RE KVB KUNLUN ASSET MANAGEMENT (HK) LTD

HCMP 250/2023

[2023] HKCFI 907

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 250 OF 2023

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DECISION

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INTRODUCTION

1.  This is an ex parte application by the applicant (by way of ex parte Originating Summons) for an order under sections 56 and 62 of the Trustee Ordinance (Cap. 29) (“Ordinance”) to deal with unclaimed assets of its clients (the “Unclaimed Assets”) by paying the same into court.

BACKGROUND

2.  The application is supported by the affirmation of Yang Wenhuan dated 17 February 2023. Mr Yang is the Responsible Officer accredited with the applicant in these proceedings.

3.  The applicant is a limited company incorporated in Hong Kong. It is licensed to carry on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities under the licence granted by the Securities and Futures Commission pursuant to section 116 of the Securities and Futures Ordinance (Cap. 571) (the “Business”).

4.  In the course of carrying on the Business, the applicant has entered into Client Services Agreement with its clients and has been holding cash and securities of its clients in the clients’ accounts as custodian and on trust for its clients.

5.  The applicant initially intended to cease the Business on 1 September 2022. Prior to that, various efforts were made to contact the applicant’s clients and urge them to take back their assets, including calling them at their last known telephone numbers and sending written notices to their last known email addresses in August 2022. As there were clients who still had not claimed their assets in their securities accounts, the applicant postponed the intended cessation date of the Business to 31 December 2022 (the “Cessation Date”).

6.  In December 2022, further written notices were sent to the applicant’s clients at their respective last known e-mail addresses. In the said notices, the applicant requested the clients to (i) withdraw and/or collect all cash balances, securities and such other assets under the securities accounts; and/or (ii) transfer all cash balances, securities and other assets under the securities accounts to another intermediary at the clients’ own costs and expenses. It was further stated that the applicant may apply to deposit any Unclaimed Assets to a judicial trustee under sections 56 and 62 of the Ordinance. The notices also stated that the applicant’s clients may contact their account executive or call the applicant’s customer service hotline for inquiries or clarifications.

7.  Moreover, as the applicant’s records show that the outstanding clients have addresses in Australia and New Zealand, advertisements were also published in these jurisdictions in December 2022.

8.  Nevertheless, by the Cessation Date on 31 December 2022, there were still clients who have not responded to the applicant’s notices or who had not claimed their assets in their securities accounts. Despite the efforts made by the applicant, the applicant still holds sums of cash and securities (i.e. the Unclaimed Assets) for its clients.

9.  In respect of the unclaimed cash, there are 3 clients from whom the applicant has not received instructions for how to deal with their cash balances. The amount of unclaimed cash comes to a total of about HK$17,630.15.

10.  As regards unclaimed securities, there are 9 clients from whom the applicant has not received instructions for how to deal with their shares in various companies listed in Hong Kong, including (among others) shares in companies which have been delisted and are in the course of liquidation. Specifically, in relation to the shares of two of the companies which have been delisted, the applicant verily believes that they are of little or no market value and, according to inquiries made with the custodian of the applicant, it is not possible to obtain physical share certificates of these companies so as to enable the share certificates to be deposited with the court. Further, upon this court’s inquiry, Mr Lee clarified during oral submissions that, other than these two companies, there are shares in other companies which are delisted for which it might still be possible to obtain physical share certificates.

RELEVANT LAW AND PRINCIPLES

11.  Section 56 of the Ordinance stipulates as follows:

“56. Power of court to authorize dealing with trust property

(1) 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.

(2) The court may, from time to time, rescind or vary any order under this section, or may make any new or further order.

(3) An application to the court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust.”

12.  Sections 62(1) and (2) of the Ordinance further provide as follows:

“62. Payment into court by trustees

(1) 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.

(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.”

13.  Mr Ken TC Lee, for the applicant, has helpfully referred the court to a number of authorities. He submits that the relevant legal principles are well-established and may be summarized as follows (which I agree):

(1) What has to be established generally for an application of this nature are that: (a) the assets in question are held by the applicant as trustee, and (b) 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: see Re Gold Fund Securities Ltd [2020] HKCFI 2884 at para 12.

(2) Unless the otherwise is shown, a broker generally is a trustee over the money and security it holds on behalf of its clients: see Re Gainwell Securities Co Ltd [2018] HKCFI 1497 at para 4.

(3) Allowing securities companies to pay unclaimed cash and deposits into court under section 62 of the Ordinance is a “flexible and pragmatic” solution for them to cease business and deal with the unclaimed assets in a way which protects the interest of their clients: see Re K&R International Ltd [2021] 2 HKLRD 47 at paras 41-42.

(4) The court has discretion under section 56 of the Ordinance to confer on trustees any necessary power to effect any transaction (such as the sale of the trust assets) that in the opinion of the court is expedient in the management or administration of trust property: see Re Joint and Several Liquidators of Bankamerica Nominees (Hong Kong) Ltd [2020] HKCFI 399 at para 17.

(5) It is incumbent on the applicant trustee to demonstrate that it has taken all reasonable steps to try to identify and locate the beneficiaries, notify them of the cessation of business and take the necessary step to return the assets to them. What is reasonable depends on the circumstances of each case: see Re K&R International Ltd (supra) at paras 43-46, 48-54.

ANALYSIS

14.  I have set out the relevant facts above. I am satisfied that the applicant has established both requirements set out in Re Gold Fund Securities Ltd (supra) at para 12, viz. (a) the Unclaimed Assets in question are held by the applicant as trustee, and (b) despite reasonable endeavours, the applicant’s named clients (as beneficiaries) cannot be contacted or are unresponsive, or the applicant (as trustee) is otherwise unable to obtain instructions as to how to deal with, dispose of or return the trust assets.

15.  The Unclaimed Assets fall into 3 categories:

(a) cash (as set out in Part A of the Schedule to the Originating Summons);

(b) unclaimed securities (including those of delisted companies) which physical certificates might be withdrawn (as set out in Part B of the Schedule to the Originating Summons); and

(c) unclaimed securities which physical certificates could not be withdrawn (as set out in Part C of the Schedule to Originating Summons), as the listing status of those securities have been cancelled and upon inquiry with the custodian, it is impossible to obtain their physical share certificates.

16.  For category (a), the applicant seeks an order for the cash to be paid into court, and I so order.

17.  For category (b), the applicant seeks an order to withdraw the physical share certificates of these shares and deposit the same into court, and if the applicant is unable to obtain physical share certificates, an order to sell or dispose of the same and pay the proceeds into court. As clarified by Mr Lee, some of these shares concern companies which have been delisted for which their physical share certificates might still be obtained. I further note that such order presupposes that the applicant would seek to obtain the physical share certificates and it is only by way of fallback that the applicant be given leave to sell or dispose of the same if the applicant is unable to obtain the physical share certificates. Such fallback option would save the time and costs which may otherwise be incurred in an application for variation of the court order (under the “liberty to apply” provision) if such eventuality is not provided for under the court order. Accordingly, I agree to make such orders as proposed under sections 56 and 62 of the Ordinance.

18.  For category (c), I accept that they are shares of companies which are in the course of liquidation and, at least on a prima facie basis, of little or no market value. The applicant seeks leave to dispose of these shares (including forfeiture thereof), without any express provision for the eventuality of a sale. Nevertheless, as I have pointed out to Mr Lee, there is apparently no reason why this court should not adopt the formulation employed by the Honourable Mr Justice Keith Yeung in Re Gold Fund Securities Ltd (supra) at para 18, viz. the applicant be granted leave to sell or otherwise dispose of (including forfeiture thereof) the same as it sees fit, and to pay any proceeds into court. This gives the applicant more flexibility and caters for the scenario where, because of any change of circumstances or otherwise, the applicant is in a position to sell or realise value in those shares, and I so order accordingly. As discussed with Mr Lee, such formulation of the order is wide and flexible, and it gives the applicant a wide range of options, subject of course to the implicit premise (as acknowledged by Mr Lee) that the applicant should act reasonably in the circumstances.

19.  In the premises, I make an Order in terms of the draft order, to the effect that:

(a) it be declared that the Unclaimed Assets as set out in Parts A to C of the Schedule to the Originating Summons are held by the applicant as trustee for each of the named clients;

(b) the 3 categories of Unclaimed Assets be dealt with as above (i.e. as per the draft order, but subject to amendment in respect of category (c) as explained above);

(c) notification of this order and the rights of the customers to apply for payment out by way of advertisements in two English-language daily newspapers in Australia and one English-language daily newspaper in New Zealand within 28 days from the date of this Order;

(d) upon compliance of the above, the applicant be discharged from any obligations or claims in respect of the Unclaimed Assets;

(e) liberty to apply; and

(f) there be no order as to costs.

20.  It remains for this Court to thank Mr Lee for the applicant for his submissions and assistance rendered to the court.