Trust Disputes in Hong Kong: Beneficiary Rights and Remedies Against Trustees

Introduction

Trusts are among the most versatile and widely used structures in Hong Kong's private wealth landscape. Yet even well-drafted trusts can give rise to disputes—between beneficiaries and trustees, among beneficiaries themselves, or between trustees about the proper exercise of their powers. Understanding the legal framework for trust disputes is essential for beneficiaries who believe their interests have been compromised and for trustees seeking guidance on their obligations.

This article examines the principal rights of beneficiaries under Hong Kong trust law, the circumstances in which trustees may be in breach of their duties, and the remedies available to aggrieved beneficiaries.

Beneficiary Rights Under Hong Kong Trust Law

The Right to Information

Beneficiaries of a trust have the right to receive information about the trust sufficient to enable them to protect their interests and, if necessary, to take legal action to enforce the trust. The scope of this right has been clarified by Hong Kong and English case law.

Broadly, beneficiaries are entitled to inspect the trust accounts and financial records. They are also entitled, in appropriate circumstances, to be informed of the existence of the trust, the nature of their interest, and the general manner in which trust assets are invested. However, the right to receive the trustee's reasons for discretionary decisions (such as the decision to withhold a distribution) is more limited—trustees are generally not obliged to give reasons for the exercise of a genuine discretion.

The right to information is subject to legitimate confidentiality considerations, particularly where disclosure would harm third parties or where the trust document contains confidentiality provisions. The court retains a supervisory jurisdiction to order disclosure where it is necessary to do justice to beneficiaries.

The Right to Accounts

Trustees must keep proper accounts of the trust and are required to produce those accounts to beneficiaries on demand. An action for account is one of the primary remedies available to beneficiaries who believe that trust assets have been misapplied or that the trustee has profited improperly from the trust.

The Right to Distributions

In a fixed trust, each beneficiary has a defined entitlement and can compel distribution when the relevant conditions are met. In a discretionary trust, no beneficiary has a right to any particular distribution, but each has the right to be considered by the trustee when it exercises its distributive discretion. A trustee that fails to give genuine consideration to the interests of all beneficiaries, or that acts irrationally or in bad faith in its distributive decisions, may be in breach of trust.

Trustee Duties and Breach of Trust

Core Fiduciary Duties

Trustees are fiduciaries and owe the following core duties:

• Duty of loyalty: The trustee must act in the interests of the beneficiaries and must not allow personal interests or conflicts to affect its decisions.
• Duty to avoid conflicts of interest: Trustees must not profit from the trust without the informed consent of all beneficiaries or the authorisation of the court or the trust deed.
• Duty not to delegate improperly: Trustees must not delegate their discretionary powers to others without the authority to do so.

Duty of Care and Skill

Trustees must exercise the same care and skill as a reasonable person of ordinary prudence would exercise in managing their own affairs. Professional trustees (such as trust companies) are held to the higher standard of a person who carries on the business of a trustee and holds themselves out as having professional competence in trust administration.

Investment Duties

Trustees have a duty to invest trust assets prudently. The Trustee Ordinance (Cap. 29) permits trustees to invest in a wide range of assets, subject to the duty of care and any investment policy provisions in the trust deed. Trustees must have regard to diversification, the need for income versus capital growth, and the suitability of investments having regard to the interests of all beneficiaries (both income and capital).

Common Sources of Trust Disputes

• Allegations that the trustee has improperly refused to make a distribution or has made an irrational distribution decision
• Claims that the trustee has failed to invest assets prudently, resulting in losses to the fund
• Allegations that the trustee has improperly benefited from the trust (e.g., by charging excessive fees or investing in related-party assets)
• Disputes about the proper construction of the trust deed (e.g., what class of persons constitutes the "descendants" of the settlor)
• Claims that the trustee has failed to make proper disclosure to beneficiaries
• Disputes between income and capital beneficiaries about the allocation of receipts and expenses

Remedies for Breach of Trust

Compensation

A trustee who has committed a breach of trust is liable to compensate the trust fund for any loss caused by the breach. The measure of compensation is the difference between the actual value of the trust fund and what its value would have been had the breach not occurred.

Account of Profits

Where a trustee has profited from a breach of their fiduciary duty (for example, by accepting a secret profit or investing trust assets in their own business), the beneficiaries can require the trustee to account for and disgorge those profits to the trust, regardless of whether the beneficiaries themselves suffered any loss.

Equitable Tracing

If trust assets have been misapplied and can be traced into the hands of a third party, the beneficiaries may be able to recover those assets or their proceeds through an equitable proprietary claim. This is particularly valuable in insolvency situations where a personal claim against the trustee would be worthless.

Removal of the Trustee

The court has jurisdiction to remove a trustee and appoint a replacement in cases of serious breach of trust, conflict of interest, or where the relationship between the trustee and the beneficiaries has broken down to the extent that the administration of the trust is impaired. Application for the removal of a trustee is made to the Court of First Instance.

Conclusion

Trust disputes can be complex and emotionally charged. Beneficiaries who believe their interests have been compromised should seek legal advice promptly—limitation periods and laches (delay) can affect the ability to bring claims. Equally, trustees facing allegations of breach of trust should take immediate legal advice to assess their position and consider whether a pre-emptive application to the court for directions is appropriate.

Alan Wong LLP advises trustees and beneficiaries in trust disputes, including breach of trust claims, applications for the removal of trustees, and trust construction proceedings. Contact us to discuss your trust dispute.