Overview

In A Company v. The Bank [2026] HKCFI 3169 (3 June 2026), the Hong Kong Court of First Instance considered whether enforcing a New York Convention award would be contrary to Hong Kong public policy where it was said to expose the paying party and its employees to a real risk of criminal prosecution under Canadian sanctions law. The court rejected the respondent’s application to stay or set aside the enforcement order on public policy grounds and awarded costs to the applicant on an indemnity basis. The decision provides helpful guidance for international financial institutions and corporations navigating contractual obligations that may potentially conflict with foreign sanctions law compliance.

 Background

The applicant, a Russian nickel producer, contracted with a service provider for goods and services. The respondent, a Canadian bank, had guaranteed the obligations of the service provider under three guarantees. When the service provider defaulted in 2022, the applicant commenced LCIA arbitration against the respondent in 2023 for a sum of over €30 million under the guarantees. The respondent argued that it was prohibited from making payment to the applicant because the applicant was said to be deemed owned or controlled by sanctioned persons under the Canadian sanctions measures imposed against Russia (Canadian Sanctions Regime).

In its award dated 11 June 2025, as amended on 12 August 2025, the tribunal found that the respondent failed to establish that the Canadian Sanctions Regime applied to the applicant and therefore could not rely on an illegality defence. The tribunal held that even if payment constituted a Canadian criminal offence, this did not provide a contractual defence under English law and ordered the respondent to pay the applicant. In October 2025, the applicant obtained leave to enforce the award as a judgment of the Hong Kong court (Enforcement Order), and the respondent shortly thereafter applied to stay or set aside the Enforcement Order on public policy grounds (Setting Aside Application).

Hong Kong court’s decision and analysis

The court rejected the respondent’s Setting Aside Application and awarded costs to the applicant on an indemnity basis. In doing so, the court reiterated that it can only set aside or refuse enforcement of an arbitral award on limited and exhaustive grounds under the Arbitration Ordinance (Cap 609). This reflects the important arbitration principles of respecting the finality of the award and the competence-competence of the tribunal. 

When asked to set aside or refuse enforcement on public policy grounds, the court will not review the merits or correctness of the findings made by the tribunal. Instead, the court will apply the relevant public policy to the findings of fact and law made in the award to see whether there is any conflict between the award and that public policy. The parties are bound by the tribunal’s findings, and it is not for the enforcement court to go behind or review the tribunal’s rulings, including its interpretation of the relevant sanctions provisions.

In this case, the tribunal had heard expert evidence on Canadian law before concluding that payment was not caught by the Canadian Sanctions Regime and that there was no illegality. The tribunal had also accepted that the shares of relevant listed persons could not be aggregated for the purposes of the Canadian Sanctions Regime. The court therefore considered that there was no underlying illegality or any real risk of prosecution as found by the tribunal, and that the respondent had failed to discharge its burden to establish such risk by adducing proper evidence.  

The court further held that public policy refers to the public policy of the forum of enforcement, which in this case was Hong Kong. It has always been the public policy of Hong Kong to maintain itself as an arbitration-friendly and pro-enforcement venue and to facilitate the fair and speedy resolution of disputes by arbitration without unnecessary expense. Hong Kong courts will only set aside or refuse enforcement of awards if enforcement would be contrary to fundamental concepts of morality and justice, “shock the conscience” of the court, or violate the forum’s most basic notions of morality and justice. The public policy ground cannot be used as a “catch-all ground”. 

In assessing whether there was a real risk of prosecution under foreign law, the court adopted a two-step approach: first, it must identify whether a real, and not “fanciful”, risk of prosecution has been established; and second, if a real risk is established, it must conduct a balancing exercise to consider the risk of prosecution and the importance of the relief sought by the order.  

On the facts, the respondent failed to show by satisfactory evidence that there was any underlying illegality or any real risk of prosecution. The respondent also failed to show by satisfactory evidence that there were no alternative arrangements to comply with or enforce the award in a way that would not contravene the Canadian Sanctions Regime, such as by way of garnishee proceedings. The court also noted that the respondent had taken steps to avoid contravening the Canadian Sanctions Regime, including time and good-faith efforts spent liaising with Global Affairs Canada, and that considerations of comity may be expected to influence the foreign state in deciding whether or not to prosecute a foreign national for compliance with a court order. The court therefore considered that the practical risk of prosecution was low in this case.

Finally, where there is a valid and binding arbitral award, applications to stay enforcement for an indefinite and uncertain period, such as until compliance with the award would be “without risk of prosecution”, will not be entertained by the Hong Kong court. The court declined to grant such a stay because it would be inconsistent with the aims and principles of the Arbitration Ordinance and would deprive the award creditor of the fruits of successful arbitration.

Comment and practical implications

This decision illustrates the Hong Kong court’s continued narrow approach to public policy objections in arbitral enforcement proceedings.

This decision also highlights how foreign sanctions issues may arise in the enforcement of arbitral awards involving cross-border commercial arrangements. The court treated the possibility of conflicting obligations across jurisdictions as part of the factual and commercial context, rather than as an automatic basis for refusing enforcement of a final and binding arbitral award.

International financial institutions and corporations are reminded of the risks that come with the sudden changes in the political and regulatory climate as well as sanctions policies when embarking on cross-jurisdiction commercial operations.

The decision also confirms that applications for indefinite stays of enforcement are unlikely to be viewed favourably where there is a valid and binding arbitral award.  In this case, the court considered that an indefinite stay pending the removal of prosecution risk would be inconsistent with the objectives of the Arbitration Ordinance and the award creditor’s entitlement to the benefit of the award.

Client Alert 2026-129