RE GLS SECURITIES LTD

DCMP 2779/2023

[2024] HKDC 401

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2779 OF 2023

-------------------------------

-------------------------------

-------------------------------

------------------------

DECISION

------------------------

INTRODUCTION

1.  This is an application by GLS Securities Limited (“Company”) by way of originating summons dated 23 June 2023 (as amended on 12 July 2023) for an order to, inter alia, pay certain unclaimed cash and securities into Court pursuant to section 62 of the Trustee Ordinance, Cap 29 and Order 92 of the Rules of the District Court, Cap 338H.

2.  The Company is a stock trading firm registered with the Securities and Futures Commission (“SFC”) as a securities dealer.

3.  On 15 February 2023, the Company’s board of directors resolved to cease its securities trading business with effect from 14 April 2023.

4.  The Company notified the SFC and the Hong Kong Exchange and Clearing Limited of its intention to cease business.

5.  The Company also applied to the SFC seeking a revocation of its licence with the SFC.

6.  The Company eventually ceased its securities trading business on 14 April 2023.

7.  Starting from February 2023, the Company made various efforts to inform its clients of its cessation of business and to request them to make arrangements for withdrawing any cash balances or securities in their accounts with the Company.

8.  Despite such efforts to return all the securities and/or funds held by the Company to its clients, some assets remain unclaimed.

9.  In order to properly complete the cessation of business, the Company makes the present application for leave to pay the unclaimed assets into Court or, if appropriate, to sell them and pay the proceeds into court or forfeit them.

LEGAL PRINCIPLES

10.  Section 62 of the Trustee Ordinance provides:

“Payment into court by trustees

(1) Trustee, or the majority of trustees, having in their hands or under their control money or securities belonging to a trust, may pay the same into court, and the same shall, subject to the rules of court, be dealt with according to the orders of the court.

(2) The receipt or certificate of the proper officer shall be a sufficient discharge to trustees for the money or securities so paid into court.”

11.  Order 92, rule 2(1) of the Rules of the District Court, Cap 338H further provides:

“Subject to paragraph (2) any trustee wishing to make a payment into court under section s.62 of the Trustee Ordinance (Cap 29.) must make and file an affidavit setting out:-

(a) A short description of the trust and of the instrument creating it or, as the case may be, of the circumstances in which the trust arose,

(b) The names of the persons interested in or entitled to the money or securities to be paid into court with their addresses so far as known to him,

(c) His submission to answer all such inquiries relating to the application of such money or securities as the Court may make or direct, and

(d) An address where he may be served with any summons or order, or notice of any proceedings, relating to the money or securities paid into court.”

12.  Unless otherwise is shown, it is a general rule that a broker is a trustee over the money and securities it holds on behalf of its clients: Re Drake & Morgan Limited, HCMP 1490/2009, 27 August 2009, unrep, §12, per DHCJ Au (as he then was).

13.  Mr Alan Au, counsel for the Applicant, helpfully referred the Court to Re Gold Fund Securities Company Limited [2020] HKCFI 2884, in which K Yeung J summarised the correct approach in applying section 62 of the Trustee Ordinance:

“12. I have been shown a number of authorities, which include Re Drake & Morgan Limited, unrep, HCMP 1490/2009, 27 August 2009, Re Glenlyon Limited [2018] HKCFI 1038, and Re ABN Bank N.V. [2018] HKCFI 1559. There have been ample precedents in which securities companies were pursuant to section 62 of the Trustee Ordinance (Cap 29) allowed to pay into court unclaimed cash and despoits of its clients who could not be contacted. That has been described as 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.

13. In general, what have to be established for an application of the present nature are (1) the assets in question are held by the applicant as trustee, and (2) despite reasonable endeavours, the beneficiaries cannot be contacted or are unresponsive, or the trustee is otherwise unable to obtain instructions as to how to deal with, dispose of or return the trust assets.” (emphasis added)

14.  Mr Au also drew my attention to Re Grand Cartel Securities Co Ltd [2022] HKCFI 743, in which DHCJ Winnie Tsui explained the various considerations that the Court should take into account when exercising its power under section 62 of the Trustee Ordinance:

“28. As between the applicant and the clients, I am satisfied that the applicant has taken reasonable steps in an attempt to return the client assets. If the applicant is allowed to pay the remaining unreturned assets into court, I do not think it can be said to be unfair to the clients. They will have to apply to court for payment out (if they wish) and may suffer inconvenience as a result. However, on the materials before me, there does not appear to be any further thing which the applicant can reasonably be expected to do in order to take the matter further. The inconvenience of the clients, if any, is perhaps something that has to be put up with in the circumstances.

29 As far as the court is concerned, it seems unlikely that those clients with insubstantial assets would come to the court to apply for payment out. They have been given numerous notices but to date have not given any instruction to retrieve the assets.

30. As regards the Specified Clients, there is perhaps a higher chance that they may apply for a payment out in the future, simply judging by the higher value of their asset holding. However, it is not known why they have so far not responded positively to the applicant’s many notifications made over the past 15 months. If any of them do come forward in the future, it is not expected that this should create an undue burden on the court’s resources.

31. In sum, in principle, it is a suitable case to grant leave to the applicant to pay the assets into court.” (emphasis added)

DISCUSSION

15.  The evidence relied upon by the Company is set out in the Affirmation of Yeung Yee Fai filed on 23 June 2023. The deponent is a Responsible Officer of the Company.

16.  The standard account opening forms that the Company entered into with its clients contained these provisions:

“3.1 You will act as my/ our agent in effecting Transactions unless you indicate (in the contract note for the relevant Transactions or otherwise) that you are acting as principal.

…

“3.4 Unless otherwise agreed, in respect of each Transaction, unless you are already holding cash or securities on my/ our behalf to settle the Transactions…

…

4.1. Any securities which are held by you for safekeeping may, at your discretion: (in the name of registrable securities) be registered in my/ our name or in the name of your nominee or be deposited in safe custody in a designated account with your bankers or with any other institution which provides facilities for the safe custody of documents…

…

5. Any cash held for me/ us, other than cash received by you in respect of Transactions and which is on-paid for settlement purposes or to me/us, shall be credited to a client trust account maintained with a licensed bank as required by applicable laws from time to time.”

17.  The above standard account opening form is applicable to all the identified clients who have unclaimed assets held by the Company save for 3 clients.

18.  For those 3 clients, one transferred her shares from another securities company a number of years ago and did not complete the above account opening form with the Company.

19.  The other 2 clients did not open a securities account with the Company but they applied for an initial public offering (“IPO”) using the Company’s IPO form, which was then collected from the Company’s office on their behalf. The shares allotted from the IPO were then deposited into a dummy account maintained by the Company in the names of these clients but without other personal information in 2007.

20.  Despite the absence of an account opening form, it is clear from the evidence that the Company is holding unclaimed assets on trust for those 3 clients.

21.  What is less straightforward is that the unclaimed assets that form part of the present application comprise unclaimed cash from unknown/ unidentified beneficiaries in the total sum of HK$9,220.

22.  The circumstances surrounding such unclaimed assets from unknown/ unidentified beneficiaries are explained in paragraph 16 of the supporting affirmation:

“The total unclaimed cash from unknown beneficiaries of HKD 9,220 were deposited in the client account exclusively used for clients and therefore all monies deposited into the client account constitute trust monies. Where the deposits were from identified clients, those deposits would be assigned to designated accounts. Where in case the deposits were form unidentified clients, they would remain the client account as unidentified trust assets.”

23.  Mr Au drew my attention to Hong Kong Civil Procedure 2023 at 92/2/1, which reads:

“Examples of ordering payment into Court under the section include failure to identify beneficiaries of the trust funds or where there are unclaimed trust assets: … Re Joint and Several Liquidators of BankAmerica Nominees (Hong Kong) Limited (in members’ voluntary liquidation) [2020] HKCFI 399 per DHCJ Le Pichon at [18]…” (emphasis added)

24.  In Re Joint and Several Liquidators of BankAmerica Nominees (Hong Kong) Limited (in members’ voluntary liquidation), supra, DHCJ Le Pichon held:

“13. On the evidence, it is clear that the assets held by BNL are not BNL’s own assets but assets held on behalf of clients who can longer be identified. Where a broker purchases an asset for a now unidentifiable client that asset is nevertheless a trust asset despite the client being unidentified: see Re Assets held on trust by Nava SC Securities, unrep, HCMP 1038, 1039 and 1040/2008, 14 October 2008 at §20”

25.  In Re Assets held on trust by Nava SC Securities, supra, Barma J (as he then was) discussed the nature of assets held for unidentified clients at pp 10-11:

19. Turning to HCMP 1039/2008, in respect of assets held for Unidentified Clients, the Official Receiver indicated that he was not prepared to accept responsibility for such assets under sections 67 and 68 of the Trustee Ordinance. At one time, it seemed that he was also questioning whether such assets should be regarded as trust assets at all, since no beneficiary could be identified.

20. I am satisfied that such assets should be regarded as trust assets notwithstanding this. The evidence of the Liquidators, based on enquiries they have made with the Companies’ former management, is that all such assets were held for clients of the Companies, and were not part of the Companies’ own (beneficially owned) assets. I do not think that the fact that the persons on whose behalves these assets were held can have lost their beneficial entitlement to them simply because the Companies are no longer able to identify them. If they were to come forward and provide evidence of their beneficial ownership of the assets in question, there would seem to be no reason why that beneficial ownership should not be recognised because of a lack of records on the part of the trustees.” (emphasis added)

26.  For the above reasons, I am satisfied that the Company holds all the unclaimed assets as a trustee on behalf of its clients within the meaning of section 62 of the Trustee Ordinance.

27.  Turning to the next question that the Court is required to consider, there is evidence showing that the Company has made continuous and multiple efforts for the period from February to June 2023 to notify its clients of its cessation of business and to request them to withdraw their assets.

28.  These steps included sending emails, making telephone calls, and the publications of notices in Chinese and English in newspapers.

29.  As a result of such efforts, the Company has successfully returned assets to a substantial number of its clients.

30.  Between 28 February 2023 and 13 April 2023, 72 clients came forward to give instructions to withdraw or deal with their cash and securities held with the Company.

31.  This demonstrates that the efforts made by the Company have been largely effective.

32.  There are 24 clients whose assets remain unclaimed. Of those 24 clients, 13 could not be reached.

33.  The remaining clients who were reached at some point did not give clear or valid instructions to the Company on how they wished to deal with the assets.

34.  Some indicted that they wished to relinquish the assets. Some passed away but their personal representatives did not provide instructions for the transfer of their securities.

35.  Some indicated that they would like to withdraw their assets but could not be contacted when the Company made further attempts to implement their instructions.

36.  There are also some clients who claimed that they already left Hong Kong and did not wish to receive the assets.

37.  All in all, I am satisfied with the evidence before the Court that the Company has taken reasonable steps in an attempt to contact and return the unclaimed assets to its clients without success.

38.  I do not see any further effort that the Company can reasonably be expected to make to take the matter further.

39.  In the circumstances and applying the legal principles set out above, I find this a suitable case to grant relief to the Company pursuant to sections 56 and 62 of the Trustee Ordinance.

CONCLUSION

40.  For the above reasons, I allow the Company’s application and make the following orders:

(1)  All cash and securities identified by the Company in Schedules A to C of the Amended Originating Summons filed on 12 July 2023 be declared unclaimed assets held on trust for the purposes of section 62 of the Trustee Ordinance (Cap 29).

(2)  The Company be allowed to pay the unclaimed cash identified in Schedule B into Court.

(3)  For the unclaimed shares/ securities identified in Schedules A and C, the Company be allowed to (a) sell or realise the shares/ securities and pay the sale proceeds into Court and (b) to the extent that selling or realising any of such shares/ securities is not feasible, dispose of or otherwise deal with any unsaleable shares as the Company sees fit, including forfeiting them.

(4)  Notification of this Order and the rights of the Company’s clients to apply for payment out, by way of advertisements in a Chinese-language newspaper and an English-language newspaper within 14 days from the date of this Order and by way of letters to each of them at their last known addresses.

(5)  A further declaration that, upon compliance with paragraphs (1) to (4) above, the Company be discharged from any obligation or claim in respect of the unclaimed assets and Order 92, rule 4 of the Rules of the District Court (notice of lodgement into court) be deemed to have been complied with by the Company.

(6)  There be no order as to costs.