RE KWAI HUNG SECURITIES CO LTD

DCMP 2605/2021

[2022] HKDC 1038

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2605 OF 2021

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DECISION

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1.  This is the adjourned hearing of the ex parte originating summons of the applicant (“OS”).

2.  The applicant is a stock trading firm registered with the Securities and Futures Commission (“SFC”)  that would like to cease its securities trading business. It seeks relief under section 62 of the Trustee Ordinance, Cap 29, (“TO”)  and Order 92 of the Rules of the District Court, Cap 336H, (“RDC”)  for disposal of the unclaimed or abandoned assets of its clients.

Procedural history

3.  When the application first came before the court in October 2021, the application was only supported by the affirmation of Mr Donald Chan, the Responsible Officer of the applicant (“Chan I”).  Queries were raised and the hearing was adjourned for further evidence.

4.  The applicant has since filed three affirmations from Ms Iris Lee, the Settlement Officer of the applicant (“Lee I”, “Lee II” and “Lee III” respectively).  Retrospective leave is granted in terms of the summonses dated 31 August and 14 September 2022 for the applicant to file the affirmations out of time.

The application

5.  In Gold Fund Securities Company Limited [2020] HKCFI 2884 at paras 11-13, Keith Yeung J referred to a number of authorities in which securities companies had been allowed to pay into court unclaimed cash and deposits of its clients who could not be contacted pursuant to section 62 of the TO and remarked that the relief was “a flexible and pragmatic solution for securities houses to cease business and at the same time to deal with unclaimed assets in a way which protects the interests of their clients”.

6.  The learned judge generalized two requirements for this kind of applications: (a)  the assets in question must be held by the applicant as trustee (“Requirement (A)”); and (b)  despite reasonable endeavours, the beneficiaries cannot be contacted or are unresponsive, or the trustee is unable to obtain instruction as to how to deal with the trust assets (“Requirement (B)”).

7.  In this case, the applicant’s counsel (Mr Cheng)  submits that the present application covers three categories of assets (collectively “Unclaimed Assets”):

(1)  Where the clients cannot be identified and are unknown (“Category 1”).

(2)  Where known clients cannot be contacted or otherwise have failed to respond (“Category 2”).

(3)  Where known clients have passed away, but the disposal of their estate is pending probate or administration (“Category 3”).

8.  Category 1 comprises four deposits in the applicant’s bank accounts totaling HK$56,908.32: see para 6(1)  of Lee II.  The applicant does not know the identity of the payers and to whom the monies beneficially belong.

9.  Category 2 comprises the stock and cash of 6 clients with a total value of $288,314.09 as at 20 May 2022: see para 7 of Lee II.  These clients cannot be contacted or have failed to respond to the applicant.

10.  Category 3 comprises the stock and cash of 7 clients who have passed away: see para 8 of Lee II.  The applicant has been unable to dispose of these assets pending the grant of probate and administration of the estates.

11.  As to Requirement (A),

(a)  The applicant disclaims any beneficial interests in the Unclaimed Assets: see para 3(1)  of Lee II.

(b)  The applicant has placed before the court the account opening documents of all the abovementioned clients except one Fan Xuan Lun in Category 2 (“Fan”): see Exhibit LSLI-1 in Lee I.  Mr Cheng observes that these account opening documents invariably contain provisions authorizing the applicant to operate the security trading account on behalf of the client, specifying that the funds deposited by the client shall be kept in safe custody in a designated account, and that the applicant shall not make use of the client’s securities for loans or advances.

(c)  The applicant does not have the corresponding documents for Fan because Fan used a “yellow form” to take part in an initial public offering and provided no personal particulars: see para 5 of Lee II.  Be that as it may, Ms Lee has confirmed that the yellow form used by Fan should contain the same standard terms as in the yellow form exhibited to her affirmation: see para 4 of Lee III and Exhibit LSLI-5.  According to Mr Cheng, these terms clearly indicate FAN’s ownership of the stock concerned and the applicant has been treating Fan’s assets in the same way it treated other trust assets.

(d)  As for the cash in Category 1, the applicant has now confirmed that the bank accounts concerned were exclusively used by its clients to make deposits with the applicant.  All deposits from identified clients have been assigned to designated accounts leaving monies from unidentified clients in the accounts:  see para 7 of Lee III. 

12.  In the premises, I am satisfied that the Unclaimed Assets are held by the applicant as trustee. 

13.  Turning to Requirement (B), prior to the commencement of these proceedings the applicant sent out letters and notices to inform its clients of its intention to cease its securities trading business and to return their assets: see paras 8(3)  and 12 of Chan I.  At SFC’s suggestion, the applicant also published advertisements in local English and Chinese newspapers in July and August 2020 respectively to invite clients to come forward to claim their assets: see para 13 of and Exhibit CSL-4 in Chan I.  Despite the efforts, the Unclaimed Assets remain unclaimed.

14.  After the hearing in October 2021,

(a)  For Category 1, the applicant made enquiries with the relevant banks on the identity of the payers but to no avail: see paras 6(2)  and 6(3)  of Lee II.

(b)  For Category 2, the applicant visited the last known addresses and made two rounds of telephone calls to these clients (except Fan)  but to no avail: see para 7(1)  of Lee II.

(c)  For Category 3, the applicant also made two rounds of telephone inquiries.  Either there was no response or the applicant was informed that no probate/administration had been arranged/granted and that the applicant should treat the estate as abandoning the assets: see para 9 of Lee II.

15.  In light of the above, I am satisfied that the applicant has made reasonable efforts in identifying, locating and obtaining instructions to deal with the Unclaimed Assets but the relevant clients were either not contactable, unresponsive or unable to give instruction.

16.  Pursuant to Order 92, rule 2 of RDC,

(a)  The applicant has set out the names and last known addresses of the persons interested in or entitled to the Unclaimed Assets insofar as they are identifiable in para 11 of Lee III. 

(b)  Mr Cheng confirms that the address where the applicant may be served with any summons or order, or notice of any proceedings, relating to the assets paid into court remains 19/F, Tower 2, Admiralty Centre, No 18 Harcourt Road, Hong Kong: see para 7(3)  of Chan I.

17.  In the end, the applicant seeks an order in terms of the revised draft order placed before me.  According to Mr Cheng, this draft generally tracks the terms proposed in the OS save that: (a)  Schedule A to the OS has been revised to match the updated figures set out in Lee II; (b)  the cash portion of the Unclaimed Assets are now expressly dealt with under para 2; (c)  a distinction is made in the treatment of saleable and unsaleable shares in the securities portion of the Unclaimed Assets under para 3 with separate disposal methods; and (d)  the usual terms for notice and compliance with Order 92 rule 4 have been inserted.

18.  In relation to (c)  above, Mr Cheng, explains that as some of the shares in the securities portion of the Unclaimed Assets cannot be sold, the applicant is seeking leave to dispose of those shares as it sees fit:  see para 10 of Lee III.  The court has jurisdiction to make such an order under section 56(1)  of the TO.

19.  I therefore make an order in terms of the revised draft as further amended at the hearing.

20.  The applicant does not seek costs and I make no order as to costs.