GOLDIN EQUITIES LTD v. PERSONS STATED IN SCHEDULE I TO THE ORIGINATING SUMMONS FILED ON 23RD JUNE 2021

HCMP 871/2021

[2022] HKCFI 740

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 871 OF 2021

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DECISION

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Introduction

1.  This is the adjourned hearing of the applicant’s ex parte originating summons filed on 23 June 2021 seeking relief under section 62 of the Trustee Ordinance, Cap 29. 

2.  The applicant is a securities broker regulated by the Securities and Futures Commission to carry on the Type 1 regulated activity of “dealing with securities”. 

3.  On 21 July 2020, the applicant applied to the SFC to suspend its trading voluntarily.  On 24 July 2020, the applicant notified its clients of its suspension of trading.  By letter dated 6 October 2020, the SFC raised a number of concerns over the applicant’s operation.  With effect from 12 October 2020, the applicant’s Type 1 licence was suspended.  It was required to return all client assets in an orderly manner as soon as practicable. 

4.  Since July 2020, efforts have been made by the applicant to return the client assets.  Notwithstanding such efforts, some of the clients have still not come forward and retrieved them.  There are unclaimed cash of about $1,100,000 and unclaimed securities in the value of about$1,300,000 (as of 17 February 2022).  All the securities are Hong Kong listed shares.  These unclaimed assets belong to 132 clients.  The vast majority of them are mainland clients who have correspondence addresses in the PRC. 

5.  The applicant’s present application is to seek leave to pay the unclaimed assets into court pursuant to section 62 of the Trustee Ordinance so that it can be released from its responsibility over the assets, once they are paid in. 

6.  The originating summons was first listed for a 9:30 am hearing on 10 August 2021.  In light of the nature of the application and the voluminous exhibits which had been filed, I vacated that hearing and re-fixed it to 27 September 2021, with 2 hours reserved. 

7.  At that hearing, the court raised a number of queries with the applicant.  Most importantly, the evidence revealed that a number of the mainland clients had indeed indicated to the applicant that they wanted to retrieve the assets but they were not able to come to Hong Kong to handle the matter while a stringent COVID-19 quarantine requirement was in place. 

8.  It is not possible for the unclaimed cash and securities to be remitted into the mainland.  Hence, these clients would have to either have an existing account with other brokers or banks in Hong Kong to receive the assets or to open a new one here.  In the latter case, they would have to be physically in Hong Kong.  COVID-19 had made it difficult for them to do so.  As a result of these issues, this group of clients had not taken steps to withdraw their assets despite their alleged wish to do so. 

9.  I was of the view that it was pre-mature to grant the order since, if granted, it was likely that these clients would eventually come to the court to apply for payment out.  That would pose an administrative burden on the court’s resources.  It should be the applicant who should bear the responsibility to return the client assets in the first place.

10.  I therefore adjourned the matter for about five months so as to allow more time for the clients to come forward to withdraw the assets in the hope that the COVID situation would improve in the meantime.  Today’s hearing is the adjourned hearing. 

Legal principles

11.  As to the general approach the court should follow in an application under section 62, I would apply the approach which I set out in Re K&R International Ltd [2021] 2 HKLRD 47, [2021] HKCFI 561, paras 39 to 55.

Discussion

12.  I am satisfied that the applicant holds the unclaimed assets on trust for the clients.

13.  Clause 3.16 of the Cash Client Agreement provides as follows:

“Client money: Any credit balance held in the Account at any time and any money from time to time received by LTGold Online for the Client’s account shall, unless paid to the Client or on-paid for settlement purpose, be held by LTGold Online on trust for the Client and credited to a client trust account maintained with a licensed bank in accordance with applicable law and the rules of any relevant exchange or regulatory authority …” (underline added)

14.  The language used makes it plain that the applicant holds the clients’ cash on trust for them.  There does not appear to be any equivalent provision in relation to client securities. 

15.  In any event, however, as a general rule, in a broker and client relationship, the broker holds the client’s assets on trust for the client: Re Drake & Morgan Ltd HCMP 1490/2009, 27 August 2009, para 12; Re Peregrine Brokerage Ltd [2004] 1 HKLRD 856, paras 9 to 13. 

16.  Here, there is nothing in the evidence to displace the above general rule. 

17.  I am also satisfied that this is a proper case to grant the relief sought under section 62. 

18.  The evidence shows that the applicant has made continuous efforts over the past 20 months from July 2020 to notify the clients of its cessation of business and to return the client assets.  These efforts included, for each client, eight rounds of emails, five rounds of mail by post, two to three rounds of telephone calls, two rounds of WeChat or WhatsApp messages, one round of newspaper advertisements and a notice on the applicant’s website. 

19.  As a result of such efforts, the applicant has successfully returned assets to some of the clients.  In fact, over the first 12 months of the return exercise, a total of 345 clients had responded to the applicant’s notices and withdrawn their assets. 

20.  Nonetheless, there remain 132 clients whose assets remain unclaimed. 

21.  They can be divided into three groups. 

22.  First, a number of the clients could not be contacted at all.  The emails sent to them were returned “undeliverable”.  The postal mails were returned.  Telephone calls made to them were unanswered. 

23.  Second, some clients were apparently contactable via at least one of the means of communication (eg the email was not returned).  But they never responded to the applicant’s request. 

24.  Third, there is a group of clients whom the applicant has been able to contact or speak to.  Within this group, some have indicated that they would want to retrieve their assets, in some instances through an oversea account.  Some others have simply referred to the difficulty that the assets could not be remitted into the PRC but did not give any further or concrete instructions. 

25.  For the first two groups, it seems unlikely that the clients have any intention or are likely to retrieve their assets, whether now or in the future.  This is because they have been contacted numerous times via various means but still have not come forward. 

26.  As for the third group, there is a possibility that at least some of them would come to the court for payment out if their assets are paid into court now.  There are about 20 of them.  The largest individual holding among them is about $130,000.  The smallest holding is about $1,000. 

27.  At the last hearing, the application was adjourned for a few months in the hope that the COVID related quarantine might be eased and it would become feasible for this group of clients to travel to Hong Kong.  As it turned out, the COVID infection rate had in fact gone down considerably in the three or four months which followed the adjournment.  Two clients retrieved their assets from the applicant during this time.  But since January this year, the situation has severely worsened.  No one can tell how things would develop. 

28.  In the circumstances, I take into account the fact that the applicant has continuously made extensive efforts to contact the clients and cannot reasonably be expected to take any further step.  The only thing it can do is to keep waiting for the quarantine to be lifted and some more clients to come forward. 

29.  There is only a limited number of clients who may still intend to retrieve their assets when circumstances permit it. Further, given the uncertainty of when the pandemic would come under control and when the quarantine requirement would be eased or lifted, instead of further adjourning the matter, I am prepared to grant leave for the payment in for all the three categories of clients as an exceptional measure to be taken in the prevailing exceptional circumstances. 

Conclusion

30.  I make the following orders:

(1)  leave to the applicant to withdraw the originating summons as against the 28^th, 74^th, 90^th and 120^th respondents with no order as to costs;

(2)  a declaration that the unclaimed clients’ moneys and securities set out in Schedule II to the originating summons (“the Unclaimed Cash” and “the Unclaimed Securities”, respectively) are held by the applicant as trustee for the respondents as set out in Schedule I (“the respondents”);

(3)  an order that the applicant do pay into court the Unclaimed Cash and Unclaimed Securities; in the latter case, by depositing the physical share certificates with the court;

(4)  an order that notification of this order and the rights of the respondents, being clients of the applicant, to apply for payment out of their respective interests in the Unclaimed Cash and Unclaimed Securities under Order 92 of the Rules of the High Court be given by way of advertisements in a Chinese-language and an English-language daily newspaper in Hong Kong, and a daily newspaper in the mainland China within 30 days from the date of the order, and by way of letters to the respondents at their last known addresses;

(5)  a declaration that, upon compliance with paragraph (4) above, Order 92, rule 4 of the Rules of the High Court is deemed to have been complied with by the applicant; and

(6)  there be no order as to costs of this application.