In its highly anticipated decision in Zhang Hong Li v DBS Bank, the Hong Kong Court of Final Appeal held that neither the trustee of the subject trust (DBS Trustee) nor the corporate director (DHJ Management) of the trust’s underlying company (Wise Lords) had a “high level supervisory duty” to monitor Wise Lord’s investment decisions. Further, the HKCFA held that there had not in any event been a breach of any such duty by DBS Trustee or DHJ Management.

Wise Lords had suffered huge losses resulting from investments instigated by its investment advisor (who was also one of the settlors of the trust). The advisor’s investment decisions were submitted for approval and ultimately approved by DBS Trustee. In essence, the litigation concerned the culpability of, amongst others, DBS Trustee and DHJ Management for the investment losses suffered by Wise Lords and, ultimately, the trust.

The decision is welcome news for trustees since it confirms the effectiveness of “anti-Bartlett” provisions, which generally seek to relieve the trustee from any duty to interfere with or supervise the business of the trust’s underlying company, unless the trustee has actual knowledge of dishonesty in the conduct of the business. Such clauses are commonplace where the settlor of a trust or the settlor’s nominee has control over the management of the trust’s underlying company.

The key issue on appeal was whether, notwithstanding the anti-Bartlett provisions of the trust, there was a “high level supervisory duty” on the part of DBS Trustee and a like fiduciary duty on the part of DHJ Management, as held at first instance and on appeal. The HKCFA in a detailed and reasoned ruling held that “there is no basis for the existence of the ‘high level supervisory duty’ accepted in the Courts below” and that such a duty would be plainly inconsistent with the anti-Bartlett provisions in the trust. Such a duty was also excluded by similar exculpatory clauses in the agreement pursuant to which DHJ Management had been appointed as director of Wise Lords.

Perhaps surprisingly there is little worldwide jurisprudence on anti-Bartlett provisions and this leading judgment provides reassurance that trustees should not be exposed to unanticipated risks of liability in relation to duties they did not bargain for.