K v. Jx

HCCT 49/2024

[2026] HKCFI 2854

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 49 OF 2024

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BETWEEN

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J U D G M E N T

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Background

1.This is the application made by the Respondent (“JX”)  to set aside the order made by this Court on 31 May 2024 (“Enforcement Order”), granting leave to the Applicant (“K”)  to enforce an arbitral award made on 29 November 2023 (“Award”)  by the Beijing Arbitration Commission (“Tribunal”)  in the Beijing International Arbitration Centre, in arbitral proceedings commenced by K against JX (“Arbitration”).

2.Pursuant to the Award, JX was required to: discontinue the proceedings in Hong Kong under HCA 737/2020 (“HCA 737”), in accordance with a settlement agreement dated 6 January 2021 (“Settlement Agreement”); and pay K damages in the sum of RMB 15,000,000 for breach of contract, and other legal costs and arbitration expenses.

3.On 23 July 2024, JX applied by its summons to set aside the Enforcement Order (“Set Aside Summons”), on the stated grounds that the arbitration agreement was not valid, it would be contrary to public policy to enforce the Award, and that K was in breach of his duty to make full and frank disclosure when it made the ex parte application for leave to enforce the Award in Hong Kong.

The different parties

4.The dispute between K and JX arises out of a Cooperation Agreement made on 15 November 2012 (“Cooperation Agreement”). The parties to this Agreement are JX, K, ██████ (“HX”)  and one ██████ (“Z”).

5.K is the founder, owner, chairman and legal representative of HX. K was also the majority shareholder and director of another company ████████████ (“HX Gold”), the 3^rd Defendant in HCA 737, prior to its privatization.

6.JX was and is a PRC-incorporated company which carries on a business of food and beverage and the holding of land investments. At all material times, JX was and is beneficially owned by ██████ (“Y”)  through his control of a company called ██████ XX, which owns 100% of the shareholding in JX after March 2017. According to JX, Y was JX’s registered legal representative (法定代理人)  prior to 28 January 2016, until January 2016. XXXXXX succeeded Y as the registered legal representative of JX in January 2016, until March 2017. Since March 2017, the registered legal representative of JX was at all material times one XXX.

7.According to JX, ██████ (“C”)  was a former employee of JX who had resigned on 30 October 2020. It appears that C had never served as either a director or legal representative of JX. C’s younger brother is the son-in-law of Y.

8.Prior to the Cooperation Agreement, JX was the beneficial owner of 2 pieces of land in Fuzhou on the Mainland: ██████ ████████████ (“Land A”); and ██████ ████████████ (“Land B”)  (collectively, the “Lands”).

9.JX was apparently keen to develop the Lands but lacked the sufficient experience or connections to do so. K was an experienced land developer, and at the material time in November 2012, Z was indebted to K in a sum of approximately RMB 267 million (“Debt”). Z was unable to repay his Debt to K, and he brokered a deal between JX and K, for the Lands to be jointly developed by JX and K, at the same time benefiting Z and enabling him to discharge the Debt to K.

10.On his part, K expressed interest in undertaking the development of the Lands and to provide the necessary building costs and materials. JX was likewise keen to explore the business collaboration proposed with K, and was hopeful to tap into K’s experience and business connections for the Lands’ development.

11.The parties therefore entered into negotiations, which ultimately led to an oral agreement being concluded, which was later reduced in writing by the signing of the Cooperation Agreement, which was executed by JX, K, HX and Z on 15 November 2012.

12.Under the oral agreement, K agreed to waive the Debt owed to him by Z, in return for JX agreeing to transfer the Lands (at nil consideration)  to a project company to be established by HX (the company controlled by K). Upon transfer of the Lands to the project company, JX would be entitled to a 47% shareholding in the company, with a corresponding 47% share of the net profits arising from the development of the Lands. The Debt would be fully discharged upon the transfer of the Lands to the project company, but in return, Z would also transfer 68 million shares in a company known as ████████████, a company listed in Hong Kong (“Dairy”)  to JX. The value of the Dairy shares to be transferred to JX (claimed to be worth HK$ 267 million)  was intended as security for JX’s transfer of the Lands to HX at nil consideration.

13.The Lands were to be developed by the project company under the Cooperation Agreement, with the proceeds of such development being shared between HX and JX in the ratio of their respective shareholding in the project company.

14.The Cooperation Agreement was supplemented by two further agreements executed on 3 July 2013 and 24 October 2013 (“Supplemental Agreements”). Under the latter, Z agreed to transfer his 68 million shares in Dairy to JX or its nominee within 30 days of the signing of an agreement for the transfer of Land B.

15.There is no dispute that JX performed its obligations under the Cooperation Agreement, inter alia by causing the Lands to be transferred to 2 project companies (“Project Companies”). However, it transpired that the Fuzhou Government then reclaimed the Lands, which were surrendered to the government upon payment of compensation amounting to RMB 160 million (“Compensation”). According to JX, none of the Compensation was distributed to JX and instead was diverted to companies associated with Z and K.

16.Meanwhile, Z also failed to transfer the Diary shares to JX.

17.In the interim, Dairy was in 2016 put into liquidation on K’s petition which was supported by Z. The value of the Dairy shares (and hence JX’s security for the Lands)  became worthless.

18.On its part, K claims that after the Cooperation Agreement was entered into, JX or C had borrowed a substantial amount of money from the Project Companies and from K’s companies, which in fact exceeded JX’s entitlement to any of the Compensation received for resumption of the Lands.

HCA 737/2020

19.The alleged defaults and claimed breaches of the Cooperation Agreement led to JX’s commencement of HCA 737 in Hong Kong, which were proceedings instituted against K, Z, HX Gold, and other related parties ████████████ and ██████. The claim made in HCA 737 was for damages and loss of profits allegedly arising from the breach of the Cooperation Agreement by K and Z. The pleaded case include the claim that K and Z never had any genuine intention to pursue any business cooperation with JX or to share the proceeds of the development of the Lands with JX, and that they had conspired to dishonestly misappropriate the Lands from JX under the guise of the Cooperation Agreement. The damages claimed to have been sustained by JX include the value of the Lands lost, of at least RMB 160 million, and alternatively, loss of profits of RMB 2,400 million which would have been generated from the development of the Lands.

20.Separately to HCA 737, JX also obtained an injunction from the Court in September 2019, restraining Z from disposing of the Dairy shares, in aid of proceedings brought by JX against K and Z in the Mainland.

21.HCA 737 was left dormant after the service of pleadings. Y claimed that he suffered from a cancer relapse in 2020, and had to focus on his treatment and recovery.

The Settlement Agreement

22.On 6 January 2021, a settlement agreement was signed in the name of K and JX (“Settlement Agreement”).

23.The terms of the Settlement Agreement are that, inter alia:

(1)  JX would discontinue HCA 737 within 3 days of the Settlement Agreement;

(2)  K would deposit the remainder of the Compensation (net of related expenses and costs)  (“Remaining Compensation Funds”)  into an “escrow account” to be designated by K;

(3)  The parties confirmed that as of 31 December 2020, the Remaining Compensation Funds amounted to RMB 85,224,400;

(4)  Prior to the conclusion of all legal proceedings concerning the Lands, JX would not make any claim to the Remaining Compensation Funds in the escrow account;

(5)  JX agreed to pay an amount calculated on the basis of 20% of the total Compensation received by the Project Companies to K in the event of its default under the Settlement Agreement; and

(6)  JX acknowledged that the claims made against K and HX Gold in HCA 737 were inconsistent with the objective facts.

24.The Settlement Agreement is governed by PRC law. It contains an arbitration clause which provides for all disputes arising from the Settlement Agreement to be finally resolved by arbitration by the Beijing Arbitration Commission (“Arbitration Agreement”).

25.The Settlement Agreement was represented to have been made by C as the “actual controller”, and on behalf of JX. However, according to JX, C was an employee who had already resigned from JX prior to the date of the Settlement Agreement, on 30 October 2020.

26.Thereafter, a Supplemental Agreement dated 8 May 2021 was entered into, which varied the Settlement Agreement by directing that the Remaining Compensation Funds be deposited into an “escrow account” held by K’s daughter.

27.There is no dispute, that JX failed to discontinue HCA 737.

The Arbitration

28.On 7 June 2022 K commenced the Arbitration, seeking performance of the Settlement Agreement, for HCA 737 to be dismissed and the claims made therein to be withdrawn, and payment by JX of RMB 63,969,120.20 for breach of the Settlement Agreement.

29.According to Y, he only became aware of the existence of the Settlement Agreement when the Arbitration was commenced. According to Y’s evidence, C (whose signature was on the Settlement Agreement)  had not been contactable until later in July 2024, and as such, JX did not have the benefit of C’s evidence in the Arbitration. The Defence put forward in the Arbitration was that the Settlement Agreement and the Arbitration Agreement contained therein were invalid, because C was neither JX’s legal representative nor authorized in any way to enter into the Settlement Agreement on its behalf. It was claimed that as early as in March 2013, JX had adopted and commenced using a new company seal, which was duly registered with the Public Security Bureau on the Mainland, and that the seal affixed to the Settlement Agreement of 2021 was JX’s old seal.

30.In the Award, the Tribunal found that there was no evidence to show either that C had actual authority to enter into the Settlement Agreement, or that he was the “actual controller” of JX as claimed by K. However, the Tribunal found that there was reason for K to believe that C had been duly authorized by JX, because there was evidence to suggest that JX had concurrently used its old and new seals, such that C’s act of affixing JX’s old seal to the Settlement Agreement (relied upon by JX as showing C’s lack of authority)  and C’s signing same with the old seal were valid acts of agency. Under Article 172 of the Civil Code of the People’s Republic of China (“Civil Code”), it was sufficient for the person relying upon the act of a purported agent to show that he had reason to believe that the person had authority as agent.

The application to set aside the Enforcement Order

31.The grounds relied upon by JX to set aside the Enforcement Order are that the Arbitration Agreement was invalid, and that it would be contrary to public policy to enforce the Award.

32.JX also claims that in K’s application for the Enforcement Order, it had failed to make full and frank disclosure of matters relating to the invalidity of the Arbitration Agreement and that enforcement of the Award would be contrary to public policy. The alleged non-disclosure relies entirely on whether there are indeed grounds to refuse enforcement of the Award, and cannot be said to be an independent ground for setting aside.

33.As Counsel for K has highlighted, the original application for setting aside was focused on the evidence adduced by JX, that there was collusion between C and K in the execution of the Settlement Agreement, and that C had received personal benefits for signing the Settlement Agreement without the authority of JX. JX initially placed reliance on the affirmations and evidence of C filed in these proceedings, and the admissions made by C therein, which evidence had only come to light after the commencement of the Arbitration and the making of the Award.

34.According to the affirmation of C made on 19 July 2024 (“C 1”), he had signed the Settlement Agreement without the knowledge, prior consent or authority of JX, using the old seal of JX which he had not returned to JX after his resignation, and which JX had ceased using. He claimed that he had entered into the Settlement Agreement with K for his personal gain, hoping to obtain the Remaining Compensation Funds which had been offered by K to him. The subsequent Supplemental Agreements of July and October 2013 were likewise signed by him without authority.

35.According to C, K knew at the time of the Settlement Agreement that he had already resigned and was no longer authorized to act on behalf of JX. He claimed that after the Award, Y of JX had approached him and informed him of the consequences and severity of his actions of signing the Settlement Agreement without authority, and he finally decided to come forward and testify as to his fraudulent actions.

36.C 1 was filed in support of JX’s summons to set aside the Enforcement Order.

37.In his 2^nd affirmation made on 19 May 2025 (“C 2”), C further elaborated on his claim, to explain that of the Remaining Compensation Funds stated in the Settlement Agreement, K had offered him RMB 2 million as an initial payment, and that the entire remainder of the Remaining Compensation Funds was to be paid to him when HCA 737 was withdrawn. He claimed further that he did not participate in the Arbitration, and had evaded Y when he had initially reached out to him, and it was only in July 2024 that C answered Y’s call.

38.C produced further evidence of his communications with K and his lawyer/assistant ██████ (“WP”)  in his affirmation made on 14 November 2025 (“C 4”).

39.C’s claims of having been bribed were denied by K and WP. K claims that he had never met with C, and that it was WP who had made all the settlement negotiations with C. In essence, K and WP claimed that they had throughout been negotiating with C, and C only, in relation to the Cooperation Agreement and that C was the actual controller of JX. They maintain that they had believed, and had reason to believe, that C had authority to act on behalf of JX in all the dealings relating to the Project Companies and all matters relating to the Cooperation Agreement.

40.In his evidence filed in support of the application to set aside the Enforcement Order, Y maintained that C was an employee who had assisted him in dealings with K and Z in connection with and at the time of the Cooperation Agreement, but that he had resigned in October 2020, after JX’s commencement of HCA 737. Y claimed that he and JX no longer maintained any contact with C since his resignation, and that C had ceased to have any relevance with JX after October 2020. Y had no knowledge of the Settlement Agreement until after the Arbitration was commenced on the basis of the Settlement Agreement.

41.In the light of the disputed facts and the serious nature of the claim made by JX, of bribery and collusion surrounding the execution of the Settlement Agreement, this Court ordered at the hearing of the Summons on 10 June 2025, that before the Court can determine the claims made by the parties, oral evidence should be received by the deponents of the affirmations filed, and for them to be cross-examined. The hearing was accordingly adjourned for that purpose.

42.On the first day of the hearing which resumed in December 2025, the Court was informed that C would not be able to attend the hearing due to health issues. According to the medical certificate C obtained from a Shenzhen hospital on 10 December 2025, he had high blood pressure (hardly unusual)  and was unfit for travel and “heavy-duty work”. It is difficult not to conclude that this was but a feeble excuse offered by C to avoid cross-examination in Court.

43.I accordingly directed on 15 December 2025 that C’s affirmations be excluded from the evidence. What remains are Y’s own evidence, and that of K and WP, all of whom testified in Court, and were cross-examined.

44.On behalf of K, it was submitted that the setting aside application was based on the claim that the Settlement Agreement had been procured by K’s bribery of C, on the ground that there was no valid Arbitration Agreement and that it would be contrary to public policy to enforce the Award. Without C’s primary evidence, it was contended for K that the setting aside application must be dismissed.

45.Counsel for JX argued that Y’s evidence is that the Settlement Agreement was obtained by collusion between K and C, who agreed to cause the Settlement Agreement to be signed in circumstances where K knew that C no longer had any authority to act for JX. The submission for JX is that if collusion is established, K had actual knowledge of C’s lack of authority, with the result that the Settlement Agreement (and the Arbitration Agreement contained therein)  was signed without authority, and was invalid under the Civil Code and the governing law of the contracts.

Whether there was a valid arbitration agreement

46.In her Opening, Counsel for JX submitted that there was no valid arbitration agreement, since the validity and binding effect of the underlying Cooperation Agreement was in issue by virtue of the alleged collusion/bribery/lack of authority on the part of C. On that basis, the jurisdiction of the Tribunal was challenged and it was contended by Counsel that the Court should independently review the correctness of the Tribunal’s ruling on its jurisdiction to determine the claims made in the Arbitration (relying on S Co v B Co [2014] 6 HKC 421, X v Jemmy Chien [2020] HKCFI 286 and, in her Closing, on R v A [2023] HKCFI 2034).

47.The above cases are all distinguishable, as they relate to cases in which there was an express challenge made in the relevant arbitration as to the jurisdiction of the tribunal, and the court was reviewing the correctness of the tribunal’s ruling on its own jurisdiction either by way of a preliminary ruling or as part of the award. There were no waivers of the right to challenge the jurisdiction of the tribunal in the cases cited.

48.The distinguishable feature in this case is that JX did not challenge and did not raise any dispute as to the jurisdiction of the Tribunal to decide on the claims submitted by K to the Tribunal for determination in the Arbitration, namely whether there was a valid Settlement Agreement which had been made by the parties, and whether C had the authority to enter into the Settlement Agreement on behalf of JX in the particular circumstances of the case. After hearing the evidence and the parties’ submissions, the Tribunal found that there was a valid Settlement Agreement which was binding on JX.

49.As Counsel for K correctly pointed out, the Arbitration Agreement is severable from and independent of the underlying Settlement Agreement. This is trite. A challenge of and dispute as to the underlying contract submitted to the Tribunal for determination does not amount to a challenge to the arbitration agreement or the jurisdiction of the tribunal itself. There can be voluntary submission to the jurisdiction of the Tribunal, and the present case is one where JX had by conduct accepted and expressly agreed to have the dispute relating to the validity of the Settlement Agreement, and C’s authority, submitted to the Tribunal for determination. There was no challenge to the jurisdiction of the Tribunal made at the commencement of the Arbitration. To the contrary, JX which was legally represented in the Arbitration expressly confirmed through its lawyers on the first day of the hearing in the Arbitration (on 12 April 2023)  the Tribunal’s jurisdiction to deal with the dispute submitted to it, as well as the validity of the arbitration clause.

50.For this reason, there is no basis for JX to claim that the Tribunal had no jurisdiction, or that there was no valid arbitration agreement.

Whether there was a valid Settlement Agreement to bind JX, whether C had authority and the state of K’s knowledge of C’s lack of authority

51.On behalf of K, it was submitted that the validity and binding effect of the Settlement Agreement was already decided by the Tribunal on the facts and applying the relevant Mainland law. It was argued that JX should not be permitted to seek an unwarranted review of the merits by the enforcement court, as it would be a “mere guise for challenging the tribunal’s findings on the merits of the case” (S Co v C Co, para 38). According to Counsel for K, in the absence of C’s evidence of alleged bribery, there is nothing to vitiate the parties’ agreement to submit the dispute as to the Settlement Agreement to the Tribunal.

52.The facts of the present case are more unusual, in the sense that evidence was revealed to JX (and Y in particular)  after the Award, that there had been (on Y’s evidence)  collusion and bribery which led to the execution of the Settlement Agreement. Such evidence and claims had not been submitted to the Tribunal in the Arbitration, only emerged after the Arbitration, and was never considered or decided upon by the Tribunal. If not under the ground of the validity of the Settlement Agreement, the enforcement court would have to take this into consideration under the ground of public policy, to decide whether to enforce the Award in such circumstances (if proven)  would be shocking to the Court’s conscience and against basic principles of morality.

53.Considering the matter holistically, therefore, I consider that the Court is able to and should examine the claims made by Y in this case, that K had colluded with C in entering into the Settlement Agreement, in circumstances where K/WP acting on his behalf knew or had reason to believe that C in fact did not have the authority to enter into the Settlement Agreement on behalf of JX. If there was such a collusion, and K/WP did not have any reason to believe that C had the authority to act on behalf of JX, then it would be contrary to the public policy of Hong Kong to enforce the Award which gave effect to the Settlement Agreement, particularly in circumstances when the Settlement Agreement contained terms which were disadvantageous to JX.

54.It is not disputed that under PRC law, a third party may rely on the “apparent authority” of an agent only where he has reason to believe that the agent possesses authority. JX’s expert evidence is that where the third party knew, or ought reasonably to have known, that the agent lacked authority, the agent’s act cannot bind his principal absent ratification.

55.The Tribunal had concluded that there was no evidence to show that C was the actual controller of JX, or had express authority to act for JX.

56.In finding that C’s act of affixing the seal of JX to the Settlement Agreement and signing same was a valid act of an agent, which was sufficient to bind JX, the Tribunal only considered the fact that there was no evidence to show that the old seal was not genuine, as the old seal and the new seal of JX had been used concurrently since March 2013. This suggests that the Tribunal considered that K, as a person dealing with JX, had reason to believe that Chen had authority to act for JX.

57.On the evidence produced before this Court - including Y’s evidence of what C had claimed and admitted to him (despite the lack of corroboration from C himself), the evidence given by Y and WP and tested in court, and the transcript of the recorded telephone conversation between WP and C, which was produced in evidence by WP - I find it difficult to accept the contentions made for K, that he had good reason to believe that C had authority to enter into the Settlement Agreement.

58.I bear in mind the fact that allegations of wrongdoing have to be proved by cogent and credible evidence. In this regard, I have been reminded by Counsel for JX that there is seldom direct evidence of fraud or unlawful conduct, and that the Court will often have to rely on circumstantial evidence. I have also not lost sight of the fact that, as Counsel for K pointed out, JX’s case of K’s wrongdoing, be it bribery, fraud, or collusion, has been evolving and undergoing metamorphosis from inception to the final trial of the application to set aside the Enforcement Order, and that C’s affirmations have been subject to changes and variations in different respects. This casts doubt on the veracity of the claims he made.

59.Counsel for K also submitted that adverse inferences should be made against JX and C, because C has not attended court for cross-examination.

60.Allegations can easily be made in writing, even on both, but they are commonly withdrawn when the makers are ordered to appear in court to be cross-examined on their claims.

61.However, I am not prepared to dismiss the claims of collusion, nor to draw adverse inference against JX, merely because of C’s absence. As explained by the learned recorder in Sky King Machinery Engineering Limited v China Harbor Engineering Company Limited [2023] HKCFI 1516, at para 62 of the judgment:

“(1)  An adverse inference can only be drawn from a failure to testify where there is a need to meet an established prima facie case. This means that the person seeking to draw the adverse inference would have to demonstrate that (i)  a prima facie case has already been raised by the evidence adduced; and (ii)  the party against whom the case is established has evidence (including witness testimony)  available which could displace the prima facie case and which it omits to call: Nina Kung v Wang Din Shin (2005)  8 HKCFAR 387, §§367-369; Ip Man Shan Henry v Ching Hing Construction Co Ltd (No 2) [2003] 1 HKC 256, §155.

(2)  Thus, adverse inference has no place in the plaintiff’s discharge of his prima facie case – either the plaintiff has adduced sufficient evidence to prove a prima facie case, or he has not.  If the evidence relied upon by the plaintiff already discharges his prima facie burden, the fact that he has not called certain persons as witnesses is irrelevant.”

62.In this application, JX can be rightly said to be the “plaintiff” or claimant, as it is for JX to prove the grounds for refusing enforcement of the Award, and to adduce sufficient evidence to prove the required prima facie case for refusal of enforcement. As the learned Recorder rightly observed in Sky King, either this Court concludes that JX has adduced sufficient evidence to prove its case for setting aside, or it has not, and it is not necessary to consider whether JX has called certain persons to meet any prima facie case.

63.My approach to the evidence of JX in this case is that there are claims made by Y, and hearsay evidence from him as to what C had informed him, but there is no evidence from C or any other witness to corroborate Y’s assertions, since C’s affirmations have been excluded. The question is whether JX has adduced sufficient and credible evidence on this basis to establish its case, that enforcement of the Award should be refused.

64.To establish collusion, Counsel for JX referred to various matters, such as the timing of the Settlement Agreement (K was in 2020 contemplating the privatization of HX Gold and the sale of his shares therein, and the ongoing HCA 737 was a potential impediment to the sale, such that he was eager to settle the action), the peculiar features and terms of the Settlement Agreement, the lack of due diligence and reasonable steps taken to verify C’s authority, the inexplicable absence of written records relating to the alleged negotiations for the Settlement Agreement, and the unusual negotiation process of excluding other parties to HCA 737 from the negotiations on the Settlement Agreement.

65.There can be a myriad of reasons for parties to settle litigation and competing claims, and it is not for the Court to judge the reasonableness or otherwise of the terms on which a party may agree to settle or withdraw claims made in litigation. The Court may not have the entire evidence of the quid pro quo and commercial reasons behind the parties’ agreement on settlement.

66.In my judgment, what is more significant are the facts known or disclosed to K and WP (who on K’s case had conducted the negotiations on his behalf)  at the time when the Settlement Agreement was negotiated and concluded, as under Hong Kong law on actual and constructive notice (see, for example, CS Credit Limited v Marspan Limited & Anor [2021] HKCFI 3707 at para 52), these will determine whether a reasonable person in their position would have concluded that C did not have authority to sign the Settlement Agreement for JX, or would have made further inquiries which would reveal C’s lack of authority. JX’s expert evidence would support that a similar approach is adopted under PRC law. Moreover, reading the Award and the Tribunal’s analysis of the issue of the binding effect of the Settlement Agreement, and whether K “had reason to believe” that C had authority, it appears that the Mainland Courts’ approach applying the Civil Code was not much different.

67.The Tribunal had found that there was no evidence to show that C was the actual controller of JX as K had claimed in the Arbitration. This claim was repeated in the evidence filed in these proceedings, but in the course of cross-examination in these proceedings, K retracted his assertion to claim only that C had been the person who was involved in dealings with K and WP, and the only person representing JX throughout. K further admitted in cross-examination that he did not know whether it was Y, or C, who was the actual controller of JX.

68.WP was K’s employee and the risk control director of HX. He was the person who had assisted K in the negotiations and dealings with JX and C.

69.WP is a lawyer by training and has experience in contract drafting and execution, and risk control. He accepted that under PRC law, only a legal representative has the statutory authority to bind a company in contracts with third parties. Nevertheless, despite being the risk control director of HX, WP asserted that he did not see any need to verify C’s authority to represent JX, because he had been dealing with C in connection with the Cooperation Agreement, and that C’s authority had been “verified previously” (without further particulars as to how it had been verified and what such verification had revealed).

70.I do not find WP to be a totally credible witness. He was evasive when questions were asked if he knew that whether C was the “actual controller” of JX had been raised and was in issue in the Arbitration, and that there was no evidence adduced in the Arbitration to substantiate such a claim. Being a lawyer and who had assisted K in matters relating to the Cooperation Agreement and the purported Settlement Agreement and its conclusion, it is incredible for him to profess no knowledge of the central issue in the Arbitration, which was brought to enforce the Settlement Agreement.

71.As for the absence of records or evidence of the negotiations which had been conducted between K or WP and C in relation to the Settlement Agreement, WP’s evidence is that there had been negotiations between C and himself since around the commencement of HCA 737 in May 2020, that such negotiations had lasted for over half a year, and that there had been many records of WeChat messages on his telephone, but as he had changed his telephone “once or twice or three times” each year, such messages were no longer available.

72.As Counsel for JX pointed out, by the time of the alleged negotiations of the Settlement Agreement, HCA 737 had been commenced, litigation was in place, and it should have occurred to WP that in view of the disputes raised, it would have been important to retain records of his communications and records of settlement terms discussed and agreed with C. Further, just 3 days after the Settlement Agreement was signed, JX had failed to withdraw HCA 737 and had demonstrated conduct inconsistent with the Settlement Agreement. In light of such dispute, it would have been natural for WP, a trained lawyer, to take steps to preserve the necessary records if there had been any to support K’s case. As Counsel pointed out, it can be inferred that any WeChat messages that might have existed would not have assisted K’s case, or would have revealed the collusion between K and C to procure the Settlement Agreement without the knowledge, proper authorization or consent of Y/JX.

73.WP produced and sought to rely on the recorded telephone conversation between C and himself which took place on 4 August 2025, to show that by that time, after the claims of bribery and collusion had been made, C was still reaching out to WP to discuss the matter. WP and K also sought to rely on the statements made by C in the course of the recorded telephone conversation, to show that the allegations of bribery were all false.

74.In relation to the recorded telephone conversation, I accept the submissions made by Counsel for JX, as to how such evidence should be treated. This was explained by DHCJ To (as he then was)  in Cheer Sky Ltd v Chan Yuet Sheung [2019] HKCFI 606 at para 48:

“The Defendant produced the recordings and transcripts of a number of telephone conversations she had with Vivian and Luk Ngan Ngor. I am always sceptical about the probative value of such evidence. Such recording is certainly reliable evidence of what was said during the conversations, but not necessarily of its truth. The party taping the conversation must have certain purposes to achieve, including to induce the other party to say things which are advantageous to him or prejudicial to the other side. The other party who does not know that the conversation was being taped, may have unwarily adopted what was to put to him without much thought. In assessing the reliability of the conversation, I would adopt the following approach. Anything said by the party taping the conversation which is against his interest would be given more weight. Anything that he said which is to his interest is self-serving and will be given no weight. Anything prejudicial said by the party being recorded would have to be tested against the totality of the evidence before weight is given to that piece of evidence” (emphasis added).

75.I agree with Counsel for JX, that applying the approach adopted by DHCJ To, the statements made by WP (after he started recording the telephone conversation 15 seconds after the call began)  would clearly have been tailored to align with K’s case advanced in these proceedings. Such statements include the claim that the alleged bribery was fabricated. What WP said in the course of the recorded conversation was simply restatement of K’s case. On the other hand, even reading the transcript of the recorded conversation, C had stated in the course of the conversation that there was a sum of 10 million to be “advanced over”, and pertinently, C had stated a number of times during the conversation that from inception (“the first day”), he had told WP that the Settlement Agreement, and whether or not there was a “dismissal (or withdrawal)” had to be agreed to by “Hong Kong”, and that the “dismissal” had to be agreed to by “Hong Kong”. These statements go towards supporting JX’s case, that C’s execution of the Settlement Agreement was subject to some further and final approval and consent, and was not yet final or immediately effective.

76.The sum of “10 million” to be “advanced over”, referred to during the conversation, also corresponded to C’s claim that the money offered to him as a bribery had at first been suggested to be guised as a loan. However, such evidence of C (and his explanation of the statements which had been made in the recorded conversation)  has been excluded.

77.In the course of the recorded telephone conversation, WP repeatedly referred to the fact that C had all along been representing JX in the dealings with K. In the submissions made for K, Counsel also relied on the fact that C had been the person with whom K and WP had conducted negotiations in relation to the Cooperation Agreement, and that for that reason, it was reasonable for K to believe that C had the authority to enter into the Settlement Agreement with K.

78.I agree with Counsel for JX that the Cooperation Agreement and the Settlement Agreement are totally different, and that C’s authority to act for JX in relation to any negotiations for the Cooperation Agreement, and even its performance, cannot mean that C likewise had authority to conclude the Settlement Agreement. The Cooperation Agreement was for JX to participate in the joint development of the Lands and to share in the proceeds of the development. By the time of the Settlement Agreement, disputes had arisen in relation to the development and the performance of the Cooperation Agreement, with grave allegations made by JX against K that the proceeds of the surrender of the Lands had been misappropriated by K and diverted from the Project Companies, that the Cooperation Agreement was a sham, and part of a conspiracy to take the Lands from JX. HCA 737 had already been commenced by JX for recovery of over RMB 160 million, as damages for conspiracy, and alternatively loss of profits of RMB 2,400 million. To commence legal proceedings, and to compromise the substantial claims for damages made in legal proceedings, by way of settlement and withdrawal or dismissal of the action are extraordinary steps, outside the ordinary course of a company’s usual business, and would require proper authorization by a person duly authorized by JX. At the material time of the signing of the Settlement Agreement, there is no dispute that C was neither a director, nor the legal representative, of JX. Even as an employee, he had already resigned from the company.

79.On the evidence of K and WP, they had no knowledge whether or not C was a director, or legal representative, of JX. They only acted on their belief that he was the “actual controller” of JX (without any evidence in support adduced), and (on the face of their evidence)  merely because of the fact that they had been dealing with C at the time of the Cooperation Agreement.

80.As explained above, I do not consider the fact that C had been dealing with K in relation to the Cooperation Agreement is sufficient to justify any conclusion as to C’s authority to act for JX in relation to the Settlement Agreement or HCA 737.

81.I give regard to the terms of the Settlement Agreement, not for the purpose of deciding the reasonableness of the terms, or whether JX would or should have agreed to them, but more for determining who would have the authority, or can reasonably be considered to have the usual authority, to agree to the terms on behalf of JX.

82.The Settlement Agreement purports to deal with the “full and final settlement of all disputes” in HCA 737 (according to the evidence filed in support of the application for the Enforcement Order). However, as Counsel for JX has highlighted, despite WP claiming that the objective of the settlement negotiated was for JX to confirm its rights and benefits to the Lands, the Settlement Agreement does not in fact provide for that. Under clause 2.8 of the Settlement Agreement, the rights to and the distribution of the Remaining Compensation Funds were to be subject to further negotiations and agreement. In the interim and even after HCA 737 was withdrawn, the Remaining Compensation Funds were to be paid into an escrow account to be nominated by K, and later designated as the account of K’s daughter. K had the unrestricted authority to manage and invest the funds paid into the account, but JX had no right to operate same. Any investment gains and losses were to be borne by both parties in proportion to their shareholding in the Project Companies, but K was to be paid an additional 3% reward on any profits made. There was no clear provision for JX’s entitlement to the Remaining Compensation Funds, when these funds should be the assets of the Project Companies, and not K’s.

83.JX further agreed under the Settlement Agreement to pay a penalty calculated on the basis of 20% of the total compensation received by the Project Companies, in the event of any default on its part of the Settlement Agreement. The Settlement Agreement also included an unconditional admission by JX, that false allegations (inconsistent with the facts)  had been made by it in HCA 737.

84.It needs no saying that K and WP were aware of the contents and effect of the Settlement Agreement, as well as the claims made by JX in HCA 737.

85.It is also pertinent that under clause 4.4 of the Settlement Agreement, personal loans which C had obtained from the Project Companies were to be dealt with and compromised at the time when the Settlement Agreement was duly performed. Counsel for JX pointed out that this points to the fact that C had a personal interest in the Settlement Agreement being concluded and performed, and such potential conflict should have alerted a reasonable person in the position of K and WP to verify C’s due authority to act on behalf of JX to conclude and agree to the terms of the Settlement Agreement.

86.There is nothing in the evidence to suggest that K or WP on his behalf had made any inquiry or taken any steps at all to seek verification of C’s authority.

87.In my judgment, the execution of such a Settlement Agreement for the withdrawal and compromise of claims made in HCA 737 of the excess of RMB 160 million, with admissions of false claims having been made, is an exceptional matter outside the usual course of the operations of JX, and it is reasonable for a person in the position of K, and in particular WP with his legal training and experience, to expect that the Settlement Agreement has to be approved and agreed to by a person who has due authority to act for and to bind JX. Under PRC law, and as the Tribunal held, persons other than a legal representative do not have authority to sign agreements on a company’s behalf unless specifically authorized. WP accepted in cross-examination that he was aware that only a legal representative of a company has the actual and statutory authority to act for and to bind a company. Whether he is accustomed to ignoring these legal provisions and requirements, for the sake of convenience, and that he was indifferent to acting strictly in accordance with the law, do not offer a good excuse or reason not to make reasonable inquiries or to take reasonable steps to verify C’s authority.

88.In my judgment, a reasonable person who had knowledge of the facts known to WP and K at the time of the negotiation and execution of the Settlement Agreement would have made inquiries to confirm whether C was in fact JX’s legal representative, and if not, to ask C to provide written proof of authorization from JX. Neither K nor WP on his behalf took any steps or made any inquiries. If they had, C would have to admit that he was not a legal representative, nor director, nor did he have any actual written authorization from the legal representative or directors of JX to conclude and sign the Settlement Agreement. Any other act of simple verification from JX’s registered corporate documents would also have revealed that C was neither a legal representative nor director of the company.

89.The evidence overall suggests that K and WP were turning a blind eye to the question of whether C had any authority to act for JX.

90.As explained above, although the law applicable to JX is PRC law, there is nothing discernible from the Award that PRC law adopts a different approach to the question of whether a representative of a company should be regarded as having authority to bind the company (based on whether the person dealing with the agent “had reason to believe” that the agent had authority). I accordingly draw analogy from the legal principles applicable under Hong Kong law, as to knowledge and any duty to make enquiry. In PT Asuransi Tugu Pratama Indonesia TBK v Citibank NA (2023)  26 HKCFAR 1, Lord Sumption NPJ explained the applicable principle as follow:

“17 The phrase “on inquiry” is traditional, but it is apt to mislead unless one appreciates what it involves in a commercial context. It is not the same as constructive notice. There is no general obligation spontaneously to inquire into an agent’s authority and no rule that fixes the third party with notice of what might be discovered upon such an inquiry. The starting point is what is actually known to the third party without inquiry (or would actually be known to him if he appreciated the meaning of the information in his hands). The question is whether the information which he actually has calls for inquiry. If, even without inquiry, the transaction is not apparently improper, then there is no justification for requiring the third party to make inquiries. But if there are features of the transaction apparent to a bank that indicate wrongdoing unless there is some special explanation, then an explanation must be sought before it can be assumed that all is well. In other words, if a bank actually knows of facts which to their face indicate a want of actual authority, it is not entitled to proceed regardless without inquiry.” (Emphases added)

91.In my judgment, with the facts known to K and WP acting on his behalf, K and WP had no reason at all to believe and accept that C had the authority to enter into the Settlement Agreement.

92.On the conclusion which I have reached, that the Settlement Agreement was made by C without the knowledge or authority of JX, it would be grossly unjust to enforce the Award which gives effect to the Settlement Agreement and requires JX to withdraw HCA 737, and the remedies sought in those proceedings to recover the Lands or the proceeds representing the Lands which were claimed to have been misappropriated from JX. It would be contrary to the fundamental conceptions of morality and justice to do so (Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999)  2 HKCFAR 111), making it contrary to the public policy of Hong Kong to enforce the Award. If K has a good answer to the claims made against him in HCA 737, it can be fully ventilated before the Court and he can be vindicated by the judgment of the Court.

Disposition

93.This is not a straightforward case but considering all the facts and circumstances, I accede to the application to set aside the Enforcement Order.

94.The order nisi is that K is to pay to JX the costs of and occasioned by the Set Aside Summons (including all the costs reserved), with certificate for Counsel. Such order will become absolute unless application for variation is made within 14 days.

Mr Martin Wong and Mr Benjamin Lam, instructed by Chan & Yeung Lawyers LLP, for the applicant 

Mr Brian Fan, instructed by Boase, Cohen & Collins, for the respondent (on 10 June 2025)

Ms Astina Au and Mr Edward Tsui, instructed by Boase, Cohen & Collins, for the respondent (on 15, 16 and 18 December 2025)