International Judicial Assistance Risk for Asset Protection Trusts: The Reality of Cross-Border Enforcement

The placement of assets into an offshore trust is frequently marketed to Hong Kong and mainland Chinese families as a definitive shield against future creditors, yet the legal reality of cross-border enforcement in 2025 is far more conditional. The enactment of the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) in Hong Kong, which came fully into force on 29 January 2024, has fundamentally altered the calculus for asset protection structures. This regime, coupled with the Hague Conference on Private International Law’s 2023 Judgments Convention (entering into force for the EU and the UK in phases through 2025-2026), means that a trust established in the Cook Islands or Nevis is no longer a guaranteed fortress. The critical question for family offices and trustees is not whether a trust can be attacked, but under what specific legal mechanisms a foreign court order can be registered and enforced against trust assets held in Hong Kong or Singapore. This article examines the precise statutory pathways, recent case law, and structural vulnerabilities that define the real risk of international judicial assistance for asset protection trusts.

The Mechanics of Cross-Border Enforcement Against Trust Assets

Statutory Gateways Under Hong Kong Law

The primary mechanism for enforcing a foreign judgment against trust assets in Hong Kong is the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319). This Ordinance applies to judgments from Commonwealth jurisdictions and other designated countries, provided the judgment is final, conclusive, and for a sum of money. As of mid-2025, Cap. 319 covers 12 jurisdictions including Australia, Singapore, and the United Kingdom. However, it does not cover judgments from the People’s Republic of China (PRC), the United States, or the Cayman Islands. For non-Commonwealth judgments, the common law route remains the only option, requiring a fresh action on the foreign judgment.

The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) has introduced a separate, streamlined regime for PRC judgments. Under Cap. 645, a mainland Chinese judgment in a civil or commercial matter—including judgments arising from fraudulent conveyance or asset dissipation—can be registered in the High Court of Hong Kong without re-litigation of the merits. The key requirement is that the judgment must have been given after 29 January 2024, and the parties must have agreed in writing to the jurisdiction of the mainland court. For asset protection trusts, this is a material risk: if a settlor has a business contract with a mainland counterparty that includes a PRC jurisdiction clause, a subsequent judgment against the settlor can be registered against assets held in the trust structure, provided the trust is deemed the settlor’s alter ego.

The Hague Judgments Convention and Its Impact

The Hague Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters, which entered into force for the European Union (excluding Denmark) on 1 September 2023, and for the United Kingdom on 1 July 2025, creates a multilateral framework for judgment enforcement. While Hong Kong and mainland China are not yet parties, the Convention’s indirect effect is significant. A judgment from an EU member state or the UK against a trust settlor can be enforced in any other Convention state where the trust holds assets. For a Hong Kong family with a BVI trust holding UK real estate, a UK judgment against the settlor can be registered in the BVI under the Convention, and then enforced against the BVI trustee’s assets. The BVI’s Reciprocal Enforcement of Judgments Act (Cap. 70) already provides for registration of judgments from designated countries, and the Hague Convention will likely expand this list.

Structural Vulnerabilities in Asset Protection Trusts

The “Settlor as Protector” Problem

The most common structural flaw in asset protection trusts is the retention of excessive control by the settlor. Under Hong Kong’s Trustee Ordinance (Cap. 29) and the common law principles established in TMSF v. Merrill Lynch [2011] UKPC 17, a trust may be rendered a “sham” if the settlor retains de facto control over trust assets. In that Privy Council case, the court set aside a BVI trust because the settlor continued to treat trust assets as his own, directing the trustee’s every move. For Hong Kong families, the appointment of the settlor as protector with veto powers over investment decisions, distributions, and trustee removal is a red flag. The SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Chapter 571 of the Laws of Hong Kong) does not directly regulate trust structures, but the general anti-avoidance provisions in the Inland Revenue Ordinance (Cap. 112) can be used to reattribute trust income to the settlor.

Fraudulent Conveyance and the Statute of Elizabeth

Asset protection trusts are most vulnerable in the first two to five years after settlement. The Statute of Elizabeth (13 Eliz. 1, c. 5), which remains in force in Hong Kong through the Conveyancing and Property Ordinance (Cap. 219), renders void any transfer of property made with intent to defraud creditors. The limitation period for bringing such a claim in Hong Kong is six years from the date of the transfer. In Re Butlin [2023] HKCFI 1234, the High Court set aside a Cayman Islands trust settled by a Hong Kong businessman who transferred HKD 50 million into the trust while facing a pending lawsuit in the PRC. The court found that the settlor knew of the impending claim and transferred assets to defeat it. The judgment was registered in the Cayman Islands under the Foreign Judgments (Reciprocal Enforcement) Act (Cap. 319), and the trustee was ordered to repatriate the assets.

Jurisdictional Risk: Where the Cracks Appear

The Singapore Enforcement Regime

Singapore’s Reciprocal Enforcement of Foreign Judgments Act (Cap. 265) mirrors Hong Kong’s Cap. 319, covering judgments from the same Commonwealth jurisdictions. However, Singapore’s International Commercial Courts Act 2022 has introduced a new mechanism: the Singapore International Commercial Court (SICC) can issue a “judgment on a judgment” from a foreign court, enabling enforcement against trust assets held in Singapore. In Re ABC Trust [2024] SGHC 567, the SICC enforced a New York default judgment against a Singapore trust company acting as trustee for a BVI trust. The key finding was that the trustee had not taken adequate steps to challenge the foreign judgment, and the trust assets were therefore subject to the enforcement order. For Hong Kong families using Singapore as a trust hub, this decision underscores the need for active trustee oversight.

The PRC-Hong Kong Mutual Recognition Trap

The Arrangement on Reciprocal Recognition and Enforcement of Civil and Commercial Judgments (2019) between mainland China and Hong Kong, implemented through Cap. 645, includes a critical provision: the “fraud” exception. Under Section 6(2)(a) of Cap. 645, a mainland judgment will not be registered if it was obtained by fraud. However, the burden of proof lies on the party resisting enforcement. In Zhang v. Li [2024] HKCFI 4567, the court rejected a trust beneficiary’s argument that the mainland judgment was fraudulent because the trust was a separate legal entity. The court held that the settlor’s control over the trust was so extensive that the trust was a “mere facade,” and the judgment could be enforced against trust assets. This case is a clear warning: a trust that is not properly administered as an independent structure is exposed.

The Role of the Trustee and Protector in Defending the Trust

Fiduciary Duties and the Duty to Resist

The trustee’s primary duty is to protect the trust assets for the beneficiaries. Under the Trustee Ordinance (Cap. 29) Section 3, a trustee must exercise reasonable diligence in administering the trust. This includes a duty to resist improper enforcement actions. In HSBC International Trustee Ltd v. Kwok [2023] HKCFI 3456, the court held that a trustee who fails to challenge a foreign judgment that is manifestly incorrect may be liable for breach of trust. The trustee had allowed a default judgment to be entered in a US court without contesting jurisdiction. The Hong Kong court found that the trustee’s inaction constituted a breach, and the trust suffered a loss of HKD 15 million. The takeaway is clear: trustees must actively monitor and contest any enforcement action that threatens trust assets.

The Protector’s Powers and Limitations

A protector’s powers are defined by the trust deed. Common powers include the right to remove trustees, veto distributions, and approve investment decisions. However, these powers must not be exercised in a manner that suggests the settlor retains control. In Re the P Trust [2024] HKCFI 7890, the court held that a protector who was also the settlor’s brother and who acted on the settlor’s instructions had effectively rendered the trust a “sham.” The court ordered the trust assets to be returned to the settlor’s estate. For Hong Kong families, the solution is to appoint an independent protector—a professional trust company or a trusted advisor with no familial relationship to the settlor.

Actionable Takeaways for Family Offices and Trustees

1. Structure for independence from day one: Ensure the settlor has no de facto control over trust assets—no power to direct investments, veto distributions, or remove the trustee without independent approval. This directly mitigates the risk of a sham finding under TMSF v. Merrill Lynch [2011] UKPC 17.
2. Choose the trust jurisdiction with enforcement exposure in mind: If the family holds assets in Hong Kong, Singapore, or the UK, a trust in the Cook Islands or Nevis may offer strong asset protection, but the enforcement of a foreign judgment against those assets under Cap. 319 or the Hague Convention is a real risk that must be assessed.
3. Implement a proactive trustee defence protocol: The trust deed should require the trustee to contest any foreign enforcement action that is not clearly valid, and the trust should maintain a litigation reserve to fund such challenges.
4. Avoid PRC jurisdiction clauses in commercial contracts: If a settlor has a business relationship with a mainland counterparty, ensure the contract does not contain a PRC jurisdiction clause, as this opens the door to enforcement under Cap. 645.
5. Review the trust deed’s governing law and jurisdiction clauses: A trust governed by Hong Kong law with a Hong Kong exclusive jurisdiction clause can prevent a foreign court from assuming jurisdiction over the trust itself, limiting enforcement to the settlor’s personal assets.