G v N [2023] HKCFI 3366, involved the question of the application of public policy in a case where illegality is raised as a defence to a claim and the extent to which the court can intervene in a tribunal’s decision on public policy under Article 34 of the Model law (s.81 of the Hong Kong Arbitration Ordinance (AO)). G applied to the court to set aside two HKIAC partial awards, or alternatively, to remit them back to the arbitrator to reconsider questions of illegality under Hong Kong law. One of the grounds of G’s application was that the awards were in conflict with the public policy of Hong Kong on the question of illegality. In the arbitration, the arbitrator, in denying G’s claim due to illegality of the underlying transaction, had relied on an English authority (Tinsley v Milligan [1994] 1AC 340) which had ceased to be good law in Hong Kong shortly before the arbitrator’s ruling (as a result of the Hong Kong Court of Appeal’s decision in Monat Investment [2023] HKCA 479, which followed the UKSupreme Courtdecision in Patel v Mirza [2016] UKSC 42). The court suspended G’s setting aside application and remitted the matter back to the arbitrator (Decision). N has been granted leave to appeal the Decision.
Court’s decision
The court held as follows:
● The Privy Council (PC) decision in Betamax v State Trading Corp [2021]UKPC 14,was highly persuasive. The PC had held that the question of illegality involves two stages:
● Where a party makes an application under s.81 of the AO to set aside an award, or under either s.86(2)(b), 89(3)(b) or 95(3)(b) of the AO to resist enforcement of an award, it is open to (and incumbent on) the party to show the court that the award or enforcement of it is contrary to the public policy of Hong Kong.
● The court is then bound to consider and decide the claim, applying the authorities which define the narrow scope of such claim and it is not against the spirit or principles of the New York Convention or AO to do so.
● In this case, the arbitrator had considered matters which in his view were relevant to whether or not relief should be granted to G and had analysed the cases on the illegality defence, including Tinsley and then Patel, and concluded that as the Hong Kong Court of Final Appeal had not yet considered whether Patel should be followed in Hong Kong, he was required to apply the law of illegality in Tinsley.
● When the court was now asked, on an application to set aside the awards, to consider the award in the context of public policy, it was bound to consider whether the awards or enforcement of them would be contrary to the public policy of Hong Kong, as recognized by the Hong Kong Courts at the current date.
● If, now adopting the approach in Patel as acknowledged by Monat, the court considers that it would be manifestly unjust and against the public policy of Hong Kong to enforce the awards, the court may be compelled to set aside the awards notwithstanding that the arbitrator had decided on matters engaging public interest when he made his award.
● This may be because the arbitrator had not considered all matters highlighted to be important in the approach advocated in Patel and Monat, before determining whether relief should be denied to G.
● It was not necessary for a party seeking setting aside or remission of the award to show that the outcome would have been different, only that it could or might have been different.
● Here, instead of pronouncing the court’s view on whether the awards were contrary to the public policy of Hong Kong as it should now be considered, it was more appropriate to suspend the setting aside proceedings and remit the matter to the arbitrator, so that he had the opportunity to resume the arbitral proceedings and take such action as in his opinion would eliminate the grounds for setting aside. The arbitrator could then consider Monat and decide whether his decision, as reflected in the awards, would be affected in any way.
N’s appeal
N applied for leave to appeal the above Decision (G v N [2024] HKCFI 655).
The court granted leave to appeal, as it said the Decision raised an important and novel issue on the proper scope of the court’s permissible intervention on the ground of public policy, and the interplay between, on the one hand, the public policy underpinning the denial of remedies on the ground of illegality and, on the other hand, the policy of the court’s support of arbitral awards and minimal curial intervention in arbitrations. It would be in the interests of justice, the court said, to allow the appeal to be made, and to obtain a decision from the Court of Appeal, with guidance on the extent of permissible review by the supervisory court of a tribunal’s consideration of public policy, when illegality is raised by way of defence to a claim made.
The court added that parties should not be encouraged to use public policy as a ground to seek substantive review of an arbitral award, on the basis simply that the tribunal had misapplied the “range of factors” test in Patel, or had failed to consider a particular factor before dismissing a claim on the basis of illegality. A decision by the Court of Appeal and clear guidance on the issues disputed in this case would, the court said, benefit the development of arbitration law in Hong Kong and in the Model Law jurisdiction. The court concluded that it could not be said that N’s grounds of appeal had no reasonable prospect of success.
The court rejected G’s submission that the Decision amounted to a case management direction to reserve the application for determination, and did not amount to any “decision” from which an appeal would lie. The Decision to suspend the setting aside proceedings and remit the matter to the tribunal under s.81 of the Ordinance was, the court said, a substantive decision to firstly stay the setting aside proceedings and secondly, to remit the matter to the tribunal for it to decide the matters referred to in s.81. It is a decision which affects the substantive rights of the parties to the arbitration, and not just one for the management of the procedural aspects of the setting aside proceedings. A decision under s.81 is one from which an appeal may lie with leave of the court, as provided for in s.81 (4), the court said
The parties informed the court that the hearing of the arbitration would still be resumed for the arbitrator to consider the matter remitted, and to that extent, the arbitration would not be affected by any leave granted on N’s present application. Please stay alert for the outcome of the substantive appeal on this important and novel issue on the proper scope of the court’s permissible intervention on the ground of public policy.
For further information, please contact:
Justin Yuen, Partner, Deacons
justin.yuen@deacons.com
