RE RBC INVESTOR SERVICES TRUST HONG KONG LTD

HCMP 2740/2017

[2018] HKCFI 890

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2740 OF 2017

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R E A S O N S   F O R   D E C I S I O N

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1.  This was an ex parte originating summons issued by RBC Investor Services Trust Hong Kong Limited (“the applicant”) pursuant to sections 62 and 104 of the Trustee Ordinance, Cap 29 (“the Ordinance”) for (1) a declaration that the shares (and their accrued dividends) as well as the cash balances (and their accrued interest) which are the subject matterof this application (“the unclaimed assets”) specified in schedules 1 and 2 to the originating summons are held by it as trustee for the beneficial owners of the same; and (2) an order that the unclaimed assets be paid into court.

2.  At the conclusion of the adjourned hearing, an order for payment in was made.  In view of the lack of case law and commentary on section 104 of the Ordinance, it is appropriate that for reasons be given for the Decision.

Background

3.  The applicant which was originally an affiliate of the Bank ofButterfield, a Bermudian domiciled bank (“Butterfields”) was incorporated in Hong Kong on 15 September 1987 under the name “N T Butterfield Trustee (Bermuda) Limited and, subsequently, changed its name to “Butterfield Trust (Hong Kong) Limited” in 1995.

4.  The applicant’s business is in the provision of services for various types of investment funds including acting as (1) trustee (responsible for both the custody of assets of funds and payment out as requested by managers of funds); (2) custodian (responsible for the safekeeping of shares and cash of the funds); (3) transfer agent and/or registrar (responsible for maintaining record of ownership of securities and registering the transfer of securities of the funds); and (4) paying agent (responsible for paying commissions to the distributors as required by the fund managers).

5.  Butterfields underwent a corporate reorganization in 2002 when an 80% equitable interest in the applicant was sold to the Dexia Group (“Dexia”).  As a result, the name of the applicant was changed to Dexia Trust Services Hong Kong Limited” in June 2002.

6.  In 2006 the Royal Bank of Canada (“RBC”) entered into a joint venture with Dexia and acquired 50% of Dexia’s interest in the applicant as a result of which the applicant changed its name to “RBC Dexia Trust Services Hong Kong Limited”.  Six years later, in 2012, RBC acquired Dexia’s 40% interest in the applicant and on 27 July 2012 the applicant changed its name to its current name “RBC Investor Services Trust Hong Kong Limited”.

This application

7.  The application first came before this court on 21 February 2018 but was adjourned part heard for a supplemental affidavit and further submissions to be filed on certain matters that arose at the first hearing.

8.  While numerous authorities had been cited in support of the application under section 62 of the Ordinance, nearly all of them involved liquidations or cessation of business (which is not present case).  Orders for payment were made in those cases to enable the relevant liquidation/cessation of business to proceed.  The remaining authorities provided no assistance.

9.  Further, while reliance was also placed on section 104, there would not appear to be any authority in relation to that section, the provenance of which remains unclear.  As the application was made ex parte, the court requested that supplemental submissions on this aspect be filed.

10.  The application is now supported by two affidavits of Poon Lon Hin Ronnie respectively dated 21 December 2017 and 16 April 2018 and their respective exhibits.

Unclaimed assets

11.  The genesis of the unclaimed assets is as follows.

12.  As a result of the 2002 corporate reorganisation, a new IT system (“the new IT system”) was put in place of the previous system used by Butterfields (“the old IT system”).  It was subsequently discovered that not all data stored in the old IT system had been transferred to the new IT system but by then the applicant no longer had access to the old IT system.  In addition, changes in personnel and relocations of documents as a result of the various transitions over the years resulted in many old documents becoming lost.

13.  As part of the 2002 corporate reorganization, Butterfields transferred certain assets to the applicant that would appear to represent assets then held on trust by Butterfields in respect of unknown beneficial owners.  Those assets relate to client accounts shown in a Butterfields document in the form of an Excel file.  However, as the entries were no more than one line descriptions of account entries for Butterfields’ customers listed in that file without explanation or references to underlyingdocumentation, it proved impossible for the beneficial ownership of the assets belonging to those accounts to be identified.

14.  From the time the unclaimed account ledger was transferred to the applicant until April 2016, it has been updated by the applicant who made entries to that ledger in respect of additional unclaimed assets identified in the new IT system.  Then in April 2016, the applicant manually migrated information to its transaction life-cycle management system (the “TLM system”) for centralising account reconciliation.

(i)   Unclaimed shares

15.  The shares portion of the unclaimed assets (“the unclaimed shares”) comprise the following:

Shares

No	Share name	No of units	The region in which the company is incorporated or listed	Listed/ delisted/ private
1.	Chinese Estates Holdings Ltd.	240	Hong Kong	Listed (Hong Kong)
2.	Dynamic Holdings Ltd.	3,369	Hong Kong	Listed
3.	HSBC Holdings PLC	9,794	Hong Kong	Listed (Hong Kong)
4.	Tomson Group Ltd.	5,250	Hong Kong	Listed (Hong Kong)
5.	Nova Communications Ltd.	1,000,000	Hong Kong	Private
6.	Skyfame Realty (Holdings) Ltd.	532	Bermuda	Listed (in Hong Kong)

16.  The companies named under items 1 to 4 and 6 of the table are listed companies and thus their share prices can be ascertained but that named in item 5 (“Nova Communications”) is a private company that was incorporated in Hong Kong on 30 November 1984.  According to the latest annual return dated 30 November 2017, the 1 million shares held by the applicant are non-voting ordinary A shares and it is the only registered shareholder of that class of shares.

17.  As regards the shares relating to the companies named in items 1 to 4 of the table, the applicant has no information concerning the origin of those shares, their beneficial ownership, or contact details of the managers/owners of the same.  As to the date when they became unclaimed, according to the applicant’s staff (some of whom have been employed by the applicant since it was operated by Butterfields), they were already unclaimed when Butterfields transferred its 80% interest in the applicant to Dexia in 2002 and in fact have been on the unclaimed account ledger since prior to that time.

18.  Further, records of the market data feed system (which identifiesthe name of the securities, the International Securities Identification number,domicile and type of securities) available since the first hearing show that, apart from the Chinese Estate Holdings Limited shares (item 1 of the table), the relevant data was created prior to RBC first acquiring a 20% interest in the applicant in 2006.  Dividends have been unclaimed since 2003 when they were recorded as being unclaimed under the cash balances in the Hong Kong unclaimed HKD account.  As regards the Chinese Estate shares, the entry was created prior to RBC obtaining a majority interest in the applicant in 2012.

19.  The shares in Skyfame Realty (Holdings) Limited, item 6 of the table, (“the Skyframe shares”) are subject to a trust deed dated 20 February 2001 between Interhero (Holdings) Company Limited as settlor (“the Interhero settlor”) and the applicant as trustee.  Skyframe was then knownas Renren Holdings Ltd.  Under the terms of the trust deed, when the trustexpired on the fifth anniversary trust deed, the remaining capital and incomereverted back to the Interhero settlor.  All attempts to contact the Interhero settlor have proved unsuccessful.   

20.  In any event, since RBC’s ownership of the applicant, it has received no claim in respect of any of the unclaimed shares.

21.  As at the date of the first hearing, the value of the shares listedin the table excluding Nova Communications (which is a private company) is of the order of HK$850,000.

(ii)   Cash balances

22.  They are made up of 8 items shown in the table below:

Cash balances

No	Internal Account/Reference No	Currency	Amount
1.	71690015368 (HK UNCLAIMED GBP) (GBP Account)	Great Britain Pounds	547.84
2.	71690015074 (HK UNCLAIMED HKD) (HKD Account 1)	Hong Kong Dollar (HKD)	1,375,726.78
3.	71690015846 (HK UNCLAIMED JPY) (JPY Account)	Japanese Yen	847.00
4.	71690015274 (HK UNCLAIMED SGD) (SGD Account)	Singapore Dollar	178.27
5.	71690015769 (USD Account)	US Dollar	347,242.20
6.	71690015351 (HK UNCLAIMED EUR) (Euro Account)	Euro	25.08
7.	71690015116 (HK UNCLAIMED HKD_SCB) (HKD Account 2)	HKD	22,434.30
8.	91679490076 (RBC IS TST SERV.HK LTD-COL.ACC) (HK Collection Account)	HKD	22,441.84

23.  Their aggregate value is of the order of HK$4 million.

24.  Having perused the supporting exhibits against the backdrop of the nature of the applicant’s business and the services it provides, I accept that the reasons for the 8 items becoming unclaimed. The periods from which each became so may be summarised as follows:

(a)   HK Unclaimed GBP:
mainly commission rebate unclaimed since 2004 to 2005 and the interest accrued thereon.

(b)   HK Unclaimed HKD:
mainly remaining funds of terminated trusts, unpresented cheques to beneficiaries or recorded as unclaimed in or before 2003 and the dividends on the unclaimed shares since then.

(c)   HK Unclaimed JPY:
a transfer from the Bank of Tokyo Mitsubishi recorded as unclaimed in 2002.

(d)   HK Unclaimed SGD:
mainly sales proceeds, terminated client balance and dividendrecorded as unclaimed since 2000 and interest accrued thereon. 

(e)   USD Account:
mainly unclaimed funds transferred in and recorded as unclaimed in 2003 and 2004 for unpresented cheques for beneficiaries and remaining funds for terminated trust funds.

(f)   HK Unclaimed Euro:
a re-issued cheque payable to Lux Ho recorded as unclaimed since 2008.

(g)   HK Unclaimed HKD_SCB:
7 unpresented cheques to beneficiaries recorded as unclaimed in 2008.

(h)   RBC IS TST Serv.HK Ltd-Col ACC:
mainly the balance of funds from the rebate payment from Fidelity Cathay of HK$1,070,119.08 recorded as unclaimed in 2003.

(iii)   Conclusion

25.  On the basis of the evidence before the court, I have no doubt that the unclaimed assets (comprising both unclaimed shares and cash balances) are held by the applicant as trustee.

Sections 62 and 104

26.  In the present case, the key provision is section 104 rather than section 62 that had been the focus of submissions at the first hearing.

27.  Section 104 falls under the title “Trust Companies” in Part VIII of the Ordinance. Since the last hearing, the applicant’s solicitors have researched into its legislative history which is set out in Mr Poon’s 2^nd affidavit.

28.  In summary, it was first enacted as section 105 of the 1934 version of the Ordinance.  The Legislative Council minutes of the meeting held on 12 July 1934 show (at pp 67 and 70) that it was moved by the Attorney General to “bring up to date the law of the Colony relating to trustees on lines of the Trustee Act, 1925” and “Part VIII which authorizesand regulates Trust Companies is derived from Straits Settlement Ordinance No 31 of 1926”.

29.  The Straits Settlement comprised Penang, Singapore, Malacca and Labuan until its dissolution in 1946.  The provision upon which section 104 is modelled is section 35 of the Straits Trust Companies Ordinance which can be found in The Law of the Straits Settlements (Edition of 1936), Vol IV, Chapter 154.  It contains the same wording as section 104.  No explanation for the enactment of the section relating to unclaimed money paid into court can be found when the Straits Settlement Ordinance was first introduced in 1926.

30.  While Singapore has a provision similar to section 104 (see section 60 of the Singapore’s Trust Companies Act, Cap 336 (“the TCA”) there is nothing that sheds light on the legislative intent.  No reported cases can be found whether on section 104 of the Ordinance or its equivalent in Singapore.

31.  The wording of section 104 is mandatory.  It imposes a duty on trust companies to make payment into court and in accordance with section 62 once the trust assets have been unclaimed by the beneficiaries for 6 years although it need not do so more often than once a year.

32.  In Singapore, a failure to comply with a similar provision (section 60 of the TCA) gave rise to regulatory actions.  In a self-reported breach, DBS Trustee Ltd was reprimanded by the Monetary Authority of Singapore (“MAS”) for contravention of section 60 of the TCA.  It should be noted however that under section 60 of the TCA, it is the MAS that prescribes the time period or intervals for payment in and in that regard section 60 is different from the proviso in the Hong Kong legislation.

Conclusion

33.  In the present case, plainly, the applicant is entitled to an order under section 104.

34.  Section 62 of the Ordinance is the prescribed means for payment in under section 104.  As regards the order to be made, the applicant may find the annotation at D1/23/2 of HKCP 2018 informative. The applicant is also entitled to its costs (which were summarily assessed at the hearing) to be paid out of the unclaimed assets before the balance is paid into court in accordance with section 62.

35.  Whether, but for section 104, an order would be made under section 62 alone does not arise. Nevertheless, in view of the submissions made, it would be appropriate to make the following observations.

36.  One of the reasons the applicant advanced for the application is that the existence of unclaimed assets in the applicant’s system “represents an unnecessary expenditure of time and resources to continue to maintain records and to ring-fence the unclaimed assets”.  Given the nature of the applicant’s business and the services it provides outlined, continuing costs to ring-fence such assets would be part of its ordinary business costs and nothing out of the ordinary.  But funds and securities lodged in the High Court are held subject to the Suitors’ Funds Rules (“the Suitors’ Funds Rules”) with the consequence that the cost of administering such assets would be defrayed out of the general revenue of Hong Kong.  The order would effectively transfer the costs burden from the applicant to the taxpayer and needs justification.

37.  In the present case, the fact that the bulk of unclaimed assets were in a sense ‘inherited’ by RBC in that those assets were already unclaimed by the time RBC acquired a majority interest in the applicant in 2012 and, as such, was not of the applicant’s own making.  While adequate due diligence in 2012 might have brought the current problems to light earlier, it is highly unlikely that it would have made any difference to the state of affairs. 

38.  Rule 23(1) of the Suitors’ Funds Rules provides that where a sum of money remains unclaimed in the court for a period of 5 years, the Chief Justice may, on application by the Registrar, order such sum to be transferred to the general revenue of Hong Kong.  Were this court to make an order under section 62, at the end of the five years, it would be open to the Registrar to apply for an order that the unclaimed assets be dealt with pursuant to rule 23.  The amount likely to be added to general revenue in that event would far exceed any administration costs. In any case little purpose would be served in continuing the status quo.