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29 October 2019
As noted in a previous update (for further details please see "Summary judgment and fraud exception"), summary judgment is not available in Hong Kong civil actions which include a claim based on an allegation of fraud. The rule has traditionally been broadly interpreted by the courts, such that any claim raising an allegation of dishonesty against a defendant prevents a plaintiff from applying for summary judgment. The inflexibility of this rule, and the ambit of the meaning of 'dishonesty' in this context, have been the subject of judicial criticism. This is particularly so given the large number of email and internet scams, the illicit proceeds of which sometimes make their way to Hong Kong, and given that the equivalent rule in England was abolished years ago. The relevant rules committee and the judiciary administration have considered the matter further and there are proposals afoot to abolish the so-called 'fraud exception'.
Summary judgment is confined to clear cases where the defendant is unable to satisfy the court that there is a legal or factual issue which ought to be tried and no other reason for a trial. For example, simple debt claims to which there is no defence lend themselves to summary judgment.
In England, where the same rule applied, the courts traditionally interpreted fraud in a narrow sense, so that the exception did not apply to claims raising more general allegations of dishonesty or deceit. This led to anomalies in the application of the fraud exception, and it was eventually abolished in 1992.
However, the fraud exception survived in Hong Kong. Indeed, the courts have used it to deny summary judgment in any action in which there is an allegation of dishonesty or deception – irrespective of whether the allegation is raised in (for example) a pleaded case, a sworn statement or a supporting legal submission. It seems that some defendants have even been able to rely on the fraud exception, to avoid summary judgment, by suggesting that the claims against them involve allegations of dishonesty in a wider sense.
There have also been numerous incidents of parties losing significant amounts of money to sophisticated fraudsters, who then launder the proceeds offshore to jurisdictions such as Hong Kong, where they are received by third parties who are either complicit in the fraud or genuinely unsuspecting. Plaintiffs seeking the return of their money from such third parties in Hong Kong have had to tread carefully around the fraud exception rule if they wished to proceed to summary judgment (for further details please see "Avoiding the summary judgment 'fraud exception'").
In one of the leading cases, a senior judge in the Court of Appeal wrote as follows:
For my part, I can see considerable force in the argument that such an exception no longer sits well with the modern litigation landscape. I will recommend to the Rules Committees… to review the appropriateness of keeping this exception in our rules.(1)
That review is now taking place.
The proposed amendment is on its face straightforward. Subject to one or two other inconsequential rule changes, the amendment to the court rules would involve a simple deletion of Order 14, Rule 1(2)(b) of the High Court rules, and an equivalent amendment to the District Court rules. Order 14, Rule 1(2) reads as follows:
Subject to paragraph (3) this rule applies to every action begun by writ other than –
(a) an action which includes a claim by the plaintiff for libel, slander, malicious prosecution, false imprisonment or seduction,
(b) an action which includes a claim by the plaintiff based on an allegation of fraud…
There appears to be no legislative timetable for the proposed amendment to be passed or come into effect. The rule change is at the consultation stage but, since it involves an amendment to subsidiary legislation, it will require legislative approval. With appropriate cooperation between the judiciary administration and the legislature, the proposed amendment could happen as early as 2020.
It seems likely that the proposed amendment will receive broad support. It is important to note that the amendment proposes to abolish a jurisdictional hurdle to the grant of summary judgment – it does not alter the courts' wide discretion in deciding whether to grant summary judgment. That discretion turns on the facts of each case.
However, a rule amendment that makes it harder for sham defences to obstruct meritorious claims that raise allegations of dishonesty or deception in civil proceedings should generally be supported, particularly given the prevalence of sophisticated internet frauds and the relative ease with which misappropriated funds can be spirited away.
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