Court: Privy Council (New Zealand)
Judgment Date: 1 November 1993
Where Reported: [1994] 1 A.C. 324; [1993] 3 W.L.R. 1143; [1994] 1 All E.R. 1
Legal Issues in Attorney General of Hong Kong v Reid
Attorney General of Hong Kong v Reid addressed the legal issues surrounding the nature of bribes received by a fiduciary and the consequent equitable rights and obligations.
The key issue in Attorney General of Hong Kong v Reid was whether a fiduciary, who received bribes in breach of his duty, holds those bribes and any property acquired with them on a constructive trust for the benefit of the person to whom the duty was owed.
The case explored whether the bribes constitute property of the fiduciary or whether they create equitable rights in favour of the principal, affected by the fiduciary’s breach of duty​​​​.
Material Facts in Attorney General of Hong Kong v Reid
The first respondent, while serving as a Crown servant in Hong Kong, accepted bribes in violation of his fiduciary duty to the Crown.
These bribes were used to purchase properties in New Zealand. The properties were conveyed to him, his wife, and his solicitor.
After pleading guilty to offences under the Prevention of Bribery Ordinance in Hong Kong, he was sentenced to prison and ordered to pay a substantial sum to the Crown, representing the value of assets derived from the bribes.
The Attorney General of Hong Kong filed caveats in New Zealand against the titles to these properties and sought to renew them, but the High Court of New Zealand refused, ruling that the Crown had no equitable interest in the properties.
This decision was upheld by the Court of Appeal of New Zealand, leading to an appeal to the Judicial Committee​​​​.
Judgment in Attorney General of Hong Kong v Reid
The Judicial Committee allowed the appeal, holding that the bribes and any property acquired with them were held on constructive trust for the Crown.
The court determined that although the bribes legally belonged to the fiduciary, in equity, he was a debtor to the Crown for the amount of the bribe and also held the bribe and any resulting property on constructive trust for the Crown.
This ruling meant that if the value of the property representing the bribe decreased, the fiduciary had to pay the injured party the difference between its current value and the initial bribe amount.
Conversely, if the property value increased, the fiduciary was not entitled to retain any excess, as equity would not permit him to profit from his breach of duty.
Therefore, the properties in New Zealand, to the extent they represented bribes received, were held in trust for the Crown, and the Crown had an equitable interest in them​​.
The Reason for the Decision in Attorney General of Hong Kong v Reid
The decision was anchored in the principles of equity, emphasising that it is unconscionable for a fiduciary to obtain and retain benefits in breach of duty.
The court noted that a bribe accepted by a fiduciary is an inducement to betray trust, and any benefit or property obtained from the bribe belongs to the fiduciary in law but is held on constructive trust for the person to whom the duty was owed in equity.
This approach aligns with the principle that equity acts in personam and insists on the unconscionability of a fiduciary benefiting from a breach of duty.
The court recognised the harm caused to the administration of justice and the interests of the Crown by the acceptance of bribes.
It was noted that while the legal estate of properties obtained through bribes vests in the fiduciary, equity mandates that these properties are held on constructive trust for the injured party (the Crown in this case).
The decision also clarified that if the property’s value changed, the fiduciary remained accountable for either the shortfall or the surplus, ensuring that no profit was derived from the breach of duty.
This judgment disposed of the argument that there is a distinction between profits taken out of a trust and profits, such as bribes, received from a third party – see Erlanger v New Sombrero Phosphate Co (1878).
The court found that if a trustee invests trust money in breach of trust and holds the investment as trust property, then similarly, a trustee who invests a bribe in breach of trust should also hold those investments as trust property.
This reasoning ensures that fiduciaries cannot evade accountability by arguing that bribes are distinct from other forms of trust property​​ – see Lister v Stubbs (1890).
Legal Principles in Attorney General of Hong Kong v Reid
Attorney General of Hong Kong v Reid established crucial legal principles regarding the treatment of bribes received by fiduciaries. The case affirmed that bribes accepted by a fiduciary in breach of duty are held on constructive trust for the person to whom the duty is owed.
This principle upholds the fundamental tenet of equity that fiduciaries must not profit from their breach of duty.
The judgment in Attorney General of Hong Kong v Reid also highlighted the accountability of fiduciaries for both the initial value of the bribe and any subsequent changes in value of the property acquired through the bribe.
This ruling plays a vital role in ensuring that fiduciaries cannot benefit from their wrongful acts and reinforces the integrity of fiduciary relationships, particularly in the context of corruption and bribery
