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4 of 12: Talk to Qui to get the match started, then quickly attack Kai Lan with your weapon and focus mode so you can beat him down fast.
5 of 12: When his health gets low, he'll pull a stunt that makes him invincible until after you kill both of the horse demons that he summons up.
6 of 12: Remember that horse demons explode when killed, so you may want to use a magic style to finish them off from a distance once you beat them down with your weapon.
7 of 12: Be sure to save some focus energy for Kai Lan, since he'll be fully healed after you kill the horse demons and get back to him.
8 of 12: When he switches to ice shard attacks, it's best to stay back and dodge them until he switches to something else. Also, be very wary of him when he has his sword out, since he's very fast with it and it does lots of damage.
9 of 12: After you finally take him down, you'll get 3500 silver, 2300 XP, and a Superior Warrior Gem (Body +6).
10 of 12: You'll also get a special technique called The Perfected Warrior (Health +15, Focus +15) when you agree to Sweet Poison Lyn's truce. (If, that is, you never lost and retried an arena match without restoring a save -- if you did, it's not a perfect record, and you won't get this special technique.)
11 of 12: You'll also receive the third and final Iron Palm scroll if you've been following the way of the Open Palm. This will grant you the Iron Palm fighting style. (If you're a Closed Fist player, you'll still get this Iron Palm scroll, but you probably missed the second one, and can therefore never learn this style.)
12 of 12: As a final reward, you can go to Kai Lan's office (marked "Back Office" on the map) and loot several special "stash" chests. You'll find lots of silver, a special Dragon Amulet gem that gives more XP when you defeat human enemies, and a new technique called Scales of the Serpent (Health +7, Intimidation +1).
