A COMPANY v. THE BANK

HCCT 162/2025

[2026] HKCFI 3169

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 162 OF 2025

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D E C I S I O N

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Background

1.  On 31 October 2025, this Court granted leave to the Applicant (“Enforcement Order”) to enforce an award dated 11 June 2025 (amended on 12 August 2025) (“Award”) which was made in an arbitration before the London Court of International Arbitration (“Arbitration”). The Arbitration was commenced by the Applicant against the Respondent for payment under guarantees issued by the Respondent as security for a third party’s performance under a Contract dated 29 December 2021 (“Contract”) for the provision of engineering and technical services, the supply of goods and the execution of works at a metallurgical plant in Russia.

2.  Under the Award, the Respondent was ordered to pay to the Applicant the total sum of EUR 30,012,624.18 under the three guarantees, with interest from 13 December 2022 until payment.

The parties and their dealings

3.  The Applicant is a Russian company, said to be the world’s largest producer of high grade nickel and palladium. “X” is the CEO, President and Chair of the Management Board of the Applicant. X is also one of the ultimate beneficial owners of approximately 40% of the Applicant. Together with three other individuals, X is said to hold in the aggregate over 50% of the beneficial shareholding of the Applicant. X and these other individuals have been referred to in these proceedings as the “Four Individuals”.

4.  On 29 December 2021, the Applicant entered into the Contract with the “H Companies”, for the latter to provide engineering and technical services, supply goods, and execute works at the Applicant’s plant in Russia. On 26 January and 28 January 2022, the H Companies obtained 3 bank guarantees from the Respondent (“Guarantees”), under which the Respondent, a Canadian bank, undertook to pay the Applicant a sum in excess of EUR 30 million if the H Companies should fail to properly fulfill the obligations and to refund advance payments made under and in accordance with the terms and conditions of the Contract.

5.  In 2014, which was before the issue of the Guarantees, Canada had already put in place special economic measures under regulations (“Russia Regulations”) which were created pursuant to section 4 of the Special Economic Measures Act of Canada 1992 (“SEMA”). The Russia Regulations were created in response to Russia’s occupation of Crimea.

6.  Section 3 of the Russia Regulations prohibits, among other things, any person in Canada, or any Canadian outside Canada, from dealing in property owned, held or controlled by or on behalf of persons listed in Schedule 1 to the Russia Regulations, or entering into or facilitating, directly or indirectly, any transaction related to such a dealing.

7.  Under section 8 of SEMA: “Every person who wilfully contravenes or fails to comply with an order or regulation made under section 4” (which includes the Russia Regulations) commits a criminal offence, and may be liable: (i) on summary conviction to a fine of up to CAD 25,000 and/or prison term of up to 1 year; or (ii) on indictment, to a fine in an amount  set at the discretion of the court and to a prison term of up to 5 years.

8.  Around one month after the issuance of the Guarantees, Russia launched the invasion of Ukraine. In response, Canada imposed over 60 rounds of sanctions against Russia under the Russia Regulations. The Canadian Government also made significant updates to its sanctions regime, including the Russia Regulations, in order to prevent loopholes for sanctioned persons to circumvent the sanctions. According to the Respondent, the Four Individuals were amongst the persons who were added to Schedule 1 of the Russia Regulations as falling within the scope of the sanctions imposed by the Canadian Government.

9.  It is not disputed, that on 13 October 2022, the Applicant terminated the Contract when the H Companies refused to refund the advance payments made under the Contract. One month later, the Applicant issued demands to the Respondent for payment under the Guarantees.

10.  It is also not disputed that the Respondent’s response was that although the Applicant’s demands were compliant with the terms of the Guarantees, the Respondent was prohibited from paying the sums by virtue of the Canadian sanctions.

11.  On the evidence, the Applicant made an application in May 2023 to Global Affairs Canada (“GAC”), the foreign ministry responsible for the administration and enforcement of the SEMA sanctions, and the regulatory body vested with the authority and expertise to determine questions of sanctions and compliance under Canadian law. GAC is also responsible for the issuance of permits required in relation to SEMA. In the application, the Applicant acknowledged that the Russia Regulations are applicable to the Respondent, but made submissions on why a money transfer by the Respondent to the Applicant would not be prohibited by SEMA or the Russia Regulations. It sought a confirmation from GAC that no permit was required for the Respondent to make payment to the Applicant under the Guarantees, but if a money transfer was prohibited, the Applicant sought a permit to be granted by GAC to the Respondent, for the payment to be made to the Applicant. There is no evidence that this application produced any positive response or outcome.

12.  In June 2023, section 2.1 of SEMA was enacted. As explained by the Respondent, this extended the scope of property subject to the Canadian sanctions regime by introducing provisions for “deemed ownership”, to deal with the question of “control” by sanctioned persons. Specifically, it extends the scope of the section 3 prohibitions applicable to Canadians and those in the territory of Canada, such that they are barred from transacting, not just with the listed persons under Schedule 1, but also with those property which is deemed to be owned by listed persons.

13.  Section 2.1(1) of SEMA states that:

“If a person controls an entity other than a foreign state, any property that is owned — or that is held or controlled, directly or indirectly — by the entity is deemed to be owned by that person”.

14.  Section 2.1(2) of SEMA further provides that a person controls an entity, directly or indirectly, if any of the following criteria are met:

“(a)     “the person holds, directly or indirectly, 50% or more of the shares or ownership interests in the entity or 50% or more of the voting rights in the entity”;

(b)     “the person is able, directly or indirectly, to change the composition or powers of the entity’s board of directors”; or

(c)     “it is reasonable to conclude, having regard to all the circumstances, that the person is able, directly or indirectly and through any means, to direct the entity’s activities”.”

The Arbitration and the Award

15.  The Arbitration was commenced by the Applicant against the Respondent in September 2023, comprising a consolidation of 3 arbitrations under the Guarantees. After a hearing which took place in April and May 2025, the Tribunal handed down the Award.

16.  The Respondent’s essential defence in the Arbitration was that payment to the Applicant would be unlawful in Canada and constitutes a criminal offence, contrary to the Canadian sanctions regime. The key issues in dispute in the Arbitration were: (1) the place in which the Respondent must perform the contract under the Guarantee; (2) whether the Respondent is prohibited by the law of Canada from performing its obligation to pay; and (3) if so, whether performance of the Respondent’s obligation to pay “necessarily requires” the Respondent to perform an act in Canada which is contrary to Canadian law.

17.  The Tribunal found that:

(1)     The place of performance of the Guarantees was Russia;

(2)     The Respondent had not established that the Russia Regulations applied to the Applicant by any of the three means specified in section 2(1) of SEMA, and therefore the Respondent had not established a defence of illegality in respect of its obligations under the Guarantees;

(3)     Even if the Respondent’s performance of the Guarantees required the Respondent to take steps which were illegal and constituted a criminal offence in Canada, that did not afford the Respondent a contractual defence to its payment obligations under English law; and

(4)     Accordingly, the Respondent shall pay to the Applicant the sum of EUR 30,012,624.18 plus interest.

18.  Significantly, the Tribunal expressly acknowledged that: “there is no Canadian jurisprudence or departmental guidance on how the deemed ownership provisions should be construed, making this case of first instance.”

19.  The Respondent highlighted the fact that the Tribunal pointed out in the Award that although it had formed the view that the Applicant was not subject to sanctions under SEMA and the Russia Regulations, this view might differ from that of the Canadian authorities.  At paragraph 143 of the Award, the Tribunal stated:

“The only ground for concern now is that the Canadian prosecuting authorities may take a different view from that of this Tribunal.”

20.  Further, the Respondent highlighted the observation made by the Tribunal, at paragraph 24 of the Further Partial Final Award of 10 December 2025 (relating to costs), as follows:

“… we noted at the end of our First Partial Award that the Canadian authorities might take a different view on the question of sanctions but that we had to give effect to our decision. That remains the case and requires us to make an award of costs. The conflict between our decision and the view of GAC will fall to be decided by the court deciding questions of enforcement. It is not a question for this Tribunal.”

21.  As Respondent pointed out, after the issue of the Award, it had promptly and proactively sought to engage with the Canadian authorities, including communicating with the GAC (by its letter of 30 July 2025), to inform the GAC of the issue of the Award in favor of the Applicant and to seek clarification on the Applicant’s status under the Russia Regulations, whether payment to the Applicant was prohibited, and whether a permit to authorize the Respondent’s payment to the Applicant was required and could be granted. This was against the background of the Respondent’s expectation that enforcement proceedings would be pursued by the Applicant through the Courts of England and Wales.

22.  On the Applicant’s part, it was pointed out that when the Respondent applied (for the first time) on 30 July 2025 for a permit, it referred to its expert’s evidence in the Arbitration, and presented to the GAC, that there is a significant risk that control could be established under section 2.1(2)(a)-(c) of SEMA, but that it failed to draw GAC’s attention to the fact that the Tribunal had in fact rejected these arguments made by the Respondent in the Arbitration to establish alleged control.

23.  In short, the response finally received from GAC (by its letter of 13 August 2025) was that:

(1)     It had assessed that the Applicant is a Russian entity which, pursuant to section 2.1 of SEMA, is deemed to be owned by a listed person.

(2)     It was actively reviewing the Respondent’s application for a permit and would communicate directly once a ministerial decision had been made.

(3)     GAC warned that “contravening Canadian sanctions is a criminal offence”, and reminded the Respondent that under SEMA, the maximum penalty on summary conviction is a fine of CAD 25,000 and/or one year prison term, and on indictment up to a 5 year prison term.

(4)     GAC further stated that “Persons in Canada and all Canadians abroad should therefore not undertake any activities prohibited by sanctions regulations unless they have been granted a permit from the Minister of Foreign Affairs of Canada.”

24.  Suffices it to say that communications between the Respondent and GAC continued, and it was not until 20 March 2026 that GAC formally denied the Respondent’s application for a permit to transfer funds to the Applicant pursuant to the Award. In its letter of 20 March 2026, GAC stated (inter alia) that:

(1)     Canada has prohibited Canadian persons, whether in Canada or abroad, from dealing in property that is owned, held or controlled by or on behalf of a listed person and are prohibited from entering into a transaction related to such dealings.

(2)     As of 5 April 2022, X is a listed person under Schedule 1 of the Russia Regulations.

(3)     GAC has assessed that X’s position at the Applicant, notably his position as CEO, President and Chair of the Management Board, gives him the ability to direct the company’s activities, meeting the definition of “deemed ownership” pursuant to paragraph 2.1(2)(c) of SEMA.

(4)     Having considered the Respondent’s application, GAC have decided to deny its application for a permit to transfer the funds. It was considered that granting the permit would be contrary to the foreign policy objectives for which the Government of Canada imposed sanctions on Russia.

(5)     The decision to deny a permit is based on the information provided by the Respondent in its application and its communications with GAC officials, and on internal consultations between Government of Canada officials.

The enforcement proceedings

25.  In the meantime, the Applicant commenced proceedings in Hong Kong and on 31 October 2025 obtained leave to enforce the Award as a judgment of this Court.

26.  On 5 December 2025, the Respondent issued its summons (“Setting Aside Summons”), seeking a stay of the Enforcement Order: until 14 days after the grant of a permit by Canada’s Minister of Foreign Affairs (“Minister), enabling the Respondent to lawfully make payment under the Award; or for a period of 6 months from the date of the Enforcement Order, whichever is sooner. Alternatively, if the Minister refuses to grant a permit, the Respondent seeks a stay of the Enforcement Order “until such time as the Respondent is able to pay the sums due under the Award without risk of prosecution”.

27.  Further or in the alternative, the Respondent seeks to set aside the Enforcement Order on the ground that it would be contrary to public policy to enforce the Award in Hong Kong.

28.  In the affirmation filed for the Respondent in support of the Setting Aside Summons (“RW 1”), the Respondent set out the facts relating to the Arbitration and the Award, and that it had applied to the GAC for a permit to make the payment under the Award. It referred to the response from GAC, that GAC assessed the Respondent to be owned by a sanctioned person under Canadian law, and that it was prohibited for any person in Canada and any Canadian outside Canada to deal with the Applicant. It was claimed in RW 1 that payment of the Award to the Applicant, whether directly pursuant to the Award or by the Respondent’s Hong Kong branch pursuant to the Enforcement Order, “would necessarily require (the Respondent) or its employees to commit an illegal act in Canada - namely, to take steps enabling payment to (the Applicant) in contravention of Canadian sanctioned laws”. It was stated that unless and until a permit is granted which clearly authorizes the Respondent to pay the Applicant, making the payment under the Award would “expose the Respondent and any of its staff in Canada or Canadian persons outside Canada involved in facilitating the payment” to the risk of prosecution for serious criminal offences in Canada.

29.  On the basis of these facts, it was argued for the Respondent that it would be contrary to public policy to enforce the Award in Hong Kong.

30.  In the evidence filed by the Applicant in opposition to the Setting Aside Summons, the Applicant stated that the issue of illegality under Canadian law had already been litigated before and determined by the Tribunal in the Arbitration, with the Tribunal deciding that unlawful payment had not been established. In the 2^nd affirmation of XXXXXXX (“AW 2”) filed for the Applicant, it was stated that, in any event, “any potential risk of prosecution under Canadian law (which is denied) does not give rise to any grounds for staying and/or refusing to enforce the (Enforcement Order) as a matter of public policy of Hong Kong”.

31.  Purportedly in reply to that denial, the Respondent filed the affirmation of Dr Michael James Nesbitt (“Nesbitt 1”), which was stated to (inter alia) address the questions of:

(1)     whether he agreed with the observations as to Canadian law made in RW 1;

(2)     whether, contrary to the assertion made in AW 2, there is a real and appreciable risk of prosecution of the Respondent in Canada if it were to make payment to the Applicant pursuant to the Award;

(3)     what is the legal status of the GAC letter and its implications for the Respondent;

(4)     whether, as a matter of Canadian law, the Tribunal’s finding in the Award that the Respondent is not sanctioned under the Russia Regulations is binding on GAC or on Canadian courts; and

(5)     if the Respondent were prosecuted under SEMA, whether any defence be available to the Respondent as a matter of Canadian law.

32.  There is a strict regime under Order 73 rule 10 RHC for the making and service of an application to set aside an Enforcement Order. Such regime is not departed from or relaxed in the absence of compelling reasons. Under Order 73 rule 10(6A), the application to set aside an enforcement order “must be made by summons supported by affidavit, and such affidavit must be filed at the same time as the summons”. In the authorities, the Court has explained that this is based on the nature of arbitral proceedings and awards, and the aims and objective of the Arbitration Ordinance (“Ordinance”) as set out in section 3 thereof.

33.  Having been parties to the Arbitration, both the Respondent and the Applicant would be aware of and conversant with the issues in the Arbitration and how it was conducted, to be able to know whether there are grounds to set aside or oppose enforcement of the Award, and be in a position to state the material facts to support the grounds relied upon in the setting aside application. There is no good reason to delay the filing and service of the papers in support of an application to set aside the Enforcement Order, and no valid justification for the need to file additional evidence after the Setting Aside Summons – which evidence will generally not be allowed.

34.  As the Court pointed out at the first hearing of the Setting Aside Summons on 16 January 2026, the Respondent knew, and ought to have known, the existence and effect of the sanctions, SEMA and the Russia Regulations, the relevance of GAC approval, and the legal effect of the lack of such approval under Canadian law. If it was relevant and necessary to adduce Canadian law evidence, it ought to have been filed at the time when the Setting Aside Summons was issued, and there is no good reason at all why the Respondent required the additional or further time to prepare for Nesbitt 1. For that reason, this Court did not, on 16 January 2026, grant leave to the Respondent to file further expert evidence on Canadian law. 

35.  Although the Respondent sought to justify the filing of Nesbitt 1 as evidence “in reply” to AW 2, AW 2 did not in fact raise any new matter, besides making a curt and bare denial of any potential risk of prosecution under Canadian law, and without any elaboration on any point of Canadian law. As Counsel for the Applicant rightly pointed out, RW 1 (filed with the Setting Aside Summons) already contained all the facts sought to be relied upon by the Respondent: of the existence of the sanctions, the lack of approval from GAC, and the legal consequences under Canadian law. RW himself is a lawyer. There was no justification for nor need of Nesbitt 1, which addresses a wide  range  of  new  issues  which  had  not  been  raised  in  AW 2, and which  sought  to  elaborate on  points  already  made  in  RW 1. Nesbitt’s agreement with RW 1 on Canadian law meant that his evidence is not necessary, and Nesbitt 1 was not a reply to points of law raised in AW 2. Issues (4) and (5) outlined at paragraph 30 were not raised in AW 2. At most, only issues (2) and (3) can arguably be said to relate to the question of the potential  risk  of  prosecution  under  Canadian law, which  was  “denied”  in AW 2.

36.  On behalf of the Applicant, it was contended that Nesbitt 1 should not be allowed to stand, as the Respondent has in effect sought to introduce and rely on new facts and evidence after the filing of the Setting Aside Summons, in the guise of a “reply”.

37.  In my judgment, Nesbitt 1 raised new issues not raised before in either RW 1 or the Applicant’s evidence in opposition, and the Applicant would be prejudiced by the lack of opportunity to respond to them. I will only exercise my discretion to admit Nesbitt 1 for the matters covered by issues (2) and (3).

The issue in dispute

38.  Despite the lengthy affidavits filed and submissions made for the Respondent, the one and only core issue for determination is whether it would be contrary to public policy of Hong Kong to enforce the Award, because it would expose the Respondent and its employees to a real risk of criminal prosecution, by requiring them to take steps which would render them liable to conviction of a criminal offence under Canadian law.

39.  Before addressing the submissions made by the parties on the risk of prosecution, and whether enforcement of the Award should be refused on that basis as a matter of public policy, one must not lose sight of the fact that when the court is asked to set aside or refuse enforcement of an arbitral award, it does so within the limited permissible scope for the court’s intervention (section 3(2)(b) of the Ordinance) - only on the grounds set out in  section 81, or 86 (or the corresponding section 89 or 95 as appropriate), and giving heed to the important principles of respecting the finality of the award and the competence-competence of the tribunal. In a case where the court is asked to set aside or refuse enforcement of an award on the ground of public policy, it is clear from the authorities that the court’s role is to apply the relevant public policy to the findings of fact and law made in the award, to see if there is any conflict between the award and public policy (see Betamax Ltd v State Trading Corp [2022] All ER (Comm) 1, para 48 - 49). There is no reason for the Court to review the merits or correctness of the findings made by the Tribunal.

40.  Betamax concerned an appeal to the Privy Council from the Supreme Court of Mauritius, as to whether the Supreme Court was able to review the decision of an arbitrator that a contract was not illegal on the interpretation of the Public Procurement Act 2006 and regulations made thereunder, in an application to set aside the award on the ground that it was in conflict with the public policy of Mauritius. Mauritius adopts the Model Law by enacting the International Arbitration Act 2008.

41.  In his judgment in Betamax, Lord Thomas referred to the approach of the English and Singapore courts, in Soleimany v Soleimany [1999] 3 All ER 847, Westacre Investments Inc v Jugoimport-SDPR Holding Co Ltd [1999] 1 All ER (Comm) 865, AUJ v AJT [2011] SGCA 41, and RBRG Trading (UK) Ltd v Sinocore International Co Ltd [2018] EWCA Civ 838, before concluding that in relation to the issue of whether the award was in conflict with public policy, the question for the court was whether, on the findings of law and fact made in the award, there was any conflict between the award and public policy, but it could not, under the guise of public policy, reopen issues relating to the meaning and effect of the contract, or whether it complied with the regulatory or legislative scheme, as decided by the tribunal.

42.  Counsel for the Applicant made the fundamental objection that the Respondent is seeking by its Setting Aside Summons to challenge the findings, decision and reasoning of the Tribunal in different respects, which is impermissible. These are addressed below.

Risk of prosecution

43.  In the context of whether there is a real risk of criminal prosecution, the parties have referred to the decisions in Bank Mellatt v HM Treasury [2019] EWCA Civ 449 and O v C [2026] 4 WLR 5. Bank Mellat was a case concerning interlocutory disclosure orders, in which the question was raised as to whether disclosure should be ordered by the court in circumstances where it was claimed that the disclosure would constitute a crime in another country. In his judgment, Lord Justice Gross referred to compliance with foreign legal obligations, and observed at paragraphs 62 and 63, as follows:

“62. The question of compliance with foreign legal obligations is specifically dealt with in Matthews and Malek, Disclosure (5^th ed.), at para. 8.26, as follows:

“The court may take into account, in deciding whether to order disclosure, the fact that compliance with the order would or might entail a breach of foreign law……. It will…need to be shown that the foreign law contains no exception for legal proceedings, and that it is not just a text, or an empty vessel, but is regularly enforced, so that the threat to the party is real. Even so, the court has a discretion and, on the basis that English litigation is to be played according to English and not foreign rules, it will rarely be persuaded not to make a disclosure order on this ground. More often than not where foreign law is raised as an objection, any threat of a sanction abroad against the disclosing party is found to be more illusory than real.”

63. Pulling the threads together for present purposes:

i) In respect of litigation in this jurisdiction, this Court (i.e., the English Court) has jurisdiction to order production and inspection of documents, regardless of the fact that compliance with the order would or might entail a breach of foreign criminal law in the “home” country of the party the subject of the order.

ii) Orders for production and inspection are matters of procedural law, governed by the lex fori, here English law. Local rules apply; foreign law cannot be permitted to override this Court’s ability to conduct proceedings here in accordance with English procedures and law.

iii) Whether or not to make such an order is a matter for the discretion of this Court. An order will not lightly be made where compliance would entail a party to English litigation breaching its own (i.e., foreign) criminal law, not least with considerations of comity in mind (discussed in Dicey, Morris and Collins, op cit, at paras. 1-008 and following). This Court is not, however, in any sense precluded from doing so.

iv) When exercising its discretion, this Court will take account of the real – in the sense of the actual – risk of prosecution in the foreign state. A balancing exercise must be conducted, on the one hand weighing the actual risk of prosecution in the foreign state and, on the other hand, the importance of the documents of which inspection is ordered to the fair disposal of the English proceedings. The existence of an actual risk of prosecution in the foreign state is not determinative of the balancing exercise but is a factor of which this Court would be very mindful.

v) Should inspection be ordered, this Court can fashion the order to reduce or minimise the concerns under the foreign law, for example, by imposing confidentiality restrictions in respect of the documents inspected.

vi) Where an order for inspection is made by this Court in such circumstances, considerations of comity may not unreasonably be expected to influence the foreign state in deciding whether or not to prosecute the foreign national for compliance with the order of this Court. Comity cuts both ways.”

44.  In the more recent case of O v C, Bank Mellat was referred to, and the applicable principles and “nuanced approach” were summarized by Sir Nigel Teare as follows (at para 22 of the judgment):

“(i) An English court can order a party to do something that is (or may) be contrary to a foreign law, including a foreign criminal law: Akhmedova v Akhmedov [2020] EWHC 2235 (Fam); [2021] 1 FLR 667 at [62]. It is a question of discretion.

(ii) An order will not lightly be made where compliance would entail a party to English litigation breaching its own (i e foreign) criminal law, not least with considerations of comity in mind: Bank Mellat v HM Treasury [2019] EWCA Civ 449, para 63(iii); Akhmedova, para 64.

(iii) The burden is on the party relying on the foreign criminal law to prove that there is a real risk of prosecution: Bank Mellat, para 70(ii); Joshua v Renault SA [2024] EWHC 1424 (KB) at [77]–[78]. The party must show that the criminal law relied on is not merely a “text, or an empty vessel, but is regularly enforced so that the threat to the party is real”: Tugushev v Orlov [2021] EWHC 1514 (Comm) at [33], per Butcher J. What must be shown is a “real” (rather than “fanciful”) risk, and the risk must be of prosecution, not merely of the breaching of foreign law or of the imposition of a sanction falling short of prosecution: Tugushev, para 32; Renault, para 78.

(iv) Where the parties’ experts express a different view about the risk of prosecution, the Court should exercise care when approaching the issue of foreign law, but it does not follow from the disagreement that there is a “real risk”: “[t]o the contrary, there is force in the view that prosecution is relatively unlikely if there is real doubt about the law”: Public Institution for Social Security v Al Wazzan [2023] EWHC 1065 at [156], per Henshaw J.

(v) If a real risk of prosecution is established, the Court must then conduct a balancing exercise, weighing the risk of prosecution with the importance of the relief sought by the order: Bank Mellat, para 63(iv); and Renault, para 78. The greater the risk of prosecution is, the more weight is to be given to that factor: Tugushev, para 34; Renault, para 78.

(vi) The Court can fashion an order that reduces or minimises concerns under the foreign law (Bank Mellat, para 63(v); Tugashev, para 35), and considerations of comity may be expected to influence the foreign state in deciding whether or not to prosecute the foreign national for compliance with the Court’s order: “Comity cuts both ways” Bank Mellat, para 63(vi); Tugashev, para 36.

(vii) Once the Court has decided to make the order, the fact that compliance would or might constitute a breach of a foreign law does not excuse non-compliance, as the Court must be able to enforce its decision: Akhemdova, para 65.”

(Emphases added)

45.  Ultimately, therefore, the task of the Court is to identify whether a real risk of prosecution has been established, and if yes, a balancing exercise then follows to consider the risk of prosecution and the importance of the relief sought by the order.

Whether there is real risk of prosecution

46.  The Respondent relies on GAC’s letter of 20 March 2026 (“Letter”) as evidence of the real risk of prosecution of the Respondent and/or its staff.

47.  The Respondent readily accepted that the Tribunal in this case concluded in the Award that the Applicant is not subject to the deemed control of any sanctioned person, and is therefore not captured by the Russia Regulations. In this regard, the Applicant pointed out that on the evidence, X was the beneficial owner of less than 40% of the Applicant, and there is no basis nor authority cited by the Respondent to justify the consolidation of X’s beneficial shareholding or interests with those of the others of the Four Individuals. The basis of control was simply not established.

48.  However, Counsel for the Respondent contended that the Tribunal did acknowledge in the Award that the question of whether the Applicant is subject to the deemed control of a sanctioned person involved a novel legal question, on which there was no case law and no departmental guidance, and there remained a risk that the Canadian authorities might take a different view to the conclusion reached by the Tribunal. The Respondent further highlighted the fact that it is now obvious that the Canadian authorities have indeed taken a different view, as explained in and reflected by the Letter. The Respondent sought leave to also include in evidence and to rely on GAC’s later letter of 30 April 2026, which simply confirmed or restated GAC’s view and position as stated in the earlier Letter.

49.  GAC pointed out in the Letter that its conclusions, that the Applicant was in X’s “deemed ownership” pursuant to section 2.1(2)(c) of SEMA, was reached after “internal consultations with Canada’s government officials”. On behalf of the Respondent, Counsel contended that it is likely that GAC’s view on X’s deemed ownership was based on other and more comprehensive information not available to either the Respondent or the Tribunal. On that basis, the Respondent argued that in the light of the further information known to GAC, there is a real risk of the Canadian Government taking further action in the event of the Respondent making payment under the Award, and a real risk of the Respondent or its staff facing prosecution and conviction on the basis of the evidence available to GAC and the Canadian authorities.

50.  The Respondent highlighted that even if payment of the Award was to be effected through the Respondent’s branch in Hong Kong, the Hong Kong branch is not a separate legal entity from the Respondent, which is incorporated in Canada and a Canadian, subject to sanctions in respect of acts taken outside Canada. Given the quantum of the Award, the Respondent pointed out  (in RW 1)  that  making  payment  to  the Applicant  would necessarily require employees of the Respondent’s head office in Toronto to be involved, in authorizing or otherwise facilitating (directly or indirectly) any payment from the Respondent’s Hong Kong branch to the Applicant. Each of these steps would constitute an activity caught by section 3 of the Russia Regulations.

51.  It was further highlighted for the Respondent, that there is no defence under Canadian criminal law, to say that the Tribunal had considered that the Guarantees were not vitiated by illegality under English law, nor that the Respondent was compelled to make payment by an order of the Court enforcing the Award. It is only when a permit is granted by GAC, or the Applicant’s property ceases to be treated as being sanctioned by virtue of a change of control of the Applicant, or by the removal of the sanctions, that the risk of criminal prosecution is removed.

52.  In the circumstances, the Respondent argued that it would be unfair, and shocking to the conscience of the court, to make an order which compels the Respondent and its innocent staff to take steps and act in a way which puts them at risk of prosecution by the Canadian authorities, or to put them in a position of having to choose between breaching the Enforcement Order, or facing potentially penal consequences under Canadian law. It was submitted that such an order should not lightly be made by the Court.

53.  It was also submitted that to make such an unjust order against a major global financial institution and its staff would have adverse effects on Hong Kong’s business environment.

54.  The Respondent has highlighted that it is prepared to offer undertakings to pay the amount due under the Award as soon as it is lawfully able to do so, when the sanctions are lifted or cease to apply to X/the Claimant. The Respondent pointed out that it clearly has the means to pay, and there is no risk that the Respondent will not honour the Award. In the meantime, it was pointed out that the Applicant would be entitled to interest for the period that it has been kept out of its monies.

55.  In summary, Counsel for the Respondent contended (paragraph 74 of his skeleton arguments) that in considering whether to enforce a foreign arbitral award, an important consideration is international comity, and the Court should refuse enforcement of an award which, if performed, would be directly contrary to the foreign policy of another jurisdiction. Counsel drew support from the judgment of the Court of Final Appeal in Ryder Industries Ltd v Chan Shui Woo (2015) 18 HKCFAR 544, and the judgment of Lord Collins NPJ at para 57, where His Lordship stated:

“There may nevertheless be cases in which a sufficiently serious breach of foreign law which reflects important policies of the foreign state or separate law district may be such that it would be contrary to public policy to enforce a contract.”

56.  It was contended that as a matter of international comity, this Court should respect the views of the Canadian Government in relation to its sanctions legislation and that these should be strictly observed as a matter of Canadian national interest.

57.  Counsel also argued that the question determined by the Tribunal is different and separate to the question before this Court, and it cannot be said that the Respondent is seeking this Court’s redetermination of matters decided by the Tribunal. In the Arbitration, the question for determination by the Tribunal was whether, as a matter of English law, performance of the Contract should be discharged as an illegal bargain. It was in that context that the Tribunal held that the Respondent had not established that it was unlawful in Canada to pay the Applicant pursuant to the Guarantees. In contrast, the different question for determination by this enforcement court is whether, as a matter of Hong Kong public policy, enforcement of the Award should be refused. Counsel further emphasized that the Respondent is not seeking to relitigate the issue decided by the Tribunal, that there was no discharge of the Contract for illegality.

58.  On behalf of the Applicant, Counsel pointed out that what the Tribunal decided was the absence of a risk of prosecution in Canada, on the basis of there being no illegality in the payment to the Applicant and no contravention of the relevant provision of SEMA. Whether this is the correct interpretation of the SEMA provisions or the Russia Regulation is not of concern to this court of enforcement.

59.  Mr Chan further pointed out that in the Award itself, the Tribunal had also concluded (at paragraph 144(iii)) that the Respondent cannot invoke the real risk of prosecution defence, as set out in O v C, to resist the enforcement of final judgments or awards. Bank Mellett and O v C both related to interlocutory orders such as disclosure, freezing or interim payment orders, and the issue considered by the courts in those cases was whether compliance with such interlocutory orders may give rise to a risk of prosecution in another jurisdiction, and the relevance of such risk. Mr Chan highlighted that the issue before this Court is whether a final award or a final judgment should not be enforced, thereby depriving the award creditor of the fruit and benefits of a valid and final award at the enforcement stage. The rights and liabilities of the parties have already been finally decided. On that basis, Mr Chan contended that even if the principles in Bank Mellat and O v C were applicable at all to enforcement of final awards, the threshold for establishing a risk of prosecution must be even more stringent, given the compelling public interest in the speedy enforcement of final awards. I tend to agree.

60.  I agree with Counsel for the Applicant, that even in the context of interlocutory orders, any risk of prosecution under foreign law does not automatically entitle a party to refuse compliance. In O v C, the Court pointed out (at paragraph 22(i)) that a court can order a party to do something that is, or may be contrary to a foreign criminal law (citing Akhmedova v Akhmedov [2020] EWHC 2235 (Fam)). This is because the forum has a legitimate interest in the conduct of its own proceedings (Bank Mellat, para 63; Re Nanik Dayaram HCB 7651/2011, 6 November 2015, at paras 67-72), and the proper and efficacious conduct of its own judicial proceedings will naturally be the primary interest of the forum.

61.  On the evidence, I am not persuaded that the Respondent has shown that there is a real risk of actual prosecution, should the Award be recognized and enforced. I accept the submissions made for the Applicant that on the authorities, it is incumbent on the Respondent claiming the existence of the risk to establish the fact of any such risk by proper evidence which deals with the real risk of prosecution.

62.  The Tribunal heard expert evidence on Canadian law, and on the effect of section 2.1(1)(a) of SEMA, before concluding that the payment is not caught by the sanctions regime, and that there is no illegality. The Tribunal accepted the evidence of the Applicant’s expert that the shares of listed persons in an entity could not be aggregated, as the criminal provisions of SEMA should be narrowly construed. The parties are bound by the Tribunal’s findings in the Award, and it is not for the enforcement court to go behind or review the Tribunal’s rulings, including its interpretation of the Russia Regulations and the relevant section 2.1(1)(a) of SEMA.

63.  As pointed out by Mr Chan for the Applicant, and I accept, if there is no underlying illegality, or clear evidence thereof, there can be no conclusion that there is a real risk of prosecution.

64.  The Letter, which was issued after the Award, only shows that (according to GAC) the Tribunal was wrong on the conclusion reached as to whether the Applicant is in the deemed ownership of X. Further, as the Applicant also contended, the Letter at best only represents a pronouncement of Canada’s current ministerial policy opinion as to the illegality of the proposed payment. It is not a finding by a Canadian court on a matter of law. There is no reference in the Letter to any purported judicial determination or precedent to support the view taken by GAC. In contrast, the Tribunal which has the jurisdiction to rule on the proper interpretation of SEMA in the Arbitration made clear findings in the Award as to the alleged illegality, and whether it had any effect on the Award to be made. The Tribunal found that the Respondent’s obligation to make payment is to be performed in Moscow, and that the Respondent has no defence on the basis that giving instructions in Canada, for payment in Moscow, would be a criminal offence in Canada.

65.  Moreover, in my judgment, there is doubt whether enforcement of the Award would necessarily mean that the Respondent and/or its staff would be subject to a real risk of prosecution. If the judgment on the Award were to be enforced by garnishee proceedings against the Respondent’s bank accounts in Hong Kong, without active assistance from the Respondent, it has not been shown, and is unclear, why this would constitute the Respondent’s voluntary compliance with the order for payment, to give rise to criminal liability on its part. The Respondent was aware of the garnishee mechanism, as evidenced by its letter of 20 April 2026, when it claimed that it could not voluntarily make payment, and referred to enforcement of the Award by garnishee proceedings against its bank accounts in Hong Kong with third parties.

66.  I cannot exclude the fact that there are alternative measures and arrangements which might enable the Applicant to receive what is owed to it by the Respondent in a way that would not contravene the Canadian sanctions regime or give rise to a real risk of prosecution. As Counsel for the Applicant pointed out, the Respondent has not shown by satisfactory evidence that there are no such alternative arrangements.

67.  Moreover, on the facts and from the chronology, it is clear that the Respondent had taken all possible steps not to contravene the sanctions under section 2.1(1)(a) and to refrain from making payment to the Applicant for fear of contravention of SEMA. These steps include actively seeking clarification from GAC and providing the necessary information to GAC in connection with the Award, the payment it was obliged to make, and to obtain the permit if GAC considered it to be necessary. On the evidence, the Respondent had made genuine efforts in good faith to follow Canadian law and to act in accordance therewith. Surely, there are countervailing considerations for the Canadian authorities not to prosecute the Respondent in view of the bona fide and genuine efforts it had made to comply with the law. The fact that any payment which may be obtained by the Respondent was by virtue of enforcement measures applied for from the Court in Hong Kong, and executed by the Applicant (such as by garnishee or other charging order proceedings) without active assistance from the Respondent, should be an important matter which the Canadian authorities would take into consideration as a relevant mitigating factor.

68.  I bear in mind the reminder, and agree with the observations made by the Court in O v C, that considerations of comity may be expected to influence the foreign state in deciding whether or not to prosecute the foreign national for compliance with the order of a court, ie that “comity cuts both ways” (Bank Mellat, para 63(vi); Tugushev v Orlov [2021] EWHC 1514 (Comm) at para 33).

69.  Even Nesbitt recognized that there are countervailing considerations for the Canadian authority not to prosecute. In Nesbitt 1, he acknowledged (at paragraph 58(e)) that the prosecuting authorities in Canada would likely consider, amongst other things, “the conflict of laws bind in which (the Respondent) finds itself, its attempts to find solutions both through GAC and foreign courts, and whether criminal punishment is deserved in the present case where good faith efforts were made to follow Canadian law”. That is sensible and reflects the low practical risk of prosecution in this case.

Public policy in Hong Kong

70.  Even if I was wrong in concluding that no real risk of prosecution has been established, and a balancing exercise should be taken of the risk and prejudice to the parties, I cannot accede to the Respondent’s application to set aside the Enforcement Order on the ground of public policy. My reasons are as follows.

71.  The starting point is that Hong Kong is a party to the New York Convention and has the duty thereunder to recognize and uphold arbitration agreements and to enforce arbitral awards. Section 81 of the Ordinance, and sections 86, 89 and 95 of the Ordinance, set out the exclusive recourse and exhaustive grounds on which an arbitral award may be set aside, or refused enforcement.

72.  It has always been the public policy of Hong Kong to recognize and enforce arbitral awards and to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense. These are important public policy considerations, to maintain Hong Kong as an arbitration-friendly and pro-enforcement venue.

73.  Secondly, the Hong Kong courts have consistently held that public policy is narrowly construed, and that it is only if enforcement of the award would be contrary to fundamental conceptions of morality and justice (Hebei Import & Export Corp v Polytek Engineering Co Ltd (1999) 2 HKCFAR 111), “shock the conscience” of the court or violate the forum’s most basic notions of morality and justice (A v R [2009] 3 HKLRD 389), that the public policy ground can apply. It is not to be used as a catchall ground, nor to obtain for the losing party a second chance to argue the case.

74.  Hence, in AT v QC [2026] HKCFI 1437, this Court held that even if the subject award cannot be enforced on the Mainland due to conflict with Mainland law, that does not by itself render the award invalid or unenforceable in Hong Kong, nor make enforcement of the award shocking to the conscience of the Hong Kong Court.

75.  Stating the obvious, the relevant public policy to be considered is that of Hong Kong (G v N [2024] 2 HKC 510), and not that of Canada.

76.  Impossibility of performance of the Award is also not a ground to refuse enforcement (Xiamen Xinjingdi v Eton Properties Limited [2009] 4 HKLRD 353). In a similar vein, the English court held in Sinocore International Co Ltd v RBRG Trading (UK) Ltd [2019] 1 All ER (Comm) 810 (CA), that the mere fact that performance of a contract may be illegal in the place of performance, without more, will not render an award on such a contract unenforceable in England.

77.  In PT Transportasi Gas Indonesia v ConocoPhillips (Grissik) Ltd [2016] 2 Lloyd’s Rep 600, it was claimed that the payment ordered by an award would circumvent the law of Indonesia where the payment was to be made, and that the parties would thereby be in breach of Indonesian law. The Court rejected the claim that this engaged English public policy, and at paras 70 – 71 of the judgment, the following observations were made:

“Whatever may be the position about enforcement of the award in Indonesia, the arbitrators have reached conclusions on Indonesian law which are unchallengeable here for the reasons already given. The point being advanced in this Court, albeit on the basis of fresh evidence to which there has been no objection as such, amounts to an attempt to relitigate the very points which have been decided in arbitration.

Furthermore, the Award does not require performance in Indonesia in any event. The Award may be enforced in any member of countries in the world where PGI may have assets. Questions of enforceability in those jurisdictions will be a matter for the public policy of that country. So far as this country is concerned, it cannot be contrary to English public policy to uphold the award of arbitrators who have considered the question of Indonesian public policy and concluded that no basis has been put forward which could establish the unenforceability of the promissory warranties…” (Emphasis added)

78.  The Singapore International Commercial Court likewise held, in DNZ v DOZ [2026] SGHC (I), that any violation of EU law or EU public policy does not mean that upholding the award would be contrary to the public policy of Singapore. The argument was made before the court that the award would place a party in the “extremely unfair and prejudicial position of having to breach EU law and expose it to infringement proceedings and significant sanctions by the EC”. This argument was rejected by the Singapore Court. At paragraph 139 of the judgment, the Court explained:

“It is not contrary to Singapore’s public policy to uphold an award merely because the award debtor would then face contradictory obligations arising from commitments the debtor had entered into. It is not for the Singapore court to relieve the (claimant) of the consequences that may flow from the treaty obligations the (claimant) has entered into.”

79.  Counsel for the Applicant made the point in submissions that the Respondent, as a bank, made its own decision for commercial reasons to issue the Guarantees to the Applicant, despite knowing that there were sanctions in place against Russia and that the Russia Regulations had been created (as a result of the invasion of Crimea).

80.  The Respondent carries on banking business in different parts of the world, and being subject to the laws of different jurisdictions, which may well conflict to create contradictory obligations on the Respondent, is simply part of the commercial realities and risks of the business which it had undertaken. It should not be contrary to public policy for this Court to uphold an award merely because the Respondent would face contradictory obligations arising from commitments it had entered into. As Counsel for the Applicant submitted, the public policy of Hong Kong should not be dictated by the idiosyncrasies of any particular domestic regulatory environment, as such vulnerability would be fundamentally inconsistent with the pro-enforcement ethos of the New York Convention.

81.  It was submitted for the Applicant that there is in fact no authority for the Respondent’s proposition that comity requires this Court to refuse enforcement of an award, the performance of which is said to be contrary to the foreign policy of another jurisdiction. To accept such a proposition would have serious effect on the certainty, efficiency and stability of Hong Kong’s arbitral enforcement regime. It may also be tantamount to accepting that as the court of enforcement, the Hong Kong Court has to consider the foreign and public policy of another jurisdiction, at times having to choose the preferred policy if the policies of different jurisdictions are at play. That cannot be right, as the Court of Final Appeal clearly held that the relevant public policy is that of Hong Kong (Hebei Import).

82.  In Bank A v Bank B [2024] 5 HKLRD 250, this Court held that it is not against public policy of Hong Kong to issue an anti-suit injunction to restrain Russian proceedings simply because an EU sanction is the focus of the dispute in the Hong Kong arbitration. It was emphasized that the EU sanction does not affect the rights or property of any Chinese entity or entity in Hong Kong, and that there is no basis to find that there is any contravention of Hong Kong public policy. The Canadian sanctions and SEMA in this case have no application to Hong Kong and have no role to play in Hong Kong public policy.

83.  The observations made by Bokhary PJ in Hebei Import (at 123B-D) are also pertinent to the concerns of international comity, and whether the alleged illegality in this case should result in refusal of enforcement of the Award:

“When a number of states enter into a treaty to enforce each other’s arbitral awards, it stands to reason that they would do so in the realization that they, or some of them, will very likely have very different outlooks in regard to internal matters. And they would hardly intend, when entering into the treaty or later when incorporating it into the domestic law, that these differences should be allowed to operate so as to undermine the broad uniformity which must be the obvious aim of such a treaty and the domestic laws incorporating it.”

84.  I also accept the submissions of Counsel for the Applicant, that the content of Hong Kong public policy should not be dictated by the foreign policy of a particular foreign state, nor by foreign affairs, given the limits of the Court’s ability to adjudicate on matters of foreign affairs and foreign policy under Articles 13 and 19 of the Basic Law. The Court should be cautious to avoid any wrong use of excess of judicial powers. That is all that is necessary to be stated in this Decision.

85.  Given the countervailing and important public policy of (1) recognizing and enforcing an arbitral award, which is final and binding on the Applicant and the Respondent; (2) upholding parties’ consensual arbitration agreement; and (3) what I have found against the real risk of the Respondent facing prosecution; I do not accept that enforcement of the Award should be refused on the ground of public policy. I do not consider that the Award, or enforcement thereof, violates any of the most basic notions of morality and justice of this forum.

86.  Finally, I reject the submissions made for the Respondent, that it is a relevant consideration in this case that the Applicant was somehow at fault for choosing to enforce the Award in Hong Kong, allegedly because it would be able to evade sanctions in this jurisdiction, although the Contract, the Guarantees, the underlying dispute, and the Arbitration have no connection with Hong Kong.

87.  It is basic and trite, that the Applicant may choose to enforce the arbitral award in any jurisdiction where the debtor Respondent has assets. That is the whole point of choosing arbitration – one of the benefits of which is the ease of enforcement under and pursuant to the New York Convention and the uniform set of rules governing such enforcement. The Applicant is only exercising its right to seek enforcement in Hong Kong, if the Respondent has assets here against which the Award can be enforced.

Whether there should be a stay of enforcement

88.  The stay sought by the Respondent under paragraph 1 of the Setting Aside Summons no longer applies, since the Minister already refused the permit.

89.  The stay sought in paragraph 2 of the Setting Aside Summons is for an indefinite and uncertain period: “until such time as the Respondent is able to pay the sums due under the Award without risk of prosecution”. It would be entirely contradictory to the aims and principle of the Ordinance to grant such an indefinite period of stay when there is a valid and binding award. Nor can such a stay facilitate the administration of justice, or preserve the dignity of the court. The judgment creditor should not be deprived of the fruits of successful litigation or arbitration.

90.  I therefore decline to grant the stay.

Disposition

91.  It follows that the Setting Aside Summons is dismissed, with costs to be paid by the Respondent to the Applicant on indemnity basis, with certificate for two Counsel, to be taxed if not agreed.

92.  The further evidence sought to be introduced by the Respondent adds nothing to the evidence filed by the Respondent, and the Letter. Even if it were adduced, it only confirmed the contents of the Letter. I make no order on the summons, save that the costs of and incidental thereto be included in the costs of the Setting Aside Summons allowed to the Applicant.