高等法院（雜項）Deputy High Court Judge Winnie Tsui25/2/2021[2021] HKCFI 561
HCMP99/2021
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B B
HCMP 99/2021
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[2021] HKCFI 561
D IN THE HIGH COURT OF THE D
HONG KONG SPECIAL ADMINISTRATIVE REGION
E E
COURT OF FIRST INSTANCE
F MISCELLANEOUS PROCEEDINGS NO 99 OF 2021 F
_________________
G G
IN THE MATTER of K&R
H H
INTERNATIONAL LIMITED
I and I
IN THE MATTER of the Trustee
J J
Ordinance (Cap 29)
K and K
IN THE MATTER of Order 92 of the
L L
Rules of the High Court
M _________________ M
N K&R INTERNATIONAL LIMITED Applicant N
_________________
O O
Before: Deputy High Court Judge Winnie Tsui in Chambers
P P
Date of Hearing: 26 February 2021
Q Date of Decision: 26 February 2021 Q
R R
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S S
DECISION
T _______________ T
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Introduction
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1. This is the application of K&R International Ltd for an order
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to pay a sum of about $3,600,000 into court pursuant to section 62 of the
E
Trustee Ordinance, Cap 29. The application is made by way of an ex parte E
originating summons dated 21 January 2021.
F F
2. The applicant is a company incorporated in Hong Kong.
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Since 2014, it has been engaged in the business of prepaid card service,
H marketed in the name of “K&R Global Express Card”. The cards issued H
under this service are “stored value facilities” under the Payment Systems
I I
and Stored Value Facilities Ordinance, Cap 584. Under that Ordinance,
J any person issuing and operating a stored value facility is required to obtain J
a licence from the Hong Kong Monetary Authority (“the HKMA”) and is
K K
subject to its oversight. The applicant is licensed by the HKMA to issue
L and operate prepaid cards. L
M 3. In August 2020, the applicant decided to cease the card M
business. Since then, it has launched a redemption exercise inviting
N N
holders of individual prepaid cards to redeem the outstanding value stored
O on the cards. O
P P
4. As of the date of the originating summons, there remained a
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sum of $5,051,034.22 which was yet to be redeemed. According to an Q
update affirmation filed shortly before today’s hearing, the unredeemed
R R
amount was reduced to $3,671,025.79 as of 22 February 2021. The
S reduction was due to the redemptions which took place in the one month S
since the present application was made.
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5. The applicant says that it holds the above unredeemed sum on
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trust for the holders of the cards. It now seeks an order to pay the sum into
D court so that it can complete the cessation of its card business. D
E 6. The application is supported by the affirmation evidence of E
Mr Lu Zhenwei, the applicant’s alternate chief executive.
F F
7. In this decision, I shall use the term “the Card” or “the SVF
G G
business” to refer to the prepaid card business operated by the applicant.
H The term “the cards” shall mean the individual prepaid cards issued and H
held by its customers, whom I shall call “the cardholders”.
I I
J The cards J
K 8. The cards issued by the applicant are preloaded (or prepaid) K
with value. The holders can use the cards for payment at merchants which
L L
accept UnionPay card. The cards can be used in Hong Kong and overseas,
M in particular Mainland China. The use of the cards is subject to the M
applicant’s terms and conditions, which are published on the applicant’s
N N
website. The version updated as of 22 November 2018 is included in the
O evidence. O
P 9. The applicant issues three types of cards – anonymous cards, P
personal cards and co-brand cards.
Q Q
10. One can purchase an anonymous card with a face value (or
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pre-stored value) from $500 to $8,000. No personal information is
S required from the customer for the purchase. If a customer wishes to S
purchase an anonymous card with a face value of over $8,000 (and up to
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$25,000, being the maximum amount), he will have to provide personal
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information for identification purpose. An anonymous card cannot be
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topped up. It means that once the prepaid value is used up, the card can no
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longer be used.
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11. The personal card is a reloadable card with a maximum stored
E value of $120,000. A customer is required to provide valid address proof E
for the purchase. That is what the terms and conditions provide for.
F F
However, in his affirmation, Mr Lu states that for cards of which the
G holders can be identified, the applicant does not have their addresses. I will G
have to come back to this point in the discussion below.
H H
12. While the terms and conditions also refer to the co-brand
I I
cards, Mr Lu has not referred to this type of cards or explained how they
J operate, in particular whether and what personal information is required J
for the purchase.
K K
L
13. According to the terms and conditions, the cards expire 24 L
months after activation. The outstanding value can be redeemed but a
M M
monthly management fee will be deducted from the card.
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14. The applicant maintains accounts with Bank of
O Communications Trustee Ltd. The purchase money received from the O
cardholders are deposited into segregated trust accounts which are separate
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from the applicant’s own house account.
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The legal framework
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15. In relation to the money received from the cardholders, the
S terms and conditions provide as follows: S
T “2. We will maintain an account (“Account”) for each Card T
issued by us [ie the applicant]. Where the Card is used for
U purchasing goods and services, cash withdrawal, or when K&R U
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service fees, administration fees, and/or other Card related fees
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are charged by us, and/or when the Card is reloaded, the Account C
balance will be adjusted accordingly.
D 3. Funds Management D
(a) Your money [ie the purchase money paid by a cardholder]
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in your Account will be held in segregated trust accounts
(collectively, the “Trust Accounts”) which are separate from the
F house account of K&R for your benefit until such funds are either F
returned to you at your request or paid for your transactions.
G (b) By maintaining your funds in the Trust Accounts on your G
behalf, we undertake to:
H H
(i) Secure your funds free from any lien, charge, pledge,
mortgage or other encumbrance, equity or thirty party right of
I any nature; and I
J
(ii) Keep proper records relating to the Trust Accounts. J
(c) You will only be entitled to all monies standing to your
K Account and you will not be entitled to any interest in any other K
Trust Account.
L L
(d) K&R may, but shall not be obliged to, invest the funds in
the Trust Accounts in accordance with applicable laws, rules,
M regulations, codes, guidelines, circulars and K&R’s policies. M
(e) If K&R decides to invest the funds in the Trust Accounts,
N K&R shall be entitled, as remuneration for the services which it N
provides in its capacity as a trustee, to retain the net profits
O generated from time to time by the appreciations of value of the O
investment for its own use absolutely.” (italics added)
P 16. The above terms are given effect by a Declaration of Trust P
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executed by the applicant on 17 October 2016, and a SVF Custodian Deed Q
executed on the same date by the applicant and Bank of Communications
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Trustee Ltd as the custodian.
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17. In broad terms, under the Declaration, the applicant becomes
T the trustee of the outstanding stored value on the cards (referred to as “the T
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Float”) for the benefit of the cardholders. The operative provisions are
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contained in clauses 3 and 4 of the Declaration.
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18. Under the SVF Custodian Deed, the applicant appointed Bank
E of Communications as the custodian of the Float. Separate accounts were E
opened and maintained for receiving the Float. See clauses 2.1 to 2.4.
F F
Exit from the Card business
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19. On 17 August 2020, the applicant decided to exit from the
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Card business.
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20. By an announcement published on its website on 11
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September 2020, the applicant informed the cardholders of its decision.
K The announcement stated: K
L “… K&R shall exit from stored value facility business in an L
orderly manner. K&R shall execute the “Redemption
Arrangement” stated below with its prepaid card holders in
M phases. If you are holding one of our co-brand prepaid cards, M
please contact your distributor as soon as possible for more
assistance” (italics added)
N N
21. As announced, the redemption exercise would proceed in
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three phases.
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22. Phase 1 would start from the date of the announcement and
Q end on 30 November 2020. Under this phase, the cards, if valid, would Q
remain usable. The cardholders are however encouraged to use up the
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remaining value of their cards.
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23. Phase 2 would start from 1 December 2020 and last for 5½
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months, ie until 15 May 2021. All cards would be terminated on 1
U December 2020. They can no longer be used even though the 24-month U
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period has not yet expired. The cardholders should apply to the applicant
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to redeem the remaining value. That can be done in person, or by post,
D courier or email. The redemption service would cease on 15 May 2021. D
E 24. Phase 3 would start from 1 June 2021 onwards. The E
announcement stated as follows:
F F
“If you would like to redeem your card balance on or after 1 June
G 2021, you may apply to the designated law court and will need G
to bear the relevant charges. Detailed procedures will be
published before 31 May 2021.”
H H
25. I pause here to note that by stating the above, the applicant
I I
seems to be assuming that a court order for payment in will be granted as
J a matter of course. J
K 26. In his affirmation, Mr Lu said that not all the cardholders had K
provided their personal information to the applicant and that has posed a
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major difficulty to the applicant when it came to informing them of the
M redemption exercise. This is particularly true of anonymous cards where M
no information was required at all for the purchase if the prepaid value did
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not exceed $8,000. Furthermore, even for holders whose identity had been
O previously recorded by the applicant, the applicant does not have their O
P
addresses such that the applicant is not able to notify these identified P
cardholders individually by post.
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27. For these reasons, the applicant considers that the best way to
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notify all the cardholders, whether identified or not, is to publish the
S announcement on newspapers in Hong Kong and Mainland China. S
Adduced in the evidence are copies of the newspaper announcements
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appearing in South China Morning Post and the Hong Kong Economic
U Journal on 18 September 2020. That would be the first round of U
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announcement published by the applicant on its website and newspapers in
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September 2020.
D D
28. What then happened was that the HKMA, who has
E supervision over the applicant’s SVF business, wrote to the applicant on E
30 November 2020 expressing concerns over a number of “major issues”
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in relation to, among other things, compliance with the licensing conditions.
G G
29. Among other issues, the HKMA was clearly concerned that
H the applicant should complete the redemption exercise in a smooth and H
orderly manner. It therefore requested the applicant to take additional
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actions to expedite the redemption process. The applicant was asked to
J “take proactive measures to successfully contact all verified users by 14 J
December 2020 (e.g. reach individual user by multiple phone calls and
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WeChat messages, plus seeking help from co-brand partners to reach the
L user) with a view to completing the float redemption … by all users by L
end-December 2020” and “[s]tart making immediate preparations with the
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Custodian and Administrator for the payment into court arrangement with
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a view to achieving maximum readiness (i.e. residual user float transferred
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or ready to be transferred to court) by end of January 2021, and providing O
weekly progress updates to the HKMA” (italics added).
P P
30. Apparently driven by the measures imposed by the HKMA,
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the applicant then issued another announcement on its website on 14
R January 2021, significantly altering the redemption timetable previously R
announced and effectively bringing forward the redemption deadline to 29
S S
January 2021. Cardholders were advised to redeem their cards before that
T date, referred to as “the Closing Date”. The announcement said: T
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“… It is expected that shortly after the Closing Date, the
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Company will transfer all the remaining prepaid card balance to C
a Hong Kong law court which will hold such remaining balance
as judicial trustee. Upon such an occurrence, the Company will
D not be in a position to accept any redemption requests and the D
only means for you to redeem your remaining prepaid card
balance is through the Hong Kong judicial process which means
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you may incur additional costs and may be required to take
certain judicial procedures in order to redeem your remaining
F prepaid card balance. …” F
31. There is also an announcement published in International
G G
Business Daily, a newspaper circulating in Mainland China, on 6 January
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2021 stating to the effect that after the Closing Date of 29 January 2021,
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the applicant would not process any redemption application. I
J 32. It will be recalled that in the first round of announcements J
published in September 2020, the deadline for redemption was scheduled
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to be on 15 May 2021.
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33. It is against this background that the present application was
M taken out on 21 January 2021. M
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The redemption activities
O 34. There is no evidence before me as to how many cardholders O
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were redeeming their cards in response to the applicant’s announcement P
since 11 September 2020.
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35. As of about 21 January 2021, the remaining unredeemed sums
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amounted to just over $5,000,000, involving about 2,900 cards. The
S outstanding cards included all three types of cards. The stored value S
remaining on the anonymous cards ranged from less than $1 to about
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$4,000. For other cards, the range was from tens of dollars to about
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$59,000. The majority were, however, in sums of a few hundred dollars or
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a few thousand dollars.
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36. As revealed from Mr Lu’s update affirmation filed one month
E later, the total unredeemed amounts dropped to about $3,600,000 and the E
number of outstanding cards to just over 2,000.
F F
37. In other words, in the last month, about 900 cardholders had
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come forward to redeem. It is apparent from the above that significant
H redemption activities have been going on and are likely to continue to go H
on.
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38. Against this backdrop, the applicant asks for leave to pay the
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remaining sum into court now.
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Legal principles
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39. Section 62 of the Trustee Ordinance provides:
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“62. Payment into court by trustees
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(1) Trustees, or the majority of trustees, having in
their hands or under their control money or
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securities belonging to a trust, may pay the same
into court, and the same shall, subject to the rules
P of court, be dealt with according to the orders of P
the court.
Q … Q
R (5) Every transfer, payment and delivery made in R
pursuance of any such order shall be valid and
take effect as if the same had been made on the
S authority or by the act of all the persons entitled S
to the money and securities so transferred, paid or
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delivered.” T
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40. When considering whether to make an order under the section,
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the court generally goes through a two-stage process. First, the court needs
D to be satisfied that the property which forms the subject-matter of the D
payment in application is trust property held by the applicant as trustee. If
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so, the court then proceeds to consider whether it should exercise its
F discretion to allow the payment in. F
G 41. The section is largely based on section 63 of the Trustee Act G
1925 in England. In the modern day context, it is from time to time invoked
H H
in liquidations or cessation of businesses. Orders for payment in have been
I made to enable the relevant liquidation or cessation of business to proceed, I
and come to a conclusion: Re RBC Investor Services Trust Hong Kong Ltd
J J
[2018] 5 HKC 80 at para 8. This applies where the company in liquidation
K or the company ceasing business holds trust assets, eg client assets, which K
remain unclaimed, notwithstanding that reasonable steps have been taken
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to identify the beneficiaries and return the trust assets to them.
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42. In these circumstances, it is recognised and accepted that
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allowing these trust assets to be paid into court is a “flexible and pragmatic” N
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solution to the situation. In the context of cessation of business, it enables O
the company in question to properly cease its business and at the same time
P P
protects the interests of the beneficiaries: see, eg, Re Drake and Morgan
Q Ltd HCMP 1490/2009, 27 August 2009 at para 16, per Deputy High Court Q
Judge Au (as he then was). See also a line of authorities where section 62
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is invoked in the context of cessation of stockbroking businesses where the
S stockbrokers were not able to return client assets, even having exhausted S
all reasonable means to do so. The cases are set out in Re X Ltd [2018]
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HKCFI 15 at footnote 1 to para 4.
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43. It is clear from the above cases and the other authorities cited
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by Mr Avery Chan, counsel for the applicant, that in a section 62
D application, it is incumbent on the applicant to demonstrate by proper D
evidence that it has taken all reasonable steps to try to identify and locate
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the beneficiaries (in most cases, the applicant’s customers) and notify them
F of the cessation and take the necessary step to return the assets to them. F
What is reasonable must depend on the circumstances of each case,
G G
including the nature of the business, the circumstances in which the assets
H were received by the applicant in the first place and the information it has H
in respect of the beneficiaries.
I I
44. The rationale for this requirement is plain. Where a company
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elects to cease its business involving client assets, it bears the primary
K responsibility to return the assets entrusted to it by the clients. Where it K
has difficulties in doing so, eg due to loss of records by reason of long lapse
L L
of time, or lack of client contact information, and such difficulties prove to
M be insurmountable notwithstanding that reasonable efforts have been made, M
it is quite legitimate for it to seek the assistance of the court, which may
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grant leave for payment in as a solution to resolve those difficulties.
O O
45. While it is understandable that the company in question would
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wish to exit the business as soon as possible, it ought to recognise that it is
Q primarily responsible for an orderly wrap-up of its business. Q
R 46. In this regard, it is for the applicant to satisfy the court that R
proper and sufficient notice is given to its clients and by reasonable means
S S
before it comes to any conclusion that a particular client can be said to be
T not contactable or untraceable. T
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47. Just as in this case as suggested by the HKMA, multiple
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efforts should be made to track down the clients. In the application which
D is typically made ex parte (as there is no one to be served with), the D
applicant should put together evidence of such efforts.
E E
48. Apart from the above, in exercising its discretion, the court
F F
would, where appropriate, take into account the implication of a payment
G in order both from the perspective of the untraceable clients and from that G
of the court.
H H
49. Once the client asset is paid into court, a client who has not
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claimed back its assets will have to apply to the court for leave for payment
J out. The governing rule is Order 92, rule 5. The client will have to incur J
time and/or expenses (if a lawyer is engaged) to obtain a payment out. The
K K
client may well consider that he is unduly inconvenienced as he is forced
L to get back his own asset from the court with the incidental costs, instead L
of from the applicant, as a result of the unilateral cessation of the
M M
applicant’s business.
N N
50. However, where the applicant has exhausted all reasonable
O O
means to trace the clients and is still not able to find them, the practical
P likelihood of any client later coming to the court for payment out would P
not be high. And if that happens, given that the applicant has made
Q Q
reasonable efforts, the inconvenience of the individual client is perhaps
R something that has to be tolerated. These considerations reinforce the need R
of the requirement that the applicant bears the burden of showing that
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reasonable steps have been taken to return the assets.
T T
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51. As far as the court itself is concerned, the practical implication
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flowing from a payment in order should, where appropriate, be taken into
D account. D
E 52. Once paid in, the assets would be managed and administered E
by the court under the Suitors’ Funds Rules with the consequence that the
F F
cost of administering such assets would be defrayed out of the general
G revenue of Hong Kong. This effectively shifts the costs burden from the G
applicant (who would otherwise have to continue to administer the assets)
H H
to the court and thus the taxpayer: Re RBC Investor Services Trust Hong
I Kong Ltd at para 36. In the event that payment out applications are made, I
judicial resources in the form of judges’ or masters’ time would be
J J
deployed.
K K
53. I should add here that in Re RBC Investor Services Trust Hong
L Kong Ltd, Deputy High Court Judge Le Pichon commented that by virtue L
of rule 23(1) of the Suitors’ Funds Rules, where a sum of money remains
M M
unclaimed in the court for a period of five years, the Chief Justice may, on
N N
application by the Registrar, order such sum to be transferred to the general
O
revenue of Hong Kong. If the court is to make an order under section 62, O
at the end of the five years, it would be open to the Registrar to apply for
P P
an order that the unclaimed assets be dealt with accordingly. In that case,
Q the judge observed that the amount likely to be added to the general Q
revenue would far exceed any administration costs.
R R
54. In light of all these, when considering a payment in
S S
application, the court needs to consider whether there is sufficient
T justification for such use of the court resources, both judicial and T
administrative. This is clearly warranted by virtue of the underlying
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objective set out in Order 1A, rule 1(f), namely that the resources of the
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court are to be distributed fairly.
D D
55. Lastly, I would consider that, depending on the circumstances,
E the applicant should give some thought to any viable alternative solution E
other than a payment in order.
F F
Discussion
G G
56. In the present case, I am satisfied that the applicant is a trustee
H H
holding the remaining sums stored on the unredeemed cards, ie the Float,
I on trust for the benefit of the cardholders. The trust arises out of the I
express provisions of the Declaration of Trust as supplemented by the
J J
Custodian Deed and the terms and conditions applicable to the cards, all
K
described in the section “The legal framework” above. K
L L
57. Accordingly, the Float comes within section 62 of the Trustee
M Ordinance. The court has jurisdiction to make an order of payment in. M
N 58. However, I am not satisfied that I should exercise my N
discretion (or at least not at this stage) to grant the order sought. In gist, I
O O
am not satisfied that the applicant has demonstrated that it has exhausted
P all reasonable means to trace and contact the cardholders for the purpose P
of returning the stored value to them. The redemption timetable, as altered,
Q Q
appears to be unreasonably and unnecessarily tight. There are gaps in the
R evidence in that it is not clear to me precisely what personal information of R
the cardholders is in the possession of the applicant, in particular in the
S S
cases of personal cards and co-brand cards. Equally importantly (if not
T more so), given that there are ongoing redemptions taking place even as of T
now, the real likelihood is that after the payment in (if allowed), there
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would be imminent applications made by the cardholders to the court for
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payment out. This would put these cardholders to the trouble and expenses
D of getting back what are effectively their assets. It is also not a proper use D
of the court resources.
E E
59. While the court recognises that there is a legitimate reason for
F F
the applicant to invoke the payment in mechanism, the application before
G the court now is premature. I shall elaborate on the matters affecting the G
exercise of the discretion below.
H H
60. First, the evidence adduced on the availability of the personal
I I
information of the holders of personal cards and co-brand cards.
J J
61. According to the cards’ terms and conditions, a customer
K K
wishing to purchase a personal card is required to produce valid address
L
proof. However, Mr Lu stated in his affirmation that the applicant does not L
have the addresses even for those customers whom it can identify.
M M
62. I consider that there is a discrepancy here which needs to be
N N
explained by the applicant more fully. It may be the case that the applicant
O had collected the personal information but had not kept it as records. But O
the applicant has not presented a full picture on this issue to the court.
P P
63. Mr Lu’s affirmation is also silent on co-brand cards. More
Q Q
specifically, what personal information, if at all, would be required from
R the customers? In the first round of announcements made in September R
2020, the applicant asked the holders of co-brand cards to contact their
S S
“distributor” as soon as possible. Mr Lu has not deposed to any effort made
T by the applicant to try to get contact information of the holders of these co- T
brand cards from the “distributor”. As to whether that is a viable means to
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obtain contact information of these cardholders, we do not know. Mr Lu
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did not say anything in his affirmation. But it will be recalled that in its
D letter to the applicant in November 2020, the HKMA requested the D
applicant to take “proactive measures”, including seeking help from the co-
E E
brand partners to reach the cardholders. Hence, it seems to be a potential
F means to track down this group of cardholders. F
G 64. The other measure required by the HKMA was to reach the G
cardholders by multiple phone calls and WeChat messages. This seems to
H H
suggest that the applicant has in its possession telephone numbers of the
I cardholders (or at least some of them). Again, there is no mention at all on I
this potential means of contact in Mr Lu’s affirmation.
J J
65. I should add that given that it is an ex parte application, the
K K
applicant is required to give full and frank disclosure of all material matters
L relevant to the application. L
M M
66. Subject to the above observations, I am of the view that where
N no contact information can be found, an announcement regarding the N
redemption arrangements published on the applicant’s website and in
O O
newspapers is a reasonable means to bring the matter to the attention of the
P cardholders. P
Q 67. The second difficulty I have is the reasonableness of the Q
redemption timetable.
R R
68. The initial timetable set out in the first round of
S S
announcements made in September last year allowed the cardholders to
T redeem the cards up to 15 May this year. That is to say, the applicant built T
in a period of about eight months for cardholders to come forward to
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redeem from the applicant, which should be a simple and straightforward
C C
exercise. Cardholders should be given sufficient time for the whole
D redemption exercise. One cannot reasonably expect the cardholders to D
check the applicant’s website frequently and even if they do so, they cannot
E E
be reasonably expected to act at once.
F F
69. As mentioned above, the timetable was then significantly
G changed. The applicant announced on 14 January 2021 on its website that G
all redemptions would have to be done by the 29th of the same month. If
H H
not redeemed, the cardholders would have to go to the court for redemption.
I The redemption period was drastically cut short by 3½ months with no I
apparent reason given. The applicant only allowed two weeks from the
J J
time of the announcement for the redemption. And that is on the
K assumption that the cardholders would find out about this change K
immediately, which is plainly unrealistic. This arrangement is clearly
L L
unsatisfactory.
M M
70. The new arrangement seems to be have been prompted by the
N
HKMA’s comments made in November 2020 – see para 29 above. The N
O
HKMA was clearly concerned that the winding down of the applicant’s O
business should be done in an orderly manner and, further, that the
P P
cardholders’ assets must be fully protected.
Q Q
71. I do not have sufficient information before me to, and I
R therefore would not, comment on whether the HKMA’s request that the R
Float should be transferred or ready to be transferred to the court by the
S S
end of January 2021 was a sound or reasonable one, particularly from a
T regulatory standpoint. T
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72. However, purely in the context of a section 62 application, the
C C
request did not apparently take into account the implications such an early
D payment in order would have on both the cardholders and the court. D
E 73. The applicant has clearly taken the HKMA’s request at face E
value. Hence the altered timetable requiring all redemptions to the
F F
applicant to be done by 29 January 2021. After that, the cardholders would
G have to go to the court instead, which would be much more time- G
consuming and costly. It is at least slightly ironic that the measure
H H
designed by the HKMA to protect the interests of the cardholders might
I turn out to work to the disadvantage of the cardholders. I
J 74. Thirdly, my main concern in this application is that it is J
looking very likely that there will be cardholders coming to the court for
K K
payment out if a payment in order is made now.
L L
75. In the one month from 21 January 2021, a total of about 900
M M
cardholders have redeemed their cards. The total redemption amounts
N were about $1,400,000. There is every reason to believe that this trend will N
continue and more cardholders will continue to come forward to redeem.
O O
But as time goes by, the number will be expected to decline.
P P
76. If I make the payment in order today, the outcome is that there
Q will be payment out applications coming to the court soon. While those Q
cardholders who only have very little money left on their cards, like a few
R R
dollars or a few hundred dollars, may not think it worthwhile to make a
S court application, those having stored value of a few thousand dollars or S
tens of thousands of dollars would have more incentive to come. So,
T T
starting potentially from tomorrow (or after the payment in is made), the
U U
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A - 20 - A
B B
court will have to entertain what are effectively redemption applications
C C
from the applicant’s customers.
D D
77. This is plainly not acceptable. It is effectively shifting the
E burden of returning client assets from the applicant to the court. The High E
Court Registry is not an extended back office of the applicant. Given the
F F
expectation of there being more redeeming customers coming forward, the
G application for payment in is clearly premature. G
H 78. Fourthly, from the cardholders’ perspective, they have not H
been given a reasonable amount of time to redeem their cards.
I I
79. One should bear in mind that some of these cardholders had
J J
already had their cards terminated unilaterally before the scheduled expiry.
K K
For those who only have little money left on the cards, they may not think
L
it worthwhile to spend time to go through the court process to get back the L
money. That would be understandable. I consider that if a court order is
M M
made today, it would cause prejudice to these customers, both in money
N terms and also as a matter of principle and fairness. N
O 80. Lastly, in my view, the applicant should give serious thought O
to whether there are other options apart from paying the Float into court.
P P
81. It has to justify why there is the urgency to part with these
Q Q
sums of money now. Is it possible for it to maintain a bare bone operation
R solely to deal with the unclaimed moneys? Towards the end of Mr Chan’s R
submissions, he informed the court that the reason why the applicant made
S S
this application last month was because the HKMA had requested it to do
T so. That is consistent with the content of the HKMA letter in November T
2020.
U U
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A - 21 - A
B B
82. In the course of his submissions, when asked about the
C C
implication for a payment in order for the cardholders, Mr Chan referred
D to a draft notice which has been prepared by the applicant in consultation D
with the HKMA. Subject to some minor changes, that notice is to be
E E
published. It seeks to explain the steps the cardholders should take to apply
F for a payment out order from the court pursuant to Order 92, rule 5. F
G 83. I have to say I am taken a little by surprise by this latest G
development as it seems to suggest that the HKMA has taken it for granted
H H
that a payment in order will be made today.
I I
84. As said, I am not in a position to comment on the approach
J pursued by the HKMA without having heard submissions from them. I J
would only say that when considering the exercise of its discretion, the
K K
court’s task is to evaluate all the relevant factors. That exercise I have
L sought to undertake just now. L
M M
85. Where the HKMA is concerned with any non-compliance of
N licensing conditions, there ought to be powers provided for in the Payment N
Systems and Stored Value Facilities Ordinance to address their specific
O O
concerns.
P P
86. Much as the applicant (or the HKMA) wishes to have a clean
Q cut or swift exit from the Card business, the applicant must remember that Q
it has the primary responsibility to look after those client assets, including
R R
taking all reasonable steps to return them in a responsible manner, with
S minimal inconvenience to the customers and without unjustifiably S
burdening the court with totally foreseeable applications.
T T
U U
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B B
Conclusion
C C
87. For the above reasons, it is not a proper case for the court to
D D
exercise the discretion to allow the payment in of these unclaimed sums,
E
or at least not at this stage. I therefore dismiss the originating summons. E
F [Submissions on costs] F
G 88. I make no orders on costs. G
H H
I I
J J
( Winnie Tsui )
K Deputy High Court Judge K
L L
M M
Mr Avery Chan, instructed by WBY Lawyers, for the applicant
N N
O O
P P
Q Q
R R
S S
T T
U U
V V
A A
B B
HCMP 99/2021
C C
[2021] HKCFI 561
D IN THE HIGH COURT OF THE D
HONG KONG SPECIAL ADMINISTRATIVE REGION
E E
COURT OF FIRST INSTANCE
F MISCELLANEOUS PROCEEDINGS NO 99 OF 2021 F
_________________
G G
IN THE MATTER of K&R
H H
INTERNATIONAL LIMITED
I and I
IN THE MATTER of the Trustee
J J
Ordinance (Cap 29)
K and K
IN THE MATTER of Order 92 of the
L L
Rules of the High Court
M _________________ M
N K&R INTERNATIONAL LIMITED Applicant N
_________________
O O
Before: Deputy High Court Judge Winnie Tsui in Chambers
P P
Date of Hearing: 26 February 2021
Q Date of Decision: 26 February 2021 Q
R R
_______________
S S
DECISION
T _______________ T
U U
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A -2- A
B B
Introduction
C C
1. This is the application of K&R International Ltd for an order
D D
to pay a sum of about $3,600,000 into court pursuant to section 62 of the
E
Trustee Ordinance, Cap 29. The application is made by way of an ex parte E
originating summons dated 21 January 2021.
F F
2. The applicant is a company incorporated in Hong Kong.
G G
Since 2014, it has been engaged in the business of prepaid card service,
H marketed in the name of “K&R Global Express Card”. The cards issued H
under this service are “stored value facilities” under the Payment Systems
I I
and Stored Value Facilities Ordinance, Cap 584. Under that Ordinance,
J any person issuing and operating a stored value facility is required to obtain J
a licence from the Hong Kong Monetary Authority (“the HKMA”) and is
K K
subject to its oversight. The applicant is licensed by the HKMA to issue
L and operate prepaid cards. L
M 3. In August 2020, the applicant decided to cease the card M
business. Since then, it has launched a redemption exercise inviting
N N
holders of individual prepaid cards to redeem the outstanding value stored
O on the cards. O
P P
4. As of the date of the originating summons, there remained a
Q
sum of $5,051,034.22 which was yet to be redeemed. According to an Q
update affirmation filed shortly before today’s hearing, the unredeemed
R R
amount was reduced to $3,671,025.79 as of 22 February 2021. The
S reduction was due to the redemptions which took place in the one month S
since the present application was made.
T T
U U
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A -3- A
B B
5. The applicant says that it holds the above unredeemed sum on
C C
trust for the holders of the cards. It now seeks an order to pay the sum into
D court so that it can complete the cessation of its card business. D
E 6. The application is supported by the affirmation evidence of E
Mr Lu Zhenwei, the applicant’s alternate chief executive.
F F
7. In this decision, I shall use the term “the Card” or “the SVF
G G
business” to refer to the prepaid card business operated by the applicant.
H The term “the cards” shall mean the individual prepaid cards issued and H
held by its customers, whom I shall call “the cardholders”.
I I
J The cards J
K 8. The cards issued by the applicant are preloaded (or prepaid) K
with value. The holders can use the cards for payment at merchants which
L L
accept UnionPay card. The cards can be used in Hong Kong and overseas,
M in particular Mainland China. The use of the cards is subject to the M
applicant’s terms and conditions, which are published on the applicant’s
N N
website. The version updated as of 22 November 2018 is included in the
O evidence. O
P 9. The applicant issues three types of cards – anonymous cards, P
personal cards and co-brand cards.
Q Q
10. One can purchase an anonymous card with a face value (or
R R
pre-stored value) from $500 to $8,000. No personal information is
S required from the customer for the purchase. If a customer wishes to S
purchase an anonymous card with a face value of over $8,000 (and up to
T T
$25,000, being the maximum amount), he will have to provide personal
U U
information for identification purpose. An anonymous card cannot be
V V
A -4- A
B B
topped up. It means that once the prepaid value is used up, the card can no
C C
longer be used.
D D
11. The personal card is a reloadable card with a maximum stored
E value of $120,000. A customer is required to provide valid address proof E
for the purchase. That is what the terms and conditions provide for.
F F
However, in his affirmation, Mr Lu states that for cards of which the
G holders can be identified, the applicant does not have their addresses. I will G
have to come back to this point in the discussion below.
H H
12. While the terms and conditions also refer to the co-brand
I I
cards, Mr Lu has not referred to this type of cards or explained how they
J operate, in particular whether and what personal information is required J
for the purchase.
K K
L
13. According to the terms and conditions, the cards expire 24 L
months after activation. The outstanding value can be redeemed but a
M M
monthly management fee will be deducted from the card.
N N
14. The applicant maintains accounts with Bank of
O Communications Trustee Ltd. The purchase money received from the O
cardholders are deposited into segregated trust accounts which are separate
P P
from the applicant’s own house account.
Q Q
The legal framework
R R
15. In relation to the money received from the cardholders, the
S terms and conditions provide as follows: S
T “2. We will maintain an account (“Account”) for each Card T
issued by us [ie the applicant]. Where the Card is used for
U purchasing goods and services, cash withdrawal, or when K&R U
V V
A -5- A
B B
service fees, administration fees, and/or other Card related fees
C
are charged by us, and/or when the Card is reloaded, the Account C
balance will be adjusted accordingly.
D 3. Funds Management D
(a) Your money [ie the purchase money paid by a cardholder]
E E
in your Account will be held in segregated trust accounts
(collectively, the “Trust Accounts”) which are separate from the
F house account of K&R for your benefit until such funds are either F
returned to you at your request or paid for your transactions.
G (b) By maintaining your funds in the Trust Accounts on your G
behalf, we undertake to:
H H
(i) Secure your funds free from any lien, charge, pledge,
mortgage or other encumbrance, equity or thirty party right of
I any nature; and I
J
(ii) Keep proper records relating to the Trust Accounts. J
(c) You will only be entitled to all monies standing to your
K Account and you will not be entitled to any interest in any other K
Trust Account.
L L
(d) K&R may, but shall not be obliged to, invest the funds in
the Trust Accounts in accordance with applicable laws, rules,
M regulations, codes, guidelines, circulars and K&R’s policies. M
(e) If K&R decides to invest the funds in the Trust Accounts,
N K&R shall be entitled, as remuneration for the services which it N
provides in its capacity as a trustee, to retain the net profits
O generated from time to time by the appreciations of value of the O
investment for its own use absolutely.” (italics added)
P 16. The above terms are given effect by a Declaration of Trust P
Q
executed by the applicant on 17 October 2016, and a SVF Custodian Deed Q
executed on the same date by the applicant and Bank of Communications
R R
Trustee Ltd as the custodian.
S S
17. In broad terms, under the Declaration, the applicant becomes
T the trustee of the outstanding stored value on the cards (referred to as “the T
U U
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A -6- A
B B
Float”) for the benefit of the cardholders. The operative provisions are
C C
contained in clauses 3 and 4 of the Declaration.
D D
18. Under the SVF Custodian Deed, the applicant appointed Bank
E of Communications as the custodian of the Float. Separate accounts were E
opened and maintained for receiving the Float. See clauses 2.1 to 2.4.
F F
Exit from the Card business
G G
19. On 17 August 2020, the applicant decided to exit from the
H H
Card business.
I I
20. By an announcement published on its website on 11
J J
September 2020, the applicant informed the cardholders of its decision.
K The announcement stated: K
L “… K&R shall exit from stored value facility business in an L
orderly manner. K&R shall execute the “Redemption
Arrangement” stated below with its prepaid card holders in
M phases. If you are holding one of our co-brand prepaid cards, M
please contact your distributor as soon as possible for more
assistance” (italics added)
N N
21. As announced, the redemption exercise would proceed in
O O
three phases.
P P
22. Phase 1 would start from the date of the announcement and
Q end on 30 November 2020. Under this phase, the cards, if valid, would Q
remain usable. The cardholders are however encouraged to use up the
R R
remaining value of their cards.
S S
23. Phase 2 would start from 1 December 2020 and last for 5½
T T
months, ie until 15 May 2021. All cards would be terminated on 1
U December 2020. They can no longer be used even though the 24-month U
V V
A -7- A
B B
period has not yet expired. The cardholders should apply to the applicant
C C
to redeem the remaining value. That can be done in person, or by post,
D courier or email. The redemption service would cease on 15 May 2021. D
E 24. Phase 3 would start from 1 June 2021 onwards. The E
announcement stated as follows:
F F
“If you would like to redeem your card balance on or after 1 June
G 2021, you may apply to the designated law court and will need G
to bear the relevant charges. Detailed procedures will be
published before 31 May 2021.”
H H
25. I pause here to note that by stating the above, the applicant
I I
seems to be assuming that a court order for payment in will be granted as
J a matter of course. J
K 26. In his affirmation, Mr Lu said that not all the cardholders had K
provided their personal information to the applicant and that has posed a
L L
major difficulty to the applicant when it came to informing them of the
M redemption exercise. This is particularly true of anonymous cards where M
no information was required at all for the purchase if the prepaid value did
N N
not exceed $8,000. Furthermore, even for holders whose identity had been
O previously recorded by the applicant, the applicant does not have their O
P
addresses such that the applicant is not able to notify these identified P
cardholders individually by post.
Q Q
27. For these reasons, the applicant considers that the best way to
R R
notify all the cardholders, whether identified or not, is to publish the
S announcement on newspapers in Hong Kong and Mainland China. S
Adduced in the evidence are copies of the newspaper announcements
T T
appearing in South China Morning Post and the Hong Kong Economic
U Journal on 18 September 2020. That would be the first round of U
V V
A -8- A
B B
announcement published by the applicant on its website and newspapers in
C C
September 2020.
D D
28. What then happened was that the HKMA, who has
E supervision over the applicant’s SVF business, wrote to the applicant on E
30 November 2020 expressing concerns over a number of “major issues”
F F
in relation to, among other things, compliance with the licensing conditions.
G G
29. Among other issues, the HKMA was clearly concerned that
H the applicant should complete the redemption exercise in a smooth and H
orderly manner. It therefore requested the applicant to take additional
I I
actions to expedite the redemption process. The applicant was asked to
J “take proactive measures to successfully contact all verified users by 14 J
December 2020 (e.g. reach individual user by multiple phone calls and
K K
WeChat messages, plus seeking help from co-brand partners to reach the
L user) with a view to completing the float redemption … by all users by L
end-December 2020” and “[s]tart making immediate preparations with the
M M
Custodian and Administrator for the payment into court arrangement with
N N
a view to achieving maximum readiness (i.e. residual user float transferred
O
or ready to be transferred to court) by end of January 2021, and providing O
weekly progress updates to the HKMA” (italics added).
P P
30. Apparently driven by the measures imposed by the HKMA,
Q Q
the applicant then issued another announcement on its website on 14
R January 2021, significantly altering the redemption timetable previously R
announced and effectively bringing forward the redemption deadline to 29
S S
January 2021. Cardholders were advised to redeem their cards before that
T date, referred to as “the Closing Date”. The announcement said: T
U U
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A -9- A
B B
“… It is expected that shortly after the Closing Date, the
C
Company will transfer all the remaining prepaid card balance to C
a Hong Kong law court which will hold such remaining balance
as judicial trustee. Upon such an occurrence, the Company will
D not be in a position to accept any redemption requests and the D
only means for you to redeem your remaining prepaid card
balance is through the Hong Kong judicial process which means
E E
you may incur additional costs and may be required to take
certain judicial procedures in order to redeem your remaining
F prepaid card balance. …” F
31. There is also an announcement published in International
G G
Business Daily, a newspaper circulating in Mainland China, on 6 January
H H
2021 stating to the effect that after the Closing Date of 29 January 2021,
I
the applicant would not process any redemption application. I
J 32. It will be recalled that in the first round of announcements J
published in September 2020, the deadline for redemption was scheduled
K K
to be on 15 May 2021.
L L
33. It is against this background that the present application was
M taken out on 21 January 2021. M
N N
The redemption activities
O 34. There is no evidence before me as to how many cardholders O
P
were redeeming their cards in response to the applicant’s announcement P
since 11 September 2020.
Q Q
35. As of about 21 January 2021, the remaining unredeemed sums
R R
amounted to just over $5,000,000, involving about 2,900 cards. The
S outstanding cards included all three types of cards. The stored value S
remaining on the anonymous cards ranged from less than $1 to about
T T
$4,000. For other cards, the range was from tens of dollars to about
U U
V V
A - 10 - A
B B
$59,000. The majority were, however, in sums of a few hundred dollars or
C C
a few thousand dollars.
D D
36. As revealed from Mr Lu’s update affirmation filed one month
E later, the total unredeemed amounts dropped to about $3,600,000 and the E
number of outstanding cards to just over 2,000.
F F
37. In other words, in the last month, about 900 cardholders had
G G
come forward to redeem. It is apparent from the above that significant
H redemption activities have been going on and are likely to continue to go H
on.
I I
38. Against this backdrop, the applicant asks for leave to pay the
J J
remaining sum into court now.
K K
Legal principles
L L
39. Section 62 of the Trustee Ordinance provides:
M M
“62. Payment into court by trustees
N N
(1) Trustees, or the majority of trustees, having in
their hands or under their control money or
O O
securities belonging to a trust, may pay the same
into court, and the same shall, subject to the rules
P of court, be dealt with according to the orders of P
the court.
Q … Q
R (5) Every transfer, payment and delivery made in R
pursuance of any such order shall be valid and
take effect as if the same had been made on the
S authority or by the act of all the persons entitled S
to the money and securities so transferred, paid or
T
delivered.” T
U U
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A - 11 - A
B B
40. When considering whether to make an order under the section,
C C
the court generally goes through a two-stage process. First, the court needs
D to be satisfied that the property which forms the subject-matter of the D
payment in application is trust property held by the applicant as trustee. If
E E
so, the court then proceeds to consider whether it should exercise its
F discretion to allow the payment in. F
G 41. The section is largely based on section 63 of the Trustee Act G
1925 in England. In the modern day context, it is from time to time invoked
H H
in liquidations or cessation of businesses. Orders for payment in have been
I made to enable the relevant liquidation or cessation of business to proceed, I
and come to a conclusion: Re RBC Investor Services Trust Hong Kong Ltd
J J
[2018] 5 HKC 80 at para 8. This applies where the company in liquidation
K or the company ceasing business holds trust assets, eg client assets, which K
remain unclaimed, notwithstanding that reasonable steps have been taken
L L
to identify the beneficiaries and return the trust assets to them.
M M
42. In these circumstances, it is recognised and accepted that
N
allowing these trust assets to be paid into court is a “flexible and pragmatic” N
O
solution to the situation. In the context of cessation of business, it enables O
the company in question to properly cease its business and at the same time
P P
protects the interests of the beneficiaries: see, eg, Re Drake and Morgan
Q Ltd HCMP 1490/2009, 27 August 2009 at para 16, per Deputy High Court Q
Judge Au (as he then was). See also a line of authorities where section 62
R R
is invoked in the context of cessation of stockbroking businesses where the
S stockbrokers were not able to return client assets, even having exhausted S
all reasonable means to do so. The cases are set out in Re X Ltd [2018]
T T
HKCFI 15 at footnote 1 to para 4.
U U
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A - 12 - A
B B
43. It is clear from the above cases and the other authorities cited
C C
by Mr Avery Chan, counsel for the applicant, that in a section 62
D application, it is incumbent on the applicant to demonstrate by proper D
evidence that it has taken all reasonable steps to try to identify and locate
E E
the beneficiaries (in most cases, the applicant’s customers) and notify them
F of the cessation and take the necessary step to return the assets to them. F
What is reasonable must depend on the circumstances of each case,
G G
including the nature of the business, the circumstances in which the assets
H were received by the applicant in the first place and the information it has H
in respect of the beneficiaries.
I I
44. The rationale for this requirement is plain. Where a company
J J
elects to cease its business involving client assets, it bears the primary
K responsibility to return the assets entrusted to it by the clients. Where it K
has difficulties in doing so, eg due to loss of records by reason of long lapse
L L
of time, or lack of client contact information, and such difficulties prove to
M be insurmountable notwithstanding that reasonable efforts have been made, M
it is quite legitimate for it to seek the assistance of the court, which may
N N
grant leave for payment in as a solution to resolve those difficulties.
O O
45. While it is understandable that the company in question would
P P
wish to exit the business as soon as possible, it ought to recognise that it is
Q primarily responsible for an orderly wrap-up of its business. Q
R 46. In this regard, it is for the applicant to satisfy the court that R
proper and sufficient notice is given to its clients and by reasonable means
S S
before it comes to any conclusion that a particular client can be said to be
T not contactable or untraceable. T
U U
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A - 13 - A
B B
47. Just as in this case as suggested by the HKMA, multiple
C C
efforts should be made to track down the clients. In the application which
D is typically made ex parte (as there is no one to be served with), the D
applicant should put together evidence of such efforts.
E E
48. Apart from the above, in exercising its discretion, the court
F F
would, where appropriate, take into account the implication of a payment
G in order both from the perspective of the untraceable clients and from that G
of the court.
H H
49. Once the client asset is paid into court, a client who has not
I I
claimed back its assets will have to apply to the court for leave for payment
J out. The governing rule is Order 92, rule 5. The client will have to incur J
time and/or expenses (if a lawyer is engaged) to obtain a payment out. The
K K
client may well consider that he is unduly inconvenienced as he is forced
L to get back his own asset from the court with the incidental costs, instead L
of from the applicant, as a result of the unilateral cessation of the
M M
applicant’s business.
N N
50. However, where the applicant has exhausted all reasonable
O O
means to trace the clients and is still not able to find them, the practical
P likelihood of any client later coming to the court for payment out would P
not be high. And if that happens, given that the applicant has made
Q Q
reasonable efforts, the inconvenience of the individual client is perhaps
R something that has to be tolerated. These considerations reinforce the need R
of the requirement that the applicant bears the burden of showing that
S S
reasonable steps have been taken to return the assets.
T T
U U
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A - 14 - A
B B
51. As far as the court itself is concerned, the practical implication
C C
flowing from a payment in order should, where appropriate, be taken into
D account. D
E 52. Once paid in, the assets would be managed and administered E
by the court under the Suitors’ Funds Rules with the consequence that the
F F
cost of administering such assets would be defrayed out of the general
G revenue of Hong Kong. This effectively shifts the costs burden from the G
applicant (who would otherwise have to continue to administer the assets)
H H
to the court and thus the taxpayer: Re RBC Investor Services Trust Hong
I Kong Ltd at para 36. In the event that payment out applications are made, I
judicial resources in the form of judges’ or masters’ time would be
J J
deployed.
K K
53. I should add here that in Re RBC Investor Services Trust Hong
L Kong Ltd, Deputy High Court Judge Le Pichon commented that by virtue L
of rule 23(1) of the Suitors’ Funds Rules, where a sum of money remains
M M
unclaimed in the court for a period of five years, the Chief Justice may, on
N N
application by the Registrar, order such sum to be transferred to the general
O
revenue of Hong Kong. If the court is to make an order under section 62, O
at the end of the five years, it would be open to the Registrar to apply for
P P
an order that the unclaimed assets be dealt with accordingly. In that case,
Q the judge observed that the amount likely to be added to the general Q
revenue would far exceed any administration costs.
R R
54. In light of all these, when considering a payment in
S S
application, the court needs to consider whether there is sufficient
T justification for such use of the court resources, both judicial and T
administrative. This is clearly warranted by virtue of the underlying
U U
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A - 15 - A
B B
objective set out in Order 1A, rule 1(f), namely that the resources of the
C C
court are to be distributed fairly.
D D
55. Lastly, I would consider that, depending on the circumstances,
E the applicant should give some thought to any viable alternative solution E
other than a payment in order.
F F
Discussion
G G
56. In the present case, I am satisfied that the applicant is a trustee
H H
holding the remaining sums stored on the unredeemed cards, ie the Float,
I on trust for the benefit of the cardholders. The trust arises out of the I
express provisions of the Declaration of Trust as supplemented by the
J J
Custodian Deed and the terms and conditions applicable to the cards, all
K
described in the section “The legal framework” above. K
L L
57. Accordingly, the Float comes within section 62 of the Trustee
M Ordinance. The court has jurisdiction to make an order of payment in. M
N 58. However, I am not satisfied that I should exercise my N
discretion (or at least not at this stage) to grant the order sought. In gist, I
O O
am not satisfied that the applicant has demonstrated that it has exhausted
P all reasonable means to trace and contact the cardholders for the purpose P
of returning the stored value to them. The redemption timetable, as altered,
Q Q
appears to be unreasonably and unnecessarily tight. There are gaps in the
R evidence in that it is not clear to me precisely what personal information of R
the cardholders is in the possession of the applicant, in particular in the
S S
cases of personal cards and co-brand cards. Equally importantly (if not
T more so), given that there are ongoing redemptions taking place even as of T
now, the real likelihood is that after the payment in (if allowed), there
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would be imminent applications made by the cardholders to the court for
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payment out. This would put these cardholders to the trouble and expenses
D of getting back what are effectively their assets. It is also not a proper use D
of the court resources.
E E
59. While the court recognises that there is a legitimate reason for
F F
the applicant to invoke the payment in mechanism, the application before
G the court now is premature. I shall elaborate on the matters affecting the G
exercise of the discretion below.
H H
60. First, the evidence adduced on the availability of the personal
I I
information of the holders of personal cards and co-brand cards.
J J
61. According to the cards’ terms and conditions, a customer
K K
wishing to purchase a personal card is required to produce valid address
L
proof. However, Mr Lu stated in his affirmation that the applicant does not L
have the addresses even for those customers whom it can identify.
M M
62. I consider that there is a discrepancy here which needs to be
N N
explained by the applicant more fully. It may be the case that the applicant
O had collected the personal information but had not kept it as records. But O
the applicant has not presented a full picture on this issue to the court.
P P
63. Mr Lu’s affirmation is also silent on co-brand cards. More
Q Q
specifically, what personal information, if at all, would be required from
R the customers? In the first round of announcements made in September R
2020, the applicant asked the holders of co-brand cards to contact their
S S
“distributor” as soon as possible. Mr Lu has not deposed to any effort made
T by the applicant to try to get contact information of the holders of these co- T
brand cards from the “distributor”. As to whether that is a viable means to
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obtain contact information of these cardholders, we do not know. Mr Lu
C C
did not say anything in his affirmation. But it will be recalled that in its
D letter to the applicant in November 2020, the HKMA requested the D
applicant to take “proactive measures”, including seeking help from the co-
E E
brand partners to reach the cardholders. Hence, it seems to be a potential
F means to track down this group of cardholders. F
G 64. The other measure required by the HKMA was to reach the G
cardholders by multiple phone calls and WeChat messages. This seems to
H H
suggest that the applicant has in its possession telephone numbers of the
I cardholders (or at least some of them). Again, there is no mention at all on I
this potential means of contact in Mr Lu’s affirmation.
J J
65. I should add that given that it is an ex parte application, the
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applicant is required to give full and frank disclosure of all material matters
L relevant to the application. L
M M
66. Subject to the above observations, I am of the view that where
N no contact information can be found, an announcement regarding the N
redemption arrangements published on the applicant’s website and in
O O
newspapers is a reasonable means to bring the matter to the attention of the
P cardholders. P
Q 67. The second difficulty I have is the reasonableness of the Q
redemption timetable.
R R
68. The initial timetable set out in the first round of
S S
announcements made in September last year allowed the cardholders to
T redeem the cards up to 15 May this year. That is to say, the applicant built T
in a period of about eight months for cardholders to come forward to
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redeem from the applicant, which should be a simple and straightforward
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exercise. Cardholders should be given sufficient time for the whole
D redemption exercise. One cannot reasonably expect the cardholders to D
check the applicant’s website frequently and even if they do so, they cannot
E E
be reasonably expected to act at once.
F F
69. As mentioned above, the timetable was then significantly
G changed. The applicant announced on 14 January 2021 on its website that G
all redemptions would have to be done by the 29th of the same month. If
H H
not redeemed, the cardholders would have to go to the court for redemption.
I The redemption period was drastically cut short by 3½ months with no I
apparent reason given. The applicant only allowed two weeks from the
J J
time of the announcement for the redemption. And that is on the
K assumption that the cardholders would find out about this change K
immediately, which is plainly unrealistic. This arrangement is clearly
L L
unsatisfactory.
M M
70. The new arrangement seems to be have been prompted by the
N
HKMA’s comments made in November 2020 – see para 29 above. The N
O
HKMA was clearly concerned that the winding down of the applicant’s O
business should be done in an orderly manner and, further, that the
P P
cardholders’ assets must be fully protected.
Q Q
71. I do not have sufficient information before me to, and I
R therefore would not, comment on whether the HKMA’s request that the R
Float should be transferred or ready to be transferred to the court by the
S S
end of January 2021 was a sound or reasonable one, particularly from a
T regulatory standpoint. T
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72. However, purely in the context of a section 62 application, the
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request did not apparently take into account the implications such an early
D payment in order would have on both the cardholders and the court. D
E 73. The applicant has clearly taken the HKMA’s request at face E
value. Hence the altered timetable requiring all redemptions to the
F F
applicant to be done by 29 January 2021. After that, the cardholders would
G have to go to the court instead, which would be much more time- G
consuming and costly. It is at least slightly ironic that the measure
H H
designed by the HKMA to protect the interests of the cardholders might
I turn out to work to the disadvantage of the cardholders. I
J 74. Thirdly, my main concern in this application is that it is J
looking very likely that there will be cardholders coming to the court for
K K
payment out if a payment in order is made now.
L L
75. In the one month from 21 January 2021, a total of about 900
M M
cardholders have redeemed their cards. The total redemption amounts
N were about $1,400,000. There is every reason to believe that this trend will N
continue and more cardholders will continue to come forward to redeem.
O O
But as time goes by, the number will be expected to decline.
P P
76. If I make the payment in order today, the outcome is that there
Q will be payment out applications coming to the court soon. While those Q
cardholders who only have very little money left on their cards, like a few
R R
dollars or a few hundred dollars, may not think it worthwhile to make a
S court application, those having stored value of a few thousand dollars or S
tens of thousands of dollars would have more incentive to come. So,
T T
starting potentially from tomorrow (or after the payment in is made), the
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court will have to entertain what are effectively redemption applications
C C
from the applicant’s customers.
D D
77. This is plainly not acceptable. It is effectively shifting the
E burden of returning client assets from the applicant to the court. The High E
Court Registry is not an extended back office of the applicant. Given the
F F
expectation of there being more redeeming customers coming forward, the
G application for payment in is clearly premature. G
H 78. Fourthly, from the cardholders’ perspective, they have not H
been given a reasonable amount of time to redeem their cards.
I I
79. One should bear in mind that some of these cardholders had
J J
already had their cards terminated unilaterally before the scheduled expiry.
K K
For those who only have little money left on the cards, they may not think
L
it worthwhile to spend time to go through the court process to get back the L
money. That would be understandable. I consider that if a court order is
M M
made today, it would cause prejudice to these customers, both in money
N terms and also as a matter of principle and fairness. N
O 80. Lastly, in my view, the applicant should give serious thought O
to whether there are other options apart from paying the Float into court.
P P
81. It has to justify why there is the urgency to part with these
Q Q
sums of money now. Is it possible for it to maintain a bare bone operation
R solely to deal with the unclaimed moneys? Towards the end of Mr Chan’s R
submissions, he informed the court that the reason why the applicant made
S S
this application last month was because the HKMA had requested it to do
T so. That is consistent with the content of the HKMA letter in November T
2020.
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82. In the course of his submissions, when asked about the
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implication for a payment in order for the cardholders, Mr Chan referred
D to a draft notice which has been prepared by the applicant in consultation D
with the HKMA. Subject to some minor changes, that notice is to be
E E
published. It seeks to explain the steps the cardholders should take to apply
F for a payment out order from the court pursuant to Order 92, rule 5. F
G 83. I have to say I am taken a little by surprise by this latest G
development as it seems to suggest that the HKMA has taken it for granted
H H
that a payment in order will be made today.
I I
84. As said, I am not in a position to comment on the approach
J pursued by the HKMA without having heard submissions from them. I J
would only say that when considering the exercise of its discretion, the
K K
court’s task is to evaluate all the relevant factors. That exercise I have
L sought to undertake just now. L
M M
85. Where the HKMA is concerned with any non-compliance of
N licensing conditions, there ought to be powers provided for in the Payment N
Systems and Stored Value Facilities Ordinance to address their specific
O O
concerns.
P P
86. Much as the applicant (or the HKMA) wishes to have a clean
Q cut or swift exit from the Card business, the applicant must remember that Q
it has the primary responsibility to look after those client assets, including
R R
taking all reasonable steps to return them in a responsible manner, with
S minimal inconvenience to the customers and without unjustifiably S
burdening the court with totally foreseeable applications.
T T
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Conclusion
C C
87. For the above reasons, it is not a proper case for the court to
D D
exercise the discretion to allow the payment in of these unclaimed sums,
E
or at least not at this stage. I therefore dismiss the originating summons. E
F [Submissions on costs] F
G 88. I make no orders on costs. G
H H
I I
J J
( Winnie Tsui )
K Deputy High Court Judge K
L L
M M
Mr Avery Chan, instructed by WBY Lawyers, for the applicant
N N
O O
P P
Q Q
R R
S S
T T
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