News & Knowledge
September 2021 Newsletter
Adding a string to the fraud lawyer’s bow – Removing the “fraud exception” rule in Summary Judgment applications
On 20 August 2021, the Hong Kong Judiciary gazette the Rules of the High Court (Amendment) Rules 2021 and the Rules of the District Court (Amendment) (No. 2) Rules 2021 (jointly “Amendment Rules”). The Amendment Rules were tabled to the Legislative Council on 25 August 2021 for negative vetting and will come into effect on 1 December 2021.
Once the Amendment Rules are in effect, the “fraud exception” rule will be removed in Hong Kong.
Summary Judgment and “Fraud Exception”
Pursuant to Order 14 rules 1 and 5 of the Rules of the High Court and Rules of the District Court, a plaintiff may apply for Summary Judgment against the defendant:- i.e. obtaining judgment at an early stage, and without the need for spending time and costs on a full trial, on the basis that the defendant has no defence.
Summary Judgment is however not available on claims based on an allegation of fraud. This is commonly known as the “fraud exception” rule.
In Zimmer Sweden AB v. KPN Hong Kong Limited and Brand Trading Ltd  1 HKLRD 1016; the Court of Appeal questioned the “fraud exception” rule’s continued existence. Following on from this decision, the Judiciary proceeded to look into the Court’s comments, with the aim of enhancing the summary judgment regime and interests of parties to litigation.
The Judiciary listed out the following justifications in support of removing the “fraud exception” rule:
- The “fraud exception” rule was historically linked with the right to have a trial by jury in fraud cases. There is however no right to trial by jury in fraud cases in Hong Kong. There is no practical need for the “fraud exception” rule to exist.
- It is questionable whether, the justification of the vindication of a defendant at trial if he is alleged of fraud, warrants the deprivation of a plaintiff the right to seek summary judgment, even in cases where a defendant only puts forward a token defence and thus forcing (and very often deterring) the victim of a cyber fraud to incur all the time and costs to trial to get relief;
- The removal of the “fraud exception” rule does not mean that summary judgment will automatically be granted in fraud cases. Summary Judgment may still be resisted by a defendant who has serious defences or there are triable issues of fact or law;
- The Court noted in Zimmer that the “fraud exception” rule could not be justified in Hong Kong’s modern litigation environment; and
- In any event, the English Courts have abrogated the counterpart of the “fraud exception” rule since 1992.
The number of cyber fraud cases has unfortunately continued to grow in recent years. Whilst most cyber fraud claims proceed in Court unopposed, for the few cases that are opposed and defended, the Amendment Rules will provide a quicker access to justice and short cut to relief for cyber fraud victims by abolishing the “fraud exception” rule.
The abolition of the “fraud exception” rule is no doubt a welcoming development to victims of cyber fraud.
Consultant, H. Y. Leung & Co. LLP