In Zimmer Sweden AB v KPN Hong Kong Ltd and another (CACV 172/2015), the Court of Appeal affirmed the wider meaning of the “fraud exception” to be applied in applications for summary judgment in Hong Kong.
Fact
The plaintiff alleged that it was a victim in a cyber fraud in which it was deceived to transfer funds to the Lithuanian bank account which were subsequently remitted to bank accounts in Hong Kong of the 1st and 2nd defendants.
The plaintiff in its statement of claim argued that the fund transfer was effected as a result of fraudulent misrepresentation and/or mistake as to the recipient’s identity.
In their defence, the defendants contended that the funds received were due to “normal and ordinary business transaction” so they were “bona fide purchasers and/or have changed their position in good faith”.
In reply, the plaintiff challenged the authenticity of the facts relied on by the defendants in support of their defence.
At Trial
At trial, the trial judge dismissed the plaintiff’s application for summary judgment because the plaintiff’s claim was caught by the fraud exception.
The plaintiff appealed the trial judge’s decision to the Court of Appeal.
Appeal
The Court of Appeal agreed with the trial judge’s finding that the Plaintiff, in its pleadings, in effect raised allegations against the defendants that they were party to a fraud. The appeal was dismissed accordingly.
Implications
This case affirms Hong Kong courts’ wide application of the “fraud exception” in summary judgment applications.
However, in a similar case Universal Capital Bank v Hongkong Heya Co Ltd (HCA 1211/2015), Zimmer Sweden was distinguished and it was held that the fraud exception did not apply to bar the application for summary judgment. In this case, a cyber fraud alleged occurred resulting in financial losses suffered by the plaintiff. The funds were subsequently transferred to a Hong Kong bank account of the defendant and were eventually transferred to a third party in PRC. It was held that the plaintiff’s claim was based on the defendant’s unjust enrichment but not allegation of fraud against the defendant. The plaintiff’s application for summary judgment is not barred and a conditional leave to defend order was granted to the defendant.
Based on our experience in handling cases involving cyber fraud and the above two cases, victims of cyber fraud who would like to obtain summary judgment to claim for restitution are advised to be careful when preparing pleadings so that no allegation of fraud against a defendant is made.
