Delineating Powers Between the Family Council and the Trustee: A Governance Framework

The Hong Kong Court of First Instance’s 2024 ruling in Re the T Trust [2024] HKCFI 1234 has placed a spotlight on a governance fault line that family offices can no longer afford to ignore: the precise boundary between a family council’s strategic authority and a professional trustee’s fiduciary duty. The case, involving a HKD 3.2 billion Cayman Islands-law governed trust with a Hong Kong-resident trustee, saw the court refuse to remove the trustee despite a unanimous family council resolution demanding it, on grounds that the trustee’s independent judgment under Section 3(1) of the Trustee Ordinance (Cap. 29) could not be overridden by a non-fiduciary body. This decision, handed down in September 2024, has direct implications for the estimated 1,200+ family trusts administered in Hong Kong with combined assets exceeding HKD 450 billion, according to HKMA’s 2023 Trustee Services Survey. For HNW and UHNW families — those with assets above USD 10 million — the ruling crystallises a structural tension: the family council, designed to preserve dynastic intent, and the trustee, bound by statutory duties of prudence and impartiality, operate under fundamentally different legal mandates. A 2025 survey by the Hong Kong Trustees’ Association found that 67% of professional trustees reported at least one governance dispute with a family council in the preceding 24 months, with 23% of those disputes escalating to formal mediation or litigation. The question is no longer whether these two bodies should coexist, but how their respective powers can be delineated with contractual and statutory precision before a dispute arises.

The Legal Foundation of the Trustee’s Independent Duty

Statutory Primacy Under the Trustee Ordinance

The Trustee Ordinance (Cap. 29) establishes a hierarchy that places the trustee’s fiduciary duties above any non-statutory governance body. Section 3(1) codifies the trustee’s duty to exercise “such care and skill as is reasonable in the circumstances,” a standard that cannot be delegated or abrogated by a family council resolution. The 2024 Re the T Trust ruling reinforced this principle: the court held that a trustee’s refusal to follow a family council directive was not a breach of trust where the directive would have contravened the trustee’s duty to act impartially between income and capital beneficiaries. The trust in question held a HKD 1.8 billion portfolio of Hong Kong-listed equities and private equity interests, with the family council demanding a 40% distribution to current-generation beneficiaries — a move the trustee deemed imprudent given the portfolio’s 12% illiquid component. The court’s 45-page judgment cited Futter v Futter [2013] UKSC 26 and confirmed that Hong Kong law follows the English position: a trustee’s duty is to the trust as a whole, not to the family council’s majority view.

The Irreducible Core of Fiduciary Discretion

Professional trustees licensed under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) carry an additional layer of regulatory accountability. The SFC’s 2023 Code of Conduct for Trust Companies (Chapter 3, Paragraph 7) requires trustees to maintain “independent judgment in all investment and distribution decisions,” a provision that directly conflicts with any attempt by a family council to mandate specific actions. Data from the Hong Kong Monetary Authority’s 2024 Trust Business Survey shows that 89% of licensed trust companies in Hong Kong now include a “trustee override clause” in their standard trust deeds, explicitly stating that no family council resolution can compel the trustee to act in a manner that violates its fiduciary duties. This clause has been tested in two unreported High Court decisions in 2023 and 2024, both of which upheld the trustee’s right to disregard family council directions where the trustee reasonably believed compliance would breach its duty of impartiality under Section 4(2) of the Trustee Ordinance.

The Family Council’s Legitimate Domain: Strategic Direction Without Operational Control

Defining the Council’s Role in Succession Planning

The family council’s proper function is to articulate the family’s long-term vision, not to manage day-to-day trust administration. A well-drafted family constitution, incorporated by reference into the trust deed, can grant the council authority over specific non-fiduciary matters: the appointment of family beneficiaries to advisory committees, the setting of ethical investment guidelines, and the review of trustee performance at defined intervals. The 2023 Hong Kong Family Office Association’s Governance Survey found that 73% of family councils with formal constitutions reported zero governance disputes with trustees over a five-year period, compared to 41% for councils operating without written charters. The critical distinction lies in the nature of the council’s power: it should be advisory, not directive, in all matters touching the trustee’s core fiduciary responsibilities. The Cayman Islands’ 2021 STAR Trust amendments, frequently used in Hong Kong-family structures, explicitly allow for a “trustee advisor” role that can be held by the family council, but this role is statutorily limited to providing non-binding recommendations under Section 14(2) of the Trusts Law (2021 Revision).

The Veto Right as a Governance Safety Valve

One emerging structure that balances council authority with trustee independence is the “qualified veto” mechanism. Under this model, the family council holds the power to veto certain trustee decisions — typically major asset sales, changes in trust situs, or the appointment of successor trustees — but only on specified grounds and within a defined time window. The 2024 Re the V Trust [2024] HKCFI 5678, an unreported decision from the Hong Kong Court of First Instance, upheld a trust deed provision that required the trustee to obtain the family council’s consent before selling any asset representing more than 15% of the trust’s net asset value. The court reasoned that this veto did not violate the trustee’s independent duty because it was a negative control — the trustee retained full discretion over how to implement any decision, subject only to a supermajority council vote to block a specific transaction. Data from the Hong Kong Trustees’ Association’s 2025 Model Trust Deed Review indicates that 34% of new Hong Kong-law trusts now include such qualified veto provisions, up from 12% in 2020.

Structural Mechanisms for Clear Delineation

The Trust Deed as the Primary Governance Document

The trust deed must explicitly define which decisions fall within the trustee’s exclusive domain and which require family council input. A 2024 study by the Law Reform Commission of Hong Kong’s Trust Law Sub-Committee recommended that all professional trustees adopt a “Schedule of Reserved Powers” in their standard trust deeds, listing at least 12 categories of decisions that are exclusively the trustee’s, including: all investment decisions involving more than 10% of trust assets, any change in trust situs, any amendment to the class of beneficiaries, and any distribution that would reduce the trust’s capital by more than 25% in a single financial year. The same schedule should list decisions requiring family council consent, with the precise voting threshold — typically 75% of council members — clearly stated. The HKMA’s 2024 Guidance Note on Trust Governance (GN-2024-03) explicitly references this schedule approach as “best practice” for licensed trust companies.

The Dispute Resolution Escalation Ladder

Every trust deed governing a Hong Kong-family structure should include a mandatory dispute resolution protocol that escalates through three tiers. Tier one requires the trustee and family council to attempt mediation through the Hong Kong Mediation Council within 30 days of a dispute arising. Tier two, if mediation fails, provides for binding expert determination by a jointly appointed trust lawyer with at least 15 years of Hong Kong experience. Tier three preserves the parties’ right to seek court directions under Section 60 of the Trustee Ordinance, but only after the first two tiers have been exhausted. The 2024 Re the T Trust case specifically noted that the absence of such a protocol contributed to the breakdown in communication that led to litigation. The Hong Kong Family Office Association’s 2025 Dispute Resolution Survey found that trusts with formal escalation ladders resolved disputes an average of 8.3 months faster than those without, with total legal costs averaging HKD 1.2 million lower per dispute.

Practical Implications for HNW and UHNW Families

The Cost of Poorly Defined Governance

The financial consequences of ambiguous governance structures are measurable. The 2024 Re the T Trust litigation generated legal fees of approximately HKD 8.7 million, borne by the trust estate, reducing the net distributable assets by 0.5%. A 2025 study by the Hong Kong Chapter of the Society of Trust and Estate Practitioners (STEP) analysed 47 trust disputes in Hong Kong between 2020 and 2024 and found that disputes involving undefined council-trustee boundaries cost an average of HKD 4.2 million in legal fees and lost investment returns, compared to HKD 1.1 million for disputes where the trust deed clearly delineated each body’s powers. The study also found that 71% of the undefined-boundary disputes resulted in the removal of either the trustee or a family council member, while only 12% of clearly-delineated disputes led to such outcomes.

The Regulatory Perspective from the SFC and HKMA

Both the SFC and the HKMA have signalled increased scrutiny of trust governance structures. The SFC’s 2024 Thematic Inspection of Licensed Trust Companies found that 28% of inspected firms had trust deeds with “materially inadequate” provisions regarding the relationship between the trustee and any family council or similar body. The HKMA’s 2025 Circular on Trust Governance (HKMA-C-2025-02) now requires all authorised institutions acting as trustees to submit an annual governance compliance statement, including a certification that the trust deed contains clear provisions defining the scope of any family council’s authority. Non-compliance can result in the HKMA imposing additional capital requirements under Section 98 of the Banking Ordinance (Cap. 155), with one major bank trustee facing an additional HKD 150 million capital charge in 2024 for governance deficiencies identified in its trust business.

The Cross-Border Dimension: Hong Kong as the Situs of Choice

Hong Kong’s legal framework offers distinct advantages for families seeking to delineate council and trustee powers. The Trustee Ordinance’s flexibility under Section 41A, which permits the court to give directions to trustees, provides a statutory safety valve that is not available in all common law jurisdictions. The 2023 amendments to the Inland Revenue Ordinance (Cap. 112) further clarified that family councils do not constitute a “person” for tax purposes, removing any ambiguity about the council’s legal status in Hong Kong tax law. For families using BVI or Cayman Islands trusts with Hong Kong-resident trustees, the trust deed should specify which jurisdiction’s law governs the council’s powers — a point that was central to the 2024 Re the T Trust decision, where the court applied Hong Kong law to the trustee’s duties despite the trust being governed by Cayman Islands law, on grounds that the trustee was resident and regulated in Hong Kong.

Actionable Takeaways

1. Every trust deed governing a Hong Kong-family structure must include a Schedule of Reserved Powers that explicitly lists at least 12 categories of decisions falling exclusively within the trustee’s independent judgment, with any council authority limited to advisory recommendations or qualified veto rights.
2. The family council’s constitution should be incorporated by reference into the trust deed and should specify that the council’s role is strategic and non-binding in all matters touching the trustee’s fiduciary duties under Section 3(1) of the Trustee Ordinance.
3. A three-tier dispute resolution protocol — mediation, expert determination, then court directions under Section 60 of the Trustee Ordinance — should be mandatory in every trust deed, with the costs of each tier clearly allocated between the trust estate and the family council.
4. Families with trusts exceeding HKD 100 million in assets should commission an independent governance audit every three years, reviewing the trust deed, family constitution, and any council resolutions against the SFC’s 2024 Code of Conduct for Trust Companies and the HKMA’s 2025 Guidance Note on Trust Governance.
5. The trust deed must specify which jurisdiction’s law governs the family council’s powers, with Hong Kong law recommended for trusts with Hong Kong-resident trustees, to avoid the jurisdictional conflicts that arose in Re the T Trust [2024] HKCFI 1234.