THE JOINT AND SEVERAL LIQUIDATORS OF TISCO SECURITIES HONG KONG LTD v. THE OFFICIAL TRUSTEE

HCMP 2001/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2001 OF 2013

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D E C I S I O N

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1. I have before me an application by the joint and several liquidators of Tisco Securities Hong Kong Limited (“the company”). The company was placed in members’ voluntary liquidation in 2008. The company had previously conducted activities, including stockbroking, and at the time that it was placed in voluntary liquidation, it had received cash from clients which it either retained or which had been used to purchase securities on their behalf.

2. The liquidators have issued three originating summonses seeking orders regulating how assets held by the company should be dealt with.  One of the three applications has not had to be addressed.  That is HCMP 2003 of 2013 and that I simply adjourn sine die. 

3. The other two applications are as follows.  The first, HCMP 2001 of 2013, seeks an order that all cash and securities identified by the liquidators as trust assets held on behalf of clients of the company who can be identified but not now contacted be declared to be assets held on trust and that such assets are, pursuant to section 67 and section 68 of the Trustee Ordinance, paid into court.  

4. HCMP 2002 of 2013 applies to assets identified by the applicant as trust assets held on behalf of clients of the company who cannot now be identified at all.  An order is sought, declaring that such assets are to be held on trust and allowing the liquidators to pay the assets pursuant to section 62 of the Trustee Ordinance into court.

5. The reason why applications are made under different sections is, I understand, as follows.  The Official Trustee takes the view that he should only be required to administer trust assets, and therefore sections 67 and 68 are applicable, if the beneficiaries of the assets are identifiable.

6. The applicable principles governing the position of assets of a securities company held by it on behalf of its former clients has been determined in Re Peregrine Futures Hong Kong Limited [1]:

“It is clear at common law and as recognized in Hong Kong that generally, if not invariably, a client and broker relationship is one of principal and agent. Thus any cash or shares held by the broker are held on trust for the client. Further since it is the client who pays for the securities, there is a natural presumption that the client is the beneficial owner thereof…The nature of the client’s proprietary interests are in the form of separate trusts in favour of each client individually rather than in the nature of tenancy in common in a pool of securities.”

7. In Re CA Pacific Finance Limited (In Liquidation) & Another (No. 1) [1999] 2 HKC 632, the court held that where the intention of a client and his broker is that his client’s property is entrusted to the broker for any special purpose, such as the acquisition of certain securities, that property belongs to the client and is regarded as covered by a trust.

8. In Re Nava SC Securities Limited & Others HCMP 1038, 1039 and 1040 of 2008, Barma J held that assets that were purchased for unidentifiable clients should be regarded as trust assets notwithstanding the inability to identify the beneficiary of the trust.   

9. It therefore follows that the assets in respect to which the current applications are made are correctly characterised as trust assets, and I therefore make an order including the declaration sought by the liquidators.

10. I am also satisfied that it is appropriate to grant orders in the terms of the drafts provided to the court and that this involves making an order under section 62 of the Trustee Ordinance in respect of those assets held on behalf of clients of the company who cannot now be identified pursuant to section 62 of the Trustee Ordinance.

11. I have been told by Mr Li of the Official Trustee that in practice, this will not make any difference to the ultimate position if the relevant clients do not come forward as the relevant regulations provide that both in respect to assets paid into court pursuant to section 67 and section 62 after five years if they are unclaimed, they will be paid into the general revenue.  It would appear from paragraph 22 of Barma J’s judgment in Re Nava SC Securities Limited that he was told something similar.

12. I therefore make orders in terms of the drafts that have been provided to the court.