Re Yieldful Securities Ltd

DCMP 1272/2023

[2023] HKDC 1223

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1272 OF 2023

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DECISION

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A. Introduction

1.The applicant in the present ex parte Originating Summons (taken out on 29 March 2023) is a securities broker.

2.On 31 March 2022, the applicant resolved to cease its securities trading business. It had since tried to contact its clients, and asked them to claim back assets deposited with the applicant.

3.However, to date, the applicant is still stuck with some such assets (the Unclaimed Assets). According to the Affirmations of Ma Wai Shun on behalf of the applicant, the Unclaimed Assets has an aggregate value of approximately HK$850,000.

4.Like other brokerages in the same predicament, they seek to, inter alia, deposit such assets into the court under the Trustees Ordinance (Cap 29).

B. Legal Principles

5.The oft-cited case in this area is Re Gold Fund Securities Co Ltd [2020] HKCFI 2884, where K Yeung J set out the general principles in these types of application as follows:-

“11. Sections 62(1) and (2) of the Trustee Ordinance (Cap 29) stipulates as follows:

“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.”

12. I have been shown a number of authorities, which include Re Drake & Morgan Limited, unrep, HCMP 1490/2009, 27 August 2009, Re Glenlyon Limited [2018] HKCFI 1038, and Re ABN Amro Bank N.V. [2018] HKCFI 1559. There have been ample precedents in which securities companies were pursuant to section 62 of the Trustee Ordinance (Cap 29) allowed to pay into court unclaimed cash and deposits of its clients who could not be contacted. That has been described as a “flexible and pragmatic” solution for securities houses to cease business and at the same time to deal with unclaimed assets in a way which protects the interests of their clients.

13. In general, what have to be established for an application of the present nature are (1) the assets in question are held by the applicant 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.” (emphasis added)

6.In a more recent case Re KVB Kunlun Asset Management (HK) Ltd [2023] HKCFI 907, DHCJ Suen SC further elaborated as follows at §13:-

“(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.”

7.See also Re Ying Wah Securities Company Ltd [2023] HKCFI 834 at §§5-7, 17, 19, 23.

8.This jurisdiction has also repeatedly been exercised by the District Court, see:-

(a) Re Shun Loong Finance Limited [2021] HKDC 1285;

(b) Re Quasar Securities Limited [2023] HKDC 196 at §3 per HHJ Ko. There, his Lordship took the view that jurisdiction can be founded under District Court Ordinance (Cap 336) s 37 so long as the monetary limits are not breached.

(c) Re Xin Hua Securities (Hong Kong) Ltd [2023] HKDC 579.

C. Issue 1 – Are the Unclaimed Assets held on trust?

9.Applying these principles, the first issue is whether or not the Unclaimed Assets are held on trust.

10.To determine this, it is apt to look back into how the applicant’s business developed.

(a) The origins of the business was a brokerage operating under the name Kathrine Ip & Co in the 1990s.

(b) The business was transferred to an incorporated entity, ie, the applicant (then named Katherine Ip & Co, Limited) in 2004.

(c) The ownership of the applicant was changed in 2017, and the applicant’s name changed to ShineNex Securities Limited.

(d) The ownership of the applicant was changed again in 2020, and the applicant’s name changed to its current one, ie, Yieldful Securities Limited.

11.In different periods, clients signed different forms of account opening agreements; and clients would sometimes sign the updated forms.

(a) In the era of Katherine Ip & Co, there are two forms:-

(i) One entitled 統一現金客戶合約 with 17 clauses (with two sub-forms with slight differences) (1^st Form);

(ii) One entitled 淺白語言統一現金客戶協議書 with 7.5 clauses (2^nd Form).

(b) In the era of Katherine Ip & Co, Limited, the form is also named 淺白語言統一現金客戶協議書, but with 6.5 clauses (3^rd Form).

(c) In the ShineNex era, the form is titled “Account Opening Form – Individual / Joint Account” (the 4^th Form). It refers to “Terms and Conditions of the Client Agreement with the same version code”.

12.I have had a look at these forms of agreements. They do appear to me to reflect a client / broker relationship, and therefore support the contention that the assets held by the applicant’s predecessor and the applicant (in its various guises) are held on trust as broker vis-à-vis its clients. In particular:-

(a) The 1^st to 3^rd Forms contain clauses which suggest that (i) the applicant acts as an agent and makes transactions for and on behalf of the client; (ii) securities are being deposited with the applicant for safe custody, and / or securities are being purchased on behalf of the client and kept with the applicant for custody; (iii) there is no right on the part of the applicant to utilize deposited securities as the basis for loans and advances. These clauses are indicative of a trust relationship: see Re Yu On Securities Limited (HCMP 1296/2013, 19 July 2013) at §3.

(b) The 4^th Form similarly contain clauses that the applicant acts on client’s instructions, and keep safe custody of securities for the client. There is also a provision that the applicant would not, without the client’s consent or standing authority, deposit the client’s securities for any loans and advances.

13.I am therefore satisfied that, insofar as the Unclaimed Assets arose vis-à-vis clients who have signed these forms, such assets are held on trust. This constitutes the bulk of the Unclaimed Assets, amounting to HK$820,686.69.

14.There are however two other categories:-

(a) a small portion of the Unclaimed Assets, amounting to HK$10.98, belong to 5 clients for which the applicant cannot locate any account opening form. According to Mr Ma Wai Shun, director of the applicant, the genesis of such a situation is as follows:-

(i) Prior to August 2017, Mr Ma’s understanding was that the records of ownership of client assets was kept by handwritten documents. Shortly after August 2017, accountants inputted such data into an electronic system, which did record that these clients owned the corresponding assets.

(ii) However, the account opening documents for these clients can no longer be found.

(iii) It is Mr Ma’s affirmation evidence that it is likely that these clients signed similar account opening documents, given that the abovementioned forms were used with regularity, and this appears to be the modus operandi at the time.

(b) another portion of the Unclaimed Assets, amounting to HK$98,526.15, are monies deposited to specific cash and securities accounts for unclaimed dividends and securities by unidentified clients. According to Mr Ma, the reason for there being such a situation is that, at the time of change of ownership in 2017, it was discovered that certain assets were uncollected by clients and left in the applicant’s accounts, but by then it was already not possible to identify which client those assets relate to. As a result, specific cash and securities accounts for unclaimed dividends and securities were opened in 2020 to keep such assets in custody.

15.While the situation is less clear cut, having taken into account the applicant’s explanation and Mr Cheng’s submissions, I am satisfied that, on balance, the assets in these two categories are also trust assets:-

(a) For the Unclaimed Assets in relation to the 5 clients for which the applicant was unable to locate account opening forms, I accept Mr Ma’s explanation.

(b) For the remaining Unclaimed Assets relating to unidentified clients, I also accept Mr Ma’s evidence. In this regard, I take comfort in the fact that the law does not mandate the identity of the beneficiary be proven, and where a broker purchases an asset for a now unidentifiable client that asset is nevertheless a trust asset despite the client being unidentified: see The Joint and Several Liquidators of BankAmerica Nominees (Hong Kong) Limited [2020] HKCFI 399 at §18; Re A One Investment Company Limited (HCMP 1518/2013, 16 July 2013).

D. Issue 2 – Had reasonable endeavours been made to contact the beneficiaries?

16.On 31 March 2022, the applicant published a notice on its website that it will cease accepting instructions to purchase securities from 1 May 2022.

17.On 27 June 2022, the applicant filed a notice of cessation of business with the Securities and Futures Commission.

18.On 13 June 2022 and 31 August 2022, the applicant posted letters to the last known address of clients, notifying them of the cessation of business and the need to withdraw or transfer any securities deposited with them.

19.On 16 September 2022, the applicant published newspaper advertisements in the English and Chinese press notifying the public of its cessation of business, and invited clients to claim assets / funds kept with the applicant.

20.It is also the applicant’s evidence on oath that on 28 September 2022, 28 December 2022 and 1 March 2023, three rounds of phone calls were made to contact the clients.

21.It had also been further clarified by way of a further Affirmation dated 18 August 2023 (by Mr Ma) that despite all the attempts, none of the clients could be reached.

22.Based on the above, I am satisfied that limb (2) of the test at §13 of Re Gold Fund Securities Co Ltd (supra) is met.

E. Disposition

23.I am therefore satisfied that an order ought to be granted. Consistent with other cases, the following treatment is suggested:

(a) Insofar as the Unclaimed Assets consist of cash, it is to be paid into court.

(b) Insofar as the Unclaimed Assets consist of securities which can be withdrawn from CCASS, they would be so withdrawn in the name of the Registrar of the District Court, with the same deposited with the court.

(c) Insofar as the Unclaimed Assets consist of securities which cannot be so withdrawn, these would be sold and / or forfeited with any proceeds being paid into court.

24.This appears in line with previous authorities cited. I therefore make orders as per the draft Judgment submitted at Exhibit MWB-18 to Mr Ma’s 3^rd Affirmation. I also assess costs at HK$95,000, such to be paid out of the Unclaimed Assets.

25.I thank Mr Cheng for his helpful submissions.

Mr Griffith H F Cheng, instructed by Cedric & Co, for the applicant