Fraud Exception in Summary Judgments Abolished

Fraud Exception in Summary Judgments Abolished

Fraud Exception in Summary Judgments Abolished 1400 788 Kelly

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, seeking to abolish the fraud exception. The effect of these proposed 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 are to take effect from 1 December 2021, subject to the legislative process.

Background

Presently, according to the Rules of the High Court/ Rules of the District Court Order 14 rule 1(1) and (2)(b)—

(1) Where in an action to which this rule applies a statement of claim has been served on a defendant and that defendant has given notice of intention to defend the action, the plaintiff may, on the ground that that defendant has no defence to a claim included in the writ, or to a particular part of such a claim, or has no defence to such a claim or part except as to the amount of any damages claimed, apply to the Court for judgment against that defendant.

(2) Subject to paragraph (3) this rule applies to every action begun by writ other than—

(b)an action which includes a claim by the plaintiff based on an allegation of fraud (the“Fraud Exception”)

Reasons for change

According to the Legislative Council Panel on Administration of Justice and Legal Services, the justifications for abolishing the Fraud Exception are summarised as follows:-

  1. The Fraud Exception rule was historically linked to the right to have a trial by jury in fraud cases. However, as there is no such right in Hong Kong, there is no practical need to retain the Fraud Exception;
  2. The Hon Mr Justice Lam VP observed in Zimmer Sweden AB v KPN Hong Kong Limited & Brand Trading Ltd [2016] 1 HKLRD 1016 that the fraud exception rule cannot 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, thus obliging the plaintiff to incur all the expenses in respect of a full trial to get relief; and
  4. The Fraud Exception had been abrogated in England since 1992 as the English Courts had interpreted the fraud exception rule in a narrow way.

These amendments are generally welcome especially given the rise in electronic frauds in Hong Kong. By enhancing the summary judgment regime, victims of fraud will be given the opportunity to seek recourse at an early stage of legal proceedings without having to go through a full trial, thereby also avoiding unnecessary legal costs.

To find out more about the abovementioned topic, please contact us today for a discussion.

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