RE EWARTON SECURITIES LTD

DCMP 6251/2024

[2025] HKDC 1011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 6251 OF 2024

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REASONS FOR DECISION

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Introduction

1.  I had before me an application by Ewarton Securities Limited by an ex parte originating summons issued on 5 November 2024 for reliefs under sections 56 and 62 of the Trustee Ordinance, Cap 29.

2.  After hearing submissions from Mr Ronald Pang, counsel for the applicant, I granted an order, with some amendments, in terms of the draft order Mr Pang submitted.

3.  These are the reasons for my order.

The Unclaimed Assets

4.  The applicant is a securities broker carrying on securities brokerage business in Hong Kong since 1996. It is a member of the Stock Exchange of Hong Kong Limited. It is also registered with the Securities and Futures Commission as a licensed corporation to deal with securities under Type 1 of Part I of Schedule 5 to the Securities and Future Ordinance, Cap 571.

5.  The applicant’s customers would open an account with the applicant and would deposit money into the applicant’s designated bank account. The customers dealt with securities utilizing such funds. The applicant also provided financing to its customers.

6.  The applicant purchased securities on behalf of its customers upon receiving their instructions. After the purchase, the applicant deposited the securities with the Depository Service of Hong Kong Securities Clearing Company Limited (CCAWS) and held the securities as trustees on behalf of its customers.

7.  The applicant kept its customers’ money in an account designated as “Trust Account” as required by the Securities and Futures Commission to segregate customers’ money from its own assets.

8.  On 1 July 2023, the applicant decided to cease its brokerage business in Hong Kong. Since then, efforts have been made by the applicant to inform its clients of the decision to cease business and to return the assets to them.

9.  Notwithstanding such efforts, cash of $54,225.37 and securities remain unclaimed by 70 customers (“the Unclaimed Assets”). A list of these 70 customers is annexed to the originating summons as the Client List.

10.  With respect to the Unclaimed Assets, the Schedule annexed to the originating summons divides them into 3 parts:

10.1  Part A lists the customers who have not claimed the cash (and the amount thereof) they deposited with the applicant;

10.2  Part B lists the customers who have not claimed the securities, which are still traded at the Hong Kong Stock Exchange, and the quantity and value thereof; and

10.3  Part C lists the clients who have not claimed the securities, which trading have been suspended or which have already been delisted, and the quantity thereof. This part is further updated as Exhibit NWK-8 to the 2^nd Affirmation of Ng Ka Wing dated 20 March 2025, to differentiate those securities which share certificates can still be withdrawn from the CCASS, and those which share certificates can no longer be withdrawn.

11.  The applicant asks for an order that the Unclaimed Assets be paid into court, or that it should be otherwise empowered to deal with them.

Legal principles

12.  As regards the application under sections 56 and 62 of the Trustee Ordinance, Mr Pang refers to me the approach stated in Re Wing Fat Securities Limited [2021] HKCFI 3851 (Deputy Judge Winnie Tsui; 20 December 2021); Re Tai Fung Securities Limited [2024] HKCFI 3369 (Deputy Judge R Ismail, SC; 22 November 2024); and Re Piper Jaffrey Asia Securities Ltd (in liquidation) [2013] 2 HKLRD 835. I agree that these authorities have set out the considerations the court should have when deciding an application like the one before me. I shall follow the principles set out in these authorities.

Discussion

13.  I am satisfied that the applicant holds the Unclaimed Assets on trust for its customers.

14.  When a customer opened an account with the applicant, he/she was required to sign the applicant’s cash account opening form and/or margin account opening form. In doing so, each customer was required to agree with the applicant’s standard terms and conditions appended to those forms. The language used in the forms and the standard terms and conditions makes it plain that the applicant holds the customers’ assets on trust for them. In any event, as a general rule, in a broker and client relationship, the broker holds the client’s assets on trust for the client: Re Drake & Morgan Ltd HCMP 1490/2009, 27 August 2009, para 12; Re Peregrine Brokerage Ltd [2004] 1 HKLRD 856, paras 9 to 13.

15.  Here, there is nothing in the evidence to displace the above general rule.

16.  I am satisfied that this is a proper case to grant the relief sought under sections 56 and 62.

17.  The evidence shows that the applicant has made extensive and continuous efforts from July 2023 to July 2024 to notify its customers of its cessation of business and to return the customer assets. These efforts included letters sent to the customers by post, telephone calls, and a notice put up on its website. I am satisfied that the applicant has taken all reasonable steps in an attempt to return all customers assets.

18.  Nonetheless, there remain 70 clients whose assets remain unclaimed. It seems unlikely that they will come forward to claim them at any time now or in the future. The payment into court sought by the applicant would facilitate it to wrap up the cessation of its business.

19.  I am also satisfied that the applicant has demonstrated that it has no power, as a trustee, to dispose of the Unclaimed Assets, and it is expedient for the court to confer that power on it.

20.  In the circumstances, I am of the view that leave should be granted to the applicant to pay the Unclaimed Assets into court, save and except those securities under Part C which the share certificates can no longer be withdrawn.

21.  As stated in Re Piper Jaffrey Asia Securities Ltd (in liquidation) at §§3-5, the applicant may withdraw the share certificates from CCASS, and deliver them to the Registrar.

22.  I agree with Mr Pang that, for securities under Part C in which the share certificates can no longer be withdrawn, the applicant should be empowered to dispose of them. This includes a power to forfeit them: Re Tai Fung Securities Limited at §7. These securities have either been delisted, or the companies have already been wound up. The share registrars of those companies are no longer providing any services, including the issuance of new physical certificates. I accept the applicant’s argument that these unclaimed securities now have little value on the open market. In practice, no buyer will be interested in these securities. The sale and purchase of these securities will be difficult, if at all possible. Therefore, the applicant should be given the power to simply forfeit them in case it cannot dispose of them otherwise.

Orders

23.  I made the following orders at the hearing on 13 June 2025:

(1)  The applicant do have leave to pay into court the unclaimed cash as particularised in Part A of the Schedule annexed to the Originating Summons filed on 5 November 2024;

(2)  The Applicant do have leave to deposit into court the unclaimed securities as particularised in Part B of the Schedule annexed to the Originating Summons;

(3)  The Applicant do have leave to deposit into court the unclaimed securities of suspended trading companies and delisted companies which have been marked “Yes” under the column of “Eligible for Withdrawal” as particularised in the Schedule exhibited as “NWK-8” to the 2^nd Affirmation of Ng Ka Wing filed on 20 March 2025 (“2^nd Schedule”);

(4)  The applicant do have leave to sell or otherwise dispose of (including forfeiture thereof) the unclaimed securities of suspended trading companies and delisted companies which have been marked “No” under the column of “Eligible for Withdrawal” as particularised in the 2^nd Schedule;

(5)  Notification of this order and the rights of the clients of the applicant as set out in the Client List annexed to the Originating Summons to apply for payment out of their respective unclaimed cash and/or securities, as the case may be, under Order 92 rule 5 of the Rules of the District Court (Chapter 336H) be given by way of advertisements (i) once in a Chinese-language newspaper, namely, Sing Tao Daily and (ii) once in an English-language newspaper, namely, The Standard, within 28 days from the date of the order and (iii) by way of letters to such clients at their last known address, if any;

(6)  Upon compliance with paragraphs 1 to 5 above, the Applicant be discharged from any obligations or claims in respect of the unclaimed cash and / or securities as particularized in Part A, B and C of the Schedule annexed to the Originating Summons and the Applicant do have leave to dispense with the requirements under Order 92 rule 4 of the Rules of the District Court (Chapter 336H);

(7)  Liberty to apply;

(8)  There be no order as to costs of these proceedings.