The Attorney General for Hong Kong v Reid

[1994] 1 AC 324

The properties of Warwick Reid targeted by the Hong Kong Government for recovery of at least part of the HK$12 million were three freeholds in New Zealand purchased for about NZ$500,000. Two had been assigned to the name of Reid and his wife and one to his solicitor, a Mr. Molloy.

The Attorney General for Hong Kong registered caveats against the title of the properties (for the purpose of claiming the properties on a constructive trust) and the defendants opposed the renewal of the caveats on the grounds that the Crown had no equitable interest in the three New Zealand properties. The opposition was viewed by the Privy Council as reflecting "the hope that that the properties, in the absence of a caveat, can be sold and the proceeds whisked away to some Shangri La which hides bribes and other corrupt monies in numbered bank accounts".

The Privy Council (main judgment delivered by Lord Templeman) ruled that the three properties so far as they represent bribes accepted by Mr. Reid are held in trust for the Crown. The Privy Council also did not think that either Mrs. Reid or Mr. Molloy was a bona fide purchaser without notice. The Privy Council said,

"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."

The Lords of the judicial committee also set out a long list of cases relating to bribery and constructive trust including Keech v. Sandford (1726) Sel. Cas. T. King 61, Fawcett v. Whitehouse (l829) 1 Russ. & M. 132, Sugden v. Crossland (l856) 3 Sm. & Giff. 192, Tyrrell v. Bank of London and Others (1862) 10 H.L. Cas. 26, In re Canadian Oil Works Corporation (Hay's Case) (1875) L.R. 10 Ch. 593, In re Morvah Consols Tin Mining Company (McKay's Case) (1875) 2 Ch.D. 1, In re Caerphilly Colliery Company (Pearson's Case) (1877) 5 Ch. D 336, The Metropolitan Bank v. Heiron (1880) 5 Ex.D. 319, Powell & Thomas v. Evans Jones & Co. [1905] 1 K.B. 11, A.G. v. Goddard [1929] 98 L.J.K.B. 743, Regal (Hastings) Ltd. v. Gulliver [1942] 1 All. E.R. 378 and Boardman v. Phipps [1967] 2 A.C. 46, .

The Privy Council seemed to prefer the decision of Lai Kew Chai J of the Singapore Court in Sumitomo Bank Limited v Kartika Ratna Thahir [1933] 1 SLR 735 over Lister & Co. v. Stubbs (1890) 45 Ch.D. 1 and said that

"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."

The Privy Council also found support in the work entitled Bribes and Secret Commissions by Sir Peter Millett published in the Restitution Law Review [1993] R.L.R. 7.