Trusts in Hong Kong: Historical Application and Current Practice

Abstract

<p>For over five months since June 2019, Hong Kong has been roiled with the worst unrest and deepest political crisis in the past few decades. Doubts have been raised about the continuation of its special status as an international financial centre, which is key to thriving trust businesses in the city, and rests crucially upon ‘one country, two systems’, which preserves Hong Kong as a common law jurisdiction that enshrines the rule of law in a civil law country that is China.</p><p>‘One country, two systems’ was guaranteed by the Basic Law, Hong Kong’s mini- constitution, which was promulgated in 1997. But the guarantee is not perpetual, as article 5 of the Basic Law provides that ‘the previous capitalist system and way of life shall remainunchangedfor50years’.1 OnlytimewilltellwhetherChinawillabolishcommon law trust principles in Hong Kong come 2047. In the meantime, the uncertainty has already cast a long shadow over trust planners, who typically set up trusts that last for a long period.</p><p>What the present paper seeks to do is to survey the dramatic changes that the last nearly two centuries have seen in trust law in Hong Kong, so as to draw theoretical insights on how it should go forward towards 2047 and beyond. For convenience of exposition, we shall divide the development of Hong Kong trust law and practice into three periods. The first is from the introduction of common law trust principles into Hong Kong in 1843 to the 1970s, when socio-economic conditions of Hong Kong were very different from those in England, and there was a clear segregation between the expat and local communities. The second is from the 1980s to the 1990s when Hong Kong emerged as an ‘Asian Tiger’ and an international financial centre. The third period is from the early 2000s, when the Hong Kong economy has become increasingly linked to that of mainland China.</p><p>From this survey, we hope to draw three observations that may guide us in the future. First, because of its flexibility, the trust is an extremely adaptable tool for analysing if not structuring legal arrangements, from ancestral worship trusts in a culture that is dramatically different from that of the English gentry, to settlor-directed trusts that allow settlors to reap the benefits of a trust without abiding by its rules. Second, elastic though the trust concept is, it is not without limit. Jurisdictional competition for business has driven many offshore and even some onshore jurisdictions to adopt legislation that dilutes the trust concept. This puts Hong Kong (and other onshore jurisdictions) at a crossroad as trust industries put pressure on their governments to join if not lead the pack. Third, we think these are short-sighted approaches. While it is worthwhile to explore the full conceptual scope of the trust in order to maximise its utility, the long-term sustainability of the trust institution depends heavily on a shared commitment to its core concept. A better strategy for any jurisdiction vying for trust business is to improve the quality of its professional services rather than to compromise the quality of its trust law.</p>