EN
“AI contracts often function as the mechanism through which governance expectations are converted into operational obligations.”
“AI procurement is no longer simply about acquiring technology. It is increasingly about preserving strategic flexibility and avoiding excessive dependence on any single provider.”
As enterprise AI moves from pilot projects to business-critical infrastructure, contracts governing its procurement are becoming the primary mechanism for AI governance. Boards, senior management and procurement teams traditionally often place focus on data ownership when AI services are procured from third parties, but data ownership is only the starting point. The more significant questions concern how the information supplied may be used after the end of the contractual arrangement, who controls the resulting capability if the relationship between the organisations providing the information and the AI service providers changes, and who remains accountable when an AI system produces unexpected outcomes.
This article examines how enterprise AI contracts allocate value, control and accountability across the parties involved, and sets out a practical framework for reviewing existing or proposed AI arrangements before problems arise.
Read the full article here.
When one party challenges an arbitral award on grounds of inability to present its’ case, and the other party applies for security; how should the Court decide?
In COB v FCD [2026] HKCFI 4162, the Honourable Madam Justice Mimmie Chan (“Chan J“) considered whether a party challenging the enforcement of an arbitral award should be required to provide security pending determination of the setting-aside application.
Background
The underlying dispute arose from a construction contract (“Contract“). The Defendant was the developer, and the Claimant in the arbitral proceeding (the “Plaintiff“) was the main contractor. In an HKIAC arbitration, the Plaintiff claimed payment of sums certified as outstanding under the Contract. The Defendant advanced, among other matters, a claim for the costs allegedly required to remedy defects in the works (“Defect Costs“), which were relevant to the Defendant’s defence of set-off.
The final award (“Award“) was issued on 9 March 2026, which ordered the Defendant to pay the Plaintiff the principal amount outstanding under the Contract. On 17 March 2026, the Court granted leave to the Plaintiff to enforce the Award (“Enforcement Order“).
On 2 April 2026, the Defendant then applied to set aside the Enforcement Order, complaining of the conduct of the arbitration, and in particular, the treatment of D’s Expert and his evidence.
The Plaintiff subsequently applied for security under Order 73 rule 10A. The security application was heard on 17 July 2026. The substantive setting-aside application had been listed for hearing on 5 August 2026. The Court therefore had to decide whether the Defendant should provide security as a condition of pursuing the challenge.
The Defendant’s Allegations
The Defendant’s case primarily focused on D’s Expert’s evidence on Defect Costs. The Defendant alleged that, on the first day of the arbitration, the Plaintiff had launched a “scathing and unwarranted attack” on D’s Expert’s report. The Plaintiff’s complaint was that D’s Expert report had not grouped the assessments by trades in accordance with the Arbitrator’s directions. The Defendant contended that the attack included “blunt and inaccurate, if not misleading, assertions”.
The Defendant claimed that as a result, the Arbitrator had “egregiously developed a grudge and/or bias” against D’s Expert. The Defendant relied on the Arbitrator’s criticisms of D’s Expert for failing to update his report in light of the latest evidence and for deciding not to produce a supplemental report despite the Arbitrator’s direction. The Defendant alleged that the Arbitrator’s conduct during D’s Expert’s cross-examination demonstrated that the Arbitrator had already decided to reject D’s Expert’s evidence and to assess the Defect Costs at zero.
The Defendant relied on a particular incident when during D’s Expert’s cross-examination, the Arbitrator conducted his own research on the cost of a waste disposal machine. The Defendant argued that D’s Expert had been taken by surprise and had been unable to consider or answer the Arbitrator’s questions fairly.
The Defendant also argued that D’s Expert had prepared his final report on a misunderstanding of what the Arbitrator required. Once the Arbitrator realised this, the Defendant posited that D’s Expert should have been allowed to submit a further report or additional evidence. The failure to provide that opportunity was said to have deprived the Defendant of a reasonable opportunity to present its case.
Approach to Granting Security
Chan J applied the principles from Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208 and the Hong Kong decision of L v B HCCT 41/2015, 5 May 2026. Two considerations were central.
First, the Court should undertake a brief consideration of the apparent strength of the challenge to the award. If the award appeared manifestly invalid, an adjournment and no order for security might be appropriate. If it appeared manifestly valid, the Court should either permit immediate enforcement or order substantial security. Cases falling between those two extremes would require an assessment of the plausibility of the challenge.
Second, the Court should consider whether enforcement would become more difficult if it were delayed, for example, for reasons of movement or dissipation of assets.
The Defendant relied on Czech Republic v Diag Human SE [2024] 1 WLR 3593, arguing that the second consideration was generally more important and that the merits of a challenge should not be examined in detail. Chan J rejected that argument. She explained that the observations in Czech Republic were intended to discourage an overly detailed examination of the merits at the security stage, not to make the merits irrelevant. Where a challenge was clearly without merit, there was nothing in that decision preventing the Court from ordering security.
The Judge’s Reasoning
Chan J began by addressing the allegations of actual and apparent bias. Actual bias has a high threshold; it requires proof that the decision-maker was influenced by partiality or prejudice and was actually prejudiced against a party or its case. The Court also applied the apparent-bias test from Jung Science Information Technology Co Ltd v ZTE Corporation [2008] 4 HKLRD 776 and Porter v Magill [2002] 2 AC 357: whether a fair-minded and informed observer, having considered the relevant facts, would conclude that there was a real possibility of bias.
Chan J found no factual basis for the allegation that the Arbitrator had developed a personal “grudge” against D’s Expert. The adversarial nature of the Plaintiff’s cross-examination could not reasonably be treated as a cause of bias. Parties and their legal representatives are entitled to put their cases vigorously, and experienced arbitrators are accustomed to robust cross-examination and technical challenges.
Chan J emphasised that the Arbitrator had a duty to evaluate the competing expert evidence. That necessarily involved testing D’s Expert’s methodology, assumptions, valuations and conclusions. The Arbitrator was not required to accept D’s Expert’s opinion as if the expert witness had carte blanche over the expert report. If the Arbitrator had concerns about the reliability of the evidence, it was appropriate for him to raise them during the hearing rather than leave them unanswered until the Award.
Chan J also rejected the complaint concerning the Arbitrator’s internet research into the cost of the waste disposal machine. D’s Expert had been given an opportunity to answer the questions and justify his valuation. The Arbitrator had also allowed counsel to address him on the issue. Objectively, the questions were not oppressive, harsh, scathing or unfair.
The alleged differential treatment of the parties’ respective experts was likewise unsupported. Chan J noted that the Arbitrator had questioned the Plaintiff’s expert about her valuation methodology, payment records, actual costs and quotations. The Defendant’s legal team had also attacked the Plaintiff’s expert evidence in submissions, referring to inconsistencies, unsupported assumptions and methodological weaknesses. It could not therefore be shown that D’s Expert had been treated differently because of prejudice.
The Court further held that the Arbitrator was entitled to refuse a further round of expert evidence. The tribunal is the master of its own proceedings, and there must eventually be an end to the filing of evidence. Whether D’s Expert had misunderstood an earlier direction, and whether further reports should be permitted, were matters falling within the Arbitrator’s case-management and time-management powers. The decision to reject D’s Expert’s evidence rather than reopen the evidential process did not demonstrate an improper exercise of discretion.
The Decision
The Court concluded that the Defendant had failed to establish either actual or apparent bias. The Defendant had also failed to show that it was unable to present its case. The Defendant’s legal team had a full opportunity to address all issues, including quantum. Since the allegations of bias and inability to defend were rejected, the associated public-policy argument also failed. Chan J found no serious or egregious breach of due process and nothing that would “shock the Court’s conscience”.
The Court found that the setting-aside application was clearly without merit even on a preliminary review and considered it contrary to procedural economy to delay enforcement. The Defendant was ordered to pay 70% of the principal sum under the Award into Court. If the Defendant failed to do so, the setting-aside application would be dismissed, costs would be awarded on an indemnity basis, and judgment would be entered on the Award pursuant to the Enforcement Order.
The Plaintiff was also granted costs of the security application on an indemnity basis. The decision illustrates that allegations of unfair treatment will not, without more, establish arbitral bias or an inability to present a case. It also confirms that, where a challenge appears manifestly weak, the Court may protect the award creditor by requiring substantial security rather than allowing the challenge to delay enforcement.
On 19 August 2026, the Honourable Mr Justice Coleman of the Court of First Instance heard a judicial review challenge brought by China Evergrande Group (In Liquidation) (“CEG“) against the Securities and Futures Commission (“SFC“). The challenge concerns an agreement between the SFC and PricewaterhouseCoopers Hong Kong (“PwC HK“), under which PwC HK agreed to set aside HK$1 billion to compensate eligible independent minority shareholders of CEG (“Settlement Agreement“).
The Court’s decision is expected to provide important guidance on the scope of the SFC’s power to resolve contemplated enforcement action through voluntary agreements outside of disciplinary matters.
This update outlines the key submissions made by the parties at the hearing.
Please see our article for more details.
Introduction
Sir Dickson Poon, founder and former Group Executive Chairman of Dickson Concepts (International) Limited[1] (the “Company“), and his investment vehicle, Equity Advantage Limited (“Equity Advantage“), have been found by the Market Misconduct Tribunal (“MMT“) to have engaged in insider dealing through purchases of the Company’s shares while in possession of undisclosed inside information concerning a transaction that yielded approximately HK$1.15 billion in cash proceeds for the Company.
The MMT also found that the Company breached its disclosure obligations under section 307B of the Securities and Futures Ordinance (Cap. 571) (“SFO“) as a result of Sir Dickson Poon withholding the information from the board of the Company.
Background: The Undisclosed Investment and PayPal’s US$4 Billion Acquisition of Honey
The case centred on PayPal Holdings, Inc.’s approximately US$4 billion acquisition of Honey Science Corporation (“Honey”), announced in November 2019. At the time, the Company held a 3.73% equity interest in Honey, which was not publicly disclosed and appeared in the Company’s financial statements only as an “unlisted equity security” under “other financial assets”, without identifying Honey as the investee company.
Following completion of the acquisition, the Company received approximately US$147.6 million (HK$1.15 billion), generating a gain of approximately HK$928.7 million. The MMT held that information relating to the transaction was highly price-sensitive and therefore constituted inside information under the SFO.
Insider Dealing and Failure to Inform the Board
Although Sir Dickson Poon became aware of the proposed acquisition in November 2019, the information was not communicated to the board or senior management of the Company until late December 2019 and was not disclosed to the market until January 2020.
Following the expiry of the Company’s routine results blackout period on 28 November 2019, Sir Dickson Poon acquired shares in the Company through Equity Advantage. Between 28 November and 19 December 2019, he purchased a total of 2,756,500 shares over 13 trading days while in possession of the undisclosed inside information.
Trading in the Company’s shares was suspended on 8 January 2020 pending an announcement regarding completion of the Honey acquisition and resumed two days later. Upon resumption of trading, the share price rose sharply and closed at HK$5.00, representing a 33.3% increase from its pre-suspension closing price.
While the MMT found that the Company’s breach of its disclosure obligations under section 307B of the SFO was directly attributable to Sir Dickson Poon’s decision to withhold the information from the board, the MMT did not find Pearson Poon, a director of the Company and Sir Dickson Poon’s son, liable for the disclosure breach. It concluded that Pearson Poon had acted reasonably in relying on Sir Dickson Poon and other members of senior management to assess the significance of the information and determine whether disclosure was required.
The MMT will determine sanctions and consequential orders against Sir Dickson Poon, Equity Advantage and the Company at a later hearing.
Key Takeaways
The decision provides important guidance on insider dealing, corporate disclosure obligations and the responsibilities of directors of listed issuers.
The expiry of a routine trading blackout period under the HKEX Listing Rules does not provide a defence to insider dealing under section 270 of the SFO. Directors and other connected persons remain prohibited from dealing in a listed issuer’s securities while in possession of undisclosed inside information, regardless of whether trading is otherwise permitted under the issuer’s internal dealing policies or the Listing Rules.
The case illustrates that inside information known to an officer in the course of performing his or her duties may be attributed to the listed issuer for the purposes of Part XIVA of the SFO. A controlling shareholder, founder or chairman cannot avoid disclosure obligations by withholding material information from fellow directors. Such conduct may expose not only the individual concerned to liability, but also place the listed issuer in breach of its statutory disclosure obligations.
The decision also sheds light on the operation of section 307G of the SFO. A director who neither trades on inside information nor participates in a decision to withhold disclosure may avoid personal liability where he or she reasonably relies on more senior colleagues or professional advisers to assess the significance of the information and oversee the disclosure process. Whether such reliance is reasonable will, however, depend on the circumstances of each case.
In this case, the Company’s investment in Honey was recorded merely as an “unlisted equity security” under “other financial assets”, without identifying the investee. As a result, the market had no visibility of the Company’s exposure to Honey or the potential value of that investment. By contrast, Sir Dickson Poon, having knowledge of the identity of the investee and its prospects, was in a far better position to assess the true value of the Company’s shares than ordinary investors.
The case highlights the need for listed issuers to consider carefully whether generic or aggregated disclosure of material investments in periodic financial reports may leave insiders with a continuing informational advantage over shareholders.
A genuine commercial rationale for trading is unlikely, on its own, to excuse dealing while in possession of inside information.
In some other major markets, a defendant’s stated commercial motive for trading is largely irrelevant once it is shown that they possessed inside information at the time. Hong Kong’s own case law has moved firmly in this direction. In Securities and Futures Commission v Yiu Hoi Ying Charles and Others (2018) 21 HKCFAR 475, the Court of Final Appeal narrowed the scope of the “innocent purpose” defence under section 271(3) of the SFO, holding that a defendant “uses” price-sensitive information whenever their decision to deal is made because of a market price they know to be distorted by that undisclosed information, regardless of any other commercial motive for the trade.
The MMT’s rejection of Sir Dickson Poon’s evidence that he was trading as a controlling shareholder to increase his stake in an undervalued company, rather than because of the Honey information, is consistent with this narrower, more demanding standard, and suggests that a stated commercial rationale will rarely, on its own, excuse dealing while in possession of undisclosed inside information.
For further details, please refer to the Securities and Futures Commission’s press release dated 15 October 2024 and its Enforcement News dated 31 July 2026.
[1] The shares of Dickson Concepts (International) Limited (stock code: 0113) are listed on the Main Board of The Stock Exchange of Hong Kong Limited.
“The hidden ownership question in enterprise AI is not answered simply by asking who owns or controls the data. It is who captures the value created from it.”
As organisations invest heavily in enterprise AI, many assume that retaining rights in and control over their data means retaining the value it generates, but AI is beginning to challenge that assumption. The value created by AI depends on factors beyond the underlying information supplied, such as model architecture, critical infrastructure and ongoing refinement.
Those who benefit from AI-enabled value creation are not always the same as those bearing the associated risks. Boards and senior management should therefore understand how value, control and accountability are distributed across the AI ecosystems.
Read the full article here.
See news from our global offices