THE CASES OF BALSAMO

The Cases of Balsamo

Name of the Writer]

The Cases of Balsamo

Introduction

Suppose a dishonest fudiciary accepts a bribe to compromise the interests of the beneficiary of the duty. Clearly, the beneficiary has been wronged and may hold the fiduciary personally liable. But does the fiduciary hold the bribe and the investments in a constructive trust for the beneficiary? To many writers, general principles of equity say that this question should be answered affirmatively.' However, the Court of Appeal answered it negatively in Lister v Stubbs2 and, until recently, its decision was accepted as law. This pattern was finally broken last year. In Attorney General of Hong Kong v Reid,4 the Privy Council, in a judgment given by Lord Templeman, allowed an appeal from the New Zealand Court of Appeal5 and effectively overturned Lister v Stubbs. This note therefore examines Lord Templeman's judgment in Reid and compares it to that in Lister v Stubbs. It approves of the decision in Reid, to the extent that the courts are now able to impose a constructive trust over bribes. However, it disapproves of the Privy Council's failure to give due regard to the impact that a constructive trust could have on the legitimate interests of creditors.

The Cases of Balsamo

Mr. Reid joined the legal service of the Hong Kong Government as a Crown Counsel. He was promoted several times and served as the director of the commercial crime unit. Reid was corrupt: he accepted bribes and was eventually convicted under the Prevention of Bribery Ordinance of Hong Kong of being in control of money and property disproportionate o his official emoluments. The total funds and property which he was unable to explain as having come from legitimate sources amounted to over HK$10 million. He was sentenced to eight years' imprisonment and was ordered to pay the Crown HK$12.4 million, being the value of his assets derived from the bribes. In addition to bringing the criminal proceedings, Hong Kong also brought a civil action to recover the bribes from Reid. It claimed that he held the bribes and any substituted property on constructive trust. Further to this claim, it sought to register caveats against several properties which Reid had purchased in New Zealand. Two of the properties were in the names of Reid and his wife, and the third in the name of a solicitor acting as trustee for him and his wife. For the purposes of the appeal, it was assumed that the properties were held in trust for Reid and that he had purchased them with the bribes.

It was accepted that Reid was a fiduciary and that he was personally liable to the Hong Kong Government for the breach of his fiduciary obligations. The real question was whether he held the bribes and any substituted property on constructive trust for Hong Kong. The New Zealand courts decided that they were bound by Lister v Stubbs; accordingly, they held that there was no constructive trust and Hong Kong was not entitled to ...