OWH SE i.L. (in liquidation) (formerly known as VTB BANK (EUROPE) SE, i.L. (in liquidation)) v. VTB Bank (PUBLIC JOINT-STOCK CO)

CACV 443/2024 & CACV 327/2025, [2026] HKCA 1294

On Appeal From [2024] HKCFI 2529

(Heard together)

CACV 443/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO.443 OF 2024

(ON APPEAL FROM HCCT NO. 73 OF 2023)

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AND

CACV 327/2025

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 327 OF 2025

(ON APPEAL FROM HCCT NO. 16 OF 2024)

____________________

____________________

____________________

(Heard Together)

____________________

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JUDGMENT

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Hon Anthony Chan JA (giving the Judgment of the Court) :

Introduction

1.  The Plaintiff (“OWH”) has made two parallel applications for security for costs in respect of the Defendant’s (“VTB”) appeal against the judgment of Mimmie Chan J (“Judge”) handed down on 24 September 2024 (“Judgment”).

2.  In the Judgment, the Judge considered two separate originating summonses, HCCT 73/2023 and HCCT 16/2024, and granted OWH both an anti-suit injunction and an anti-enforcement injunction against VTB in each of the actions, restraining VTB from pursuing Russian court proceedings and enforcing judgments in breach of an arbitration clause contained in the Termination and Settlement Agreement dated 8 April 2022 (“TSA”), which provided for arbitration in the Hong Kong International Arbitration Centre (“HKIAC”).

3.  On 22 October 2024, VTB appealed against the Judgment in CACV 443/2024.  As a result of directions by the Registrar of Civil Appeals, VTB amended its notice of appeal in CACV 443/2024 (“CACV 443 NoA”) and filed another notice of appeal under CACV 327/2025 on appeal from HCCT 16/2024 (“CACV 327 NoA”).

4.  The grounds of appeal set out in both the CACV 443 NoA and the CACV 327 NoA are identical.  OWH filed a respondent’s notice against each of the appeals (respectively, “CACV 443 RN” and “CACV 327 RN”).  Both CACV 443 RN and CACV 327 RN contain identical grounds to affirm the Judgment. 

5.  On 12 February 2025 (amended on 13 August 2015) and 18 July 2025, OWH took out the two present applications for security for costs for CACV 443/2024 in the sum of HK$1,272,500 and CACV 327/2025 in the sum of HK$567,220 (“Applications”).  OWH’s applications are supported by affirmations from Dr Anke Meier.  

6.  The Applications are opposed by VTB.  Affirmations in opposition by Mr Phillip Loukis Georgiou have been filed on its behalf.

7.  Having considered the evidence and submissions lodged by the parties, we consider that it is appropriate to determine the Applications on paper without an oral hearing pursuant to O.59, r.14A(1) of the Rules of the High Court, Cap 4A (“RHC”).

Background facts

8.  The factual background has been summarised in full at [1] to [28] of the Judgment.

9.  The background facts are largely undisputed and, given the nature of the Applications, can be succinctly stated as follows :

(1)  VTB holds 99.39% of the shares in OWH and another Russian company is the minority shareholder.

(2)  Since 23 July 2003, OWH, which is a bank headquartered in Germany, and VTB have entered into various foreign exchange and derivative transactions (“Transactions”).

(3)  On 17 March 2014, the European Union implemented the EU Sanction (defined in the Judgment, [8]) (“EU Sanction”) in response to threats to Ukraine’s independence.  In short, under the EU Sanction, all economic resources belonging to or controlled by entities listed in Annex I would be frozen, and no economic resources should be made available to entities listed in Annex I or their associates.

(4)  As a result of the war between Russia and Ukraine in February 2022, the German Federal Financial Supervisory Authority (“BaFin”) issued an order on 24 February 2022 prohibiting OWH from, inter alia, making payments or other transfers of assets to companies belonging to the VTB Group, including VTB.

(5)  On 28 February 2022, BaFin issued a further order prohibiting OWH from, inter alia, making payments to Russian banks (including VTB), with a view to winding down OWH’s banking business and eventually implementing a solvent winding-up of OWH.

(6)  On 8 April 2022, VTB was named by the EU as a sanctioned entity and added to Annex I.

(7)  On 8 April 2022, VTB and OWH entered into the TSA.  Under the TSA, VTB and OWH agreed that the Transactions would be terminated and discharged by OWH paying €112,634,610 (“Settlement Amount”) to VTB on or before 8 April 2022.

(8)  The TSA stated that it is governed by English law and contained a dispute resolution clause for arbitration in Hong Kong (“Arbitration Clause”).

(9)  Despite the Arbitration Clause, VTB commenced two sets of legal proceedings in Russia against OWH. 

(10)  OWH applied for and obtained an interim anti-suit injunction on 27 October 2023 from the Hong Kong Court, where VTB was ordered to take all necessary steps to seek a stay of, and otherwise not to take any further steps in the Russian proceedings, and not to commence or pursue proceedings relating to the parties’ underlying dispute (payment of the Settlement Amount), save in accordance with the Arbitration Clause.

(11)  VTB continued to pursue further proceedings in Russia.  In those proceedings, VTB sought and obtained orders from the Russian Court which prohibited OWH from initiating proceedings in Hong Kong, as well as arbitration proceedings with the HKIAC.

(12)  The Russian Court has since entered judgment in favour of VTB for the full recovery of the Settlement Amount.  VTB has recovered €19,252,918.09 through enforcement actions in Russia.[1]

The Judgment

10.  At the hearing before the Judge, VTB contended that the Hong Kong courts had no jurisdiction by virtue of Article 19[2] of the Basic Law, because the Hong Kong courts do not have jurisdiction over acts of state, such as foreign affairs and that the courts of Hong Kong must obtain a certificate from the Chief Executive on questions of fact concerning acts of State.  In that regard, VTB also relied upon Article 13 of the Basic Law, which states that the Central People’s Government shall be responsible for foreign affairs relating to the HKSAR.[3]  VTB relied upon the Court of Final Appeal decision of Democratic Republic of Congo v FG Hemisphere Associates LLC (No 1) (2011) 14 HKCFAR 95 in support.

11.  VTB further argued that the disputes before the Russian Courts were not arbitrable issues, as VTB was seeking relief against the acts of the German state in implementing and enforcing the EU Sanction, and that the Russian Court had exclusive jurisdiction in respect of such disputes.  The Russian proceedings, therefore, did not constitute breaches of the parties’ arbitration agreement.

12.  VTB alternatively argued that the Hong Kong courts lacked jurisdiction and that there were strong reasons against granting the anti-suit injunction and the reliefs sought by OWH.

13.  The Judge rejected VTB’s submissions that the Court had no jurisdiction over OWH’s claims.  This was because Articles 13 and 19 of the Basic Law were not relevant to the issues raised for determination in the case, as there was no state and no act of state involved.[4]  Here, the parties involved were two banks.[5]

14.  The Judge went on to hold that the only pertinent question for determination was whether there was a valid and binding arbitration agreement between OWH and VTB that covered the scope of the dispute between the two parties, and whether to grant the injunctions sought by OWH.[6]  Further, the application for injunctive relief did not require the Court to adjudicate the validity, lawfulness or fairness of the EU Sanction, nor its operation within the territory of the EU.  There was no attempt by OWH to seek enforcement of the EU Sanction in Hong Kong as it was neither recognised nor applied here.  The Hong Kong Court was not considering the merits of the underlying dispute but simply facilitating the arbitration agreement between the parties and nothing else.[7]

15.  VTB’s argument that there was a need for the Hong Kong courts to speak with one voice and work in harmony with the executive and the government on matters of foreign policy as well as public policy, relying upon Articles 1 to 3 of Order No 1 of 2021 on the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures issued by the Ministry of Commerce of the People’s Republic of China, was rejected by the Judge because neither OWH nor VTB is an organisation or legal person of China, the targets of protection under the Order.

16.  With respect to VTB’s reliance on Article 248 of Russia’s Arbitrazh Procedural Code (“Article 248”) which granted Russian courts exclusive jurisdiction over disputes between Russian and foreign parties arising from foreign sanctions, the Judge held that a grant of anti-suit injunctive relief was an in personam relief and not binding upon a foreign court.  Its effectiveness depended simply on the defendant being amenable to the jurisdiction of the Hong Kong Court.[8]  The fact that a foreign court had jurisdiction in a matter carried little weight when the entire purpose and expressly stated intent of each party to either an exclusive jurisdiction clause or an arbitration agreement was to prevent them from invoking another jurisdiction.[9]

17.  Finally, VTB argued that there were strong reasons to refuse relief, namely, (a) there was no dispute to be resolved by arbitration because there was common ground that payment of the Settlement Amount cannot be made by OWH to VTB due to the EU Sanction; (b) because of the EU Sanction, the Hong Kong arbitration would be futile; and (c) there was strong cause to refuse relief on public policy grounds.[10]

18.  The Judge held, contrary to VTB’s submissions, that there was a dispute between the parties that fell within the Arbitration Clause and could be submitted to arbitration.[11]  Further, simply because the Hong Kong arbitration might be futile was not a ground not to grant the relief sought; there was still practical utility in the anti-suit or anti-enforcement relief.[12]  With regard to the public policy arguments, the Judge held that simply because the EU Sanction was the focus of the dispute in the Hong Kong arbitration did not mean that the grant of anti-suit injunction and associated relief was contrary to public policy.[13]  The EU Sanction should be respected insofar as it affected rights in, or property located within, the EU, and the courts and tribunals here will not call into question the acts of the EU within the limits of the EU’s territory.  As the EU Sanctions did not affect the rights or property of any Chinese or Hong Kong entities, there was no basis at all for the Court to conclude that it would be contrary to the public policy of Hong Kong to grant the relief sought and to uphold the Arbitration Clause. 

VTB’s grounds of appeal

19.  VTB’s grounds of appeal are, in summary, as follows :

(1)  The Judge erred in determining that the EU sanction and countermeasures put into effect by the Russian Federation do not give rise to a question of fact concerning acts of state, thereby requiring a certificate under Article 19 of the Basic Law.

(2)  The Judge erred in finding that there is a dispute between the parties within the scope of the arbitration agreement under the TSA as to the liability and quantum of the sum payable thereunder.

(3)  The Judge erred in concluding that the acts of BaFin cannot be equated with the acts of the German State.

(4)  The Judge erred in concluding that there was no evidence of expropriation of VTB’s assets by the German State, namely, through the expropriation of VTB’s 99.39% shareholding in OWH by the exercise of powers by BaFin to implement the EU Sanction against OWH and VTB.

(5)  Based on (3) and (4) above, the Judge erred in concluding that the relief in the form of anti-suit and anti-enforcement injunctions sought by OWH would not be contrary to Hong Kong public policy, notwithstanding that the EU Sanction does not have effect in Hong Kong, and in the circumstances where OWH has been expropriated by the German State through the powers of BaFin to implement and enforce the EU Sanction against OWH and VTB.

OWH’s respondents’ notice

20.  OWH contends that the Judgment should be affirmed on the following additional or alternative grounds pursuant to RHC O.59, r.6(1)(b) :

(1)  In addition to the disputes between OWH and VTB, which the Judge found should be submitted to arbitration, there exists the dispute as to whether OWH is liable to pay the Settlement Amount, which is prohibited by the EU Sanction.  As a matter of English law, the Court will not enforce an obligation which requires a party to do something which is unlawful by the law of the country in which the act has to be done (in this case, Germany).

(2)  The finding that VTB failed to show any strong cause against enforcing the arbitration agreement is further supported by the fact that the rationale for introducing Article 248 is to permit Russian entities to bypass the effect of EU Sanction; such that OWH would unlikely be able to rely on the imposition of the EU Sanction as a defence to the claims before the Russian Court (which would otherwise have been available in the agreed forum).  VTB’s breach of the arbitration agreement in order to litigate before a court that would ignore part of the governing law of the TSA is illegitimate and warrants injunctive relief.

Legal principles governing security for costs

21.  RHC O.59, r.10(5) states that the Court of Appeal may, in special circumstances, order that such security shall be given for the costs of an appeal as may be just.  “Special circumstances” include cases where a respondent to an appeal will likely encounter undue delay or be put to undue expense in enforcing any order for costs in respect of the appeal.  The fact that the appellant is resident abroad is prima facie proof that there will be difficulty or expense in enforcing a costs order: Quest Investments Ltd v Lee Wai Tung [2021] HKCA 926, [10].

22.  However, in all cases, the Court retains a residual discretion not to order security if the appellant can demonstrate sufficient countervailing factors which would militate against such an order being made.

23.  This Court may form a preliminary view of the appeal’s merits when determining whether to order security.  This is one aspect of the Court’s assessment of any countervailing factors, and unless the appeal is very strong or hopeless, the court will generally look to other factors to tilt the balance: Re Dragon Seafoods Ltd [2024] HKCA 966, [29].

24.  The overriding consideration remains to consider whether “special” (not exceptional) circumstances exist, making it “just” to order security: 21 Finance Ltd v Gan Lei & Anor [2024] HKCA 237, [14].

25.  To assess the quantum of security, the Court normally takes a broad-brush approach and does not conduct a taxation of the respondent’s costs when fixing the quantum: Re Dragon Seafoods Ltd, [30].

OWH’s grounds for seeking security

26.  OWH submits that because VTB is a Russian bank and resident abroad, this is prima facie proof that there will be undue delay and expenses in enforcing a costs order.  OWH will have difficulty in enforcing any costs order against VTB because: (1) there is no reciprocal enforcement arrangement between Russia and Hong Kong for the enforcement of any costs orders,[14] and (2) VTB has repeatedly flouted orders of the Hong Kong Courts (in particular, the interim injunction granted in these proceedings).

Discussion

27.  It is undisputed that VTB is a company ordinarily resident outside Hong Kong’s jurisdiction and that there are no reciprocal arrangements for enforcing judgments between Hong Kong and Russia.[15]

28.  We are therefore of the view that OWH will likely encounter undue delay and/or be put to undue expense in enforcing any order for costs in respect of the appeal.  Consequently, the Applications turn on whether VTB can demonstrate any countervailing factors as to why security should not be provided.

29.  VTB submits two grounds why security for costs should not be ordered :[16]

(1)  As a consequence of the EU Sanction, OWH is under a voluntary and solvent liquidation by order of the German authorities, and the realisation of the assets of OWH (which are almost entirely owned by VTB) is available to OWH to satisfy any costs order made in favour of it, and

(2)  There are genuine legal and practical prohibitions that would prevent VTB, as a “Specially Designated National”, from making direct payments into court as requested by OWH.

30.  In respect of issue (1), VTB contends, and OWH agrees, that OWH is prevented from paying the Settlement Amount because of the EU Sanction, and that the precise legal basis under English law preventing payment is an issue to be disposed of in the arbitration between OWH and VTB.

31.  VTB further states that having recovered €19,252,918.09 through the Russian proceedings, a net balance of €93,381,691.91 (“€93 Million”) remains outstanding under the TSA.  This sum, according to VTB, would be recorded as a liability/debt under OWH’s balance sheet.

32.  VTB further says that there is no evidence before this Court that the funds otherwise payable under the TSA, but for the EU Sanction, are required to satisfy other creditors of OWH as part of the solvent winding-up.  The fact that OWH is subject to a solvent winding-up presumably means that OWH has sufficient assets to satisfy its liabilities without recourse to the €93 Million, and any costs order that may be made against VTB in these appeal proceedings would be dwarfed by the €93 Million owed to VTB.

33.  VTB relies upon Jose Miranda Da Costa Junior & Anor v Lorenzo Yih & Ors (unrep., HCA 156/2010, 8 October 2013) in support of its contention.  Jose Miranda was an appeal against a master’s decision regarding security for costs, where Chung J held, at [13], that since one of the security for costs applicants was in possession of the respondent’s assets (gemstones), the value of which was sufficient to provide security for the costs of the action, there should be no order for security.

34.  In short, VTB says the Applications should be rejected because OWH holds VTB’s assets, which are sufficient to cover its potential legal costs.  In other words, OWH is a de facto holder of security.  

35.  Whilst this is an attractive argument, it must be remembered that OWH and VTB are separate legal entities.  The assets of OWH belong to OWH, and not held for and on behalf of VTB.  This distinguishes the present case from Jose Miranda.

36.  Further, OWH’s liability to pay the Settlement Amount is a matter to be dealt with in accordance with English law.  Arguably, any claim that VTB may have against the Settlement Amount may be unenforceable due to the principles in Ralli Brothers v Compania Naviera Sota y Anzar [1920] 2 KB 287, to the effect that a court will not enforce the performance of a contract where performance would be illegal in the place of performance.

37.  As regards any surplus in the solvent winding-up of OWH to which VTB may be entitled as its shareholder, the uncontradicted evidence of OWH is that the EU Sanction prohibits any set-off in favour of VTB.  Given that the winding-up is governed by German law, this Court must have regard to the fact that no set-off against costs payable by VTB in this appeal may be allowed against any distribution entitlement in its favour under the winding-up.

38.  There is no suggestion in the evidence that the EU Sanction may be lifted in the foreseeable future.

39.  In short, we are of the view that OWH has made out a prima facie case in support of the Applications, and it is not diminished by VTB’s contentions that OWH has retained security by holding the €93 Million or any distribution which VTB may be entitled under OWH’s winding-up.

40.  As regards VTB’s assertion that this Court should exercise its residual discretion and refuse security on the grounds that its appeal is genuine and has strong prospects of success,[17] VTB says that its reliance on Ground 1 concerning Article 19 of the Basic Law is of great general public importance, and its construction of Article 19 must be correct as a matter of logic and principle.[18]

41.  This is not the occasion for an in-depth consideration of the merits of the appeal,[19] which will have to be fully ventilated at the substantive hearing.  It suffices for us to say that, having considered the grounds of appeal in VTB’s Notices of Appeal, we consider that VTB has an arguable appeal at best, but the merits do not constitute sufficient countervailing factors to militate against the making of an order of security for costs in the present case.

Mode of security

42.  VTB submits that, if this court were minded to grant security, careful consideration should be given to the difficulties and complexities that VTB will face when attempting to satisfy the mode of security sought by OWH, being payment into court.

43.  VTB says due to the EU Sanction, it has difficulties routing payments, and has to use “alternative channels” involving “a complex and opaque process of routing payments through multiple intermediary companies in various third-party jurisdictions”.[20]  This, VTB says, was the convoluted method that it has been using to deposit funds with the HKIAC for tribunal and administrative costs and expenses.  VTB implies that, because of this “opaque process”, the High Court may not accept its payment into court.

44.  Given the evidence of VTB and OWH that VTB has been making large payments to the HKIAC, we are not convinced that VTB would have difficulty making payment into court in Hong Kong.  Further, VTB’s assertion that it engaged in a complex and opaque process in making payment to the HKIAC is unsupported by any evidence.

45.  In short, VTB does not contend that it is impossible to make a payment into court, but there are difficulties to overcome in doing so.  Moreover, the fact that a third party may assist VTB in making payment into court is not objectionable.

Quantum

46.  The quantum of security is undisputed.

47.  Despite seeking a different quantum in each of its summonses for security for costs, OWH, in its written submissions, seeks HK$1,300,000 (instead of HK$1,839,720) for both appeals.  We believe that the concession is appropriate, given that the appeals and the Respondent’s Notices are identical and address only one set of issues.

48.  We therefore find that the appropriate amount for the security is HK$1,300,000.

Costs of the summonses

49.  OWH contends that the costs of the Applications should be paid by VTB on an indemnity basis.  We take the view that the costs in question should be costs in the cause of the appeal.

50.  Whilst we accept that indemnity costs are normally ordered for unmeritorious challenges against arbitration clauses,[21] the same does not necessarily hold true for an interlocutory application for security for costs on appeal.[22]

51.  The applicant must demonstrate a special or unusual feature to warrant an order for indemnity costs, and OWH has not done so.

52.  The costs of the Applications should be taxed on a party and party basis (if not agreed).

Disposition and order

53.  The Applications are allowed.

54.  We order that :

(1)  VTB do give security within 28 days from the date of this order by paying into court a sum of HK$1,300,000 for the costs of and occasioned by these appeals.

(2)  Until compliance with paragraph 1 hereof, all proceedings in these appeals shall be stayed.

(3)  In default of compliance with paragraph 1 within the time specified, the appeals shall stand dismissed without further order, with costs of the appeals to be paid on an indemnity basis.

(4)  The costs of the Applications are to be in the cause of the appeals.  Such costs are taxable on party and party basis.

[1]  Mr Georgiou’s 1st affirmation filed in CACV 443/2024 on 15 September 2025 (“Georgiou 1st”), §10.

[2]  Article 19 of the Basic Law states:

“The Hong Kong Special Administrative Region (“HKSAR”) shall be vested with independent judicial power, including that of final adjudication.

The courts of the HKSAR shall have jurisdiction over all cases in the Region, except that the restrictions on their jurisdiction imposed by the legal system and principles previously in force in Hong Kong shall be maintained.

The courts of the HKSAR shall have no jurisdiction over acts of state such as defence and foreign affairs.  The courts of the Region shall obtain a certificate from the Chief Executive on questions of fact concerning acts of state such as defence and foreign affairs whenever such questions arise in the adjudication of cases.  This certificate shall be binding on the courts.  Before issuing such a certificate, the Chief Executive shall obtain a certifying document from the Central People’s Government.”

[3]  Article 13 of the Basic Law states:

“The Central People’s Government shall be responsible for the foreign affairs relating to the HKSAR.

The Ministry of Foreign Affairs of the People’s Republic of China shall establish an office in Hong Kong to deal with foreign affairs.

The Central People’s Government authorizes the HKSAR to conduct relevant external affairs on its own in accordance with this Law.”

[4]  Judgment, [45].

[5]  Judgment, [46]-[58].

[6]  Judgment, [59].

[7]  Judgment, [60]-[61].

[8]  Judgment, [64].

[9]  Judgment, [67].

[10]  Judgment, [70], [75], [86]-[88].

[11]  Judgment [69]-[74].

[12]  Judgment [75]-[85].

[13]  Judgment [86]-[103].

[14]  Two-Way Media Ltd v PCCW Ltd & Ors [2023] HKCFI 659, [21]-[22].

[15]  Georgiou 1st, §7.

[16]  Georgiou 1st, §8.

[17]  VTB’s Submissions, §17.

[18]  VTB’s Submissions, §18.

[19]  Two-Way Media Ltd v PCCW Ltd & Ors [2023] HKCFI 659, §30(iii).

[20]  VTB’s Submissions, §22.

[21]  Chimbusco International Petroleum (Singapore) Pte Ltd v Fully Best Trading Ltd [2016] 1 HKLRD 582.

[22]  See for example, P1 and P2 v D [2024] HKCFI 3052, [5.2].