Col Securities (HK) Ltd (Formerly Known As Citiseconline.Com Hong Kong Ltd or Fullbright Corporation Ltd) v. Chan Tsi Ming

HCMP 1481/2024

[2024] HKCFI 3541

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1481 OF 2024

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DECISION

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Introduction

1.The Applicant (formerly known as Citiseconline.com Hong Kong Ltd. or Fullbright Corporation Ltd.) was a broker licensed to deal in securities. During its ordinary course of business, it acted as an agent for its clients in effecting transactions in securities and held assets for its clients, mainly cash and securities.

2.Due to business downturn, the Applicant decided to cease operations by May 2024. It therefore emailed its clients on 16 February 2024 and 16 May 2024 respectively (collectively referred to as “the two Emails”) to:-

(i)  notify the clients of its intention to cease operations by 30 May 2024;

(ii)  request for instructions from the clients on how to deal with their cash proceeds and shares which were being held for them; and

(iii)  notify the clients that, for any assets unclaimed, the Applicant would take out an application to pay those assets into court.

3.Following the issue of the two Emails, the Applicant managed to contact all of its clients and obtained instructions from them except the Respondent who remained out of reach. The Applicant thus made an application to court by way of an originating summons filed on 12 August 2024 to seek orders under section 56 and/or section 62 of the Trustee Ordinance (Cap. 29) and Order 92 of the Rules of the High Court (Cap. 4A) to deal with the unclaimed assets of the Respondent. In particular, the Applicant seeks orders to pay the unclaimed assets into court so that it may be discharged from any obligations or claims in respect of them. The application was heard on 26 November 2024 with the decision reserved. This is the Court’s decision.

The relevant legal principles on section 62, Cap. 29

4.Sections 62(1) and (2) of the Trustee Ordinance (Cap. 29) provide:-

“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.”

5.In Gold Fund Securities Co. Ltd., HCMP1705/2020, [2020] HKCFI 2884, Mr. Justice Keith Yeung observed (at §§12-13):-

“12. … 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 has 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 Re K&R International Ltd [2021] 2 HKLRD 47, Deputy High Court Judge Winnie Tsui (as she then was) applied similar principles (at §§40 and 43):-

“40. When considering whether to make an order under the section, the court generally goes through a two-stage process. First, the court needs to 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 so, the court then proceeds to consider whether it should exercise its discretion to allow the payment in.

…

43. It is clear from the above cases and the other authorities …, that in a s.62 application, it is incumbent on the applicant to demonstrate by proper evidence that it has taken all reasonable steps to try to identify and locate the beneficiaries (in most cases, the applicant’s customers) and notify them of the cessation and take the necessary step to return the assets to them. What is reasonable must depend 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.”

(Emphasis added)          

7.In gist, in such an application made pursuant to section 62 of the Trustee Ordinance, the applicant will need to show:-

(i)  The unclaimed assets in question are being held on trust; and

(ii)  In the circumstances of the case, all reasonable efforts have been made to return the assets to the beneficiary.

Discussion

8.Turning to the first question of whether the unclaimed assets are trust property. The general proposition is that in a broker-client relationship, the broker holds the client’s assets on trust for the client: see Goldin Equities Ltd., HCMP871/2021, [2022] HKCFI 740, at §15.

9.In the present case, the following terms of the Client Agreement signed by the Applicant and the Respondent are relevant in determining the relationship between the two and the nature of the unclaimed assets being held by the Applicant for the Respondent:-

“4. Safekeeping of securities

4.1 Any securities which are held by you for safekeeping may, at your discretion

- (in the case of registrable securities) be registered in my/our name or in the name of your nominee; or

- be deposited in safe custody in a designated account with your bankers or with any other institution which provides facilities for the safe custody of documents. In the case of securities in Hong Kong, such institution shall be acceptable to the SFC as a provider of safe custody services.

4.2 Where securities are not registered in my/our name, any dividends or other benefits arising in respect of such securities shall, when received by you, be credited to my/our Account or paid or transferred to me/us, as agreed with you. Where the securities form part of a larger holding of identical securities held for your clients. I/we shall be entitled to the same share of the benefits arising on the holding as my/our share of the total holding.

4.3 You do not have my/our written authority under section 81(3) of the Securities Ordinance to:

- deposit any of my/our securities with a banking institution as collateral for an advance or loan made to you, or with the Clearing House as collateral for the discharge of your obligations under the clearing system;

- borrow or lend any of my/our securities;

- otherwise part of possession (except to me/us or on my/our instructions) of any of my/our securities for any purpose.

5. Cash held for me/us

Any cash held for me/us, other than cash received by you in respect of Transactions and which is on-paid for settlement purpose or to me/us, shall be credited to a client trust account maintained with a licensed bank as required by applicable laws from time to time.” (Emphasis added)

10.In light of the above terms, it is clear that the Respondent’s securities were held by the Applicant for safe-keeping for the Respondent, and any cash kept for the Respondent was to be held in a trust account. These terms are consistent with the aforesaid general proposition that in a broker-client relationship, the broker holds the client’s assets on trust for the client. This Court is thus satisfied on the evidence presented that the Applicant held the unclaimed cash and securities as trustee for the Respondent. According to the schedule to the originating summons, the unclaimed securities were at the time of the application estimated to be of a total value of about HK$284,549.

11.Turning to the next question of whether all reasonable steps have been taken. In the present case, after the issue of the two Emails, the Applicant took the following steps in an attempt to contact the Respondent and obtain instructions:-

(i)  On 8 March 2024 and 20 May 2024 respectively, the Applicant dispatched the Notice of the Cessation of Brokerage Services and the Standard Instructions Forms (seeking the Respondent’s instructions to dispose of his assets) to a residential address of the Respondent’s but both deliveries were unsuccessful.

(ii)  On 2 May 2024, the Applicant dispatched the same Notice of the Cessation of Brokerage Services and Standard Instructions Forms to the Respondent’s last known address[1], and again the delivery was not successful.

(iii)  On 21 May 2024, the Applicant attempted again to deliver the Notice of the Cessation of Brokerage Services and Standard Instructions Forms to the Respondent’s last known address and this time, the delivery was successfully made on 23 May 2024. On 24 May 2024, two individuals, claiming themselves to be the wife and cousin respectively of the Respondent, communicated with the Applicant’s solicitors and indicated that the Respondent had been missing for years. The purported cousin later repeatedly confirmed that he would not attend the hearing of the application.

(iv)  From 16 February 2024 onwards, the Applicant had on multiple occasions attempted to contact the Respondent via his telephone number provided in his Individual Account Application Form, but each call attempt was unsuccessful with the telephone company giving an automatic voice response indicating that the telephone number was inactive.

(v)  The Applicant had also conducted a death search at the Births and Deaths Registry of the Immigration Department which revealed “No Record found on information provided”, suggesting that there was no record of the Respondent having passed away.

(vi)  The Applicant had on 13 March 2024 attempted to test the validity of the Respondent’s last known Hang Seng Bank account provided in his Individual Account Application Form by transferring HK$1 to that account. Nevertheless, the transfer was unsuccessful as the Bank indicated that “the account number… entered is incorrect or the account has been closed” and “the account cannot be operated”.

(vii)  The Applicant’s solicitors had on 18, 21 and 24 October 2024, and on 4 and 6 November 2024 respectively dispatched letter correspondence to the Respondent at his last known address, informing him that the hearing would be held on 26 November 2024 at 9:30 am and requesting confirmation of attendance by the Respondent. Again, no feedback was received from the Respondent.

(viii)  The Applicant’s solicitors had on 4, 5 and 6 November 2024 respectively sent the information and court documents concerning the present application to the Respondent’s known email address and again there was no reply from the Respondent.

(ix)  The Applicant’s solicitors made a total of 13 telephone calls to the Respondent’s telephone number on 4, 5, 6, 7 and 12 November 2024 respectively but to no avail.

(x)  Advertisements were published in the newspapers on three consecutive dates (namely, 11, 12 and 13 November 2024) to inform the Respondent about the present application and that the hearing would take place on 26 November 2024 at 9:30 am.

12.Given all the above efforts made by the Applicant, I am satisfied that it has taken all reasonable steps in the circumstances of this case to locate the Respondent and to obtain his instructions to deal with the unclaimed assets held on trust for him.

13.In light of the foregoing, this Court is satisfied that this is an appropriate case in which the unclaimed assets of the Respondent should be ordered to be paid into court pursuant to section 62 of the Trustee Ordinance.

Other considerations

14.For the record, the Applicant in its written submissions also relies on section 56 of the Trustee Ordinance to seek an order that the unclaimed securities be sold as an alternative relief. Given that the relief of payment into court will be granted by this Court, it will not be necessary to further address that alternative relief.

15.On the issue of costs, during the hearing, the Court questioned whether the Applicant should be allowed to recoup part of its costs for this application. Having considered all the circumstances of this case, including the fact that it was the Applicant’s operational decision to close its business that necessitated the making of this application, I will make no order as to costs: see Wing Fat Securities Ltd., HCMP 1036/2021, [2021] HKCFI 3851 and Grand Cartel Securities Co. Ltd., HCMP 783/2021, [2022] HKCFI 743 in which no order as to costs was made.

Orders

16.For the above reasons, I make the following order:-

(1)  It be declared that the unclaimed cash sum of HK$112,526.86 (“Unclaimed Cash”) and the unclaimed securities as set out in the schedule to the originating summons filed herein on 12 August 2024 (“Unclaimed Securities”) were and are held by the Applicant as trustee for the Respondent.

(2)  The Unclaimed Cash be paid into court.

(3)  The Unclaimed Securities be paid into court by:-

(a)  obtaining the share certificates from the Central Clearing and Settlement System (“CCASS”) or other appropriate share registries or the relevant companies or corporations;

(b)  registering the share certificates in the name of the Registrar of the High Court of Hong Kong (“Registrar”);

(c)  updating the CCASS or other appropriate share registries or the relevant companies or corporations with the contact information and address of the Registrar; and

(d)  depositing the share certificates with the Registrar.

(4)  A notification of this order and the rights of the Respondent to apply for payment out of the Unclaimed Cash and of the Unclaimed Securities under Order 92 of the Rules of the High Court be given within 14 days from the date of this order by way of an advertisement in both a Chinese daily newspaper and an English daily newspaper in Hong Kong, and by way of a letter to the Respondent at his last known address by post.

(5)  A declaration that, upon compliance with paragraphs (1) to (4) above, the Applicant be discharged from any obligations or claims in respect of the Unclaimed Cash and the Unclaimed Securities and Order 92, rule 4 of the Rules of the High Court be deemed to have been complied with by the Applicant.

(6)  There be no orders as to costs.

(7)  Liberty to apply.

Ms Shirley Leung, instructed by Messrs. T.C. Tse & Co., for the Applicant

The Respondent, acting in person and absent