RE PUBLIC SECURITIES LTD

HCMP 601/2024

[2024] HKCFI 1526

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 601 OF 2024

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R E A S O N S   F O R   D E C I S I O N

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1.  By an ex parte originating summons of 11^th April 2024, the Applicant applied under ss.56 and 62 of the Trustee Ordinance (Cap.29) (“the Ordinance”) for an order, inter alia, to pay various sums, deposit various share certificates, and pay in proceeds of sale of various securities into court, being unclaimed assets held by the Applicant on trust for certain of its clients in their accounts with the Applicant (“the Unclaimed Assets”). I granted the application at the hearing and now set out my reasons for doing so.

2.  The Applicant was licensed to conduct regulated activities (type 1 – dealing in securities) under the Securities and Futures Ordinance (Cap.571).

3.  The Applicant originally intended to cease business on 1^st November 2023. It gave written notice of this on or about 31^st August 2023 to all of its account holders and requested them to deal with their assets and accounts. Further notices were issued on or about 20^th September 2023 and 16^th October 2023 to those clients who had yet to withdraw their assets, via their last known email addresses and last known correspondence addresses, asking them to contact the Applicant to deal with unclaimed assets, and notifying them that the Applicant might eventually apply to deposit such assets into court, in which case the clients would incur additional time and costs to recover them.

4.  By 1^st November 2023, there were still clients who had not claimed, withdrawn or transferred their assets out of their accounts, and the Applicant decided to postpone the date of cessation of business to 31^st December 2023. A fourth notice was issued on 8^th December 2023 to clients who had not claimed their assets, via their last known email addresses and last known correspondence addresses.

5.  The Applicant also sought to contact clients by calling them at their last known telephone numbers from October to December 2023.

6.  After these efforts, there remained a number of clients who did not claim, withdraw or transfer their assets out of their accounts. According to the Applicant’s records, these clients were located in Hong Kong, Australia, the United Kingdom, Malaysia and Singapore. The Applicant published newspaper advertisements in these locations, requesting the clients to withdraw or otherwise deal with their unclaimed assets, in February or March 2024. However, no clients contacted the Applicant as a result.

The remaining assets

7.  For assets which consisted of cash, the Applicant attempted to return the same by transferring the cash to the accounts designated by its clients. Some of these attempts were not successful. As at 28^th March 2024, there remained nine clients for which the Applicant held cash (“the Unclaimed Cash”). Most of the sums are relatively small. The largest is $58,679.43.

8.  For assets which consisted of shares, there are 109 clients from whom the Applicant has not received instructions as to how to deal with them. Enquiries of the custodian Central Clearing and Settlement System indicated that as at 8^th April 2024, physical share certificates could be withdrawn for some of these (“Unclaimed Shares with Certificates”), but not for others, where the companies concerned have been delisted and wound up (“Unclaimed Shares without Certificates”). The value of the Unclaimed Shares with Certificates in most of the client accounts is low or even negligible, although there are a few accounts which appear to be held by the same person so that the total value of the shares in such accounts may be higher, although even then, the figures are in the tens of thousands of Hong Kong dollars only. The Unclaimed Shares without Certificates are said to be of little or no value as the companies have been delisted, and many have been wound up already and the Applicant was not aware of any distribution having been made.

The relevant principles

9.  Section 62(1) of the Ordinance 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.

10.  For the court to make an order under the section, it must first be satisfied that the property which forms the subject matter of the payment-in application is trust property held by the applicant as trustee. If it is, the court then proceeds to consider whether it should exercise its discretion to allow the payment in. See Re K&R International Ltd [2021] 2 HKLRD 47 at [40].

11.  It is for an applicant under s.62 to demonstrate by proper evidence that it has taken all reasonable steps to try to identify and locate the beneficiaries, notify them of the cessation, and to take the necessary steps to return the assets to them. What is reasonable depends on the circumstances of each case, including the nature of the business, the circumstances in which the assets were received by the applicant in the first place, and the information it has in respect of the beneficiaries. See Re K&R International Ltd at [43].

12.  Section 56(1) of the Ordinance provides that

Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, expenditure, or other transaction, is in the opinion of the court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, if any, or by law, the court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, if any, as the court may think fit and may direct in what manner any money authorized to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.

13.  In the case of shares in delisted companies which have been compulsorily wound up, dissolved or struck off the register, 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 Piper Jaffrey Asia Securities Ltd (in liquidation) [2013] 2 HKLRD 835.

Application of the principles

14.  As submitted by counsel for the Applicant, the Applicant does not have the power under its agreements with its clients to dispose of the Unclaimed Assets, and therefore requires an order under s.56 of the Ordinance.

15.  I am satisfied that the Unclaimed Assets constitute trust property held by the Applicant as trustee, by virtue of (1) the terms of the agreements between the Applicant and its clients, as identified in paragraph 6 of the Affirmation of Chiu Chik Shang, a director and the Responsible Officer accredited to the Applicant, and (2) the position at common law that generally, a broker and client relationship is one of principal and agent, so that the broker holds the client’s assets on trust for the client (unless there is evidence to the contrary): Re Peregrine Brokerage Ltd [2004] 1 HKLRD 856 at [9].

16.  I am also satisfied that all reasonable efforts have been made to locate the beneficiaries, to notify them of the Applicant’s cessation of business, and to take steps to return the trust assets.

17.  In relation to the Unclaimed Cash, as the amounts are relatively small and numerous efforts have already been made to contact the clients and/or to transfer the sums to them, I accept that it would be appropriate for the amounts to be paid into court.

18.  In relation to the Unclaimed Shares with Certificates, again, the value of these shares is relatively low and numerous efforts have already been made to return the shares to the clients. I accept that it would be appropriate for the Applicant to withdraw the physical share certificates and deposit the same with the court. The Applicant’s evidence is that there may be cases in which it turns out that physical share certificates may not, after all, be obtainable, in which case it seeks leave to sell the shares and deposit the proceeds thereof into court, or in the event that the shares cannot be sold within a certain period, leave to forfeit the shares altogether. I accept that in the circumstances this would be an appropriate course of action.

19.  In relation to the Unclaimed Shares without Certificates, given the evidence that they are unlikely to be of any real value, I accept that in the circumstances it would be appropriate for leave to be given to forfeit the shares altogether.

20.  I therefore made an order giving liberty to the Applicant to deal with the Unclaimed Assets in terms of counsel’s draft as amended, which was on essentially the terms as set out in the Originating Summons, including the giving of notice of the order to be made and the rights of the Applicant’s clients to apply for payment out pursuant to RHC O.92 r.4.