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Hsbc Trustee (Hong Kong) Ltd. v The Secretary For Justice And Others

Judgment Cited authorities 8 Cited in Precedent Map Related
Vincent
Judgment Date01 March 2001
Year2001
Citation[2001] 1 HKLRD 529
Judgement NumberHCMP1975/1997
Subject MatterMiscellaneous Proceedings
CourtHigh Court (Hong Kong)
HCMP001975A/1997 HSBC TRUSTEE (HONG KONG) LTD. v. THE SECRETARY FOR JUSTICE AND OTHERS

HCMP 1975/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1975 OF 1997

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BETWEEN
HSBC TRUSTEE (HONG KONG) LIMITED in their capacity as trustees of THE SIR ROBERT HO TUNG CHARITABLE FUND Applicant
AND
THE SECRETARY FOR JUSTICE (Formerly the Attorney General) 1st Respondent
ERIC EDWARD HOTUNG 2nd Respondent
SIR JOSEPH HOTUNG 3rd Respondent
GENERAL HO SHAI LAI Decd. (through his executor Robert H.N. Ho) 4th Respondent
ROBERT H.N. HO 5th Respondent
MIN KWAN KWAAN 6th Respondent
MARY KETTERER 7th Respondent
ANTONIA HOTUNG 8th Respondent

____________

Coram: Hon Hartmann J in Court

Date of Hearing: 23 February 2001

Date of Handing Down Judgment: 1 March 2001

_______________

J U D G M E N T

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Introduction

1. In 1956, Sir Robert Ho Tung died. He left a will and in terms of that will a trust was created called 'The Sir Robert Ho Tung Charitable Fund'. A capital sum of HK$500,000 was bequeathed to the Fund. That sum was placed into the care of the Applicant, the appointed trustees, and since that time the income from the Fund has been used to support various charitable projects in Hong Kong.

2. The Fund has prospered. Today it has capital assets of something like HK$450 million. The Trustees, however, have found it increasingly difficult to make prudent investment decisions without the active assistance of market specialists. Investment opportunities may have grown dramatically over the past 20 years but they have been accompanied by an increasing complexity and volatility in global markets. In the view of the Trustees, if the assets of the Fund are to be best preserved and enhanced, it is now essential that they be given the discretion not simply to seek the advice of financial and market specialists but to be able to entrust the Fund's assets with those specialists so that they may be actively managed by them.

3. It is for this reason that the Trustees have, by way of an originating summons, sought the sanction of a scheme which will give to them powers to delegate investment functions.

4. As the name clearly states, the Trustees are a corporate constituent of the HSBC Group which today has global interests in banking and allied financial services. Other corporate constituents of the HSBC Group include financial and market specialists; more specifically, HSBC Asset Management Bahamas, Ltd ('Asset Management'). In the past, the Trustees have employed Asset Management to assist the Fund.

5. The First Respondent, the Secretary For Justice, while she does not take issue with any past connection between the Trustees and Asset Management, is concerned that any future link will breach a fundamental rule of equity; namely, that a trustee shall not, either directly or indirectly, make a profit from his trust.

6. Mr Mui, who appeared for the First Respondent, founded his submission on the basis that, as both the Trustees and Asset Management are wholly owned subsidiaries of the HSBC Group, fees earned by Asset Management from services entrusted to it by the Trustees on behalf of the Fund, will go to boost the revenues of the entire Group. That, said Mr Mui, will place the Trustees in the position where, if they are able to employ Asset Management, their duty as trustees to act as guardians of the Fund will run a real risk of being compromised by their commercial interests in securing revenue for the Group. As a matter of prudence, the court should not allow the Trustees to place themselves in a position of such risk.

7. Accordingly, while the First Respondent takes no objection to the terms of the scheme which will give the Trustees additional powers of delegation in investment matters as well as the means for being remunerated for the exercise of those delegatory powers, she is of the view that it would be appropriate for the Court to add a condition to the scheme to the effect that the Trustees may not employ the services of any wholly owned subsidiary of the HSBC Group to manage or advise on the Fund's investments.

8. The Trustees, however, have not conceded that any such restriction should be imposed. They see their primary obligation as being the best possible management of the Fund's assets and have asserted that, whatever their relationship with third parties, they have always dealt at arm's length with those third parties to advance the best interests of the Fund. If at any time in the future they form the view that certain of the Fund's assets should, for the advancement of the Fund, be entrusted to Asset Management (or any other wholly owned subsidiary of the HSBC Group) they do not wish to be prevented from exercising their best judgment in that regard. The Fund is large and the Trustees remain of the view that wide and flexible powers of investment are plainly desirable, if not essential, for its best management.

9. Mr Ma, who appeared for the Trustees, submitted that the relevant test in a matter of this kind was not founded on the theoretical possibility that there was a risk of duty conflicting with interest. The true test had to be related to the facts and circumstances of each individual case. The question to be asked, suggested Mr Ma, was whether a reasonable man, taking all the circumstances into consideration, would foresee a real and sensible possibility of such conflict.

10. Mr Ma went on to submit that, having regard to all the circumstances of this matter, no reasonable man would be able to foresee a real and sensible possibility of conflict arising of the kind that troubled the First Respondent. Mr Ma contended that there were already adequate safeguards built into the scheme which the Court was asked to sanction and that accordingly the restriction sought by the First Respondent should not be imposed.

The terms of the proposed scheme

11. It has for some time been recognised by the courts that significant changes in investment practice over the past 20 years may demand an extension of the investment powers of trustees. These extended powers may include, when suitable, the power of delegation; that is, the power to employ professional investment managers and to entrust funds to them. A clear example of this is to be found in Trustees of the British Museum v. Attorney General [1984] 1 WLR 418 in which Sir Robert Megarry V-C having reviewed the various manners in which the global investment environment had so substantially changed, sanctioned a scheme granting very wide powers of investment to the trustees of the British Museum including the power to delegate their responsibilities to professional investment managers. In so doing, inter alia, he said:

"I am conscious that such a scheme gives extremely wide powers of investment to the trustees. At the same time I consider that it is proper and desirable that such powers should be given, and I have made an order accordingly. There are four factors that I should mention in particular. First, there is the eminence and responsibility of the trustees, the machinery for obtaining highly skilled advice, and the success that this machinery has achieved over the past 20 years. Second, there are the changed conditions of investment, conditions which require great liberty of choice if, upon skilled advice, advantage is to be taken of opportunities which often present themselves upon short notice and for short periods; and for this, the provision for delegation is plainly advantageous. Third, there is obvious advantage in there being freedom to invest in any part of the world ... Fourth, I bear in mind the large size of the trust fund. From the point of view of powers of investment, this carries the matter out of the realm of the ordinary private trust into the field of pension funds and large institutional investors; and for success in this field a wide flexibility of the powers of investment is plainly desirable, if not essential." [my emphasis]

12. In the matter now before me, the powers sought by the Trustees to delegate investment matters are extensive. Clause 3(a) gives to the Trustees the power to delegate all of their investment functions to any person or corporation subject only to the condition that such delegation shall be in writing and that all delegated transactions shall be carried out in the name of the Trustees. Clause 3(b) expands upon these powers of delegation and reads:

"The Trustees shall not be bound in any case to act personally but at full liberty to act through any other managers or to employ any contractor manager solicitor accountant banker broker fund manager clerk workman employee or servant or any agent to transact all or any business of whatever nature which it is required or permitted to do including the receipt and payment of money and the Trustees shall decide the remuneration to be allowed and paid and may pay the same and all charges and expenses so incurred out of the Trust Fund or the income thereof." [my emphasis]

13. The Trustees do not, therefore, seek to delegate their investment powers to any specific investment manager. They seek the broadest discretion to employ whoever, in their opinion, is from time to time best able to protect and enhance the assets of the Fund.

14. When the courts sanction wide powers of investment, they must, of course, be satisfied that there also exist suitably wide powers vested in the trustees to advise, monitor and control the actions of the professional managers to whom investment discretion is delegated.

15. In the present case, I am satisfied that the Trustees have written into the scheme sufficient restrictions to ensure that the investment...

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