Trustees often seek to limit their liability in the form of exoneration clauses in trust deeds. As such,  it is generally difficult for a beneficiary to challenge a trustee’s decision that falls within the scope of the exoneration clause.

In Sofer v SwissIndependent Trustees SA [2019] EWHC 2071 (Ch), the England and Wales High Court confirmed just how high the bar can be for beneficiaries to overcome the limitation on liability provided by exoneration clauses and also set out a test for doing so. Here the defendant (the trustee) applied for striking out or summary judgment of a claim pursued by a beneficiary for breach of trust, on the basis that the trustee’s relevant action was covered by an exoneration clause. The strike out was granted.

The judgment is also noteworthy in particular for Hong Kong and Australian trustees and beneficiaries. The judge relied on both English and Australian case law and highlighted that “the relative homogeneity of trust law in this and other Commonwealth jurisdictions” meant the Australian case law had “considerable persuasive value”.  Continue reading



In Chan Chi Wai v Chan Sau Wah [2019] HKCFI 1662 an application was made to vary a costs order nisi granted by the Hong Kong High Court regarding a dispute between five brothers over the legal and beneficial ownership of two houses in the New Territories (Original Proceedings). The applicants were two of the brothers and the plaintiffs in the Original Proceedings.

In the Original Proceedings, the court had departed from the general cost rule that the successful party should be entitled to costs of the proceedings by handing down a costs order nisi that there be no order as to costs despite judgment being made in favour of the plaintiffs. This departure from the normal costs order was on the basis that the nature of the plaintiffs’ claim was unfair and unconscionable. In short, the judge made this finding based on the fact that the plaintiffs had already been occupying one of the houses to the exclusion of their other brothers but nevertheless sought to exclude the other brothers from the second house despite the plaintiffs being co-owners of that second house. 

At the time the Court made the costs order nisi, the Court was not aware of the parties’ without prejudice correspondence. The parties had made a number of failed without prejudice offers to one another and, significantly, the plaintiff had made a particularly generous offer while the defendants’ counter offer was particularly nonsensical. The plaintiffs’ offer had in fact been more favourable to the defendant than the outcome of the Original Proceedings.

The plaintiffs applied for the court to reverse its decision and instead order costs of the action in their favour.  Alternatively, the plaintiffs asked for costs incurred after the date of one of the “Without Prejudice Save as to Costs” letters issued by the plaintiffs to the defendants or such date as the court thought fit, to be paid by the defendants to the plaintiffs.


After being presented with the without prejudice communication at the costs hearing, the court found that the original concern as to the unfairness of the plaintiffs’ claim now ceased to be a reason to depart from the general rule on costs. The court also placed weight on the fact that the defendants in the Original Proceedings had rejected the plaintiff’s offer which was more favourable than what the defendants obtained at trial.

As a result, the court set aside its order nisi and made an order that the plaintiffs should have costs after the date of the without prejudice offer issued by the plaintiffs to the defendants.


In the court’s decision, the general legal principles set out in Order 62, rule 3(2) of the Rules of the High Court (Cap. 4A) (RHC) were noted, namely that when making decisions as to costs, the starting point is that the successful party should be entitled to costs of the proceedings. The burden falls on the losing party to show why a different costs order should be made. The discretion to depart from the general rule should be exercised to achieve a just result having regard to the circumstances of the case and should be exercised with due circumspection since too ready a departure from the general rule encourages unnecessary arguments.

This case is a good illustration of the court’s approach to assessing costs issues – when the court considers it is appropriate to depart from the general rule; and when it is appropriate to reverse that decision.  In particular, the judgment reiterated that the court’s discretion as to costs should be exercised by reference to the factors set out in Order 62, rule 5(1) RHC.  One of these factors is to consider the underlying objectives set out in Order 1A, rule 1 RHC which sets out the modern post-Civil Justice Reform approach to litigation where parties are encouraged to take positive steps towards settlement of disputes.

This case might be especially relevant in heated disputes between family members where even if one party’s conduct is found to be unfair and unconscionable justifying departure from the normal costs order, a without prejudice settlement offer can nevertheless shield that party from some of the cost consequences of bringing an unfair and unconscionable claim.


Richard Norridge
Richard Norridge
+44 20 7466 2686
Joanna Caen
Joanna Caen
+852 2101 4167
William Cheung
William Cheung
Senior Associate
+852 2101 4183

Hong Kong Court considers tests for dishonesty and blind-eye knowledge in dishonest assistance claims

In Re Galleria (Hong Kong) Limited [2019] HKCFI 1877, the Hong Kong Court of First Instance examined the legal principles in relation to dishonesty and blind-eye knowledge.


This was an action brought by the liquidators of Galleria (Hong Kong) Limited (GHK) against a bank (the Bank), which was one of GHK’s former lenders, for knowing receipt, dishonest assistance and fraudulent trading.

It was admitted that, from 2004 until GHK’s collapse in 2009, GHK’s directors perpetrated an ongoing fraudulent scheme involving the fabrication of bills of lading submitted to lenders (including the Bank) and of its books and records. In 2006, the Bank sent a sample of bills of lading to a third party organisation for checking and received replies to the effect that they were false. The Liquidators alleged that the Bank’s officers, by reading those replies, must have known about or turned a blind-eye to GHK’s fraud, but nevertheless the Bank continued to finance GHK’s fraudulent business.


The Court dismissed the entire action brought by the Liquidators’ against the Bank, with costs.

It held that this was a case of dishonesty and that the following principles applied in assessing dishonesty:

  1. Dishonesty is a serious allegation. It requires proof based on cogent evidence or “compelling evidence”.
  2. In assessing the credibility of a witness, especially in a case of alleged dishonesty, the court normally attaches much weight to undisputed contemporaneous documents, inherent probabilities, motive or the lack of it, logic and common sense.
  3. The question of a person’s state of mind is subjective; it concerns what the person actually knows. Whether the person is honest or dishonest given what he knows is to be objectively assessed.
  4. A person is dishonest if and only if he is conscious of all the elements of an act which together, by ordinary standards, would render the act dishonest.
  5. Careless or negligence are not in themselves manifestations of dishonesty.

The concept of blind-eye knowledge was singled-out in the discussion of the legal principles. The Court cited the following passage from Kasikorn Bank v Akai Holdings Ltd (No 2) (2010) 13 HKCFAR 479 on what constitutes blind-eye knowledge: “he must have had a suspicion that there was something wrong, and that he refrained from asking questions, not because he was an honest blunderer or a stupid man, but because he thought in his own secret mind – I suspect there is something wrong, and if I ask questions and make farther inquiry, it will no long be my suspecting it, but my knowing it, and then I shall not be able to recover”.

The Court also cited Group Seven Ltd v Notable Services LLP [2019] EWCA Civ 614 and highlighted that the suspicion must be firmly grounded and targeted on specific facts. The deliberate decision must be one to avoid obtaining confirmation of facts in whose existence the relevant person has good reason to believe.

Turning to the analysis of the evidence, the Court took a holistic view of the evidence given by the Bank’s officers and read the contemporaneous documents with “sound common sense”. The Court found that contemporaneous documents showed that the Bank’s officers did not have any knowledge or serious suspicion of fraud.

The Court also found that it was an extraordinary allegation that Bank’s officers would knowingly ignore a fraud against the Bank and continue to approve lending to the fraudster. It defied common sense. There was no motive for them to do so.

As the Liquidators’ case on knowledge of fraud or dishonesty on the part of any of the Bank’s officers was rejected, the entire action was dismissed.


This case serves as a helpful reminder of the relevant legal principles in assessing knowledge and dishonesty in cases of fraudulent trading and dishonest assistance as well as the requirement of compelling evidence to prove dishonesty.

It is also the first time Group Seven (see our previous blog post here) has been considered and followed in Hong Kong since its handing down by the English Court of Appeal earlier this year. In Re Galleria, Group Seven was cited to reiterate the principle that, to establish blind-eye knowledge, the suspicion harboured and not enquired into must be firmly grounded and targeted on specific facts. In other words, untargeted or speculative suspicion is not enough.

This point is helpful to counterparties dealing with trustees or people in similar positions (such as directors), in that general uneasiness is less likely to be regarded as sufficient to constitute blind-eye knowledge. However, it remains prudent for their officers to ensure, in the event they have suspicions as to any transactions, that they take proper steps to confirm the true state of affairs and do not simply “turn a blind eye” to those suspicions.

Herbert Smith Freehills acted for the successful defendant bank.


Gareth Thomas
Gareth Thomas
Partner, Head of Commercial Litigation, Hong Kong
+852 2101 4025
Simone Hsu
Simone Hsu
+852 2101 4279
Peter Ng
Peter Ng
+852 2101 4238
Cindy Lee
Cindy Lee
+852 2101 4127



“Dishonesty at its highest level and gravity” – when solicitors commit offences against client estates

This blog post will consider a number of recent cases in England where solicitors have been convicted of offences or struck off the register for misappropriating client funds from deceased estates. These shed light on the surprising levels of abuse uncovered by the Courts and the English Solicitors Regulation Authority (the “SRA”), and the zero tolerance approach taken to solicitors who seek to personally benefit from the trust placed in them by their clients.

A number of common themes run through the cases, namely that offenders have often sought to explain and justify their actions through desperation, ill health and financial hardship. Further, the solicitors in question generally practised in local firms or as sole practitioners, where clients place a high degree of trust in them due to their geographical proximity and personal familiarity. Finally, the offences appear to have taken place over a number of years, with initial abuse turning into a pattern of offending.

During its investigations the SRA asserted that it is only in exceptional circumstances that a solicitor found to have acted dishonestly will avoid being struck off the register. Explanations and mitigating circumstances advanced in the cases below were not sufficient to overcome the serious breaches committed and the need to uphold public confidence in the legal profession.

Continue reading

English Court resolves dispute between parties as to who should hold the power to appoint trustees following settlor’s death

The English High Court has recently approved an application to change the provision of a trust deed relating to the appointment of new trustees.[1] The change was necessary because the original power was reserved exclusively for the settlor, who had died. All adult beneficiaries of the trust supported the change, as did three of the four trustees.

This case illustrates the importance of having succession plans for the power of appointment of new trustees. It also addresses disputes between parties about changes to trust terms.

Continue reading

Widow removed as administratrix after persistent breaches in administering the estate

The Hong Kong Court has recently ordered the removal of an administratrix, who was the widow of the deceased, after finding she had misappropriated and converted the estate to her own use, repeatedly breached Court orders and had failed to render a proper and accurate account.[1] This case is a reminder to all administrators to fulfil their duties or face removal.

Continue reading

Wills interpreted according to their ordinary and natural meaning despite this not reflecting testators’ intention

The English High Court has recently held that, in a case concerning construction of Wills, the ordinary and natural meaning of survivorship clauses should be given effect to.[1] This operated to mean that certain beneficiaries under the Wills of a husband and wife benefitted twice, which the parties agreed was not the couple's intention. The claimants were the executrices of the couple's estates (and also beneficiaries of the estates). They wished to know how to distribute the estates. The claimants wanted the Court to interpret the Wills in accordance with the couple's intention. This would have meant that they received less under the Wills than they would have done if the Wills were interpreted in their ordinary and natural terms. The defendants were the solicitor who drafted the Wills and his firm.

The case is a reminder to executors of the importance of administering estates in accordance with the terms of the Wills. The case is also a reminder to draftsmen of the importance to accurately convey a testator's intention when drafting a Will.

Continue reading

UK: Deceased’s “husband” and daughter both unable to obtain letters of administration

The English High Court has recently refused to grant letters of administration to a deceased's daughter (the "Claimant") despite her having the highest entitlement to the deceased's estate.[1] The dispute involved a challenge by the alleged widower of the deceased (the "Defendant"), who was found not to have been validly married to the deceased. Therefore the Court declined to grant the Defendant letters of administration. Nonetheless, the Court found that the Claimant had deliberately lied to Court and thus also declined to grant her letters of administration. Instead, the Court exercised its jurisdiction to appoint "some other person" as administrator. This case is a reminder that all parties need to act lawfully and properly when presenting evidence or face the consequences.

Continue reading

Hong Kong Court of Appeal affirms law on express, constructive and resulting trust

The Hong Kong Court of Appeal ("CA") in Ip Fung Kuen v Sam Kee Frozen Meat Co Ltd and others (CACV 107/2016) recently affirmed the well-established principles of express, constructive and resulting trust under Hong Kong law. As well as confirming those principles, the judgment is also noteworthy because of the CA's confirmation of the Court of First Instance ("CFI")'s finding that the plaintiff's lack of education and sophistication in comparison with the appellant (a company established and controlled by the plaintiff's eldest brother) was relevant to whether a trust was established. The CA upheld the CFI's ruling that the appellant held the disputed property in trust for the plaintiff.

Continue reading

UK: Judge sentenced to six months’ jail by Nottingham Crown Court for forgery of a will and fraud

A former solicitor and disability claims tribunal judge, and her husband, forged a will and letter to obtain two adjacent cottages in order to create one, large retirement home for themselves. On conviction, they were sentenced to six month's jail, the maximum sentence.  This case should remind readers of the serious penalties for forgery.

Continue reading