The Hong Kong Court of First Instance has dismissed an application to set aside an award on due process and jurisdictional grounds, in a decision which again underlines the high bar facing parties seeking to challenge arbitral awards. Herbert Smith Freehills appeared for the successful award creditors in the case, led by Simon Chapman KC and Kathryn Sanger. (AI and others v. LG II and another [2023] HKCFI 1183)


The underlying transaction concerned the sale and purchase of units in certain trade finance funds. The buyer provided consideration in the form of promissory notes with a face value of US$500 million. The core transaction documents between the buyer and the sellers provided for disputes to be resolved by arbitration. In addition, the sellers were granted a security package under a suite of agreements which contained exclusive jurisdiction clauses in favour of the courts of the Cayman Islands.

The security providers failed to provide certain documents required as conditions to closing. The sellers contended that this default under the security agreements triggered cross-default under the promissory notes, enabling the sellers to accelerate payment under the notes.

The buyer commenced arbitration in Hong Kong, claiming that the agreements were void for illegality, mistake, misrepresentation and frustration, and seeking damages. The buyer's case included claims made under the security agreements.

The tribunal found in favour of the sellers, holding that it did not have jurisdiction over (and could not consider the buyer's claims under) the security agreements, rejecting the buyer's contention that the agreements were void, and upholding the events of default declared by the sellers. The buyer was ordered to pay the sums due under the promissory notes plus the costs of the arbitration.

Grounds of challenge

The buyer argued that the tribunal had failed to provide reasons for and/or failed to address certain issues, adopted interpretations not contended for by the parties, made errors of law and wrongly applied the law.

In addition, the buyer contended that the tribunal had no jurisdiction to determine that events of default had occurred under the promissory notes on the basis of default under the security agreements (a determination which was said to be inconsistent with the tribunal's finding that it had no jurisdiction over the security agreements).

As a result, the buyer claimed that (i) it had been denied an opportunity to present its case, (ii) it would be contrary to public policy to uphold the award, and (iii) the award dealt with a dispute not contemplated by, or contained decisions on matters beyond the scope of, the submission to arbitration.


Mimmie Chan J dismissed the application to set aside the award, ordering indemnity costs against the buyer. The Court reasoned that:

  • Failure to give reasons. There is a high threshold for a challenge on the basis of a failure to give reasons. The award must be read in its proper context, including the way in which the issues have been argued before the tribunal (R v F [2012] 5 HKLRD 278). So long as the parties are able to understand how and why a conclusion is reached, the reasons for the award do not have to be elaborate; there is no need to give reasons to deal with every argument, and it is sufficient if the award explains the basis on which a material finding was made (Welltus Ltd v Fornton Knitting Co Ltd [2013] 5 HKC 106). The tribunal's reasons for the relevant findings were, in the Court's view and on a reading of the award by a reasonable party in the shoes of the parties, "clear and discernible" from the award.
  • Failure to deal with an issue. The relevant legal principles were recently set out in LY v. HW [2022] HKCFI 2267. The starting point is to read the award in a reasonable and commercial way, expecting (as is usually the case) that there will be no substantial fault. The policy of minimal curial intervention was helpfully illustrated in two decisions of the Singapore Court of Appeal: Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR (R) 86 (the award should be read generously, so as to remedy only meaningful and readily apparent breaches of the rules of natural justice which can cause actual prejudice); and AKN and another v ALC and others [2015] 3 SLR 488 (the inference that a tribunal missed one or more important pleaded issues must be clear and virtually inescapable). Applying these principles, the Court was not satisfied that the tribunal had failed to deal with the relevant issues; rather, the tribunal had considered the relevant matters and had simply found against the buyer. The only exception was in relation to a claim for breach of a certain warranty, in relation to which the buyer's case had been "generally roving" and which the tribunal had justifiably concluded was not maintained because it was not advanced in the post-hearing brief (while claims for breaches of various other warranties were maintained). It was therefore disingenuous for the buyer to suggest that it had been deprived of the opportunity to present its case on this claim. Moreover, the tribunal's findings on other matters meant that the result of the award would not have been different in any event.
  • Errors of law. Whether the tribunal was wrong in law or in its application of the law to the facts are not relevant factors. An error of law is not a breach of natural justice. The court does not sit on appeal from the tribunal's decisions.
  • Interpretation not contended for by the parties. The court may find that a party was deprived of the opportunity to be heard where it was taken by surprise by the case it had to meet (Z v R [2021] HKCFI 2312; CIL v W [2023] HKCFI 700). In contrast, a party could not complain where it had been given the opportunity but failed by its own volition to deal with a case. In the present case, the buyer clearly had the opportunity to present its case on the relevant matter.
  • Jurisdiction. The tribunal was obliged, pursuant to the parties' submission to arbitration, to determine whether there was an event which had triggered acceleration of the payment under the promissory notes. Whether an event of default had occurred under the promissory notes was clearly a question of the construction of those documents, which fell within the jurisdiction of the tribunal. The tribunal had emphasised that it was not making any decision on the validity of, and nor did it purport to grant relief under, the security agreements. Moreover, there was no attempt by the tribunal to decide any question as between the parties to the security agreements as to whether those parties were in breach of the security agreements. This was a correct distinction by the tribunal and was not (as alleged by the buyer) artificial.


The decision provides a helpful overview of the legal principles set out in several recent cases, including in relation to a tribunal's alleged failure to give reasons or deal with a particular issue.

The analysis on jurisdiction also provides an interesting, albeit fact specific, example of the way in which tribunals and courts may approach cross-default provisions in agreements which are not subject to the same dispute resolution mechanism.

From a practical perspective, the decision underlines the care which parties should take to expressly maintain all arguments on which they wish to continue to rely at the post-hearing brief stage, particularly where those arguments have evolved or developed over time.

For further information, please contact Simon Chapman KC, Partner, Kathryn Sanger, Partner, Martin Wallace, Professional Support Consultant, or your usual Herbert Smith Freehills contact.