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Navigating Public Policy and Illegality in Arbitration
Navigating Public Policy and Illegality in Arbitration
Introduction:
In the recent case of G v N [2023] HKCFI 3366, the Hong Kong Court of First Instance made a rare invocation of the public policy ground in setting aside arbitration awards. The decision by the Honourable Madam Justice Mimmie Chan raises intriguing questions about the application of public policy when illegality is asserted as a defence in arbitration. This article explores the key facts, legal background, and the court's decision in this landmark case.
Factual Background:
The case involves two British Virgin Islands companies, G and N, embroiled in a dispute over a Hong Kong law-governed Securities Purchase Agreement (SPA). N, a real estate developer, made a substantial land investment in China through a placement, which G supported to secure votes against dissenting shareholders. The BVI Court later declared the placement void, and a new board was elected at a special shareholders' meeting. G sought restitution of Consideration Monies through HKIAC arbitration, but the arbitrator, applying the outdated Tinsley principle, denied relief to G.
Legal Background:
The arbitrator's reliance on Tinsley, a House of Lords decision criticized for its arbitrariness, led to a denial of restitution based on the illegality doctrine. However, the Hong Kong Court of Appeal's subsequent decision in Monat clarified that the UK Supreme Court's Patel decision, rejecting Tinsley, represents Hong Kong law on illegality. Patel emphasized a more lenient approach, allowing recovery unless enforcing the claim would be harmful to the legal system's integrity. This shift in legal precedent raised questions about the arbitrator's application of public policy.
The Court's Review of the Arbitrator's Decision:
G, recognizing the inability to challenge findings of fact or law, framed its setting aside grounds on public policy. The court asserted its power to review the arbitrator's decision under Article 34 of the Model Law, considering whether the awards conflicted with Hong Kong's public policy at the time of review. Contrary to N's reliance on Betamax, the court distinguished between reviewing the tribunal's application of law to facts and the determination of public policy, which falls within the court's purview.
The Court's Decision:
The court found that the arbitrator's denial of relief to G, based on the strict application of the illegality doctrine, produced a manifestly unjust result. Acknowledging Patel as the prevailing law in Hong Kong, the court emphasized the discretion it affords in determining public policy concerns. The court expressed concern over the disproportionality between the purpose of the BVI Act and denying relief to G, highlighting the need to balance public policies and interests.
The court's decision not to pronounce a definitive view on whether the awards were contrary to public policy demonstrated a cautious approach. Instead, the court suspended the setting aside proceedings for three months and remitted the matter to the arbitrator. This allowed the arbitrator to consider Monat and Patel, potentially influencing his decision and eliminating grounds for setting aside.
Conclusion:
G v N [2023] HKCFI 3366 stands as a landmark case highlighting the nuanced interplay between public policy and illegality in arbitration. The court's recognition of Patel as the prevailing law in Hong Kong, its assertion of authority to review public policy concerns, and the decision to remit the matter to the arbitrator for reconsideration demonstrate a commitment to justice and fairness. This case serves as a precedent, emphasizing the importance of aligning arbitration decisions with evolving legal principles and ensuring a just outcome even in the face of illegality claims.
- The decision by the Honourable Madam Justice Mimmie Chan raises intriguing questions about the application of public policy when illegality is asserted as a defense in arbitration.
- The BVI Court later declared the placement void, and a new board was elected at a special shareholders' meeting.
- The court found that the arbitrator's denial of relief to G, based on the strict application of the illegality doctrine, produced a manifestly unjust result. Acknowledging Patel as the prevailing law
