Britain will pay more than £2 million (HK$25 million) to the family of a Libyan dissident abducted with the help of MI6 and in 2004 secretly flown from Hong Kong to Tripoli, where he was tortured.
The deal puts more pressure on justice officials to address allegations Hong Kong conspired with UK and US spy agencies.
"The fact remains that the Hong Kong government played a key role in handing over the Saadi family - including four young children - to [ex-Libyan dictator Muammar] Gaddafi," said Ghada Eldemellawy from Reprieve, a human rights law firm representing Sami al-Saadi in the UK.
"The Hong Kong government still has serious questions to answer about its role in this shameful incident."
Saadi - who was an outspoken opponent of Gaddafi - claims that in March 2004 he and his family were detained in Hong Kong for two weeks before being handcuffed and forced onto a Tripoli-bound plane where he was tortured for years in Gaddafi's prisons.
Yesterday, Saadi - who spent almost half his life escaping the now collapsed Gaddafi regime - accepted with his family a settlement of £2.23 million, the UK High Court heard.
In June, Saadi's legal team from Ho, Tse, Wai & Partners in Hong Kong sent a document to the Department of Justice seeking damages and full disclosure of documents relating to the case.
Lawyer Jonathan Man said it was unclear how the payout might affect the case in Hong Kong. "I have to understand more about the settlement in the UK," he said.
In July, senior government counsel Daphne Yeung wrote to Saadi's legal team that it needed until December 12 to provide a reply to the case but the deadline passed with no response.