Hong Kong Lawyer | Hong Kong Ends Its ‘Fraud Exception Rule’ in Summary Judgments

In our previous article ‘An Application for Summary Judgment – Don’t Shoot Yourself in the Foot!’, we examined the case of Tang Chack Wing v Yung Woon Kwai (2021) HKCFI 2566 with regard to careful consideration to be undertaken in an application for summary judgment.

What is Summary Judgment and the ‘fraud exception rule’?

Summary judgment (or also known as an Order 14 Application) is a mechanism which enables a plaintiff to apply for final judgment on his claim without having to proceed to the full expense and delay of proceeding to a full trial. The plaintiff will have to prove that there is no defence to the claim by the defendant (clear cut cases). Although summary judgment is not easy to obtain in practice (save for clear cut cases), it is available as an option in civil disputes commenced by writ action subject to a few exceptions. The relevant exception includes ‘an action which includes a claim by the plaintiff based on an allegation of fraud’ (the “Fraud Exception”).

In R. Stahl Inc. v AJ Development Ltd (2021), the Court of Appeal confirmed that the “Fraud Exception” does not apply to applications for summary judgment where the plaintiff’s claim is not based on an allegation of fraud, even if there is an allegation of fraud against a non-party. While the “Fraud Exception” did not apply, the Court of Appeal refused to grant summary judgment and gave the defendant unconditional leave to defend, due to the existence of ‘triable issues’.

The distinctions drawn by the Court of Appeal in R Stahl Inc are now disregarded due to the abolishment of the “Fraud Exception” rule, which will be elaborated further below.

The Amendment

On 20 August 2021, the Hong Kong Judiciary gazetted the Rules of the High Court (Amendment) Rules 2021 and the Rules of the District Court (Amendment) (No. 2) Rules 2021 (collectively the “Amendment Rules”), seeking to abolish the “Fraud Exception”. The exception acts as a hurdle to obtaining summary judgment in a writ action where a plaintiff’s claim is based on an allegation of fraud. “Fraud” is interpreted widely and includes an allegation of dishonesty.

The inherent effect of the amendments would be to make summary judgment available for an action begun by writ in the High Court and District Court that includes a claim based on an allegation of fraud. Such amendments took effect from 1 December 2021.

Justification for the Amendment

The Legislative Council brief relating to the Amendment Rules released in August 2021 by the Legislative Council Panel on Administration of Justice and Legal Services states four key justifications for the Amendment Rules:

1. There is no practical need to retain the “Fraud Exception” rule from the perspective of the historical link between its English counterpart, as there is no right to trial by jury in a fraud case in Hong Kong;
2. The Honourable Mr. Justice Lam VP had observed in the case of Zimmer Sweden that the “Fraud Exception” rule could not be justified in the modern litigation environment in Hong Kong;
3. Whilst there is the potential vindication of a defendant at trial if he is alleged of fraud, it is questionable whether this warrants the deprivation of a plaintiff the right to seek summary judgment in cases where the defendant only puts forward a ‘token defence’, therefore obliging the plaintiff to incur all the expenses in respect of a full trial to obtain relief; and
4. The English counterpart of the “Fraud Exception” rule has been abrogated in England since 1992 since the English Courts had construed the fraud exception rule narrowly.

Way forward

The amendments have been welcomed. Cyber fraud cases have become increasingly common and prevalent in recent years, therefore it is reassuring to see that Hong Kong have taken steps forward to abolish the “Fraud Exception” to allow such claims accessible to summary judgment. Plaintiffs will no longer feel deterred from initiating claims against fraudsters, given that they will not necessarily have to go all the way to trial to obtain relief. However, it must be noted that fraud cases where there is an arguable defence or triable issue of fact or law will not get summary judgment; the procedure is for claims where there is ‘no defence‘. It would be up to judges and masters to grant or refuse summary judgment at their discretion, based on the evidence presented by both parties.