RE THE JOINT AND SEVERAL LIQUIDATORS OF SHANGHAI SHENYIN SECURITIES (H.K.) LTD

HCMP 405/2023

[2023] HKCFI 2132

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 405 OF 2023

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DECISION

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Introduction

1.  By ex parte Originating Summons dated 13 March 2023 (the “EP OS”), the Applicants as the Joint and Several Liquidators of Shanghai Shenyin Securities (HK)  Limited (the “Company”)  seeks an order under sections 56 and 62 of the Trustee Ordinance Cap. 29 and Order 92 of the Rules of the High Court Cap. 4A for disposal (principally by payment into court)  of certain unclaimed cash and securities of the Company’s clients (the “Unclaimed Assets”).

Background facts

2.  The Company was an asset holding and investment company.  It is part of a group of companies under Shenwan Hongyuan Group Co Ltd (the “Group Co”). The Group Co is a public company with shares listed on the Stock Exchange of Hong Kong Limited and Shenzhen Stock Exchange.

3.  On 3 January 2022, as part of a restructuring exercise, the Company was placed into member’s voluntary winding up.  On that same day, Ms Chow Tsz Nga Georgia and Mr Mat Ng (“Mr Ng”)  were appointed the Joint and Several Liquidators of the Company.

4.  Despite the winding up, the Company remains solvent, and has free assets in the liquidation account upward of HK$24 million.

5.  The EP OS when first filed was only supported by Mr Ng’s 1^st affirmation (“Ng #1”).

6.  The following paragraphs in Ng #1 are relevant, both on the substantive application and the issue of costs.  I reproduce them for ease of reference:

“8. Since our appointment, the Liquidators have taken steps to inspect the books and records of the Company and made enquiries with the Company's management and handling staff to try and ascertain the status of the Company's assets and whether the Company held any assets on trust on behalf of its clients (including the Trust Assets), and the details of such clients (i.e. the beneficial owners of the Trust Assets). There were around 400 physical boxes of materials and files that were retrieved from warehouse storage which took the Liquidators a good deal of time to review and digest.

9. From the books and records of the Company, the Liquidators have located a number of assets that are still held by the Company on trust on behalf of its client ... These assets include cash and shares in companies incorporated under the laws of Hong Kong and established in the PRC respectively …

10.  The Liquidators' investigation revealed that the Company did not maintain a proper record-keeping system, and as such the contact details of some clients are either missing from the Company's records or not up to date.  As of the date of this application, there remains, out of the Unreachable Clients, (A)  15 clients of the Company who are still out of contact despite the efforts made by the Liquidators to reach them, including sending letters to their corresponding addresses and/or making telephone calls (‘Category A Clients’)and (B) 3 other clients whose addresses and contact details are missing from the Company's record (‘Category B Clients’).  Having checked the Company's books and records and made enquiries with the Company's handling staff, the Liquidators are still unable to locate or contact the Category B Clients.”

7.  The Unclaimed Assets fall into 3 categories, in the total HK$ equivalent of 6,391,421.98:

(a)  Cash, in the total amount of HK$2,787,679.31 (“Cash”);

(b)  Unclaimed securities which can be paid and deposited into Court, assessed to be in the total value of HK$ equivalent 3,603,592.67 (“Depositable Securities”); and

(c)  Unclaimed securities which cannot be paid or deposited into Court, assessed to be in the total value of HK$150 (“Undepositable Securities”).

8.  Amongst the 18 Unreachable Clients, one of them is by the name of Hung Fai.  He is a Category B Client.  That means that his address and contact details have been missing.  The assets under his name (cash of HK$2,481,302.92 and 1,480,000 shares in Sichuan Expressway Company Limited valued at HK$3,478,000)  account for respectively 89% of the Cash and 96.5% of the Depositable Securities, and in total 92.3% of the Unclaimed Assets.

9.  In the EP OS, the applicants seek not only the substantive order of payment in, but also an order that:

“The Applicants be authorised to charge and deduct from the Trust Assets (including proceeds of sale of shares)  the costs, fees and expenses incurred in relation to dealing with the Trust Assets making this application and giving effect to the Order, such costs, fees and expenses including:

(l)  the relevant proportion of the Applicants' fees and expenses in relation to the handling of the Trust Assets;

(2)  the administrative expenses and transaction costs incurred in dealing with the cash and shares attributable to the Unreachable Clients, being costs, fees and disbursements incurred by the Applicants arising from or in connection with this application and giving effect to the Order; and

(3)  costs of the Solicitors for the Liquidators.”

10.  In Ng #1, no particulars of the Liquidators’ fees have been provided. Nor those of the solicitors.

11.  On 17 March 2023, this Court raised requisitions concerning particulars of Hung Fai’s account, the Applicant’s efforts in locating him, and why in any event all the costs and expenses incurred and to be incurred should be deducted from the Unclaimed Assets.

12.  By letter of 31 May 2023, Messrs Tanner De Witt provided certain answers towards the requisitions. 

13.  Having read those answers, this Court on 1 June 2023 directed that the matter be listed for hearing.

14.  On 7 August 2023, Mr Ng filed his second affirmation (“Ng #2”). §17 thereof concerns the Liquidators’ costs and expenses, that:

“As stated in Ng #1, the Liquidators seek to apply the Trust Assets to settle their fees and their solicitors’ fees in dealing with the Trust Assets. For this purpose, a summary of the Liquidators’ costs to date is at page 017 of “NM-1” [sic. “NM-2”]. The Liquidators estimate that the charges for future work, including to give effect to the terms of the Order sought in this application will be in the amount of HK$300,000.”

15.  Page 017 of “NM-2” is a table (the “Table”)  entitled:

“Shanghai Shenyin Securities (H.K.)  Limited (In Members’ Voluntary Liquidation)

Summary of Work undertaken by the Liquidator for the period from 3 January 2022 to 7 August 2023”

16.  The total fees and disbursements set out in the Table is HK$1,186,636.76, made up of, inter alia:

(a)  “Correspondence with the holding company of the Company in relation to further background and events leading to the current holding of the Unclaimed Assets by the Company, preparation of a summary and arrangement for storage arrangement on historical documents of the Company”, in the total amount of HK$111,238.60;

(b)  “Reviewing the historical documentation of the Company to locate correspondence detail relating to the holders of trust assets” in the total amount of HK$473,251.10;

(c)  “Communication and correspondence with holders of trust assets, e.g. day 1, chaser and mailing registry etc.”, in the total amount of HK$136,844.30; and

(d)  “Preparation for an application to the High Court of HKSAR in respect of the dealing of the unclaimed assets pursuant to the Trustee Ordinance, preparing and reviewing the application, and Liaison with solicitors (TDW)  for the application”, in the total amount of HK$312,749.50.

17.  On 9 August 2023, Ms Connie Lee, counsel for the Applicants, lodged her written submissions.  The Statement of Costs of Tanner De Witt is attached. The total amount of the costs claimed is HK$761,985.00.

18.  So for the present application, the Applicants seek costs and expenses upward of HK$1.8 million (and that is before the further costs and expenses anticipated to be incurred in the region of HK$300,000), and request them to be deducted from the Unclaimed Assets before payment in.

The substantive application

19.  In general, what have to be established for an application of the present nature are (1) the assets in question are held by the applicants 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.

20.  I have considered the client agreements produced by Mr Ng.  It is clear that the Company has been holding the Unclaimed Assets as trustee.

21.  The first element is established.

22.  I have also considered the steps taken by the applicants in their attempt to contact the Unreachable Clients – issue of letters, making of phone calls, and advertisements on 2 days in 2 newspapers, one Chinese and one English.  In the case of Hung Fai, property transaction search, directorship search and litigation search have also been conducted.

23.  I am satisfied that the second element has also been established.

24.  I am prepared to order the payment in (with the related and consequential steps)  sought.

25.  What is however more concerning is the question of costs and deductions.

Costs and deductions

26.  As Ng has himself stated in Ng #1, and I repeat, “[t]he Liquidators' investigation revealed that the Company did not maintain a proper recordkeeping system, and as such the contact details of some clients are either missing from the Company's records or not up to date.”

27.  The duty to maintain a proper recordkeeping system is part of those of the Company as a trustee.  On the evidence, it is its failure to discharge that duties which contributes materially (at least)  towards the present problem which the Company now faces.

28.  In her written submissions, Ms Lee draws a distinction between the Category A and Category B Clients, and highlights the facts that there are only 3 clients which fall into the latter.  But even in respect of Category A Clients, as Ms Lee has fairly pointed out, some of the letters sent to them had been returned, and some of the phone calls simply could not get through.  

29.  There is further this problem.  As summarized above, assets under Hung Fai’s name account for 92.3% of the Unclaimed Assets.  Allowing the Applicants to deduct from the Unclaimed Assets their fees and expenses, including those of their solicitors, is in effecting ordering Hung Fai to bear those expenses individually.  That is fundamentally unfair to him.

30.  Ms Lee relies on §92/2/3 of the Hong Kong Civil Procedure 2023 for the proposition that the applicant trustee is generally entitled to its costs of the application.

31.  That might be the general position.  The particular facts of the present application however have to be considered when considering the application of that general position.

32.  Ms Lee further relies on the discretionary power on the part of this Court to make what is known as a Berkeley Applegate order.

33.  As explained by Yuen JA in Re C.A. Pacific Finance Limited (in Liquidation), HCCW36/1998 (28 August 2012)  at §16:

“In Re Berkeley Applegate Ltd (No.2) [1989] 1 Ch 32, it was held that where a person (ie a client)  seeks to enforce a claim to an equitable interest in property (ie the trust assets), the court may order, as a condition for giving effect to that equitable interest, that an allowance be made for skill and labour expended and costs incurred in connection with the administration of the property.”

34.  That power is discretionary.  As observed by Edward Nugee QC in Berkeley Applegate (No.2) [1989] 1 Ch 32 at 50H-51B:

“The authorities establish, in my judgment, a general principle that where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that, if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest (as in In re Marine Mansions Co., L.R. 4 Eq. 601 and similar cases)  or by a receiver appointed by the court whose fees would have been borne by the trust property (as in Scott v. Nesbitt, 14 Ves. Jun. 438); and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity (as in Phipps v. Boardman [1964] 1 W.L.R. 993). In my judgment this is a case in which the jurisdiction can properly be exercised.”

35.  Even assuming the applicability in this case of the rationale behind a Berkeley Applegate order, which I leave open, the facts of the present case are different from those in Berkeley Applegate (No.2).  In the present case, had the records been better kept, there might not have been any Unreachable Clients, and the costs and expenses incurred on tracing them might not have become necessary.  The costs and expenses might not need to have been incurred at all.  And viewed from that perspective, the tracing work might not be regarded to have been of any benefit to the trust property.

36.  The proposed Berkeley Applegate basis to order deduction all costs and expenses off the Unclaimed Assets also cannot address the fundamental injustice of requiring Hung Fai to in effect foot the bills single-handedly.

37.  On the facts of the present case, the costs and expenses incurred by the Liquidator in tracing the Unreachable Clients are principally occasioned by the previous conduct of the Company.  They should not be laden on the Unclaimed Assets.

38.  In the circumstances, and on the facts of his case, I decline to order any deduction of those costs off the Unclaimed Assets as sought.  I refuse part of §2 of the draft order.

39.  On the legal costs involved, similar considerations as outlined above applied.  On the facts of this case, I make no order as to costs.

Disposition

40.  I make an order in terms of §§1, 3, 4, 5 and 7 as amended.  I make no order as to costs.