RE GRAND SECURITIES CO LTD

DCMP 4203/2020

[2021] HKDC 545

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 4203 OF 2020

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JUDGMENT

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1.  I have before me an application under sections 56 and 62 of the Trustee Ordinance, Cap 29 (“TO”) for a declaration of trust and consequential directions for disposal of the trust assets and discharge of the trustee.

2.  The applicant, a securities brokerage firm, was incorporated on 20 January 1993 and was licensed by the Securities and Futures Commission (“SFC”) to deal and advise in securities.

3.  In around early 2005, the management of the applicant decided to cease the applicant’s business.  An application was made to the High Court under sections 67 and 68 of the TO in HCMP 431/2005 for disposal of the unclaimed assets including cash and shares. By an order dated 17 May 2005 (“the 2005 Order”), the applicant was authorized inter alia to sell the unclaimed shares and pay into court the unclaimed cash and the proceeds of sale of the unclaimed shares after deduction of its costs and expenses.  The order directed the funds to be paid into court to be paid into a bank account of the Official Trustee to be administered by them.

4.  I understand from the two affirmations filed in support of the present application that the applicant has taken steps in pursuance of the 2005 Order but encountered the following problems:-

(1)  Despite efforts taken, there remain 11 clients who are unresponsive and whose accounts have not been closed (“the Residual Clients”).

(2)  The applicant is unable to dispose of the delisted shares belonging to 6 of the Residual Clients as particularized in Part A of the appendix to the ex-parte originating summons (“the Delisted Shares”).

(3)  The applicant is unable to dispose of the unclaimed cash after deduction of its costs and expenses belonging to 5 of the Residual Clients as particularized in Part B of the appendix to the ex-parte originating summons (“the Remaining Unclaimed Funds”).

5.  The Delisted Shares relate to 3 companies in liquidation which had been delisted and whose shares are no longer traded in the market.  The applicant has confirmed with the respective liquidators that there are unlikely to be any surplus for distribution to the shareholders.  It is the applicant’s case that the 2005 Order does not enable it to dispose of the Delisted Shares.  The Official Trustee take the view that they are not the persons who will be ultimately in control of such assets.  The applicant therefore asks for an order that it be at liberty to deal with the shares as it sees fit including the forfeiture thereof and that it be discharged from any obligations or claims in respect of such shares thereafter.

6.  In relation to the Remaining Unclaimed Funds, the Official Trustee note that 15 years have passed since the 2005 Order and the applicant is still unable to get in touch with the remaining beneficiaries.  Given the passage of time, they doubt if any meaningful administration can be further conducted and suggest the applicant to make an application under section 62 of the TO making reference to Re Drake & Morgan Ltd, unreported, HCMP 1490/2009, 27 August 2009, and In the Matter of Gainwell Securities Company Limited [2018] HKCFI 1497.  The applicant therefore seeks leave to pay the Remaining Unclaimed Funds into court after deduction of its costs and an order that it be discharged as trustee thereafter.

7.  The applicant in Drake & Morgan was also a securities brokerage company licensed with the SFC. Following a decision to cease its business, most of its clients gave instructions to withdraw their cash balances and securities.  There remained 14 clients who were unresponsive despite efforts of the applicant in contacting them.  The applicant applied to the SFC to revoke its licence but the revocation was made conditional upon proper disposal of the unclaimed assets of its clients. 

8.  Deputy High Court Judge Au (as he then was) applied the 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” and held that the applicant was holding the unclaimed assets as a trustee.  The learned Judge accepted that permitting the applicant to pay the unclaimed assets into court is a “flexible and pragmatic” solution to the situation that would enable the applicant to properly cease its securities business and deal with the unclaimed assets in a way that would protect the interest of those 14 clients.

9.  Gainwell Securities was in the same vein.

10.  In the present case, applying the general rule mentioned in Drake & Morgan and having regard to the contractual documents placed before me, I am satisfied that the applicant is holding the Delisted Shares and the Remaining Unclaimed Funds as a trustee for the respective Residual Clients and sections 56 and 62 of the TO are engaged.  The present proceedings do not involve or relate to land and the total value of the trust falls within the jurisdictional limit of the District Court under section 37 of the District Court Ordinance, Cap 336.  It is also clear from the evidence that the applicant has made reasonable efforts to contact the Residual Clients to urge them to deal with their respective trust assets but to no avail.

11.  In the premises, I shall make an order in terms of the ex-parte originating summons.  Based on the bill of costs submitted for my reference, I summarily assess the applicant’s costs to be $30,870.