Hong Kong Court Sets Aside Mainland Award on Public Policy Grounds

Hong Kong's Court of First Instance has set aside the enforcement of a Mainland arbitral award founded on a settlement agreement signed without authority, in K v JX [2026] HKCFI 2854. In a follow-up ruling, K v JX [2026] HKCFI 4344, the same court granted K leave to appeal despite finding the appeal had no reasonable prospect of success, because the exercise of the public policy discretion is, in the court's words, "a matter of public interest and in the interests of justice."

The dispute began with a Cooperation Agreement between K and JX. JX sued K and other parties in Hong Kong proceedings known as the HCA. A Settlement Agreement was then signed by C, who purported to act as JX's "actual controller." It provided for discontinuance of the HCA and payment of certain sums. The agreement was governed by PRC law and contained an arbitration clause referring disputes to the Beijing Arbitration Commission.

How did the arbitration unfold?

JX did not discontinue the HCA. K commenced arbitration, seeking performance and damages for breach. JX defended on the basis that the Settlement Agreement and the arbitration agreement were invalid, because C was neither JX's legal representative nor authorized to sign, and was an employee who had resigned before the settlement date.

The tribunal found no evidence that C had actual authority or was JX's "actual controller." But it held there was reason for K to believe C was duly authorized, and that under PRC law this sufficed for a party relying on a purported agent's act. The Award required JX to discontinue the HCA and pay K damages for breach of contract.

Why did the Hong Kong court refuse enforcement?

The Court of First Instance initially granted K leave to enforce the Award. JX then applied to set aside the Enforcement Order on two grounds: the arbitration agreement was invalid, so the tribunal lacked jurisdiction; and enforcement would be contrary to public policy because the Settlement Agreement was signed by C without authority, amid collusion and bribery involving C and K.

The court rejected the jurisdictional challenge. JX had raised no such challenge in the arbitration itself. The arbitration agreement was severable and independent of the underlying contract, so a dispute over the underlying contract did not amount to a challenge to the tribunal's jurisdiction. By conduct, JX had accepted and expressly agreed that the validity of the Settlement Agreement and C's authority would be decided by the tribunal.

On public policy, the court took a different path. The evidence of collusion and bribery surfaced only after the Award, and the tribunal had never considered it. The enforcement court could and should examine such claims, the court held. It heard oral testimony from Y (JX's beneficial owner), WP (K's lawyer/assistant) and K, and concluded there was no reason for K and WP to believe C had authority. They had, the court found, simply turned a blind eye. Enforcement would be "contrary to the fundamental conceptions of morality and justice," the court held, and it set aside the Enforcement Order.

What does the leave-to-appeal ruling say?

K argued the court had erred by reviewing the tribunal's findings and substituting its own public policy analysis. The court disagreed. It had not reopened the tribunal's findings of fact and law.

The court framed the test this way: whether illegality, corruption or other serious wrongdoing can be "re-opened" at the enforcement stage depends on whether the question was put to, considered and determined by the tribunal. Courts must balance the public policy in favour of finality against that against illegality. Here, a prima facie case of collusion justified cross-examination of witnesses, and admissions of collusion and bribery were made. Since the tribunal never ruled on that evidence, there was no finding to be "overturned."

What does this mean for practitioners?

The practical stakes are clear for enforcement parties. An award grounded on a tainted settlement is fragile in Hong Kong: courts will meet serious integrity allegations with a hearing rather than defer to finality. At the same time, the exception stays narrow — courts will not reopen issues the tribunal actually determined.

The grant of leave to appeal, despite the no-prospect finding, signals that the Court of Appeal will now settle the definitive test for when the public policy discretion may be exercised over fresh illegality evidence. Practitioners enforcing Mainland awards in Hong Kong should treat this as a case to monitor closely.