbitration Rules or the HKIAC Administered Arbitration Rules) and the Court of Appeal has also reinforced the importance of making a timely complaint against the tribunal for any impropriety or bias, apparent or real, lest such right to complain be lost by failure to act.