 [2023] HKCFI 3366, Mimmie Chan J remitted 2 Partial Awards handed down in an HKIAC arbitration to the Tribunal for reconsideration under the “public policy” ground in Article 34(2)(b)(ii) of the UNCITRAL Model Law (incorporated in section 81 of the Arbitration Ordinance). This Judgment raises the interesting and novel question of the interrelation between the considerations of public policy underpinning the doctrine of illegality and the “public policy ground” for setting aside under the Model Law.

The arbitration arose from a securities purchase agreement (“SPA”) for a “PIPE” (private investment in public equity) placement of additional shares in G, for a consideration of approx. US$147 million. The SPA was governed by Hong Kong law. It also contained an arbitration clause together with an exclusion clause providing that the tribunal “

shall have no authority to award consequential, special or punitive damages

The PIPE was subsequently set aside by the BVI Court on the basis that it had been made for an improper purpose. G proceeded to claim against N in arbitration for, among other things, restitution of the consideration monies. That claim was dismissed by the Tribunal in the Partial Awards, applying the doctrine of illegality under Hong Kong law.

The Partial Awards were challenged by G before the Hong Kong Court on two primary grounds: (1) the Partial Awards were contrary to Hong Kong public policy; and (2) the Tribunal had awarded consequential damages to N in respect of its counterclaim, in excess of its authority which was circumscribed by the Exclusion Clause.

The first ground was that the Partial Awards were contrary to Hong Kong public policy, which had shifted following the change in the Hong Kong law on illegality effected by the decision in 

 [2023] HKCA 479, which was handed down on 31 March 2023.

the Court of Appeal had held that the “range of factors” approach expounded by the majority in 

 [2016] UKSC 42, rather than the old “reliance” approach in 

 [1994] 1 AC 340, represents Hong Kong law. The arbitration had been argued on the basis that 

 represented Hong Kong law, and accordingly 

formed the basis of the reasoning in the 1

 Partial Award which was handed down on 6 April 2023, with neither the parties nor the Tribunal having been aware that 

had ceased to be good law only 6 days prior.

Based on this change in Hong Kong law, G applied to set the Partial Awards aside as being contrary to Hong Kong public policy. Relying on the decision of the Privy Council in 

[2021] UKPC 14, G argued that since the law of illegality was premised on public policy, the Partial Awards were in conflict with Hong Kong public policy as it stood post-

N on the other hand argued that the public policy ground of setting aside under the Model Law is a narrow residual ground which, under the established jurisprudence, is only engaged where the enforcement of an award would be shocking to the conscience of the supervisory court, and that the mere application by an arbitral tribunal of legal principles which had since been superseded due to an unexpected change in the law could not give rise to any public policy objection within the requisite meaning of the Model Law.

While the Court ultimately declined to express any definitive view on whether the Partial Awards were contrary to Hong Kong public policy and remitted the matter to the Tribunal for reconsideration instead, it observed that if the Tribunal had not considered all the matters highlighted to be important under the current law on illegality as expounded in 

before denying relief to G, then the Court may be compelled to set aside the Partial Awards.

G further challenged the Partial Awards on the basis that insofar as they awarded consequential damages to N for its counterclaim based on dishonest assistance, such damages exceeded the scope of the Tribunal’s authority by reason of the Exclusion Clause. It was argued that the Exclusion Clause constituted a limitation on the Tribunal’s authority; its proper construction was a question going to the Tribunal’s jurisdiction and hence subject to 

review by the supervisory court, notwithstanding that the Tribunal had already heard argument on the proper construction of the Exclusion Clause and decided, contrary to G’s position, that it did not prevent the Tribunal from awarding damages to N for its counterclaim.

The Court rejected G’s argument based on the Exclusion Clause. Among other things, the Court applied the distinction endorsed by the majority in 

 [2023] HKCFA 16 between challenges to a tribunal’s “jurisdiction” as opposed to challenges to the “admissibility” of a particular claim: the tribunal’s rulings on challenges of the former category are subject to review by the supervisory court while the latter are not. On the facts of the case, the Court held that G’s objection to the award of damages on N’s counterclaim was an objection that the counterclaim for consequential, special or punitive damages was defective and should not be entertained. So characterised, G’s objection only went to the admissibility of the claim, and the Tribunal’s award of damages was therefore not subject to review by the supervisory court even if legally erroneous.

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The Intersection between the Law of Illegality and the Public Policy Ground of Setting Aside under the UNCITRAL Model Law

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