The prospect of a deepening diplomatic row between the US and China has grown after a Canadian judge refused to admit new evidence that might have helped the Huawei chief financial officer, Meng Wanzhou, avoid extradition to the US.

The arrest of Meng, the daughter of the Chinese telecommunication company’s billionaire founder, has prompted a sharp deterioration in relations between Canada, the US and China. Soon after Meng’s detention in Vancouver in December 2018, China arrested two Canadians in China: Michael Spavor and Michael Kovrig.

Meng’s lawyers had been hoping associate chief justice Heather Holmes, who has been overseeing the case in the British Columbia supreme court, would allow her to use at least some of the documents obtained from HSBC through a Hong Kong court hearing.

The lawyers believe the papers show she did not mislead HSBC senior executives over Huawei’s links to an Iranian firm. She is facing fraud charges in the US over allegedly misleading HSBC, and Huawei largely regards the case as part of a trade war instigated by Donald Trump.

Holmes will give her reasons at a later stage, but her ruling shows the extent to which Canadian law is reluctant to let the extradition hearing, due to start next month, turn into a substantive trial of whether she has misled HSBC.

Meng’s lawyers had gone to great lengths to obtain the internal bank documents, first suing unsuccessfully in the British court before winning in Hong Kong, followed by a ruling in a Canadian court that the documents including email chains should be published.

Huawei Canada said it respected the court’s decision but regretted the outcome. It said: “The documents demonstrate clearly that HSBC, including its senior executives, were aware of Huawei’s relationship with Skycom and its business in Iran. They show that America’s Record of Case is manifestly unreliable. The hearings continue and as always we continue to support Ms Meng in her pursuit of justice and freedom.”

Lawyers for Meng claim the documents prove the US misled the Canadians in its summary to Canada of the case against her. In particular the US government misled the Canadian authorities in requesting her arrest in Vancouver about the extent of HSBC’s knowledge of the transactions between Huawei and a subsidiary, Skycom, and the relationship between the two firms.

The US claims Meng gave an HSBC executive a PowerPoint presentation at a meeting in Hong Kong which left the impression that Skycom was just a local Huawei business partner, not a subsidiary.

Prosecutors claim HSBC relied on Meng’s word in deciding to continue handling Huawei’s financial transactions, putting the bank at risk of a reputation loss and prosecution for violating the same sanctions. The prosecutors in court have admitted the documents show HSBC executives were provided sufficient information to make them understand the true relationship, but no evidence that the executives actually reached that understanding.

There has been speculation that the US administration might want the case to be dropped, but once the wheels of justice have been set in train, it is very hard for anyone to bring them to a halt.

Meng’s original extradition hearing had been scheduled for last April but the judge granted her lawyers more time to review the documents from the Hong Kong court. The extradition case is now due to begin on 3 August and could last through the autumn.

Meng remains out on bail, living in Vancouver on a curfew with her husband and children.