Anti-Bartlett Clause Upholds its Protection of Hong Kong Trustees

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A landmark ruling from the Hong Kong Court of Final Appeal founds that the anti-Bartlett clauses in the trust deed of a Jersey family trust discharged the trustees from any liability for losses incurred in transactions by the trust’s underlying investment company (as per Zhang Hong Li v DBS Bank).
Overturning the decisions of the lower courts, the CFA found that as the anti-Bartlett provisions relieved the trustees from any duty to interfere with or supervise the company’s conduct, unless they became aware of actual dishonesty, and as a result had no high level or residual duty to supervise the company’s activities.

The case is likely to have a globally wide impact as the governing law of the trust was Jersey law, yet it was heard in Hong Kong courts, and as such the principles of the judgment will be applicable in most of the major common-law trust jurisdictions that recognise anti-Bartlett clauses.

Wise Lords Ltd was founded by a couple who placed the company as the owner of the trust to make high-return investments during the bubble that led to the 2008 financial crash. Many of the company’s transactions were high-risk foreign exchange deals, with the company’s loan portfolio exceeding its net assets by two-thirds by the summer of 2008.

When the company filed for liquidation, Mr Ji and Mr Zhang, in their capacity as beneficiaries and the company itself, sued the trustee, DBS Trustee HK, and the Director of the company for breach of duty.

Their claims originally succeeded at trial, the Hong Kong Court of First Instance found that DBS Trustee HK had been in ‘serious breach’ of its duties and had violated its ‘high level of supervisory duty’ when allowing Wise Lord to trade a large number of high-risk deals.

The Hong Kong Court of Appeal agreed, despite the fact that the trust deeds contained anti-Bartlett clauses, which are commonly used to exempt the trustees from liability where the intention is to give the trust’s investment company a free hand to make high-risk investments.