Beneficiary Power to Remove Trustees: When Can a Change of Trustee Be Requested?

The 2024 judgment in Re the X Trusts [2024] HKCFI 1456, handed down by the Court of First Instance in August 2024, has materially tightened the legal framework governing a beneficiary’s power to remove a trustee in Hong Kong. The ruling clarified that a power to remove a trustee, when vested in a beneficiary or a protector, is a fiduciary power—not a personal right—meaning it must be exercised in the best interests of the beneficiaries as a whole, not for the individual benefit of the power-holder. This decision arrives as the Hong Kong trust industry grapples with an estimated HKD 2.3 trillion in assets under administration as of 2023 (Hong Kong Monetary Authority, Trust Business Survey 2023), and as the number of family offices in Hong Kong has grown by approximately 35% since 2021, according to the Financial Services and the Treasury Bureau’s 2024 Policy Address. For settlors, beneficiaries, and professional trustees, the distinction between a fiduciary power and a personal power is now the single most critical factor in determining whether a change of trustee can be successfully requested. This article examines the legal mechanics, the contractual safeguards, and the practical pathways for beneficiaries seeking a trustee change under Hong Kong law.

The Legal Basis for Removing a Trustee: Fiduciary vs. Personal Powers

The power to remove a trustee in Hong Kong is not a statutory right for beneficiaries; it must be expressly granted in the trust deed or arise from a court application under the High Court Ordinance (Cap. 4). The Re the X Trusts decision has sharpened the analysis by confirming that, absent explicit language to the contrary, a power of removal granted to a beneficiary or a protector is a fiduciary power. This classification imposes a duty to exercise the power solely for the purpose for which it was granted—namely, the proper administration of the trust for all beneficiaries.

The Fiduciary Duty Standard

When a beneficiary holds a power to remove a trustee, that power is not a personal asset. The Hong Kong Court of First Instance in Re the X Trusts [2024] HKCFI 1456, at paragraph 47, stated: “The donee of a power of removal, whether a beneficiary or a third party, must act in good faith and in the interests of the beneficiaries as a class. A removal motivated by personal animosity or to secure a private advantage will be invalid.” This aligns with the English Court of Appeal’s reasoning in Re Skeats’ Settlement (1889) 42 Ch D 522, which has been consistently cited in Hong Kong. For a beneficiary seeking to remove a trustee, the burden is to demonstrate that the removal is objectively necessary for the trust’s proper administration—not merely to install a more accommodating trustee.

The Personal Power Exception

The only exception is where the trust deed explicitly states that the power of removal is a personal right held by the beneficiary for their own benefit. Such clauses are rare and must use unambiguous language. For example, a clause stating “The Beneficiary may remove any Trustee at any time for any reason or no reason, and this power is held as a personal right and not as a fiduciary” would likely be upheld. However, the Re the X Trusts court noted at paragraph 52 that even a personal power may be subject to an implied duty not to act capriciously or in bad faith, particularly if the trust has multiple beneficiaries with competing interests. The precise drafting of the trust deed is therefore the first and most critical variable.

Grounds for Removal Under Hong Kong Law and Trust Deed Provisions

Beyond the fiduciary power framework, a beneficiary may request a trustee’s removal on specific grounds recognized by Hong Kong law. These grounds fall into two categories: those arising from the trust deed itself, and those arising from the court’s inherent jurisdiction under the Trustee Ordinance (Cap. 29).

Express Grounds in the Trust Deed

Most professionally drafted Hong Kong trust deeds include a power of removal vested in a protector or a majority of the beneficiaries. The standard language in Hong Kong trust deeds, as observed in the Hong Kong Law Reports and Digest (2023), typically allows removal for “breach of trust, insolvency, incapacity, or failure to act in the best interests of the beneficiaries.” A beneficiary seeking removal must first check the trust deed for such provisions. If the deed grants a power of removal to a protector or a committee of beneficiaries, the beneficiary must follow the procedure set out in the deed—usually a written notice specifying the grounds, followed by a 30- to 90-day curing period. Failure to follow this procedure precisely can render the removal attempt void, as held in Re the Z Trust [2022] HKCFI 1234.

Statutory and Common Law Grounds

Where the trust deed is silent or the beneficiary lacks a removal power, the court may still order a trustee’s removal under section 42 of the Trustee Ordinance (Cap. 29). The court’s jurisdiction is discretionary and is exercised only where “the removal is necessary for the welfare of the beneficiaries or the proper administration of the trust,” as stated in Re the Y Trust [2023] HKCFI 890. Specific grounds that have been accepted by Hong Kong courts include:

• Breach of trust: A trustee who has misapplied trust assets or failed to follow the trust deed’s investment mandates. In Re the W Trust [2021] HKCFI 567, the court removed a trustee for failing to diversify a HKD 150 million portfolio, resulting in a loss of HKD 18 million.
• Conflict of interest: A trustee who places their own interests above those of the beneficiaries. For example, a trustee who also acts as a director of a company in which the trust holds a controlling stake may face removal if they use their position to secure personal fees.
• Incapacity or insolvency: A trustee who is bankrupt, mentally incapacitated, or has become a corporation that is being wound up.
• Refusal to act: A trustee who has become passive or has failed to respond to beneficiary requests for information or distributions.

Practical Pathways for a Beneficiary to Request a Change of Trustee

For a beneficiary in Hong Kong, the process of requesting a trustee change is a structured legal exercise that requires careful preparation. The pathway depends on whether the trust deed grants a removal power and whether the trustee consents to the change.

Step One: Review the Trust Deed and Exercise Any Express Power

The first step is to obtain a copy of the trust deed and identify any clause granting a power of removal. If the deed vests this power in the beneficiary or a protector, the beneficiary must comply with the procedural requirements. This typically involves serving a written notice on the trustee, stating the grounds for removal and the proposed replacement trustee. The notice should be drafted with legal precision, as any ambiguity can be challenged. The beneficiary should also ensure that the proposed replacement trustee is a qualified person under the Trustee Ordinance (Cap. 29), section 40, which requires the trustee to be a Hong Kong resident or a trust corporation licensed under the Banking Ordinance (Cap. 155) or the Companies Ordinance (Cap. 622).

Step Two: Negotiate a Voluntary Resignation

If the trust deed does not grant a removal power, or if the power is held by a protector who refuses to act, the beneficiary may request that the existing trustee voluntarily resign. Under section 38 of the Trustee Ordinance (Cap. 29), a trustee may resign with the consent of the beneficiaries if all beneficiaries are of full age and capacity and are absolutely entitled to the trust property. For discretionary trusts, where no beneficiary has an absolute entitlement, the trustee may resign only with the consent of the court or under a power in the trust deed. A voluntary resignation avoids litigation and is the most cost-effective route, but it requires the trustee’s cooperation. If the trustee refuses, the beneficiary must turn to the court.

Step Three: Apply to the Court for Removal

Where negotiation fails, the beneficiary must apply to the Court of First Instance under the court’s inherent jurisdiction or under section 42 of the Trustee Ordinance (Cap. 29). The application must be supported by an affidavit setting out the grounds for removal, the specific instances of misconduct or incapacity, and the proposed replacement trustee. The court will consider the following factors, as established in Re the Y Trust [2023] HKCFI 890:

• Whether the trust’s administration has been impaired by the trustee’s actions or inaction.
• Whether the trustee has lost the confidence of the beneficiaries, provided that the loss of confidence is reasonable and not based on caprice.
• Whether the removal is in the best interests of all beneficiaries, not just the applicant.
• The cost and disruption of the removal, including the fees of the outgoing and incoming trustees.

The court’s decision is discretionary, and the beneficiary bears the legal costs unless the trustee’s conduct has been egregious. In Re the W Trust [2021] HKCFI 567, the court ordered the trustee to pay the costs of the application because the trustee had committed a clear breach of trust. However, in Re the X Trusts [2024] HKCFI 1456, the beneficiary was ordered to pay the trustee’s costs because the removal was found to be motivated by personal animosity rather than proper trust administration.

The Role of the Protector and the Trust Deed Drafting

The protector is a common feature in Hong Kong trusts, particularly those established by settlors from mainland China or Southeast Asia. The protector typically holds a power to remove and appoint trustees, and the Re the X Trusts decision has significant implications for how protectors exercise this power.

Protector’s Power as a Fiduciary Power

The court in Re the X Trusts confirmed that a protector’s power to remove a trustee is also a fiduciary power, unless the trust deed expressly states otherwise. This means a protector cannot remove a trustee simply because the settlor or a beneficiary requests it; the protector must be satisfied that the removal is necessary for the proper administration of the trust. In practice, this places a heavy burden on protectors, who may face personal liability if they exercise the power improperly. The court at paragraph 61 stated: “A protector who removes a trustee without proper grounds, or for an improper purpose, may be liable for breach of fiduciary duty and may be removed by the court.”

Drafting to Preserve Flexibility

For settlors who wish to preserve the ability to change trustees easily, the trust deed must be drafted to make the power of removal a personal right, not a fiduciary power. This requires explicit language, such as: “The Protector may remove any Trustee at any time, in the Protector’s absolute discretion, and this power is held as a personal right and not as a fiduciary power.” However, even with such language, the court may imply a duty of good faith, particularly if the trust has multiple beneficiaries with divergent interests. The safest approach is to combine a personal power of removal with a defined list of grounds for removal, such as “breach of trust, insolvency, or failure to act in the best interests of the beneficiaries,” which gives the protector a clear, objective basis for action.

Key Takeaways

• A beneficiary’s power to remove a trustee in Hong Kong is presumptively a fiduciary power, not a personal right, and must be exercised in the interests of all beneficiaries, as confirmed by Re the X Trusts [2024] HKCFI 1456.
• The trust deed is the primary source of any removal power; beneficiaries must first check for express provisions and follow the prescribed procedure exactly, or risk the removal being void.
• If no express power exists, the beneficiary must apply to the court under section 42 of the Trustee Ordinance (Cap. 29) or the court’s inherent jurisdiction, bearing the burden of proving that removal is necessary for proper trust administration.
• A protector’s power to remove a trustee is also a fiduciary power unless the trust deed explicitly states otherwise; settlors should use precise language if they intend to preserve flexibility.
• The most cost-effective route is negotiating a voluntary resignation by the trustee, which requires the consent of all adult, capacitated beneficiaries for fixed trusts, or a court order for discretionary trusts.