A recent Hong Kong judgment deserves mention in this well-developed area of law, where a bank’s customers try to recover losses suffered from investments made with or through a bank.

This is the Court of Appeal’s judgment in Zhang Hong Li and others v DBS (Hong Kong) Ltd and others.

For an overview of the basic facts and issues of interest, please refer to our bulletin on the first instance judgment (click here). As a quick reminder, this case is about losses in foreign exchange investments suffered by a corporate trust vehicle (Wise Lords Ltd), whose shares were held by a DBS corporate trustee and whose director was a DBS corporate director.

The Court of Appeal affirmed all aspects of the first instance judgment, and does not add materially to it. It dismissed the appeal by DBS’s side, particularly against the finding of breach of trust by the trustee and breach of fiduciary duties by the corporate director. It also dismissed the customer’s cross-appeal, particularly against the findings that the bank owed no advisory duty to the customer and incurred no accessory liability for any knowing or dishonest assistance.

Regarding the Court of Appeal’s judgment, we have the following observations.

“Anti-Bartlett” provisions - These are provisions, common in the professional trust industry, designed to circumscribe the trustee’s duty to intervene in the affairs of companies in which the trustee holds shares. The trust document in question contains these provisions. The Court of Appeal, however, held that, as a matter of Jersey law - the governing law of the trust (after considering Jersey law expert opinions), anti-Bartlett provisions notwithstanding, the trustee has a residual high level supervisory role or obligation. The Court of Appeal affirmed the first instance Judge’s finding that the trustee breached this high level supervisory duty when the trustee approved, and did not override or reverse, the purchases of the investments in question. This amounted to gross negligence, for which liability cannot be relieved by any exemption clauses under Jersey law.

Indemnity claim against investment advisor - The customer was appointed investment advisor to Wise Lords Ltd. The trustee pleaded that for the investments in question the investment had signed “letters of recommendation” addressed to Wise Lords Ltd. Those letters were said to contain indemnity provisions. Accordingly, the trustee argued that the investment advisor should indemnify the trustee against the claim for losses to the investments.

The Court of Appeal rejected this argument, because there was no consideration for the alleged indemnity. First, no answer to the lack of consideration point was pleaded. Second, the letters themselves did not indicate that the indemnity was given in consideration for the trustee’s approval of the investments in question. Third, on the trustee’s own evidence, the letters of recommendation provided information to the trustee and served as reminders to the customer of issues such as risk factors and diversity, without mentioning that another purpose of the letters was for the trustee to obtain indemnities as consideration for their grant of approval for the impugned investments.


It remains to be seen if leave to appeal to the Court of Final Appeal will be sought.

Apart from those in our previous note (here), we have these recommendations:

(a) Considering augmenting further “anti-Bartlett” provisions, say, by providing clearly that withholding approval for investments recommended by the investment advisor would not amount to derogation from the trustee’s supervisory duty or gross negligence.

(b) Providing clearly the consideration for which any indemnity is given by customers/investment advisors.