RE DRAKE & MORGAN LTD

HCMP 1490 /2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1490 OF 2009

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BETWEEN

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D E C I S I O N

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1.  This is an ex parteapplication by the Applicant for an order to pay certain unclaimed cash and securities into Court under section 62 the Trustee Ordinance (Cap 29) and Order 92 of the Rules of the High Court (Cap 4A).

A. Background

2.  The Applicant was a securities brokerage company licensed with the Securities and Futures Commission (“SFC”).

3.  On 18 September 2008, the Applicant’s board resolved to cease its securities brokerage business with effect from 18 October 2008. It also sent the requisite written notification to the SFC of its said intention to cease business.

4.  On 22 September 2008, the Applicant issued a standard written notice (“the standard notice”) to all its clients to inform them of the termination of the Applicant’s securities dealing services and requested them to withdraw the cash balances and securities in their accounts with the Applicant before 17 October 2008.

5.  Most of the Applicant’s clients had given instructions to the Applicant to withdraw their cash balances and securities, and the Applicant had carried out these instructions.

6.  There are however 14 clients who have not contacted the Applicant.

7.  According to the Applicant, its staff had made various telephone attempts to contact these 14 clients based on the contact details maintained in the Applicant’s records without any success[1]. It therefore could not obtain any instructions from these clients on how to deal with their assets held by the Applicant.

8.  As a result, the Applicant continues to hold the assets of these 14 clients, which include cash in the total sum of HK$70,547.94 and securities with a total value of approximately HK$59,925.00 (collectively “the Unclaimed Assets”).

9.  Subsequent to the cessation of the Applicant’s business, it has also applied to the SFC to revoke its licence with the SFC. The revocation has not been granted as it is a condition thereof that the Applicant is required to ensure that the Unclaimed Assets are properly dealt with.

10.  Hence, the Applicant has made the present application. The SFC has indicated that it will accept depositing the Unclaimed Assets into court (if granted) as a compliance with the above condition for the revocation of the Applicant’s licence.

B. The present application

11.  Section 62(1) of the Trustee Ordinance provides:

“Trustees, or the majority of trustees, having in their hands or under their control money or securities belonging to a trust, may pay the same into court, and the same shall, subject to the rules of the court, be dealt with according to the orders of the court.”

12.  Further, unless otherwise is shown, it is a general rule that a broker is a trustee over the money and securities it holds on behalf of its clients: Re Peregrine Brokerage Ltd [2004] 1 HKLRD 856 at 860J-861C, adopting Re CA Pacific Finance Ltd [1999] 2 HKLRD 1, 7D-F, 9H-I, 12F-H, 15H-J, 18G-J, 19G-20A.

13.  Applying the above principles, I am satisfied that the Applicant holds the Unclaimed Assets as a trustee respectively for the 14 clients. There is nothing in the contractual documents (which are placed before this Court) between the Applicant and these clients to show a contrary intention.

14.  I am also satisfied with the evidence before me that the Applicant has made reasonable efforts to contact the 14 clients to deal with the Unclaimed Assets without success. Some 11 months have already lapsed since the issue of the standard notice and the Applicant has still not been able to get in touch with these clients.

15.  With the matters as they presently stand, the Applicant as a trustee cannot get a discharge in relation to the Unclaimed Assets, and cannot satisfactorily complete its procedures for the cessation of business by having its licence with the SFC properly revoked. Cf: Hong Kong Civil Procedure 2009, para 92/2/1.

16.  In the circumstances, I accept Mr Kwok’s submission that permitting the Applicant to pay the Unclaimed Assets into court under s 62 of the Trustee Ordinance is a “flexible and pragmatic” solution to the present situation. It enables the Applicant to properly cease its securities business and deal with Unclaimed Assets in a way that protects the interest of the 14 clients. Cf also: Re Celestial Finance Ltd (unrep., HCMP 657/2005, 21 June 2005, Deputy High Court Judge L Chan); Re Chekiang First Securities Co Ltd (unrep., HCMP 923/2006, 7 June 2006, Deputy High Court Judge L Chan); Re Peregrine, supra, 859F).

C. Conclusion and Orders

17.  For these reasons, I allow the Applicant’s application and make the following orders:

(1) The Applicant be allowed to pay the unclaimed cash and deposit the unclaimed securities as particularized in Schedule A attached to the Originating Summons into Court under section 62 of the Trustee Ordinance (Cap 29) and Order 92 of the Rules of the High Court (Cap 4A).

(2) The Applicant shall advertise once within the next 7 days and once on the first day of the next month in both a Chinese-language and an English-language daily newspaper a notification of this Order and of the rights of the clients referred to in Schedule A to apply for payment out of such cash and securities under Order 92 and any unclaimed cash and securities be dealt with in accordance with Rule 23 of the High Court Suitors Fund Rules (Cap 4B).

(3) There be no order as to costs of this application.

18.  I thank counsel for his assistance in this matter.