“With regret, this is one such case in which I have found that the conduct of the arbitrator in the course of the hearing is so egregious, that Lee has been denied due process and deprived of his right to a fair hearing.” By addressing the aforementioned reasoning in the case of SONG LIHUA v. LEE CHEN HON [2023] HKCFI 2959, the Honorary Judge Mimmie Chan refused to grant leave to appeal and upheld her decision rendered in the case of SONG LIHUA v. LEE CHEN HON [2023]HKCFI 2540, (Song v. Lee) wherein the enforcement of an arbitral award, issued by a Chinese arbitral commission for the sum of RMB 300 million, was refused on the ground of violating the public policy in Hong Kong.

As a pro-arbitration and pro-enforcement jurisdiction, Hong Kong courts have consistently endeavored to uphold the recognition and enforcement of the arbitral award and constrained themselves to interfere only in exceptional and rare circumstances. In contrast to this prevailing trend, the Song v. Lee case serves as a unique sample for the outside to take a closer look at the Hong Kong courts' stance regarding applying the public policy in interfering with the recognition and enforcement of arbitral awards. This uniqueness is further compounded by the fact that the supervisory court, the Chinese court, rendered an opposing decision by refusing to annul the award despite facing similar complaints pertaining to arbitrator Q's conduct throughout the arbitral hearing. Three distinctive pairs of concepts surrounding the predictability of public policy reflected in this case and their implications are briefly elaborated below.

I. Annulment Actions v. Recognition Actions

Regrettably, the decision rendered by the Chinese supervisory court regarding the non-annulment of the arbitral award is not accessible, the submissions made by Song during the Hong Kong proceedings indicate that Lee had previously raised a similar complaint concerning the conduct of arbitrator Q in front of the Chinese supervisory court. Notably, Honorary Judge Mimmie Chan clarified that whilst the Chinese supervisory court decided to uphold the award, the public policy ground was not raised. However, an hypothetical question arises regarding the predictability of public policy in these parallel proceedings. If the public policy ground were indeed raised during the annulment proceedings, would the judges give same weight to or apply the same threshold to public policy in both the annulment and enforcement actions, or could the scope of public policy potentially differ between these two proceedings?

From the author's view, though the concept of public policy in the two actions have close parallels and courts worldwide have consistently underscored that the application of public policy should be limited to exceptional circumstances, the scope of public policy in annulment actions, in theory, should be broader and more intervening compared to enforcement actions. Such differences are rooted on the different sources relied upon when the public policy is invoked. In the annulment proceedings, the source referred by the judges would be their own national laws. In the absence of the international conformity imposed by the New York Convention, judges are given wider discretion to cater the public policy to the specific requirements of their own nation. An example can be found in the Chinese Arbitration Law, where,under Article 58, public policy is actually defined as the concept of public interest. However, in the recognition actions, the primary source, as reflected in the case, would be the New York Convention, namely article V (2) (b). When judges refer to such international conventions, the convention's structures and objectives of facilitating the international conformity and the recognition of international awards would inevitably impose un-waiveable international constraints on judges' ability to invoke public policy, which renders this concept more circumstanced than that in an annulment action which is primarily based on national law.

II. Substantive Public Policy v. Procedural Public Policy

As revealed in the Song v. Lee case, the public policy invoked by Honorary Judge Mimmie Chan to refuse the enforcement of the award can be more specifically categorized as procedural public policy namely the rights to be heard as shrined in the natural justice. The second question surrounding the predictability of the public policy is that is it proper to extend the scope of Article V (2) (b) to procedural public policy or instead to limit it to substantive public policy.

From the autho's perspective, the creation of the concept of “procedural public policy” may inevitably open the Pandora's Box and further exacerbate the public policies' unpredictability. Unlike violations of substantive issues and distinct from the litigation process, most of the procedural irregularities can actually be waived or cured on the basis of the parties' autonomy. For the remaining limited procedural irregularities that are too sever to be waived or cured, those circumstances have been well reflected under Article V (1) (b) and (d) which can be invoked by parties as grounds for resisting the enforcement of the award. By doing so, the New York Convention, by not referring to the terms of “public policy”, have granted parties adequate remedies in cases of serious procedural violations. More importantly, such remedies are seized on the hand of the parties themselves in accordance with Article V (1) instead of the competent authority.

Inspired by the case at hand, if the procedural pubic policy has to be invoked, the judges, by providing their detailed reasoning, should ensure that the public is fully aware of what is exactly contained under the scope of procedural public policy and such scope should be exhaustive. The prevailing commentators' view is that procedural public policy overlaps substantially with denial of a party's right to be heard which is identical to the Song v. Lee case. Thus, for avoiding opening the Pandora's Box, an alternative approach worth considering is to treat the party's right to be heard as a sui generis substantive right thereby limiting the scope of public policy solely to substantive aspect.

III. International Limitation v. Domestic Relevance

As long as the public policy remains an open-ended and undefined term under the New York Convention, serving as an escape mechanism, the debate pertaining to its predictability would never come to an end. New York Convention as an international convention or more broadly as an international law is doomed to go back and forth between two extremes. On the one hand, the convention is supposed to respect the interests of the contracting states. In light of this, Article V (2) (b) of New York Convention explicitly refers to public policy as the public policy of “that country.” Yet at the same time, the convention must take the interests of international community or international uniformity into account if only some interests override of those of contracting states.

Therefore, the ever-lasting debate regarding the predictability of public policy, in essence, can be seen as a continuous struggle between international limitations and domestic relevance. When judges are in face of the circumstance where the public policy may be invoked, a diligent case-by-case analyze should be conducted to balance such struggle. For instance, if a case involves significant domestic elements within the jurisdiction of the forum court (such as parties based in that forum, the contract being performed in that forum, or the contract affecting the local market etc), then the domestic relevance prevails over the international limitations which grants the judge more discretion to intervene the case. Whereas if the case does not have much connections to that forum (parties are foreign, contract being performed abroad etc), the international limitations may take precedence over the domestic relevance which would impose more international constraints on judge’s capacity to invoke purely national law to construe public policy. However, no matter which circumstance arises, the public policy applied for recognition of foreign awards under New York Convention should always be narrower than is applied to domestic awards.

IV. Concluding Thoughts

The struggle between the sound national policy and the objectives of the Convention may never be well harmonized but efforts can be made to ensure when we ride on this unruly horse, which direction would it lead us to. Just as the U.S Supreme court reasoned in Mitsubishi Motors Corp v. Soler Chrysler-Plymouth Inc. “[t]he utility of the New York Convention in promoting the process of international commercial arbitration depends upon the willingness of national courts to let go of matters they normally would think of as their own.”

The views expressed in this article are the authors' own and do not represent the others.

Authors: Shouzhi An, Mark Yang, Jilong Li

This article was originally published on the Lexology on 14 May 2024.