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The Hong Kong Court of First Instance has declared a settlement agreement arising out of an HKIAC arbitration to be null and void because one of the signatories lacked authority as a matter of Seychelles law, and the other signatory had turned a "blind eye" to the "apparent impropriety of the highly suspicious" document (LT v. RV [2026] HKCFI 1280).
The settlement agreement (which was governed by Hong Kong law and included an exclusive jurisdiction clause in favour of the Hong Kong courts) provided for a "drop hands" resolution of an US$84 million claim by the operator of a now-defunct cryptocurrency trading platform against a large individual customer, and the customer's US$250 million claim against the platform operator.
It was signed by the co-founder and sole director of the platform operator (the "purported platform operator signatory") and the customer one week after a contested change in the platform operator's legal representation in the arbitration, and more than five months after a court in the Seychelles (where the platform operator was incorporated) had approved a scheme of arrangement for the platform operator (of which the customer had knowledge) which provided for the creditors to receive pro rata rights to sums recovered from the customer.
The tribunal subsequently decided to terminate the proceedings with a procedural order rather than an award on agreed terms, because in its view there were no terms of settlement to record.
The platform operator applied to the Hong Kong court to treat the settlement agreement and termination order as awards and set them aside on public policy grounds. In an earlier procedural decision (reported here), the court held that there was a "serious question to be tried" on this issue.
In the latest decision, the Honourable Madam Justice Mimmie Chan found that the settlement was "directly opposed" to the purpose and terms of the scheme of arrangement, and "acutely against" the interests of the platform operator's creditors, and noted that the Seychelles court had already found the purported platform operator signatory to have signed the agreement without authority and to be in contempt of court for his failure to comply with the scheme of arrangement.
The judge concluded that she was unable to treat the settlement agreement and termination order as awards, such as to engage the public policy ground for setting aside. Because the settlement agreement had not been recorded in an award on agreed terms, it could be treated as an award only for the purposes of its enforcement, rather than setting aside (see the explainer box below for more information). As for the order terminating the arbitration, it did not meet the legal requirements for an award (which the judge had considered previously in G v. N [2024] HKCFI 721, reported here, and W v. Contractor [2024] HKCFI 1452, reported here). It only recorded the termination of the arbitration and made a determination on costs. It did not make a final and complete (or any) determination of the merits issues submitted for determination, and, in the absence of such a determination, fresh arbitration proceedings could be brought if the relevant limitation period had not expired. It could not, therefore, be considered an award.
The judge nevertheless found that she had the power to declare the settlement agreement null and void by virtue of the court's supervisory jurisdiction over the arbitration as well as the exclusive jurisdiction clause in the settlement agreement (although she was unable to go further and remit the settlement agreement to the tribunal for reconsideration, because it was not an award).
On the evidence, the judge found that there was no basis to depart from the judgment of the Seychelles court that the purported platform operator signatory had lacked actual authority to sign the settlement agreement. Nor did the purported platform operator signatory have apparent authority to conclude the settlement agreement (as the customer had claimed), taking account of the applicable principles set out in the judgments of Lord Neuberger NPJ in Thanakharn Kasikorn Thai Chamkat (Mahachon) v. Akai Holdings Ltd (No 2) (2010) 13 HKCFAR 479 and Lord Sumption NPJ in PT Asuransi Tugu Pratama Indonesia TBK v. Citibank NA (2023) HKCFAR 1.
Amongst other things, the judge found that a reasonable person in the customer's position was bound to raise queries as to whether the creditors had knowledge of and had approved the terms of the settlement (which was against their interests). In failing to make further enquiries despite the "unusual and remarkable" facts known to him (especially in the context of his evidence that he did not trust the purported operator platform signatory and considered him to be a perjurer and fraudster), the customer had been unreasonable, reckless and irrational, and had "turned a blind eye" to the purported platform operator signatory's lack of authority.
While the circumstances of this case were described by the judge as "unusual and exceptional", the decision illustrates the readiness of the Hong Kong courts, where appropriate, to invoke their supervisory jurisdiction over not only the conduct of Hong Kong-seated arbitrations but also their settlement and termination.
Explainer on enforcement and challenge of arbitration settlements in Hong Kong
- The parties to a settlement arising out of a Hong Kong-seated arbitration may request the tribunal to record the terms of the settlement in an award on agreed terms (also known as a "consent award"), provided the tribunal does not object (Article 30(1) of the UNCITRAL Model Law, given effect by section 66(1) of the Hong Kong Arbitration Ordinance).
- An award on agreed terms must state that it is an award and comply with the requirements as to the form and contents of an award stipulated in Article 31 of the UNCITRAL Model Law (given effect by section 67 of the Arbitration Ordinance).
- Such an award has the same status and effect as any other award on the merits under Hong Kong law (Article 30(2) of the UNCITRAL Model Law). This would include the ability of a party to apply for the award on agreed terms to be enforced pursuant to section 84 of the Arbitration Ordinance or set aside pursuant to section 81 of the Arbitration Ordinance (which stipulates the exclusive grounds for recourse against awards). In a setting aside application, the court could dismiss the application, set aside the award in whole or in part, or remit the award to the tribunal pursuant to Article 34(4) of the UNCITRAL Model Law, in order to give the tribunal an opportunity to take action to eliminate any grounds for setting aside.
- Where there is no award on agreed terms, the settlement agreement itself will be treated as an award by the Hong Kong courts, but only for the purposes of its enforcement (section 66(2) of the Arbitration Ordinance). The grounds for setting aside an award therefore will not apply (LT v. RV [2026] HKCFI 1280).
- Orders and directions of tribunals which do not constitute awards may be enforced pursuant to section 61 of the Arbitration Ordinance, but generally will not be susceptible to review by the Hong Kong courts (see G v. N [2024] HKCFI 721).
- Whether an order terminating an arbitration pursuant to a settlement is in fact an award (and hence subject to enforcement pursuant to section 84 and setting aside pursuant to section 81 of the Arbitration Ordinance) will depend upon the facts of each case. Both form and substance will be considered. The label used by the tribunal, the formality of the language and the level of detail may all be relevant, but are unlikely to be conclusive. The key requirement is that an award must be a final determination of the outstanding issues submitted for determination in the arbitration (usually relating to the substantive rights and liabilities of parties), in the sense of its being a complete decision without leaving matters to be dealt with subsequently or by a third party. Thus a decision labelled as a procedural order could constitute an award if it disposes finally of the merits of the dispute.
- The Hong Kong courts may be prepared to exercise their supervisory jurisdiction to make findings and grant relief in relation to the settlement and termination of Hong Kong-seated arbitrations in exceptional circumstances, such as the declaration that the settlement agreement in LT v. RV [2026] HKCFI 1280 was null and void.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
