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Legal Update

Trust Law Reform in Hong Kong - an Update

20 April 2012
Mayer Brown JSM Legal Update

The Financial Services and the Treasury Bureau is seeking comments on the legislative proposals which will give effect to the reform of Hong Kong's trust law which was the subject of an earlier consultation process in 2009-2010, see Trustee Ordinance to Get Long-overdue Makeover.

Below is a summary of the main proposals.

Statutory duty of care

It is proposed that trustees be required to exercise such care and skill as is reasonable in the circumstances, having regard to any special knowledge or experience that the trustee has, or holds out, as having. If the trustee is acting in the course of a business or profession, the trustee shall be assumed to have the special knowledge or experience that it is reasonable to expect from a person acting in the course of that kind of business or profession.

Statutory control on a trustee's disclaimer from its responsibility to beneficiaries

A trustee’s exemption clause typically attempts to limit a trustee’s liability for failure to carry out duties imposed on the trustee by the trust deed or by law.

To better protect beneficiaries from excessive disclaimers from liability, it is proposed to prohibit any provision which releases or indemnifies a trustee from liability arising from:

   i. a reckless act/omission
  ii. fraud

 iii. wilful misconduct

As the case law on the meaning of a reckless act is believed to be clearer than the case law on the meaning of "gross negligence", it is proposed to exclude "reckless acts" instead of "gross negligence". A person acts recklessly in respect of a circumstance "... if he was aware of a risk which did or would exist, or in respect of a result if he was aware of a risk that it would occur, and it was, in the circumstances known to him, unreasonable to take the risk." Sin Kam Wah v HKSAR ((2005) 8 HKCFAR 192).

In Armitage v Nurse ([1997] 2 All ER 705), the court held that fraud occurs when there is "... an intention, on the part of the trustee, to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not."

The court also held that wilful misconduct is when a trustee consciously takes a risk that loss will result, or is recklessly indifferent whether loss will, or will not, result.

Power to employ agents, nominees and custodians

Subject to the statutory of care being exercised with respect to the appointment and a duty to monitor, it is proposed that trustees be permitted to appoint agents, nominees and custodians to discharge their duties except for certain fundamental duties e.g. the distribution of trust assets, the making of decisions on whether payments are to be made out of income or capital and with respect to real estate situated outside Hong Kong.

Power to insure

It is proposed that trustees be permitted to insure trust property up to market value or full replacement value.

Professional trustees' entitlement to receive remuneration

To facilitate the employment of professional trustees for both non-charitable trusts or charitable trusts, it is proposed that they can be remunerated for services rendered, even if they are services which are capable of being provided by lay trustees, subject to reasonable safeguards i.e. the professional trustee is not the sole trustee and each other trustee has agreed that he may be remunerated.

Reserved powers of settlors

A reservation of the settlor's powers of investment or asset management functions will not invalidate a trust. A trustee will be exempted from liability for acting in accordance with the powers that the settlor has reserved.

Beneficiaries' right to remove trustees

Beneficiaries will be able to remove a trustee if all the beneficiaries have legal capacity and are absolutely entitled to the trust property.

Other related issues

Beneficiaries' right to information

It is proposed not to introduce legislation with respect to a beneficiary's right to information from a trustee subject to Hong Kong law. The development of the common law and overseas practices in this area are to be kept under review.

Abolition of the rule against perpetuities and the rule against excessive accumulations of income

It is proposed that the Perpetuities and Accumulations Ordinance (Cap. 257) be amended to allow a trust to continue in existence for an unlimited period of time. A new provision will also be added to provide the maximum accumulation period for charitable trusts.


The consultation period ends on 21 May 2012. The Government plans to introduce the legislative proposals into the Legislative Council in 2012-13.

For inquiries related to this Legal Update, please contact Phillip Smith, or your usual contacts with our firm.

Learn more about our Hong Kong office and Financial Services Regulatory & Enforcement, Private Investment FundsWealth Management practices.

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