Hong Kong Court of Final Appeal decides on directors’ duties and conflict of interest amid sushi and noodles

The Hong Kong Court of Final Appeal (CFA) has, in Poon Ka Man Jason & Ors v Cheng Wai Tao & Others, brought some closure to the long running dispute between siblings Jason and Daisy Poon and Ricky Cheng as business partners who owned the Ajisen Group of restaurants and ventured into the sushi business through the chain of Itamae restaurants.  The dispute began over ten years ago when Ricky Cheng (Ricky) began to operate and expand the Itamae chain and Itacho group of restaurants on his own even though the partners had agreed to develop a chain of Japanese-style sushi restaurants as an extension of the Ajisen business.  The CFA held, by a 3-2 majority, that Ricky was in breach of his fiduciary duties as a director of Smart Wave Ltd ("Smart Wave") in setting up additional Itamae and Itacho restaurants in competition, as a result of which business opportunities and profits were diverted to benefit Ricky's personal interests.

Importantly, the CFA examined the scope of a director's positive duty of loyalty to act in the best interests of the company and the 'no-conflict rule', which provides that a fiduciary may not put himself in a position where his own interest and duties to the company conflict.  The CFA also examined how to determine the scope of fiduciary duties and whether the scope can be modified.  

This is a key decision for directors, particularly in the context of large or group businesses and in a place like Hong Kong where it is common for individuals to hold directorships (often in addition to being a shareholder) in a number of businesses, some of which may be in direct or indirect competition with each other.  The clarity around the scope of fiduciary duties and how to modify it where necessary will be of benefit to parties who juggle business and personal interests through their multiple roles as directors and shareholders.

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New safeguards needed for Hong Kong’s aged dementia sufferers

As Hong Kong’s population ages and the incidence of dementia increases,  the need for effective and efficient long-term care and support systems for the elderly is becoming more critical.

Particularly under the spotlight is the protection and management of a person’s property and personal affairs when they lose mental capacity without an enduring power of attorney in place.

Hong Kong's policy in this area is under developed compared to countries such as Singapore and the UK, and recent cases show that the current system is open to deliberate or inadvertent abuse.

It is clear that government policy-makers will need to direct greater attention to these matters to provide more effective protection for the growing elderly population.

Read more on this issue, and our suggestions for addressing the issue, in our full article, published in International Family Law, Issue 3 2015, here.

If you wish to discuss, please contact Richard Norridge, Partner, Joanna Caen, Senior Associate, or your usual Herbert Smith Freehills contact.

Richard Norridge
Richard Norridge
Partner
+852 2101 4107
Joanna Caen
Joanna Caen
Senior Associate
+852 2101 4167

Hong Kong court dismisses investor’s counterclaim against bank for mis-selling of financial products

The Court of First Instance has recently handed down its judgment in DBS Bank (Hong Kong) Limited v Sit Pan Jit (HCA 382/2009).  This case concerns a claim by DBS Bank (Hong Kong) Limited (DBS) against its former customer, Sit Pan Jit, for failing to meet margin calls in respect of certain investments, and a counterclaim by Mr Sit against DBS for mis-selling such investments based on misrepresentation, breach of duties in contract and/or tort (common law and statutory) and breach of fiduciary duties. The court found in favour of DBS and dismissed Mr Sit’s counterclaim, marking a further success for banks in defending investment mis-selling claims in recent years.  To read more about this case, please click here.

If you wish to discuss, please contact Gareth Thomas, Dominic Geiser, Will Hallatt, Richard Norridge or your regular contacts.

Hong Kong court rules on estate administrator’s breach of fiduciary duties

In Tang Ying Loi v. Tang Ying Ip alias Tang Ying Yip and others (HCA 2487/2009), the Court of First Instance held that the defendants, who were appointed as estate administrators, breached their fiduciary duties by (i) unlawfully withdrawing money from the estate’s bank account to purchase property for their own benefit and (ii) failing to collect money due to the estate. The court ruled that the defendants were liable to compensate the estate accordingly. Continue reading

English Court of Appeal confirms account of profits available as remedy for dishonest assistance

Some, if not quite born trustees, are appointed as such at the outset of a trust. Some achieve trusteeship at some later stage. And some have some aspects of trusteeship thrust upon them.

Within this third category are strangers to a trust who “dishonestly assist” an express trustee in a breach of the trustee’s fiduciary duty. Through this dishonest assistance, the stranger will be liable to the injured beneficiary, even though no fiduciary relationship exists between them. Although not sued as fiduciaries, such strangers can be held liable to account in equity as if they were a trustee of the beneficiary. Commonly, for convenience (which more often leads to confusion), the stranger is called a “constructive trustee”.

Previously, there was some uncertainty as to the scope of the remedies available for dishonest assistance: specifically, whether the claimant-beneficiary could obtain an account of profits against the dishonest assister, even though no loss was suffered. The unanimous decision of the Court of Appeal in Novoship (UK) Limited & ors v Nikitin & ors [2014] EWCA Civ 908 confirms the availability of the remedy in claims against third parties for dishonest assistance and also the circumstances in which the remedy will be available, namely where there is a sufficient causal connection between the dishonest assistance and the profit and where it would be not be disproportionate to grant the remedy. Robert Hunter and Tom Wood consider the decision here.