RE TAI FUNG SECURITIES LTD

HCMP 1871/2024

[2024] HKCFI 3369

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1871 OF 2024

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REASONS FOR DECISION

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A.  Introduction

1.  The applicant filed an ex parte originating summons on 27^th September 2024 (“the OS”), seeking an order, inter alia, to pay unclaimed cash and securities (“the Unclaimed Assets”)  into court and otherwise dispose of them pursuant to ss.56 and 62 of the Trustee Ordinance (Cap 29)  (“TO”)  and Order 92 of the Rules of the High Court (Cap 4A)  (“RHC”).

2.  On 15^th November 2024, the Applicant filed a Summons to amend the OS in the form of the draft Amended OS annexed thereto (“the Amendment Summons”). This sought to (1)  update the list of unclaimed assets to reflect changes in the amount of the assets held by the Applicant since the commencement of this action and (2)  make amendments based on the Applicant’s proposal for costs. The Amendment Summons was supported by the 2^nd affirmation of Guo Rui.

3.  At the beginning of the hearing, I was informed that one of the clients whose assets had been included in the OS had attended Court and had spoken to the Applicant’s legal team before the commencement of the hearing. This client’s assets are listed at Item 311 in Annex 3 to the Amended OS[1], and I will refer to the client as Client 311. As a result, the Applicant no longer wished to seek relief from the Court in respect of Client 311, and this update did not impact on the Amendment Summons.

4.  I granted leave to amend as requested in the Amendment Summons. I proceeded to hear the OS as amended (“the Amended OS”).

5.  The Amended OS is supported by the 1^st and 2^nd Affirmations of Guo Rui (“Guo 1^st” and “Guo 2^nd”)

B.  Relevant legal principles

6.  S.62(1)  of the TO provides that “Trustees, 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.”

7.  I extract a summary of the relevant principles from my earlier judgment in Re Ying Wah Securities Co Ltd [2023] HKCFI 834 at §§5-7:

“5.(a)  The Courts have often allowed finance / security companies to pay into court under s.62 of the TO unclaimed cash and deposits of its clients who could not be contacted.

(b)  This is a “flexible and pragmatic” solution, allowing an applicant to cease its securities business and deal with unclaimed assets in a way that protects the interests of its clients.

(c)  The applicant needs to show that (1)  the assets in question are held by the applicant as trustee and (2)  despite the applicant’s 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 trust assets.

See: Re Glenlyon Ltd [2018] HKCFI 1038 §§4-6;

Re ABN Amro Bank N.V. [2018] HKCFI 1559 §§12-14;

Re Gold Fund Securities Co Ltd [2020] HKCFI 2884 §§12-13;

Re Wah Thai Securities Ltd [2021] HKCFI 355 §5.

6. Further, under s 56 of the TO, the Court will make an order for disposal (such as sale), if in its opinion it is expedient to do so. For shares in delisted companies which have been compulsorily wound up, dissolved or struck off and where it is not possible for new share certificates to be issued in the name of the Registrar of the High Court, the Court may give liberty to the applicant to deal with those shares as they see fit, including forfeiture thereof: Re Wah Thai Securities Ltd §6, 7.

7.  Where a company elects to cease its business involving client assets, it bears the primary responsibility to return the assets entrusted to it by the clients. The implications of such an order both from the perspective of the affected clients and from that of the court should be taken into account: Re RHB Securities Hong Kong Ltd & anor [2021] HKCFI 1392 §§9, 18, 24.”

8.  Ms Jasmine Cheung appearing for the Applicant submitted that she was conscious that as an application of this nature is made ex parte, the Applicant is required to give full and frank disclosure.

C.  The relevant facts

9.  The Applicant was incorporated in Hong Kong on 7^th June 1994 and has since carried on business as a licensed securities broker. It is a wholly-owned subsidiary of Tencent Holdings Limited.

10.  On 25^th March 2024, the Applicant notified the Securities and Futures Commission of its intended cessation of business with effect from 31^st May 2024.

11.  As part of its efforts to cease its business, the Applicant took steps to contact its clients to return their unclaimed assets, including publishing website and newspaper announcements, sending letters, emails and SMS, making phone calls and publishing notifications on its App. These are summarised below with references to the hearing bundles of actual documents and English translations (E)  :-

Date	Steps Taken	Reference
10.4.2024	Emails sent to clients	[B/13/139] [E:B/14/178-179]
	SMS sent to clients	[B/13/141] [E:B/14/181]
	Website announcement	[B/13/110-111] [E:B/14/145-147]
	WeChat announcement	[B/13/114-115] [E:B/14/151-153]
	App notifications	[B/13/130, 134-135] [E:B/14/167, 171-173]
10-15, 29.4.2024	Letters posted to clients	[B/13/125-126] [E:B/14/160-163]
10.4.2024 to 9.8.2024	Phone calls made to clients	/
17.4.2024	SMS sent to clients	[B/13/142] [E:B/14/182]
	Website announcement	[B/13/111] [E:B/14/147-148]
	WeChat announcement	[B/13/116-118] [E:B/14/154-156]
	App notifications	[B/13/136-137] [E:B/14/174-176]
17.5.2024	Newspaper announcements in The Standard and Sing Tao Daily	[B/13/121-124] [E:B/14/159]
14.6.2024	Letters posted to clients	[B/13/127-128] [E:B/14/164-165]
	Emails sent to clients	[B/13/140] [E:B/14/180]
	SMS sent to clients	[B/13/143] [E:B/14/183]
	Website announcement	[B/13/112-113] [E:B/14/149-150]
	WeChat announcement	[B/13/119-120] [E:B/14/157-158]
	App notifications	[B/13/131-133, 138] [E:B/14/168-170; 177]
7.8.2024	Letters posted to clients	[B/13/129] [E:B/14/166]
	SMS sent to clients	[B/13/144] [E:B/14/184]
27.9.2024	The OS was issued	[A/1/1-29]
2.10.2024	The Applicant notified subject clients of the issuance of the OS and of this hearing, through a website announcement and letters.	[B/35/286] [E:B/36/287] [B/37/288] [E:B/38/289]

12.  Despite these efforts, there remains Unclaimed Assets in 255 accounts which can not be closed, as the clients (1)  can not be reached; (2)  have already passed away, and no persons have yet been appointed to administer their estates; or (3)  could be contacted but failed to give proper written instructions. The assets of these clients are the subject of the Amended OS, and the clients are referred to as “the Subject Clients”.

D.  Analysis

13.  The Applicant needs to show that (1)  the Unclaimed Assets are held by it as trustee and (2)  the Applicant has used reasonable endeavours to contact and/or obtain instructions from the beneficiaries. Both requirements are in my view satisfied.

14.  First, the Applicant holds the Unclaimed Assets as trustee:

(a)  It is well-established that unless the contrary is shown, a broker is a trustee over the money and securities it holds on behalf of its clients: Re New Japan Securities International (HK)  Ltd [2007] 3 HKLRD 54 §8.

(b)  The Applicant has confirmed that it holds various client accounts in which clients' cash and securities are deposited, which is segregated from its own cash and securities.

(c)  There are clauses in the client agreements showing that the Applicant holds cash and securities on the clients’ behalf, as extracted in Guo 1^st at §9.

(d)  There are terms in some of the client agreements which (1)  allow for securities in margin accounts to be charged to the Applicant as security, and (2)  provide that on being requested by a client to transfer securities, the Applicant is only obliged to transfer the correct amount and type of securities, as the actual securities of the client may have merged into an unidentified bulk holding held by the Applicant on behalf of its clients (as extracted in Guo 1^st at §10). However, I am satisfied the Applicant nonetheless holds these securities as trustee:-

a.  As made clear in those client agreements, all the client's rights, title and interest in and to the securities nonetheless remain the legal and unencumbered property of the client free from any trust, lien, charge, pledge or other encumbrance (save as created or required under the client agreements).

b.  Terms agreed between the parties modifying the legal owner’s obligation to keep the property concerned separate from his own or other property does not necessarily preclude the existence of a trust relationship, though the greater the extent to which the duty is disapplied, the harder it will be for the court to determine that the parties objectively intended to create a trust relationship: see Lewin on Trusts (20^th edn)  at §34-040. In the context of intangible things such as fungible shares, segregation from other fungible shares with no separate characteristics and no inherent risks is not necessary as long as one knows the quantity of the shares forming the subject matter of the trust: see Re CA Pacific Finance Ltd (in Liquidation)  & anor (No. 1) [1999] 2 HKC 632 at 648E.

c.  In any event, the Applicant has confirmed that it has always segregated its clients’ cash and securities from its own cash and securities, and that it is willing to waive any security interest it may have in respect of the unclaimed assets in these accounts, such that the Applicant does not have any security or beneficial interest in these Unclaimed Assets.

(e)  There is also unclaimed cash in the sum of HK$63,280 that has not been allocated to any client because of errors made by the Applicant’s former management. Although the client is unidentified, this is nevertheless remains a trust asset: see Ying Wah Securitiesat §17(c)  and the authority there cited.

15.  Secondly, I consider that the Applicant has made reasonable efforts to contact the Subject Clients, as set out at §11 above and in greater detail in the Appendix to Guo 1^st.

16.  Despite this:-

a.  Most of the Subject Clients have not responded to the Applicant’s requests. It seems unlikely that these clients have any intention, or are likely, to retrieve their assets, whether now or in the future.

b.  Some clients informally informed the Applicant that they did not wish to have the Unclaimed Assets back, but failed to provide proper written instructions or fill in renunciation of stock forms sent by the Applicant for them to complete. In the absence of an express written authorization from these clients, the Applicant understandably does not consider that it has sufficient power to act without an order under s.56.

c.  Some clients have passed away, but no express written authorization has been provided by the persons authorised to administer their estates. Apart from client Ho Cheuk Hung (to be addressed below), it is unlikely that these estates will come forward any time soon to retrieve the Unclaimed Assets.

17.  In respect of Ho Cheuk Hung, who holds Items 216-232 of Annex 2 to the OS and Items 307-309 of Annex 3 to the OS with a total value of nearly HK$220,000:-

a.  A relative of Ho informed the Applicant that Ho had, by 11 April 2024, passed away and probate proceedings (HCAG017213/2024)  were commenced shortly before 7 August 2024.

b.  The Applicant sent a follow-up letter on 10^th September 2024 seeking an update as to the status of the probate proceedings, and making clear that the personal representative may need to incur time and costs to apply for payment out of court at a later juncture. No response was received.

c.  The Applicant sent a letter dated 2^nd October 2024 to all Subject Clients to notify them of the OS and the time, date and venue of this hearing, and the fact that clients may need to spend time and costs applying for payment out once their unclaimed assets are paid into Court. No response been received from anyone on behalf of Ho’s estate.

d.  I consider it appropriate to order payment in of Ho’s securities despite the possibility of a payment out application for the reasons below:-

i.  At present, no effective instructions can be given on Ho’s behalf.

ii.  As the unclaimed securities will remain with the Court for at least 5 years (see High Court Suitors’ Funds Rules (Cap. 4B)  r.23), an application can be made for payment out if and when proper authorisations have been obtained.

iii.  The Applicant has made reasonable efforts to contact Ho and/or his estate.

18.  Ms Cheung drew my attention to Re RHB Securities at §26, where the Court considered that the one-year timeframe within which the applicants attempted to wrap up their businesses was “a little too ambitious”, and more time should be given to the clients to withdraw their assets. Ms Cheung submitted, and I am satisfied, that the timeframe in this case (approx. 7 months)  is not unduly short. The facts in Re RHB Securities were very different, as in that case (inter alia)  some clients appeared interested in recovering their assets but had been hampered in their efforts by travel restrictions imposed during the pandemic. This is not the case here, as most of the Subject Clients have proven not contactable, and the contactable ones have not taken steps to recover their assets.  Further, after the OS was issued, none of the Subject Clients other than Client 311 has come forward to withdraw their assets.

19.  I have been provided with a draft order in substantially the same terms as the order sought in the Amended OS.

20.  I note that the draft order contains a recital to the effect that the Court is satisfied that the orders sought under s.56 of the TO are necessary and expedient, in line with the guidance in §85/2/4 of Hong Kong Civil Procedure 2025.

21.  As to the costs order, I note:

a.  The Applicant’s bill of costs showed costs incurred of almost HK$600,000 with respect to the making of this application.

b.  The Applicant seeks to recover the costs of the making of this application from the unclaimed cash assets.

c.  As the unclaimed cash assets amount to only HK$106,370.25, the Applicant only sought an order to recover HK$106,370.25 in respect of costs.

22.  Ms Cheung has orally submitted that there is a need to tweak the draft order to (a)  remove an erroneous duplication of some entries at page 9 of the draft; and (b)  to remove reference to Client 311.

23.  Accordingly, I made an order in the terms of the draft provided, subject to those further amendments.

24.  I thank Ms Cheung for her assistance.