How the Hong Kong Court of First Instance dealt with a Canadian bank’s argument that enforcing a EUR 30 million arbitral award would expose it to a real risk of criminal prosecution under Canadian sanctions law.

In A Company v The Bank [2026] HKCFI 3169, the Court of First Instance considered whether enforcing an arbitral award would contravene Hong Kong public policy. A Canadian bank (the “Bank“) argued that enforcement would expose it and its employees to a real risk of criminal prosecution under Canadian sanctions law. The Court dismissed the Bank’s application to set aside the enforcement order, holding that the Bank had not established a real risk of prosecution; even if established, enforcement would not have contravened Hong Kong public policy.

• A party resisting enforcement of a final arbitral award on the ground of a real risk of foreign prosecution faces a high threshold, reflecting the public interest in the finality and speedy enforcement of awards.
• A letter from a foreign government department is not a judicial finding and does not displace a tribunal’s findings on foreign law, particularly where those findings follow full argument and expert evidence.
• Hong Kong public policy is Hong Kong’s own. It is not to be dictated by the foreign policy objectives of another state. Hong Kong’s pro-enforcement and arbitration-friendly approach under the New York Convention remains the touchstone.

Background and Canadian Sanctions

1. A Russian company, said to be the world’s largest producer of high-grade nickel and palladium (the “Company“), entered into a contract with the “H Companies” on 29 December 2021 (the “Contract“). The Contract was for H Companies to provide engineering and technical services, the supply of goods, and works at the Company’s metallurgical plant in Russia.

2. On 26 and 28 January 2022, the H Companies obtained three bank guarantees from the Bank. The Bank undertook to pay the Company more than EUR 30 million if the H Companies failed to perform their obligations or refund advance payments under the Contract.

3. On 13 October 2022, the Company terminated the Contract after the H Companies refused to refund advance payments. The following month, the Company demanded payment under the Guarantees. The Bank accepted that the demands complied with the Guarantee terms, but said Canadian sanctions prohibited payment.

4. Canada had imposed special economic measures in 2014 in response to Russia’s occupation of Crimea. The measures were made under regulations (the “Russia Regulations”) enacted under the Special Economic Measures Act 1992 (“SEMA”). They prohibit Canadians from dealing with property of persons listed in Schedule 1, on pain of criminal liability.

5. In June 2023, section 2.1 of SEMA extended the prohibition to property merely “deemed” to be owned by a listed person, including property held by an entity that a listed person controls. The Company’s CEO, President and Chair of the Management Board (“X”) beneficially owns approximately 40% of the Company. X together with three other individuals (the “Four Individuals”) are said to hold more than 50% in aggregate beneficial ownership.

6. Around one month after the Guarantees were issued, Russia invaded Ukraine. Canada added the Four Individuals to Schedule 1 as part of a wider sanctions package. In May 2023, the Company applied to Global Affairs Canada (“GAC”) for confirmation that the Bank did not need a permit to pay under the Guarantees, or alternatively if a permit was required, to apply for the same. There was no evidence that the Company’s application produced any outcome.

The Arbitration and GAC’s Response

7. In September 2023, the Company commenced arbitration in the London Court of International Arbitration against the Bank for payment under the Guarantees. The Bank’s essential defence was that payment would be unlawful in Canada and would constitute a criminal offence under the Canadian sanctions’ regime.

8. The Tribunal found that the place of performance of the Guarantees was Moscow, Russia. The Tribunal also found that the Bank had not established that the Russia Regulations applied to the Company under any of the three limbs in section 2.1(2) of SEMA. The illegality defence therefore failed. The Tribunal further held that, even if performance required the Bank to take steps illegal in Canada, that did not provide a contractual defence under English law.

9. The Tribunal ordered the Bank to pay EUR 30,012,624.18 plus interest (the “Award”). It was acknowledged that this was a case of first instance, with no Canadian case law or departmental guidance on the deemed-ownership provisions. The Tribunal, therefore, observed that the only remaining concern was that Canadian prosecuting authorities might take a different view on the conclusions reached by the Tribunal regarding illegality.

10. Shortly after the Award, the Bank began engaging with GAC. By a letter of 30 July 2025, the Bank informed GAC of the Award and sought clarification on whether payment to the Company was prohibited and whether a permit could be granted.

11. The Bank also promptly applied to GAC for a permit to make payment. On 13 August 2025, GAC responded that it had assessed the Company as deemed to be owned by a listed person under section 2.1 of SEMA. The GAC warned the Bank that contravening Canadian sanctions was a criminal offence.

12. By letter dated 20 March 2026 (the “Letter”), GAC formally refused to grant a permit allowing payment pursuant to the Award. The Letter stated that X had been a listed person since 5 April 2022 and that his position in the Company enabled him to direct the Company’s activities, satisfying the “deemed ownership” definition in section 2.1(2)(c) of SEMA. GAC added that granting a permit would be contrary to the foreign policy objectives for which Canada had imposed sanctions on Russia.

The Enforcement Proceedings

13. On 31 October 2025, the Company obtained leave to enforce the Award as a judgment in Hong Kong (the “Enforcement Order”). On 5 December 2025, the Bank applied to stay the Enforcement Order pending a GAC permit or alternatively, if the permit was not granted, to stay the Enforcement Order “until such time as the [Bank] is able to pay sums due under the Award without risk of prosecution.” Further and in the alternative, the Bank sought to set aside the Enforcement Order on public policy grounds.

14. The Court identified one core issue: Would enforcement of the Award contravene Hong Kong public policy because it would expose the Bank and its employees to a real risk of criminal prosecution under Canadian law?

15. In deciding a public policy challenge, the Court’s role is confined to applying the relevant public policy to the findings of fact and law already made in the Award, to see if there is any conflict between the Award and that policy. It is not for the enforcement court to reopen, under the guise of public policy, issues as to the contract’s meaning or its compliance with a regulatory scheme that the Tribunal has already decided.

16. The Bank relied on the Tribunal’s observation that Canadian authorities might take a different view. The Letter confirmed that this had indeed occurred, since the view on illegality in the Letter was different from that of the Tribunal’s Award. The Bank argued that neither the Tribunal’s findings nor a Hong Kong court order would provide a defence under Canadian criminal law. Only a GAC permit, or the lifting of sanctions, would remove the risk.

17. The Bank also invoked international comity. It submitted that the Court should respect the Canadian Government’s view of its own sanctions legislation. The Bank emphasised that it was not seeking to relitigate the Tribunal’s decision: the Tribunal had addressed discharge of the Contract for illegality under English law, whereas the enforcement Court had to consider public policy.

18. The Bank argued that it would otherwise face an impossible choice between breaching the Enforcement Order and risking penal consequences in Canada. The Bank offered instead to pay the Award as soon as it was lawfully able to do so.

19. The Company responded that the Tribunal had already determined there was no risk of prosecution in Canada. The Tribunal found no illegality in payment to the Company and no contravention of the relevant SEMA provision.

20. The Company also relied on O v C [2026] 4 WLR 5, submitting that the Bank could not rely on the “real risk of prosecution” defence to resist enforcement of a final award. Indeed, the Tribunal had itself reached the same conclusion in the Award. The defence in O v C, and the related decision in Bank Mellat v HM Treasury [2019] EWCA Civ 449, concerned interlocutory orders. Enforcement of a final award raises a materially different and more stringent threshold, reflecting the compelling public interest in speedy enforcement. The Court accepted the Company’s submission on the higher threshold for enforcement of final awards.

The Court’s Reasoning

21. The Court held that the Bank had not established a real risk of prosecution.

22. The Court applied a two-step test: first, whether a real (as opposed to a fanciful) risk of prosecution has been established, bearing in mind that the burden lies on the party resisting enforcement; and second, if such a risk is established, whether a balancing exercise favours refusing enforcement, weighing the risk of prosecution against the importance of the relief sought.

23. First, even in an interlocutory context, a risk of prosecution under foreign law does not automatically justify non-compliance. The forum has a legitimate interest in the conduct of its own proceedings: Bank Mellat. That applies with greater force at the final-award enforcement stage.

24. Second, the Tribunal had heard expert evidence and found no underlying illegality. The Letter was issued after the Award, and it was a statement of Canada’s current ministerial policy, not a finding of a Canadian court.

25. Third, the Tribunal had found that the Bank’s payment obligation was to be performed in Russia.

26. Fourth, there was doubt whether enforcement would necessarily expose the Bank or its staff to a real risk of prosecution. Enforcement by garnishee proceedings, without the Bank’s active assistance, may not amount to voluntary compliance. The Bank had not shown that there were no alternative arrangements in making payments pursuant to the Award.

27. Finally, the Bank’s prompt and good-faith efforts to comply with Canadian law were relevant, as was the absence of active assistance in enforcement. These were matters the Canadian authorities would likely take into account as a mitigating factor. As the Court held in O v C, comity may also influence the foreign state’s own decision whether to prosecute for compliance with a court order. Comity cuts both ways.

Hong Kong Public Policy

28. The Court held that, even if there was a real risk of prosecution, it would not have set aside the Enforcement Order on public policy grounds.

29. It has long been Hong Kong public policy to recognise and enforce arbitral awards and to remain an arbitration-friendly, pro-enforcement venue. The relevant public policy is that of Hong Kong, not Canada, which is not to be dictated by the foreign policy objectives of another state.

30. This mirrored the Court’s own earlier decision in Bank A v Bank B [2024] 5 HKLRD 250, which held that it was not against Hong Kong public policy to issue an anti-suit injunction restraining Russian proceedings simply because an EU sanction was in focus, since that sanction did not affect the rights of any Hong Kong entity. The Canadian sanctions in this case likewise had no application to Hong Kong and no role to play in Hong Kong public policy.

31. The Bank bore the commercial risk of potentially conflicting legal obligations when it chose to issue the Guarantees. The public policy ground is narrowly construed. It applies only where enforcement would “shock the conscience” of the court or violate its most basic notions of morality and justice: A v R [2009] 3 HKLRD 389. Neither was shown by the Bank here.

32. The Court also rejected the suggestion that the Company was at fault for choosing to enforce in Hong Kong despite the Contract, the Guarantees and the Arbitration having no connection to the jurisdiction. A party may enforce an arbitral award in any jurisdiction where the debtor has assets, that ease of enforcement under the New York Convention is the whole point of choosing arbitration.

33. The Setting Aside Summons was therefore dismissed. The Company obtained its costs on an indemnity basis.

34. The Bank’s application for a stay of the Enforcement Order was also refused. The first basis no longer applied once the GAC, on behalf of Canada’s Minister of Foreign Affairs, had already refused a permit, and the Court declined the alternative, indefinite stay sought “until such time as the Bank is able to pay the sums due under the Award without risk of prosecution” as contrary to the aims of the Arbitration Ordinance and the Company’s entitlement to the fruits of a valid and binding award.

The Exchange published a Consultation Paper on Listing Framework Competitiveness Review (Phase 2) on 21 September 2026, seeking market feedback on reforms to the post-listing regulatory framework. The proposals aim to ensure that the framework remains fit for purpose, while enhancing Hong Kong’s competitiveness and attractiveness as an international listing venue.

Following its Phase 1 review of initial listing requirements, the Exchange’s Phase 2 review addresses the continuing requirements applicable to issuers after listing. In particular, the Consultation Paper proposes reforms to (1) notifiable transactions, (2) connected transactions and (3) spin-off transactions to give issuers greater flexibility while maintaining investor protection.

Read the full article here.

“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.

• The Respondent in the arbitral proceeding (the “Defendant“) alleged that it had been unable to present its case because the Arbitrator had developed a grudge or bias against its quantum expert (“D’s Expert“).
• The Defendant relied on a specific incident of the Arbitrator conducting his own research on an issue, which took D’s Expert by surprise, and refusing to allow additional expert evidence.
• Chan J confirmed that actual bias has a high threshold and emphasised the Arbitrator’s duty to evaluate competing expert evidence.
• Furthermore, an Arbitrator’s case-management and time-management powers include entitlement to refuse a further round of expert evidence.
• The Court found that since the setting-aside application was clearly without merit, it would be contrary to procedural economy to delay enforcement.
• The Court, therefore, ordered the Defendant to pay 70% of the principal sum awarded as security.

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.