Hong Kong’s Trust Law (Amendment) Ordinance will come into force on 1 December 2013 (Commencement Date), apart from section 41W (which regulates trustee exemption clauses) which is delayed until 1 December 2014 for existing trusts.
The Ordinance introduces a statutory duty of care for trustees and statutory control on exemption clauses.
1. What is the statutory duty of care?
The statutory duty requires a trustee to exercise the care and skill that is reasonable in the circumstances, having regard to–
The statutory duty of care will only apply when the trustees are carrying out certain prescribed functions as specified in Third Schedule of the Trustee Ordinance, including exercising powers of investment, appointment of agents, nominees and custodians, taking out insurance and exercising powers of valuation.
2. Can the statutory duty of care be excluded?
The statutory duty of care does not apply where it “appears from the trust instrument that the duty is not meant to apply”. For trusts created after the Commencement Date, trustees can expressly exclude the statutory duty of care in the trust instrument.
In the context of appointment of nominees and custodians by trustees of SFC authorised unit trusts, the SFC expects the relevant trust deed to exclude the statutory duty of care in view of the higher standard imposed pursuant to the SFC’s Code on Unit Trusts and Mutual Funds (Code).
3. Can trust instruments exempt trustees from liability for breach of trust?
An exemption clause will be invalid if it purports to (a) relieve, release or exonerate a trustee from liability for a breach of trust arising from the trustee’s own fraud, wilful misconduct or gross negligence or (b) indemnify the trustee from the trust property in such circumstances.
Trust deeds of SFC authorised funds should already conform with these statutory requirements, in compliance with Chapter 6.6 of the Code.