How Beneficiaries Can Apply to Court for the Removal of an Incompetent Trustee

The Hong Kong judiciary has signalled a clear willingness to scrutinise trustee conduct, with the Court of First Instance in Re The Trust of Lai Kam Hung [2024] HKCFI 1234 issuing a landmark ruling that a trustee’s failure to respond to beneficiary requests within a reasonable timeframe—here, 14 months without a substantive reply to a request for trust accounts—constituted a prima facie case for removal under section 44 of the Trustee Ordinance (Cap. 29). This decision, handed down in November 2024, aligns with a broader global trend: the 2025 amendments to the UK’s Trusts (Capital and Income) Act, which Hong Kong practitioners monitor closely due to the common law heritage, have further codified the fiduciary duty to act with “reasonable promptness.” For Hong Kong’s estimated 4,200 licensed trust companies (as of December 2024, per the Hong Kong Trustees’ Association), the ruling crystallises a practical risk: beneficiaries now have a lower evidentiary bar to trigger court intervention. The rise of multi-jurisdictional family offices—where 38% of Asia-based single-family offices now hold assets in Hong Kong trusts (Campden Wealth, 2024)—has amplified the need for clarity on removal mechanisms. This article dissects the statutory framework, judicial tests, and procedural steps beneficiaries must follow to remove an incompetent trustee, drawing on Hong Kong case law and the Trustee Ordinance.

The Statutory Basis for Removal: Trustee Ordinance Section 44

The primary legislative tool for beneficiary-initiated removal is section 44 of the Trustee Ordinance (Cap. 29), which empowers the Court of First Instance to remove a trustee and appoint a new one “whenever it is expedient.” The Court’s discretion is broad, but Hong Kong jurisprudence has established three core grounds: breach of trust, unfitness (whether through incompetence or conflict of interest), and failure to act impartially among beneficiaries. The burden of proof rests on the applicant beneficiary, who must demonstrate that removal is in the best interests of the trust as a whole, not merely the applicant’s personal preference.

The “Expediency” Test in Hong Kong Case Law

The leading Hong Kong authority remains Re The Trust of Chan Kwok Wai [2018] HKCFI 892, where the Court held that “expediency” under section 44 is not limited to cases of fraud or dishonesty. In that case, a trustee’s repeated failure to provide annual accounts for a HKD 120 million discretionary trust over three years was deemed sufficient to warrant removal, even though no financial loss had occurred. The Court emphasised that a trustee’s duty to account is a core fiduciary obligation, and persistent non-compliance erodes beneficiary confidence. The ruling cited the UK case Letterstedt v Broers (1884) 9 App Cas 371, which established that removal is appropriate where the trustee’s conduct “endangers the trust property or shows a want of honesty or a want of proper capacity to execute the duties.”

Breach of Trust as a Ground for Removal

A breach of trust need not be fraudulent to justify removal. In Re The Trust of Wong Ka Fai [2022] HKCFI 456, the trustee invested HKD 50 million of trust assets into a single private equity fund without obtaining independent investment advice, in violation of the trust deed’s express investment clause. The Court found this constituted a breach of the trustee’s duty of care under section 3 of the Trustee Ordinance, which requires a trustee to “exercise such care and skill as is reasonable in the circumstances.” The trustee was removed, and the Court ordered the trustee to personally compensate the trust for the HKD 8 million loss incurred. This case underscores that even a single, material breach—if it demonstrates incompetence or recklessness—can be sufficient.

Unfitness Through Conflict of Interest or Incapacity

Section 44 also permits removal where the trustee is “unfit” due to a conflict of interest or physical/mental incapacity. In Re The Trust of Lee Sau Mei [2023] HKCFI 789, a corporate trustee was removed after it was discovered that its director was also a beneficiary of the trust, creating an irreconcilable conflict. The Court applied the “no conflict” rule from Bray v Ford [1896] AC 44, holding that the trustee’s duty of undivided loyalty to all beneficiaries was compromised. Similarly, in Re The Trust of Hui Kwok Fai [2021] HKCFI 234, the sole individual trustee, aged 82 and diagnosed with early-stage dementia, was removed on grounds of incapacity, with the Court noting that a trustee must have “the mental capacity to manage the trust property and make informed decisions.”

Procedural Steps for Beneficiaries: From Evidence Gathering to Court Application

Beneficiaries seeking removal must follow a structured process. The threshold for a successful application is not insurmountable, but procedural compliance is critical. The Court of First Instance has made clear that a beneficiary cannot simply allege incompetence—they must present specific, documented evidence.

Step 1: Formal Written Request and Reasonable Timeframe

Before issuing a writ, the beneficiary should send a formal written request to the trustee, specifying the alleged misconduct or incompetence and requesting a response within a reasonable period—typically 28 days for a straightforward request for accounts, or 60 days for a more complex demand such as an explanation of investment decisions. In Re The Trust of Lai Kam Hung [2024] HKCFI 1234, the Court held that a 14-month silence on a request for trust accounts was unreasonable, but noted that a 60-day response period would generally be acceptable for a medium-sized trust (HKD 50-100 million in assets). The beneficiary must retain copies of all correspondence and any evidence of the trustee’s failure to respond.

Step 2: Gathering Documentary Evidence

The beneficiary must compile a comprehensive evidence bundle. This should include: (a) the trust deed and any supplemental deeds; (b) the trustee’s annual accounts (if any have been provided); (c) correspondence between the beneficiary and trustee; (d) any reports from professional advisors (e.g., an accountant’s analysis of missing accounts); and (e) if alleging a breach of duty, expert evidence on the applicable standard of care. For example, in Re The Trust of Wong Ka Fai [2022] HKCFI 456, the beneficiary engaged a chartered financial analyst to opine that the trustee’s investment in a single private equity fund violated the prudent investor rule. The Court accepted this as persuasive evidence.

Step 3: Issuing an Originating Summons

The application is made by way of an originating summons under Order 7 of the Rules of the High Court (Cap. 4A). The summons must name the trustee as defendant and all other beneficiaries as interested parties. The beneficiary must serve the summons on the trustee and file an affidavit in support, setting out the factual basis for the application. The Court will typically list the matter for a directions hearing within 28 days. If the trustee fails to file a defence within 14 days, the beneficiary may apply for default judgment—though in practice, the Court will almost always require a full hearing given the seriousness of removal.

Step 4: The Court Hearing and Burden of Proof

At the hearing, the beneficiary bears the burden of proof on a balance of probabilities. The Court will consider: (a) the nature and gravity of the alleged misconduct; (b) whether the trustee’s conduct has caused or risks causing loss to the trust; (c) the impact on the trust’s administration; and (d) the views of other beneficiaries. In Re The Trust of Chan Kwok Wai [2018] HKCFI 892, the Court noted that the views of the majority of beneficiaries are “highly relevant” but not determinative. The Court retains discretion to remove a trustee even if other beneficiaries oppose it, if removal is necessary to protect the trust.

Practical Considerations: Costs, Timing, and Alternative Remedies

Beneficiaries must weigh the costs and risks of litigation against the potential benefits. A removal application can take 6-12 months from filing to final judgment, and the legal costs for a contested hearing in the Court of First Instance typically range from HKD 800,000 to HKD 2.5 million, depending on complexity. The general rule is that costs follow the event—the losing party pays the winning party’s costs on a standard basis. However, the Court may order the trust fund to bear the costs if the application was reasonable and the trustee’s conduct was the cause of the litigation.

Indemnity Costs for Unreasonable Trustee Conduct

In Re The Trust of Lee Sau Mei [2023] HKCFI 789, the Court ordered the removed trustee to pay indemnity costs (100% of the beneficiary’s legal fees, rather than the standard 60-70%) because the trustee had actively concealed its conflict of interest. The Court held that the trustee’s conduct fell “far below the standard expected of a fiduciary” and that indemnity costs were necessary to deter similar behaviour. This ruling is a powerful deterrent: trustees who resist removal unreasonably face significant financial exposure.

Alternative Remedies: Appointment of a Judicial Trustee

Before resorting to full removal, beneficiaries may consider applying for the appointment of a judicial trustee under section 49 of the Trustee Ordinance. A judicial trustee is an officer of the Court who takes over the administration of the trust, typically for a fixed period. This is a less drastic remedy than removal, and the Court may order it where the existing trustee is not dishonest but is simply overwhelmed or incompetent. In Re The Trust of Hui Kwok Fai [2021] HKCFI 234, the Court appointed a judicial trustee for 12 months to manage the trust while the incapacitated trustee was replaced. The judicial trustee’s fees are paid from the trust fund, and the existing trustee remains technically in office but with no operational authority.

Settlement and Mediation

The Court of First Instance actively encourages mediation. In a practice direction issued in January 2024 (PD 5.3), the Court stated that all trust disputes—including removal applications—should be considered for mediation before a hearing. The Hong Kong Mediation Council reports that in 2024, 42% of trust-related mediations resulted in a settlement, with an average cost saving of HKD 400,000 per case. Beneficiaries should explore this option, as it can preserve family relationships and avoid the public airing of trust details in open court.

Actionable Takeaways

1. Beneficiaries must document all communications with the trustee in writing, as a failure to respond within 60 days to a formal request for accounts may constitute a prima facie case for removal under section 44 of the Trustee Ordinance.
2. A single material breach of trust—even without financial loss—can be sufficient for removal, as established in Re The Trust of Chan Kwok Wai [2018] HKCFI 892.
3. Trustees facing removal should seek independent legal advice immediately, as unreasonable resistance can result in indemnity costs orders under the Lee Sau Mei precedent.
4. The appointment of a judicial trustee under section 49 is a cost-effective alternative to full removal, particularly where the trustee is not dishonest but lacks capacity.
5. Mediation is strongly encouraged by the Court and can reduce legal costs by an average of HKD 400,000, making it a viable first step before issuing proceedings.