IQ EQ (NTC) TRUSTEES ASIA (JERSEY) LIMITED AND ANOTHER v. BRUNO ARBOIT and RODERICK JOHN SUTTON AND ANOTHER

FAMV Nos. 117 and 126 of 2018

[2019] HKCFA 18

FAMV No. 117 of 2018

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 117 OF 2018 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL

FROM CACV NO. 139 OF 2017)

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FAMV No. 126 of 2018

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 126 OF 2018 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL

FROM CACV NO. 138 OF 2017)

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DETERMINATION

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Mr Justice Ribeiro Ag CJ:

1.  By its judgment dated 27 July 2018,[1] the Court of Appeal upheld the decision of Bharwaney J,[2] in which he held the 2^nd and 4^th Defendants (“the Defendants”) liable for breach of trust on the basis of gross negligence, ordering them to pay equitable compensation to the 3^rd and 4^th Plaintiffs (“the Plaintiffs”) in an amount to be assessed, with consequential directions relating to such assessment.

2.  Leave to appeal against the aforesaid judgment of the Court of Appeal is sought respectively by the Plaintiffs (in FAMV 117/2018) and by the Defendants (in FAMV 126/2018).

The Plaintiffs’ application

3.  The Plaintiffs seek leave to appeal on the basis of questions formulated as follows:

(1) Are bank owned or controlled trustees or fiduciaries (“Fiduciaries”) subject to: (a) the principles summarised in Royal Brunei Airlines Sdn. Bhd. v. Tan [1995] 2 A.C. 378 at 389E-390H identifying the taking of grossly imprudent risks with the assets of others within transactions involving fiduciary self-benefit, as being dishonest conduct? and/or (b) the formulation of the test for dishonest conduct by a trustee in Armitage v. Nurse [1998] Ch. 241 at 251D-F? 

(2) Once a trial judge has made findings of fact identifying misconduct by Fiduciaries, when determining liability, is he required to apply the equitable maxim that “equity looks to the intent [or substance] rather than the form”? 

(3) Where such misconduct arises within transactions entered into pursuant to the contractual banking relationship between the Fiduciaries’ parent bank and a private investment company (“PlC”) of the trust and it involves self-benefit to the bank, is it “not capable of amounting to dishonest assistance in [the Fiduciaries’] breach of trust”?

4.  Leave to appeal on all these questions is refused.  They are fact-specific and contentiously framed questions which do not raise issues of great general or public importance and, in so far as they arise at all, are premised on challenges to concurrent findings of fact made against the Plaintiffs, especially in relation to allegations of dishonesty and self-dealing.  For similar reasons, leave to appeal is also refused on the “or otherwise” basis.

5.  The Plaintiffs’ application is accordingly dismissed with costs.

The Defendants’ application

6.  We are satisfied that leave to appeal should be granted to the Defendants in respect of the following questions set out in paragraph 1 of the Notice of Motion which are of the requisite importance, namely:

(1) Does a trustee owe any duty to supervise the investment decision making of an investment adviser appointed by an underlying company and/or to review investment decisions made by such investment adviser where the terms of the trust contain extensive and mandatory “anti-Bartlett” provisions which expressly forbid the trustee’s interference with the management of the Company save where it has actual knowledge of dishonesty? 

(2) If so, what is the nature and extent of such a duty? 

(4) Does the de facto assumption by a trustee of an undefined role of supervision in respect of investment decisions made by the investment adviser to the company, and/or the de facto assumption by a trustee of a role involving the after-the-event review and/or the giving of after-the-event approvals of investments make any difference to the analysis?

(5)(a) Whether the Court is entitled to interpret and/or add a gloss to the evidence of an expert on foreign law in a manner which is inconsistent with the express terms of the document under consideration by the expert when an interpretation or meaning which is fully consistent with such terms is available to it. Alternatively, is the Court itself permitted, entitled or required to construe the document and come to its own conclusions as to the meaning of such express terms in order to enable it to properly interpret, give effective meaning and make findings based on such evidence.

(7) What is the appropriate standard which should be adopted to assess the conduct of a corporate director of a company which has properly delegated investment management and investment decision making to an investment adviser as its agent or delegate? Specifically in this case what was the position of the 4^th Defendant (“DHJ Management”) as such director with regard to the decision-making of the 2^nd Plaintiff (“Ji”) as investment adviser and DHJ Management’s delegate in relation to investment strategy and decision making, in light of such standard and, in particular, the exonerations and indemnities available to DHJ Management; 

(9)(c) What is the correct and/or appropriate formula for assessing equitable compensation in the light of the proper approach to assessing causation? 

7.  We also grant leave on the “or otherwise” ground in respect of the question whether it was right for the Court to have determined which of the transactions were to be included or excluded in the computation of equitable compensation before according DBS Trustee and DHJ Management the opportunity to address the Court on the causal connection (or lack thereof) between the breach of trust or fiduciary duty and the loss arising from the transactions.

8.  Leave to appeal is refused in respect of the other questions.

9.  The appeal will be listed for hearing on a date to be fixed.