Deutsche Securities Asia Ltd v. The Financial Secretary and Others

HCMP 589/2025

[2026] HKCFI 1637

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 589 OF 2025

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BETWEEN

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REASONS FOR JUDGMENT

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Introduction

1.By an amended Originating Summons[1] dated 21 May 2025, the Plaintiff seeks, inter alia, orders from this Court to dispose of the assets that it claims it has been holding on trust for its clients.

2.At the hearing, I granted the amended Originating Summons subject to some minor amendments.  I now give my reasons.

Background

3.The Plaintiff, a member of the wider Deutsche Bank Group, was incorporated in Hong Kong on 2 March 1990[2].  At all material times, it was in the business of providing stock and security brokerage services (including custody and related services)  in Hong Kong.  For this purpose, the Plaintiff has been an exchange participant of The Stock Exchange of Hong Kong and a holder of a Type 1 licence issued by the Securities and Futures Commission (“SFC”)  to deal in securities.

4.In June 2019, Deutsche Bank Group announced that it would exit its Equities Sales & Trading Business globally.  The Plaintiff, therefore, began winding down its Equities Sales & Trading Business in Hong Kong.

5.To wind down its business, the Plaintiff has to properly dispose of all the assets it has been holding on trust for its clients.  Some of which were already dealt with by a Consent Order dated 13 October 2025 in HCMP 522/2024.  By consent, I granted orders to effect (1)  the sale of 51,430,000 shares (“Restricted Shares”)  in Kunlun Energy Company Limited (“Kunlun”)  which were held on trust by the Plaintiff for one of its clients, the late Mr Philip Young (“Mr Young”), pursuant to a Uniform Cash Client’s Agreement (“Client’s Agreement”)  dated 27 August 1993, and which were subject to the restrictions under Part V of the (now repealed)  Securities (Disclosure of Interests)  Ordinance (“SDIO”)  by reason of a restriction order (“Restriction Order”)  issued by the Financial Secretary pursuant to section 41 of the SDIO on 21 April 1995[3], and (2)  the payment of such sale proceeds into Court after deducting from the proceeds (i)  the costs and expenses of the sale and (ii)  the Plaintiff’s costs and expenses in connection with the performance of its duties and the exercise of its powers and discretions as trustee of the Restricted Shares[4].

6.What remains to be dealt with in the present proceedings are (1)  the dividends derived from the Restricted Shares (“Dividends”)  held on trust by the Plaintiff for Mr Young[5], (2)  some shares (“Shares”)  and (3)  some cash (“Cash”)  held by the Plaintiff for some unidentified and/or identified but uncontactable clients.  The Financial Secretary[6] has no objection to the orders sought herein.

Legal Principles[7]

7.Ordinarily, a broker holds its client’s assets on trust for the client[8]. To properly dispose of the trust assets, the broker will have to rely on the reliefs under sections 56 and 62 of the Trustee Ordinance, Cap. 29 (“TO”).

8.Section 56(1) of the TO provides that the Court can confer powers on a trustee for the purpose of managing or administering trust property vested in the trustee if (1)  it is in the opinion of the Court expedient to do so, but (2)  the same cannot be effected by reason of the absence of any power for that purpose vested in the trustee by the trust instrument, if any, or by law.  The powers provided by section 56(1) are wide-ranging.  In the case of unclaimed assets with little or no value, the Court may allow the applicant to sell or otherwise dispose of them as it sees fit, and to pay the proceeds, if any, into Court[9].

9.Section 62 of the TO further provides that a trustee may pay the trust property into Court and the same shall, subject to the rules of Court, be dealt with according to the orders of the Court.

10.In short, the applicant should demonstrate that (1)  the assets are held on trust by the applicant, (2)  there is no power vested in the applicant as a trustee to dispose of the assets, (3)  despite reasonable efforts[10], 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, and (4)  it is expedient for the Court to confer that power on it.  Further, the Court may impose terms and conditions as it thinks fit[11] and direct the manner in which the authorised expenditure and costs of the transactions involved are to be paid or borne between capital and income.[12]

11.In deciding whether to exercise its discretion to allow payment in, the Court will consider the implication of a payment-in order for both the untraceable clients and the Court.  This has been explained in some detail by DHCJ Winnie Tsui (as she then was)  in Re K&R International Ltd[13]:

(1)  Once the client assets are paid into Court, a client who has not claimed back its assets will have to apply to the Court for leave for payment out.  The governing rule is Order 92, rule 5 of the RHC.  The client will have to incur time and/or expenses (if a lawyer is engaged)  to obtain a payment out.  The client may well consider that he is unduly inconvenienced as he is forced to get back his own assets from the Court with the incidental costs, instead of from the applicant, as a result of the unilateral cessation of the applicant’s business.

(2)  However, where the applicant has exhausted all reasonable means to trace the clients and is still not able to find them, the practical likelihood of any client later coming to the Court for payment out would not be high.  And if that happens, given that the applicant has made reasonable efforts, the inconvenience of the individual client is perhaps something that has to be tolerated.  These considerations reinforce the need of the requirement that the applicant bears the burden of showing that reasonable steps have been taken to return the assets.

(3)  As far as the Court is concerned, the practical implication flowing from a payment-in order should, where appropriate, be taken into account.

(4)  Once paid in, the assets would be managed and administered by the Court under the Suitors’ Funds Rules[14] (“SFR”), Cap. 4B, with the consequence that the cost of administering such assets would be defrayed out of the general revenue of Hong Kong.  This effectively shifts the costs burden from the applicant (who would otherwise have to continue to administer the assets)  to the Court and thus the taxpayer.  In the event that payment-out applications are made, judicial resources in the form of judges’ or masters’ time would be deployed.

Discussion

Cash and Shares

12.Based on the evidence and arguments advanced before me, I am satisfied that the Plaintiff has been holding the Cash and the Shares on trust for its clients, and that the Plaintiff has no power to dispose of these assets.

13.Mr Stewart Wong SC[15], acting for the Plaintiff, submitted that the Plaintiff had used all reasonable means[16] to trace the beneficial owners of such Shares and Cash.  They are either unidentified (i.e. 7^th Defendant)  or identified but no longer contactable (i.e. 3^rd to 6^th Defendants).

14.In these circumstances, I accept Mr Wong’s submission that the most appropriate course of action would be to allow the Shares to be sold and the proceeds, along with the Cash, to be paid into Court.  I also accept that the costs and expenses incurred by the Plaintiff in connection with the performance of its duties and the exercise of its powers and discretions as trustee of these assets should be deducted prior to payment into Court.  I will deal with this in detail later.

Dividends

15.As far as the Dividends are concerned, Mr Wong submitted that they are the fruits of the Restricted Shares and should, therefore, be dealt with in a similar manner.  I agree.  On a natural and ordinary reading of the Client’s Agreement, I accept that the Dividends, much like the Restricted Shares, have been held on trust by the Plaintiff for Mr Young.  As things stand, I see no reason why the Dividends should not be disposed by the Plaintiff[17].  That said, there is an issue as to whether those Dividends should be paid into Court or to the 2^nd Defendant who is the administratrix of Mr Young.

16.Despite taking a neutral stance, Mr Wong properly drew to my attention that it might not be in the public interest to pay the Dividends to the 2^nd Defendant. This is because there might have been a sub-trust between Mr Young and the true beneficial owners of the Restricted Shares.  Indeed, this issue of sub-trust was one of the reasons[18] why restriction was imposed on the Restricted Shares by the SFC on 7 October 1994 pursuant to section 40 of the (now repealed)  Securities and Futures Commission Ordinance, Cap. 24 and, subsequently, by the Financial Secretary on 21 April 1995 pursuant to section 41 of the SDIO, i.e. Restriction Order.  According to the report (“Report”)  prepared by Inspector Helen Ho-Yan Lee (“Inspector Lee”)  who was appointed by the Financial Secretary under section 33 of the SDIO to investigate into the beneficial ownership of Kunlun[19] between March and May 1993, Mr Young’s solicitors had indicated to the SFC on 28 September 1994 that Mr Young was holding 51,430,000 shares in Kunlun (which were purchased between March and May 1993)  for the account of Good Link Group Limited.

17.Against this background, Mr Wong submitted that public interest requires the Dividends to be released only to their true beneficial owners.  Since Mr Young had, through his solicitors, disavowed any beneficial interest in the Restricted Shares, the Dividends should be paid into Court rather than to the 2^nd Defendant notwithstanding any inconvenience that might be caused to the beneficial owners[20].  There is some force in this submission.

18.Turning to the 2^nd Defendant, I do not understand her to be alleging that Mr Young had any beneficial interest in the Restricted Shares.  Instead, she seems to be suggesting that the Dividends should be paid to her because (1)  she is willing to distribute the Dividends to their true beneficial owners, and (2)  Mr Young had a claim of HK$4,000,000 for the professional services that he had previously rendered to the beneficial owners of the Restricted Shares/Dividends.  I disagree.

19.First, if Mr Young did not have any beneficial interest in the Restricted Shares, there would be no basis for the Dividends to be paid to the 2^nd Defendant now.  Second, distributing the Dividends to their true beneficial owners (who had invested in the Restricted Shares some 33 years ago)  is an onerous task, especially when evidence[21] suggests that not all of the owners have been identified and, even if they are identified, are not necessarily contactable.  It might take months, if not years, for the Dividends to be fully distributed.  Despite the best of intentions, there will come a day when the 2^nd Defendant must pass on the task, which means problems will inevitably be caused downstream.  In my view, it would be most sensible to allow the Dividends to be paid into Court where the beneficial owners will be given five years (or maybe more)  to claim their shares of the Dividends before the same is transferred to the general revenue.[22]  Third, even if Mr Young did have a claim of HK$4,000,000 against the beneficial owners of the Restricted Shares/Dividends, the appropriate course of action would be for the 2^nd Defendant to apply to the Court for payment out rather than payment of the Dividends per se.  After all, there is indisputable evidence that Mr Young was not beneficially entitled to any of the Restricted Shares and, therefore, Dividends.

20.As noted above, I have already ordered in HCMP 522/2024 for the Restricted Shares to be sold and for such sale proceeds to be paid into Court.  It is unlikely that ordering the payment of the Dividends into Court will impose undue additional burden on the Court in managing those assets in accordance with the SFR.  I, therefore, ordered the Dividends to be paid into Court.  I also allowed the costs and expenses incurred by the Plaintiff in connection with the performance of its duties and the exercise of its powers and discretions as trustee of the Dividends and the Restricted Shares to be deducted prior to payment into Court.  In this regard, Mr Wong asked for such costs and expenses to be summarily assessed, which I refused.

21.In the present proceedings, the Plaintiff seeks reimbursement in the sums of HK$1,346,624 (insofar as Cash and Shares are concerned)  and HK$4,877,248.60[23] (insofar as Dividends are concerned)  as at 24 February 2026.  These are sizable sums.  Moreover, there is no evidence before me, which would allow me to assess with any confidence whether they are justified.  It would be little more than a guess.  As a general observation, it will be difficult for the court to carry out a reliable summary assessment if a very large sum is claimed.  For this reason, I will refer the matter to a taxing master.

Disposition

22.In light of the above, I made an order in terms of the amended Originating Summons subject to some minor amendments.

Mr Stewart Wong SC and Mr Brian Lee, instructed by Gibson, Dunn & Crutcher, for the Plaintiff

The 2^nd Defendant appeared in person

Attendance of Department of Justice, for the 1^st Defendant, was excused

The 3^rd Defendant was not represented and did not appear

The 4^th Defendant was not represented and did not appear

The 5^th Defendant was not represented and did not appear

The 6^th Defendant was not represented and did not appear

The 7^th Defendant was not represented and did not appear