HKSI Paper 1 Market misconduct and improper trading practices question: follows written advice from the trust's independent investment manager

HKSI Paper 1Market misconduct and improper trading practices

Raymond Ip is a director of Silverlake Ltd, a listed company, and trustee of his late father's trust, which holds Silverlake shares. Holding unannounced bad news, he follows written advice from the trust's independent investment manager, who knows nothing of it, to sell the trust's Silverlake shares. What is his position?

A He has a defence only if all of the trust's adult beneficiaries had consented to the sale in writing first
B He has a defence only if the Court of First Instance first approved the sale of the trust's shares
C He has no defence, as his own knowledge of the news is attributed to every dealing made for the trust
D He has a defence as a trustee who acted in good faith on advice from an apparently appropriate adviser

Show the answer and explanation

Answer: D. He has a defence as a trustee who acted in good faith on advice from an apparently appropriate adviser

Section 272 of the SFO (criminal equivalent s.293) gives a trustee or personal representative a defence if he establishes that he acted on advice obtained in good faith from another person, that person appeared to be an appropriate person to advise, and it did not appear to him that insider dealing would take place had the adviser dealt. The independent manager knew nothing of the news, so its own dealing would not have been insider dealing. Part XIII contains no rule attributing the trustee's knowledge so as to override s.272. Neither court approval nor beneficiaries' consent is a condition of the defence. Source: SFO (Cap. 571) s.272; s.293 (as at October 2026). Source: SFO (Cap. 571) s.270(1)(a), s.272; criminal equivalent s.293 (as at October 2026).

Common mistake

Candidates assume a director holding inside information can never deal for a trust. Section 272 protects a trustee who follows good-faith advice from an uninformed adviser.

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