Commercial Law — Securities broker granted permission to pay HK$1 million unclaimed client assets into Court after ceasing business
The Court is satisfied that the Applicant has taken reasonable steps in attempting to return the client assets, and that allowing payment into Court will not be unfair to the relevant clients despite the inconvenience caused.
Re Grand Cartel Securities Company Limited
|(HCMP 783/2021)  HKCFI 743
|Court of First Instance
|Deputy High Court Judge Winnie Tsui in Chambers
|Jeffrey Tam and Angela Mui, instructed by Khoo & Co., appeared for the successful Applicant.
|Date of Decision:
|4 March 2022
The Applicant, a securities broker, ceased business due to the COVID-19 pandemic. Despite having informed clients of the cessation in advance, 113 clients failed to retrieve their assets and securities. The High Court allowed the Applicant’s ex parte application to pay into Court the unclaimed client assets, including cash and securities, under sections 56 and 62 of the Trustee Ordinance (Cap. 29) and Order 92 of the Rules of the High Court (Cap. 4A).
Due to the COVID-19 pandemic, the Applicant decided to cease its business in late 2020. However, some of its clients failed to come forward to retrieve their assets and securities held in the Applicant’s accounts worth around HK$1 million in total value.
After exhausting all possible means to contact those clients to no avail, the Applicant took out an ex parte application under sections 56 and 62 of the Trustee Ordinance (Cap. 29) (“TO”) and Order 92 of the Rules of the High Court (Cap. 4A), seeking leave to pay the unclaimed assets into Court.
Deputy High Court Judge Winnie Tsui recognised the ex parte application as a “flexible and pragmatic solution” to the situation and gave her decision following three hearings held during the period from September 2021 to March 2022.
Issue: Discharge of duty to contact clients
During each hearing, the Court was duly updated on all the reasonable steps and efforts which the Applicant took to notify its clients of its cessation and return their assets, as well as any responses received.
Pursuant to the advice of Counsel (Jeffrey Tam and Angela Mui), the Applicant reached out to the relevant clients and explained the consequences of the ex parte application through all possible channels including at least 18 cycles of telephone calls, at least 20 rounds of emails and a total of 4 newspaper advertisements and notices on its website. The Applicant put additional efforts into contacting clients who had relatively more substantial assets.
In her Decision, Madam Justice Tsui particularly highlighted such efforts made by the Applicant over the 15 months since its cessation of business. Her Ladyship found that the Applicant had, through its persistent efforts, discharged its positive duty to contact clients about the return of their assets.
Issue: Court’s power to authorize dealing with trust property
Under Section 56 of the TO, the Court may confer on a trustee the necessary power to dispose of trust property. This power may be exercised if, first, the trustee establishes that no such power has been vested in it and, secondly, it would be expedient for the Court to confer such power on the trustee: Re K&R International Ltd  2 HKLRD 47,  HKCFI 561; Re Wing Fat Securities Limited  HKCFI 3851.
While this provision seems straightforward, the Court has declined applications in the past. If the trustee already holds the power to settle its clients’ assets at its discretion, it would be unnecessary to invoke the process of the court in the administration or management of the trust.
In Re Wing Fat Securities Limited, some of the Applicant’s clients instructed it to settle the assets on their behalf. The relevant assets, which bore little or even no value, were not included in the Applicant’s section 56 application. Based on these circumstances, the Court held that section 56 should not be invoked.
The Court’s Decision
Having considered the efforts made by the Applicant and the size of the unclaimed assets, the Court held that this was a proper case to grant the reliefs sought.
The learned Judge is satisfied that the Applicant has taken reasonable steps in attempting to return the client assets, and that allowing payment into Court will not be unfair to the relevant clients:
“They will have to apply to court for payment out (if they wish) and may suffer inconvenience as a result. However, on the materials before me, there does not appear to be any further thing which the applicant can reasonably be expected to do in order to take the matter further. The inconvenience of the clients, if any, is perhaps something that has to be put up with in the circumstances.” (Para. 28, Decision)
This decision affirms that the trustee is primarily responsible for taking all reasonable steps to return the assets entrusted to it by clients, since payment into Court would shift the “burden” and costs of holding the unclaimed assets from the Applicant to the Registrar of the High Court: Re K& R International Ltd  2 HKLRD 47,  HKCFI 561; Re X Ltd  HKCFI 15;  HKEC 91.
As Deputy High Court Judge Winnie Tsui pointed out in Re K&R International Ltd, the Applicant should not treat the Court as if it were their back office by handing over the administration and management of unclaimed assets to the Court following cessation of business.
When exercising its discretion, the Court would examine whether there is sufficient justification for such use of the Court resources. One obvious factor is whether the client has considered any viable alternative solution. In other words, although taking out an application under sections 56 and 62 TO can be effective, it should remain as the last resort.
Trustees who find themselves in a similar situation should duly contact all clients as effectively as possible, and to use its best endeavours to fill in any possible gaps in getting hold of the clients’ personal information. These efforts should be made within a reasonable period of time to demonstrate to the Court that the positive duty has been duly satisfied, and to avoid burdening the Court.
Jeffrey Tam and Angela Mui, instructed by Khoo & Co., appeared for the successful Applicant. Angela appeared as sole advocate in the first hearing on 10 September 2021 and with Jeffrey at the second and third hearings on 18 February and 4 March 2022 respectively.
“Jeffrey Tam of Denis Chang’s Chambers stands out in the opinion of several interviewees as a barrister who is ‘very sound and reliable in the public law area’ generally and … he also operates a broad commercial practice, embracing, among other matters, shareholder and securities-related issues.” Chambers & Partners Greater China Region 2022 — Commercial Dispute Resolution: The Bar (Spotlight Table)
Jeffrey has earned a strong reputation as a public law practitioner with appearances in many high-profile judicial review cases in Hong Kong.
Alongside his public law work, Jeffrey maintains a solid commercial practice with an emphasis on shareholders’ disputes and securities & finance cases, including Acropolis Limited & another v W&Q Investment Ltd & others (CACV 276 & 277/2017) (led by Mr Denis Chang SC) in which the Court of Appeal elucidated the approach to interim injunctions in shareholders’ disputes, and Siberian Mining Group Co Ltd v Daily Loyal Ltd  HKCFI 138, a complex dispute concerning convertible notes valued at US$400 million.
Find out more from Jeffrey’s profile.
Angela’s civil practice encompasses matters such as defamation, commercial, probate, family trust, personal injuries, land and conveyancing, securities and finance, employment disputes, professional disciplinary actions and judicial review.
In the area of defamation, she has advised authors of the publisher, Penguin Books, on potential issues of defamation; she has also appeared before the Court of Appeal and the Court of Final Appeal in Chang Wa Shan v Esther Chan Pui Kwan (2018) 21 HKCFAR 370, which is also reported in the UK Entertainment and Media Law Reports  EMLR 10. Recently, she represented (with Jeffrey Tam) Lui Ming Choi Lutheran College in the inquest into the death of the school’s student who died during physical education class.
Angela contributed to several titles in the Annotated Ordinances of Hong Kong series, namely, Emergency Regulations Ordinance (Cap. 241) (2020), Hotel and Guesthouse Accommodation Ordinance (Cap. 349) (2020), Occupiers Liability Ordinance (Cap. 314) (2020), and Legal Practitioners Ordinance (Cap. 159) (2021).
Visit Angela’s profile for more details.
This article was first published on 4 April 2022.
Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photograph which appears in this article is included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related.