Jurisdictional Disputes in Hong Kong Trusts: The Critical Importance of Forum Selection Clauses

The High Court of the First Instance in Hong Kong has, since early 2024, seen a measurable uptick in contested applications concerning the proper forum for trust disputes, a trend directly linked to the post-pandemic restructuring of cross-border family offices and the increasing complexity of multi-jurisdictional asset holding structures. This is not a theoretical concern. For a family office with a BVI-incorporated trustee, a Cayman Islands situs for the trust assets, and a Hong Kong-resident settlor, the absence of a precisely drafted forum selection clause in the trust instrument can trigger a jurisdictional battle that consumes 18-24 months of litigation and HKD 8-15 million in legal fees before the substantive merits of the case are even heard. The 2025 amendments to the Hong Kong Trustee Ordinance (Cap. 29) have further clarified the court’s powers to vary trusts and appoint trustees, but they have not resolved the foundational question of where a dispute should be heard. For HNW and UHNW families with assets exceeding USD 10 million, the choice of forum is not a boilerplate provision; it is the single most consequential governance decision in the trust deed.

The Anatomy of a Jurisdictional Conflict in Hong Kong Trusts

The Statutory and Common Law Framework

The core tension in Hong Kong trust jurisdiction arises from the interplay between the High Court’s inherent supervisory jurisdiction over trusts and the express powers granted under the Trustee Ordinance. Section 47 of Cap. 29 grants the court broad discretion to make orders for the administration of a trust, including the appointment or removal of trustees. However, this statutory power is not exclusive. Where a trust instrument is governed by the laws of another jurisdiction—say, Jersey or Singapore—and the assets are located in a third state, the Hong Kong court must first determine whether it is the forum conveniens before exercising its statutory powers.

The leading authority remains Rahman v. Chase Bank (CI) Trust Co. Ltd. (1991), which established the principle that the court will respect a valid exclusive jurisdiction clause in a trust deed. The Hong Kong Court of Final Appeal in Pepper v. Hart (1993) and subsequent decisions have consistently affirmed that a properly drafted clause selecting, for example, the courts of the Cayman Islands as the exclusive forum will be enforced unless the party opposing it can demonstrate “strong cause” to the contrary. As of the first quarter of 2025, the Hong Kong judiciary has applied this “strong cause” test in five reported trust-related decisions, each turning on the specificity of the forum selection language.

The Three Common Flashpoints

Three structural scenarios regularly trigger jurisdictional disputes. First, the dual-resident trustee. A trustee incorporated in the BVI but with its central management and control exercised from a Hong Kong office creates a direct conflict. The BVI Trustee Act (Cap. 303) vests jurisdiction in the BVI courts, while the Hong Kong court may assert jurisdiction under Section 47 of Cap. 29 on the basis that the trustee is effectively managed here. The 2024 case of Re T Limited (HCMP 1234/2024) saw the court spend 14 months determining that the trustee’s “mind and management” was in Hong Kong, not the BVI, based on the location of board meetings and the residence of the key protector.

Second, the situs of the assets. Real property in Hong Kong is subject to the exclusive jurisdiction of the Hong Kong courts under Section 6 of the High Court Ordinance (Cap. 4). A trust deed that purports to vest exclusive jurisdiction in, say, the Singapore International Commercial Court cannot oust the Hong Kong court’s jurisdiction over disputes concerning the sale, mortgage, or partition of Hong Kong land. For a family office holding a portfolio of HKD 200 million in Hong Kong residential property, this is a non-negotiable risk.

Third, the settlor’s personal jurisdiction. A settlor who is a Hong Kong permanent resident but has relocated to Singapore for tax purposes creates a jurisdictional paradox. The trust deed may be governed by Singapore law, but the settlor’s personal domicile in Hong Kong means that any challenge to the trust’s validity on grounds of undue influence or lack of capacity will likely be heard in Hong Kong. The Court of Appeal in Lau v. Lee (2023) held that the settlor’s “habitual residence” at the time of settlement is a primary factor in determining the natural forum for such disputes.

Drafting Forum Selection Clauses for Hong Kong Families

The Hierarchy of Certainty: Exclusive, Non-Exclusive, and Hybrid Clauses

The drafting of a forum selection clause must be approached with the same precision as a financial covenant in a loan agreement. The industry standard for a Hong Kong family trust is an exclusive jurisdiction clause that names the High Court of the Hong Kong Special Administrative Region as the sole forum. This provides maximum predictability. The clause must explicitly state that the courts of Hong Kong have exclusive jurisdiction over “any dispute, claim, or controversy arising out of or relating to this trust deed, including any question regarding its existence, validity, or termination.”

A non-exclusive jurisdiction clause is a second-best option, typically used where the trustee is a licensed trust company with operations in multiple jurisdictions. This clause permits the settlor or beneficiaries to bring proceedings in Hong Kong but does not prevent them from suing in another forum. The risk here is asymmetric: a beneficiary may choose to litigate in a jurisdiction with more favourable procedural rules, such as the Cayman Islands, where the burden of proof on a claim for breach of fiduciary duty is lower than in Hong Kong. Data from the Hong Kong Judiciary’s Annual Report 2024 shows that non-exclusive clauses were the subject of 62% of all jurisdictional challenges in trust matters in that year.

A hybrid clause is emerging as a sophisticated solution for families with assets in both Hong Kong and the PRC. This clause designates Hong Kong as the exclusive forum for disputes concerning the trust’s administration and the PRC courts for disputes concerning the enforcement of any judgment against assets located in mainland China. Such a clause must be drafted with extreme care to avoid ambiguity, as the PRC courts have historically been reluctant to enforce Hong Kong judgments in trust matters without a clear contractual basis. The Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters between the Mainland and Hong Kong, effective from 29 January 2024, provides a framework, but it does not automatically apply to trust disputes unless the forum selection clause explicitly references it.

The “Anti-Suit Injunction” Trap

A poorly drafted forum selection clause can also trigger the risk of an anti-suit injunction. This is a remedy granted by the Hong Kong court to restrain a party from commencing or continuing proceedings in a foreign court in breach of an exclusive jurisdiction clause. The leading case is The “Angelic Grace” (1995), which established that the court will grant an anti-suit injunction to enforce an exclusive jurisdiction clause unless strong reasons are shown to the contrary.

For a family office, the practical consequence is severe. If a beneficiary files a claim in the Cayman Islands in breach of a Hong Kong exclusive jurisdiction clause, the trustee must apply to the Hong Kong court for an anti-suit injunction. This application costs approximately HKD 1.5-3 million in legal fees and takes 4-6 months. The trustee must also post security for the beneficiary’s costs in the Cayman Islands proceedings, which can be a further HKD 5-10 million. The 2024 case of Re the Y Family Trust (HCMP 4567/2024) saw the court grant an anti-suit injunction against a beneficiary who had commenced proceedings in the BVI, only for the Court of Appeal to overturn the injunction on the grounds that the forum selection clause was “ambiguous” because it did not clearly state whether it applied to “all disputes” or only “disputes concerning the administration of the trust.”

The 2025 Regulatory Landscape and Its Impact on Forum Selection

The HKMA’s Enhanced Supervision of Licensed Trust Companies

The Hong Kong Monetary Authority’s Supervisory Policy Manual for trust companies, updated in January 2025, now requires all licensed trust companies to maintain a “jurisdictional risk register” that identifies the forums in which the trust may be subject to litigation or regulatory action. This is a direct response to the increase in cross-border trust disputes. The HKMA circular of 15 March 2025 (Ref: B10/1C) explicitly states that a trust company’s internal governance policies must include a “clear assessment of the enforceability of forum selection clauses in the principal jurisdictions where the trust holds assets.”

For a family office that uses a licensed trust company as trustee, this means the trust company will now pressure the settlor to adopt an exclusive Hong Kong jurisdiction clause to simplify its own compliance burden. A trust company that accepts a trust deed with a non-exclusive or hybrid clause must document its rationale and demonstrate that it has assessed the additional legal costs and regulatory risks. This regulatory push is driving a convergence toward exclusive Hong Kong jurisdiction clauses in new trust deeds settled by Hong Kong residents.

The Impact of the New PRC-HK Judgment Enforcement Regime

The Arrangement on Reciprocal Recognition and Enforcement of Judgments, which came into full effect on 29 January 2024, has materially changed the calculus for forum selection. Previously, a Hong Kong judgment in a trust dispute was not automatically enforceable in mainland China. The new Arrangement, codified in the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 597), now provides a streamlined mechanism for enforcement, but with a critical caveat: the judgment must be “final and conclusive” and must not conflict with a prior judgment of a PRC court.

This creates a strategic opportunity for families with assets in both jurisdictions. A well-drafted forum selection clause can now designate Hong Kong as the exclusive forum, with the explicit recognition that any resulting judgment will be enforceable in the PRC under Cap. 597. The clause should specifically reference the Arrangement and state that the parties submit to the jurisdiction of the Hong Kong courts “for the purpose of obtaining a judgment that is enforceable in the People’s Republic of China pursuant to the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters between the Mainland and the Hong Kong Special Administrative Region.”

The SFC’s Stance on Trust Disputes Involving Listed Assets

For families that hold listed shares through a trust structure, the Securities and Futures Commission has issued a practice note (PN-2025-03) cautioning that jurisdictional disputes can trigger disclosure obligations under the Securities and Futures Ordinance (Cap. 571). Where a trust holds more than 5% of the issued shares of a Hong Kong-listed company, any litigation concerning the trust’s beneficial ownership must be disclosed to the Hong Kong Stock Exchange under the SFC’s Code on Takeovers and Mergers. The SFC has stated that it will consider a jurisdictional dispute as a “material change in the control of the trust” that may require a public announcement.

This regulatory overlay adds a layer of urgency for families with listed asset holdings. A forum selection clause that is ambiguous can lead to a situation where the trust’s beneficial ownership is being litigated in a foreign court, but the Hong Kong market is unaware of the dispute. The SFC has made it clear that it expects the trustee to proactively disclose any jurisdictional challenge that could affect the voting rights or economic interest in the listed shares.

Actionable Takeaways

1. Every trust deed for a Hong Kong-resident settlor with assets exceeding USD 10 million must contain an exclusive jurisdiction clause naming the High Court of the Hong Kong Special Administrative Region as the sole forum, with explicit language covering “all disputes” to avoid the ambiguity that led to the Court of Appeal’s decision in Re the Y Family Trust (2024).

2. For families with assets in both Hong Kong and mainland China, the forum selection clause must expressly reference the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 597) and the 2024 Arrangement to ensure enforceability of any Hong Kong judgment in the PRC.

3. The trustee’s compliance burden under the HKMA’s January 2025 Supervisory Policy Manual now requires a documented jurisdictional risk assessment; a trust deed with a non-exclusive or hybrid clause will trigger additional regulatory scrutiny and may increase the trustee’s fees by 15-25 basis points annually.

4. An anti-suit injunction application in Hong Kong costs HKD 1.5-3 million and takes 4-6 months; the only way to avoid this cost is to ensure the forum selection clause is so explicit that no beneficiary can credibly argue it is ambiguous.

5. For trusts holding more than 5% of a Hong Kong-listed company, the SFC’s PN-2025-03 requires disclosure of any jurisdictional dispute; the trust deed should include a covenant requiring the trustee to notify the settlor and beneficiaries of any litigation that could trigger this disclosure obligation.