HONG THAI CITIZENS TRAVEL SERVICES LTD v. HANG SENG BANK LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS NO. 1008 OF 1987

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JUDGMENT

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1. The plaintiff in this matter is a very large travel agent which specializes in tours to Thailand. It advertises extensively on television, radio and in the newspapers. As a result of financial difficulties being experienced by some other travel agents and a loss of public confidence in the travel industry as a whole, in February 1986 the plaintiff decided to deposit a sum of $10 million in an interest bearing account with the defendant for a period of one year. The deposit receipt was placed with Messrs Kwan and Kwan, the plaintiff's solicitors, for safe-keeping and instructions were given to the defendant that on maturity the principal plus interest was to be transferred to the plaintiff's current account.

2. Following this, the plaintiffs inserted numerous advertisements in newspapers in which they referred to this deposit made with the defendant. While these advertisements varied, one which has been exhibited, is typical. It reads as follows:-

"On 24th February 1986 in order to protect tourist customers our Company has deposited cash in the sum of HK$10 million with Hang Seng Bank Limited on one-year fixed deposit as cash security plan and had appointed an eminent solicitor to execute and supervise. Since then the plan has received good comments from tourist customers from all sectors and greatly boosted the confidence of participants."

3. When the defendant noticed these advertisements they wrote to the plaintiff on the 5th March 1986, requesting clarification as to whether the intention was to set up some form of trust in respect of the deposit. By a letter dated 10th April 1986 the plaintiff replied that there was no intention to create any such trust. On maturity of the deposit at the end of February 1987 the deposit was renewed for a further period of six months i.e. to the 24th August 1987.

4. There has been a considerable exchange of correspondence between the parties, and, in order to be satisfied as to the legal position, the defendant in fact took out proceedings seeking a declaration. These proceedings were abandoned on the understanding that the now plaintiff would itself take out similar proceedings seeking a declaration that the deposit is not subject to any trust and may be repaid to the plaintiff on maturity.

5. I have been referred to several cases by Counsel for the defendant for the proposition that there may have been a trust created in respect of the deposit. In particular she refers me to Re Chelsea Cloisters Ltd. (In liquidation) in which when a property company was in financial difficulty a supervising accountant directed that deposits paid by new tenants should be placed into a separate account. When the company did in fact go into liquidation it was held that these funds belonged to the tenants and should beheld in trust on their behalf. The funds in account were not available for the payment of the ordinary debts of the company. Counsel also referred me to Lipkin Gorman v. Karpnale Ltd. and Lloyds Bank Ltd.⁽¹⁾. There it was held that Lloyds Bank, who knew that a solicitor was a heavy gambler and was drawing money from his client's account in substantial quantities, had shut its eyes to the obvious source of his gambling money and had not made such reasonable inquiries as a honest man would do. It was therefore held liable for the loss to the clients concerned.

6. Here I think the facts are very different to either of those cases. To create a valid trust there are three essential requirements. The first is that there should be an intention to create such a trust. Counsel for the defendant suggests that the advertisements indicate such an intention in that they say that certain moneys have been placed on deposit for the possible benefit of the plaintiff's customers and that the deposit receipt has been placed for "administration" in the hands of the plaintiff's solicitors. I do not think the advertisements can be read in that way. It seems to me that they quite clearly set out that the funds are on deposit up to a certain date and there is no indication at all that they will not be withdrawn at that time. While there is reference in one of the advertisements to the deposit receipt being placed with solicitors that in itself I do not think goes nearly far enough to show that the funds have become a trust and that the solicitors have been appointed as trustees. All I think the advertisments indicate is that the plaintiff is in control of very substantial cash resources, and that customers then can, therefore, have confidence in dealing with them. When the deposit was made the defendants were instructed that on maturity the funds were to be paid into the plaintiff's account. There was certainly no intention at that time to create a trust.

7. The second requirement is that the beneficiaries of the trust must either be known or can be easily ascertained. Here the only possible persons who could be regarded as beneficiaries would be those persons who, at any given time, were customers of the plaintiff who had entered into arrangements with them for tours. I regard that being far too indefinite a class of persons to satisfy this requirement.

8. The third requirement, which is satisfied, is that the trust property is also definite and is property which can be subject to a trust.

9. There will, therefore, be declarations as sought that (a) the principal in the sum of US$1,281,394.15 or its Hong Kong currency equivalent, plus interest thereon consisting of a time deposit account number HK27505677 swap deposit number 0002 placed by the plaintiff with the defendant's Central District Branch is not, and never has been, subject to a trust of any kind and the defendant holds the same free of any encumbrance; (b) that the defendant is at liberty to pay out the principal and interest of the said deposit or any part thereof to the plaintiff when the same matures on the 24th August 1987, or on any subsequent date if the deposit is renewed.

(1)    July 11th 1986 New Law JOURNAL p. 12