Since 1 December 2021, the Rules of the High Court (Cap. 4A) (“RHC”) and the Rules of the District Court (Cap. 336H) (“RDC”) have been amended to abolish the fraud exception rule (“Amendment Rules”). The amendments have enlarged the scope of summary judgment to cover an action begun by writ (“Writ Action”), which includes a claim based on an allegation of fraud.
Upon the implementation of the legislative changes, a party with a claim based on an allegation of fraud will be able to apply for summary judgment at an early stage of the proceedings without a full trial on the basis that the other side has no defense. This change is welcome as it provides a litigant with a more time-efficient and cost-effective way to dispose of legal proceedings.
- Before 1 December 2021, a Writ Action with a claim based on an allegation of fraud was excluded from the scope of summary judgment proceedings. This was commonly known as the fraud exception rule.
- The fraud exception rule was repealed on 1 December 2021. Parties whose claims are based on allegations of fraud now have an expedited option to dispose of the proceedings in a case where the counterparty has no defence.
- The removal of the fraud exception rule does not mean that summary judgment would be granted in cases where there are serious defences or triable issues of fact or law. The court will continue to apply the usual criteria for assessing if an application for summary judgment should be granted.
- Litigants should seek advice when seeking summary judgment in complex litigation and should draft their claims in a succinct and concise manner. Parties need to be cautious when alleging complicated facts, as the complexity of issues raised could increase the risk of triable issues of fact or law.
Overview of the summary judgment regime
The summary judgment regime enables parties to obtain judgment in a more time-efficient and cost-effective way.
- A plaintiff or a defendant with a counterclaim in a Writ Action may apply for summary judgment against the other party pursuant to Order 14, rules 1 and 5 of the RHC and the RDC to obtain judgment without any full trial and at an early stage of the proceedings.
- Summary judgment would be granted on the basis that the other party has no defense. The application for summary judgment will be dismissed if the counterparty is able to show that there is a triable issue or that there ought to be a trial for some other reason.
Fraud exception rule
The summary judgment regime was subject to the fraud exception rule pursuant to the former Order 14, rule 1(2) of the RHC and the RDC. Under this former rule, a Writ Action with a claim based on an allegation of fraud was expressly excluded from the scope of the summary judgment proceedings.
By way of background, the fraud exception rule was linked with the right to have a trial by jury in fraud cases in England. It was abolished in England in 1992. The English courts also interpreted fraud in a narrow way. However, as Hong Kong did not have the English equivalent of the right to trial by jury in a fraud case, there was no need to apply a narrow meaning.
Over the years, the Hong Kong courts have developed their own jurisprudence and adopted a wide interpretation of the fraud exception rule. The test was whether the action includes a claim for which an allegation of fraud would have to be made by the plaintiff to establish or maintain that claim. An “allegation of fraud” refers to an intentional or reckless dishonest act (or omission) done with the purpose of deceiving. If any allegation of intentional or reckless dishonesty (and hence, fraud) is made, the exception applies and the court has no jurisdiction to hear the summary judgment application. This wide approach raised uncertainty as to whether the summary judgment regime was appropriate in certain circumstances. For example, where the plaintiff sought damages for claims based on legal concepts such as a breach of fiduciary duty and constructive trust, and the underlying conduct might or might not involve dishonesty, such a fact-sensitive question would give rise to uncertainty as to whether the fraud exception rule applied. At the same time, there was a risk that the plaintiff might have to rely on an allegation of fraud in replying to the defendant’s spurious defense, where the fraud exception rule would still apply. Against this backdrop, plaintiffs with similar fact-sensitive claims often had to carefully consider their options and strategy, including whether to expedite their cases through the summary judgment regime.
The Amendment Rules
In a Court of Appeal decision in 2016, the Honourable Mr. Justice Lam VP (as he then was) observed that in the modern litigation environment in Hong Kong, the fraud exception rule might no longer sit well with the modern litigation landscape. His Lordship further recommended that the Rules Committees of the RHC and the RDC review the appropriateness of keeping this rule.
Accordingly, a review and public consultation were carried out to study the removal of the fraud exception rule. The Amendment Rules were eventually introduced and they took effect from 1 December 2021. The amendments are aimed at enhancing the summary judgment regime and aligning with evolving legal practice in the interests of the parties to litigation.
Pursuant to the Amendment Rules, the parties in a Writ Action whose case is based on an allegation of fraud may now apply for summary judgment against the other party on the basis that the other party has no defense.
A new Order 14, rule 12 has been added to the RHC and RDC to cater for transitional arrangements. This rule provides that the previous Order 14 of the RHC and the RDC with the fraud exception rule would continue to apply to all summary judgment applications that are pending immediately before 1 December 2021.
The Amendment Rules are an important development and provide litigants with a higher degree of certainty that their cases will not be excluded from the summary judgment proceedings because of some elements of fraud or dishonesty in their allegations. However, applicants still need to satisfy the court that the counterparty has no defense to the applicant’s claim or counterclaim. This usually involves analyzing questions of facts and/or law, which a party should carefully consider before making any application for summary judgment. Litigants who intend to seek summary judgment should seek advice and be cautious when pleading complicated facts, as the complexity of their case may increase the risk of triable issues of fact or law.
 Order 14, rule 3 of the RHC and the RDC.