Hong Kong To End Its ‘Fraud Exception Rule’.

Summary judgment
 

As is well known, Order 14 of Hong Kong's rules of civil procedure provides that a Plaintiff in an action begun by a writ (or a counterclaiming Defendant) may apply for a summary judgment against the other party:
 

'… on the grounds that the defendant has no defence to a claim1 …'. 
 

Typically, this means that when the defence is pleaded, and it is found to be unsustainable because it makes unarguable points and/or is unsupported by evidence, this summary procedure may be utilised2 and it is a blessing because it allows a judgment to be obtained at the start of the litigation process without delay or the expenses of taking a case to trial.
 

Not of universal applicability
 

Summary judgment is not applicable to all claims however.
 

 Excluded by virtue of the provisions of Order 14 rule 1(2) RHC are libel, slander, malicious prosecution, false imprisonment, seduction, Admiralty or mortgagee claims and by virtue of what's known as the fraud exception rule:
 

'… an action which includes a claim by the plaintiff based on an allegation of fraud3…',
 

This rule was abolished in the UK in 1992 and has been called into question here in Hong Kong most notably in Zimmer Sweden AB v KPN Hong Kong Limited [2016] 1 HKLRD 1016 (a case we were involved in) where the Court of Appeal queried the rule's relevance. In that case the Court of Appeal also restated the test that the Courts should use to determine when the fraud exception rule would apply as follows:
 

'… does this action include a claim for which an allegation of fraud would have to be made by the plaintiff in order to establish or maintain that claim?4 …'
 

Since Zimmer 
 

The restated test has proved to be a problem particularly in those claims involving email frauds and scams (of which there are all too many at the moment) where the victims of such wrongdoing have been deceived to transfer sums of money to Hong Kong.
 

When applying for summary judgment many Courts have denied such Plaintiffs an early judgment, holding that the fraud exception applied on seeing references to the fraud which caused the payment to Hong Kong in the Statement of Claim or allegations of dishonesty against the Defendant who'd received their money5 .
 

 With limited success, some victims of such frauds and scams have attempted summary judgment applications trying to avoid the fraud exception rule by only relying on the restitution claims they had made. While the Courts have produced some incompatible judgments, recently there has been a line of authority, which has been confirmed by the Court of Appeal in the summer in R Stahl Inc v AJ Development Limited CACV 163/2020 [2021] HKCA 1093, holding that this was appropriate when there are allegations of fraud in a case but these were not between the Plaintiff and the Defendant.
 

Conclusions 
 

The distinctions drawn by the Court of Appeal in R Stahl Inc will not be relevant after the commencement date when the fraud exception rule will cease to exist. Then, any victim of a fraud will be able to apply for a summary judgment. 
 

It needs to be remembered that those 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'. 
 

The fraud exception rule will be removed by amendments to Hong Kong's civil procedure rules and for clarity the amendments provide:
 

(i) the rule shall continue to apply to any summary judgment application made before the commencement date (regardless of when the application is decided); and
 

 (ii) once the commencement date passes anyone bringing a fraud claim made before this date may then seek a summary judgment. 
 

This article was written by Ian Childs, Partner of Stephenson Harwood’s Hong Kong Litigation Team.
 

 

For further information, please contact:

 

Emily Li, Stephenson Harwood

emily.li@shlegal.com