October 2012
Reform of Trustee Ordinance – meeting with
FSTB October 2012.
Contents
Linklaters attended a meeting on 16 October 2012 with officials from the
Financial Services and the Treasury Bureau (“FSTB”) and representatives
from the legal profession to discuss issues arising from the proposed trust law
reforms in Hong Kong. We participated at that meeting from the point of view
of professional trustees acting in relation to capital markets transactions.
In brief, the FSTB confirmed that the proposed statutory duty of care will be
introduced but that it can be excluded under the trust instrument. Statutory
control of trustee exemption clauses will be introduced and, although the
formulation has not been finalised, the Government is expected to introduce a
prohibition on exemption clauses that seek to exclude liability for breach of
trust arising from the trustee’s own fraud, wilful misconduct or gross
negligence. The Government will also clarify that various restrictions on the
powers of delegation and appointment of agents, nominees and custodians
will not apply where the delegation or appointment is done under expressed
powers contained in the trust instrument.
Timetable .......................... 1
Statutory Duty of Care ...... 1
Statutory Controls on
Trustee’s Exemption
Clauses ............................. 2
Power to Delegate ............ 2
Power to Employ Agents .. 2
Power to Employ Nominees
and Custodians ................. 3
Review of agents,
nominees and custodians . 3
Beneficiary’s Rights to
Remove Trustee ............... 3
Here follows a summary of the key points that arose from the meeting that
are of relevance to professional trustees:
1.
Timetable
FSTB had a meeting with STEP and the Hong Kong Trustee
Association last week and are continuing to have meetings with
stakeholders about the views presented in the consultation process.
FSTB aims to introduce the bill to the Legislative Council in Q1 2013
and to complete bills committee deliberations and pass the bill before
the summer recess in 2013. FSTB does not expect to introduce any
major policy change to the proposals at this stage.
2.
Statutory Duty of Care
FSTB clarified that although the statutory duty of care will apply to
both new and existing trusts, it will only apply to acts done after the
commencement date of the legislative amendments. The statutory
duty will apply unless it appears from the trust deed that it is not
meant to apply. We would expect that new deeds will specifically
Reform of Trustee Ordinance – meeting with FSTB October 2012
1
exclude the statutory duty; the non-specific wording in existing deeds
will usually likely be sufficient to indicate that the statutory duty was
not meant to apply, but residual uncertainty is sure to remain.
However, given that the imposition of the new statutory duty of care
on existing trusts did not prove to be problematic in the UK in practice,
FSTB is minded not to deviate from its proposal to introduce it in
Hong Kong.
3.
Statutory Controls on Trustee’s Exemption Clauses
The Government has made a policy decision to depart from the UK
position and follow the position adopted by some offshore trust
jurisdictions to introduce statutory controls on trustee’s exemption
clauses as the Government believes that such control would be
attractive to settlors who would want such protections. The proposed
statutory provision will strike down clauses which seek to exclude
liability for breach of trust arising from the trustee’s own fraud, wilful
misconduct or, as noted below, gross negligence. In view of the
policy decision, we think this is the best outcome that could have
been hoped for professional trustees.
FSTB indicated that it is likely to use the “gross negligence”
formulation rather than the originally proposed “reckless act” but is
minded not to introduce a definition of “gross negligence” preferring to
leave its interpretation to case law.
In the case of trustees who are subject to other controls on exemption
clauses (e.g. under the SFC Code on Unit Trusts and Mutual Funds or
the Occupational Retirement Schemes Ordinance), the FSTB
indicated that the trustees will need to comply with the requirements
of the Trustee Ordinance (the “TO”) as well as other applicable
requirements.
4.
Power to Delegate
FSTB clarified that the restrictions proposed to be added to section 27
of the TO such that the exercise of a trustee’s power of delegation
must not result in a trust (which has more than one trustee) having
only one attorney or one trustee administering the trust (unless the
attorney or trustee is a trust corporation) only applies if the default
power of delegation granted under the TO is used and would not
apply if the trustee exercises an expressed power of delegation
granted under the trust instrument.
5.
Power to Employ Agents
FSTB’s general policy is, in the context of professional trustee, to
respect the provisions of the trust instrument. Therefore, the
restrictions on the terms of agency set out in proposed section 41E of
the TO are not meant to apply where the appointment of the agent is
made under an expressed power of appointment granted under the
trust instrument but only where the statutory default power is invoked.
Reform of Trustee Ordinance – meeting with FSTB October 2012
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6.
Power to Employ Nominees and Custodians
FSTB has clarified that the proposed restrictions on the employment
of nominees and custodians apply only where the statutory default
power is invoked and not if the appointment is made using an
expressed power granted under the trust instrument.
Although The Law Society of Hong Kong advocates that the definition
of a custodian in proposed section 41H(2) of the TO should refer to
persons who undertakes the safe custody of the assets or of any
“documents of title” (narrowing it down from “documents or records”)
concerning the assets, we have indicated that as the definition relates
to the power of a trustee to appoint a person to act as custodian,
where a trust instrument does not expressly provide for such a power
of appointment, we would prefer a wider definition of “custodian” to
give the trustee greater powers and more flexibility.
7.
Review of agents, nominees and custodians
It is proposed that where statutory default powers of appointment are
used or where the trust instrument does not contain any inconsistent
provision, the trustee must keep under review the arrangements
under which the agents, nominees and custodians act and how those
arrangements are being put in effect, and intervene where necessary.
The Law Society of Hong Kong suggests that more guidance should
be given as to when such a review should be conducted such as
specifying a minimum frequency. The Government indicated that
specifying a minimum frequency would not be helpful as the
frequency required would depend on the nature of the arrangement.
FSTB will however consider the language suggested by The Law
Society of Hong Kong that such review should be carried out as
frequently as the circumstances may reasonably require according to
the nature of the duties or transactions undertaken by the agent,
nominee or custodian.
8.
Beneficiary’s Rights to Remove Trustee
FSTB clarified that the provisions on beneficiary’s right to remove
trustee under proposed sections 40A and 40B of the TO are not
intended to apply in the context of a professional trustee where the
trust instrument provides for appointment of the new trustee or where
the trust instrument disapplies those sections.
Linklaters, Hong Kong
October 2012
Reform of Trustee Ordinance – meeting with FSTB October 2012
3
Contacts
For further information
please contact:
Andrew Malcolm
Partner
(+852) 2842 4803
[email protected]
Mary Matson
Counsel
(+852) 2901 5126
[email protected]
This publication is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice. Should
you have any questions on issues reported here or on other areas of law, please contact one of your regular contacts, or
contact the editors.
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Reform of Trustee Ordinance – meeting with FSTB October 2012
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