Facts 

In LT v. RV [2026] HKCFI 1280, a dispute over a margin agreement arose between a now-defunct crypto asset trading platform incorporated in the Seychelles (CATP) and a seasoned investor in Bitcoin who was a customer of CATP (the Investor)

The parties pursued claims and counterclaims in a Hong Kong-seated HKIAC arbitration, which commenced in around June 2022.

Around the same time, CATP also applied to the Supreme Court of the Seychelles for approval of a scheme of arrangement as it was under financial distress. The Seychelles court approved the scheme, under which a special purpose vehicle was assigned CATP’s rights to its US$84 million claim against the Investor. Creditors were to receive tokens redeemable upon CATP’s successful recovery of assets from the Investor.

Importantly, the scheme required the appointment of creditor-nominated directors to CATP’s board. It also required an amendment to CATP’s articles of association, to stipulate that all decisions relating to the prosecution, resolution, and settlement of the claims in the HKIAC arbitration would be subject to the approval of the creditor-appointed directors.

On 12 August 2023, a settlement agreement was signed between the Investor and one of CATP’s co-founders, who was its then sole director (the Director) (the Settlement Agreement).

The Director purported to act on behalf of CATP despite the scheme of arrangement. As for CATP’s creditors, they were until October 2023 unaware of the Settlement Agreement. The crux of the dispute before the Hong Kong Court of First Instance (the Court) was whether the Settlement Agreement was valid and binding on CATP.

The Settlement Agreement was governed by Hong Kong law and included an exclusive jurisdiction clause in favour of the Hong Kong courts. Under the settlement terms, all claims and counterclaims in the HKIAC arbitration would be withdrawn on a “drop hands” basis, with neither party being liable to the other and each to bear their own costs.

On 28 August 2023, the tribunal issued Procedural Order No. 7 (PO7) terminating the HKIAC arbitration. PO7 expressly stated that such termination was made by way of a procedural order and not an award, and made no determination on the validity of the Settlement Agreement.

The Court’s analysis

Settlement agreement and PO7 not “arbitral awards”

The first issue before the Court was whether either the Settlement Agreement or PO7 was an “arbitral award” that could be set aside under section 81 of the Arbitration Ordinance (giving effect to Article 34 of the UNCITRAL Model Law). 

The Court found that an “arbitral award” is a final determination on the issues in dispute in the arbitration, and is to be contrasted with other orders such as procedural orders on disclosure or preliminary rulings on jurisdiction. PO7 was not an “award”, since the tribunal had expressly labelled its decision a “procedural order” rather than an award, and did not rule on the merits of the claims or counterclaims. 

Further, the Court determined that PO7 only provided for the termination of the HKIAC arbitration and recorded the parties’ respective liability for costs. Although PO7 rendered the tribunal functus (meaning its mandate had ended), it did not settle the dispute on its merits – fresh arbitration proceedings could still be commenced if the limitation period had not expired.

As for the Settlement Agreement, CATP sought to rely on section 66(2) of the Arbitration Ordinance, which provides that a settlement agreement is, for the purposes of its enforcement, to be treated as an arbitral award. However, the Court preferred the Investor’s position that section 66(2) only confers award-like status on a settlement agreement “for the purpose of enforcement”, and cannot be extended to allow a party to set it aside as if it were an award under section 81. 

Court had supervisory jurisdiction

Despite finding that neither PO7 nor the Settlement Agreement was an “award” that could be set aside under section 81, the Court nevertheless found that it had jurisdiction.

This was by virtue of the exclusive jurisdiction clause contained in the Settlement Agreement and the Court’s supervisory jurisdiction over the HKIAC arbitration. The Court further noted that CATP sought the Court’s determination of the status of the Settlement Agreement under section 66 of the Arbitration Ordinance, which applied even though section 81 did not.  

Director lacked actual authority

The central legal issue was whether the Director had authority to sign the Settlement Agreement on behalf of CATP. The Court found he did not. 

On 31 July 2025, the Seychelles court handed down a judgment, determining that the Director had no authority to sign the Settlement Agreement. Rather, he had committed contempt of court for failing to comply with the scheme of arrangement. The Seychelles court further found that, on the particular facts, from 28 July 2023, when CATP’s restated articles came into effect, requiring settlement decisions in relation to the HKIAC arbitration to be approved by creditor-appointed directors, the Director had no power to settle the HKIAC arbitration on his own. This was despite the creditor-appointed directors not having yet been formally appointed when the signing of the Settlement Agreement took place.

The Court accepted the Seychelles judgment as authority and evidence on Seychelles law. It therefore saw no reason to depart from its conclusion that the Director had no authority to enter into the Settlement Agreement without the knowledge and approval of the creditors. The Director had therefore acted in breach of the restated articles and the scheme sanctioned by the Seychelles court. The Investor adduced expert evidence on Seychelles law suggesting the contrary. However, the Court rejected this position, finding that where there was a foreign judgment determining an issue, there was no room for expert evidence, and that the role of an expert was not to be an advocate.

Director lacked apparent authority

The Investor argued that even if the Director lacked actual authority, he had “apparent authority” to bind CATP to the Settlement Agreement.

However, applying the well-known principles from Thanakharn Kasikorn Thai Chamkat (Mahachon) v. Akai Holdings Ltd (No 2) (2010) 13 HKCFAR 479, the Court rejected this argument.

 The Court found as follows:

1. Once the restated articles came into effect and the scheme had been approved, CATP was simply no longer able to enter into, or delegate authority to the Director to enter into, a contract of the nature of the Settlement Agreement without the approval of creditor-appointed directors. The signing of the Settlement Agreement was a transaction made in exceptional circumstances – not something that could be characterised as an act that the Director was authorised to do in the ordinary course of CATP’s business.
   
   
2.  The Investor himself had knowledge of the restructuring, the purpose and terms of the scheme, and its ultimate approval. The terms of the Settlement Agreement – releasing CATP’s US$84 million claim against the Investor – were directly opposed to the scheme, under which that very claim was assigned to creditors for their benefit. A reasonable person in the Investor’s position would have been “bound to raise queries” as to whether CATP’s creditors had knowledge of and approved the settlement terms that were so acutely against their interests.

The Court found the Investor’s failure to make further enquiries to be “unreasonable to say the least”, and indeed “reckless and irrational”, amounting to having “turned a blind eye to the apparent impropriety of the highly suspicious Settlement Agreement”. The Court further noted that, on the Investor’s own evidence, he did not trust the Director by July 2023, describing him as having filed “disingenuous evidence” in the HKIAC arbitration. This made it all the more dubious that the Investor would have accepted the Director’s representations of authority without enquiry.

Comment 

This decision is a significant development in the Hong Kong courts’ approach to disputes arising out of the settlement and termination of arbitration proceedings. Several key lessons can be drawn.

Supervisory jurisdiction over Hong Kong-seated arbitrations

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. Although neither the Settlement Agreement nor the tribunal’s procedural order was an “arbitral award” amenable to setting aside under section 81 of the Arbitration Ordinance, the Court was prepared to exercise its broader jurisdiction to ensure that the integrity of the arbitral process was not undermined by an agreement signed without proper authority. This is a reassuring signal for parties engaged in arbitrations seated in Hong Kong that the Court stands ready to intervene where justice requires it, even in circumstances that fall outside the conventional framework of arbitral award challenges.
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Corporate governance and authority matter – especially in restructurings

This decision is a stark reminder that corporate governance requirements – particularly those arising from court-approved restructuring schemes – must be scrupulously observed. Parties entering into settlement agreements in arbitration proceedings should take care to verify that the individual signing on behalf of the counterparty has the proper authority to do so.

Duty to enquire in suspicious circumstances

The Court’s emphatic findings on apparent authority highlight that counterparties cannot simply turn a blind eye to circumstances suggesting a want of authority. Where a party has knowledge of facts that plainly call into question another person’s authority to act, a failure to make enquiries will not be excused. 

Client Alert 2026-068