Attorney General of Hong Kong v Reid [1994] 1 AC 324

Mr Reid, a Hong Kong prosecutor, accepted bribes and invested them in New Zealand properties. The Privy Council held that a fiduciary who accepts bribes holds them on constructive trust for the principal, overruling Lister v Stubbs. The principal can claim any increase in value of the bribe property.

Facts

Mr Reid, a New Zealand solicitor who served as Acting Director of Public Prosecutions in Hong Kong, accepted bribes in breach of his fiduciary duty to the Crown. He pleaded guilty to offences under the Prevention of Bribery Ordinance and was sentenced to eight years’ imprisonment. He was ordered to pay HK$12.4 million (equivalent to NZ$2.5 million), representing the value of assets derived from bribes. Mr Reid used bribe money to purchase three freehold properties in New Zealand, registered in the names of himself, his wife, and his solicitor Mr Molloy. The Attorney General for Hong Kong sought to register caveats against these properties, claiming a proprietary interest.

Issues

Principal Legal Question

Whether a fiduciary who accepts a bribe holds that bribe and any property acquired with it on constructive trust for the principal, or whether the relationship is merely one of debtor and creditor.

Significance of the Distinction

If a constructive trust exists, the principal can claim the property itself (including any increase in value) and has priority over unsecured creditors in insolvency. If merely a debt, the principal has only a personal claim for the original bribe amount.

Judgment

The Privy Council, delivering judgment through Lord Templeman, held that a fiduciary who accepts a bribe holds it on constructive trust for the person to whom the duty was owed. The Board departed from the long-standing authority of Lister & Co. v Stubbs (1890) 45 ChD 1.

“When a bribe is accepted by a fiduciary in breach of his duty then he holds that bribe in trust for the person to whom the duty was owed. If the property representing the bribe decreases in value the fiduciary must pay the difference between that value and the initial amount of the bribe because he should not have accepted the bribe or incurred the risk of loss. If the property increases in value, the fiduciary is not entitled to any surplus in excess of the initial value of the bribe because he is not allowed by any means to make a profit out of a breach of duty.”

Lord Templeman emphasised the fundamental equitable principles at stake:

“Equity however which acts in personam insists that it is unconscionable for a fiduciary to obtain and retain a benefit in breach of duty… Equity considers as done that which ought to have been done. As soon as the bribe was received, whether in cash or in kind, the false fiduciary held the bribe on a constructive trust for the person injured.”

Rejection of Lister v Stubbs

The Board rejected the reasoning in Lister v Stubbs that would startle at making the fiduciary a trustee. Lord Templeman stated:

“If a trustee mistakenly invests moneys which he ought to pay over to his cestui que trust and then becomes bankrupt, the monies together with any profit which has accrued from the investment are withdrawn from the unsecured creditors as soon as the mistake is discovered. A fortiori if a trustee commits a crime by accepting a bribe which he ought to pay over to his cestui que trust, the bribe and any profit made therefrom should be withdrawn from the unsecured creditors as soon as the crime is discovered.”

Implications

This decision significantly strengthened the remedies available to principals against corrupt fiduciaries. By establishing a proprietary interest through constructive trust, principals can:

• Claim any increase in value of property purchased with bribes
• Take priority over unsecured creditors in the fiduciary’s insolvency
• Trace the bribe into substitute assets

The decision reinforced the strict approach equity takes towards fiduciary wrongdoing, emphasising that fiduciaries must not profit from their breach of duty under any circumstances. The case has significant implications for anti-corruption enforcement and the recovery of proceeds of corruption across jurisdictions.

Verdict: Appeal allowed. The three New Zealand properties, so far as they represent bribes accepted by Mr Reid, are held on constructive trust for the Crown. The caveats may be renewed. Mr and Mrs Reid ordered to pay the Attorney General’s costs.

Source: Attorney General of Hong Kong v Reid [1994] 1 AC 324