English Equity & Trusts
The phrase ‘two wrongs do not make a right’ is virtuous to the truth that misdeeds can never amount to anything more than loss, yet when adopted for equitable purposes, the exact opposite can be found.
After rising through the ranks of Hong Kong administration, a solicitor turned Director of Public Prosecutions positioned himself whereby he was able to accept sporadic bribes in exchange for his obstruction of justice through the failed convictions of known criminals. Having taken over HK $12m in payments, the respondent in this matter invested the funds into three properties, two of which were in title to himself and his wife and the third to his solicitor.
The discovery of his fraudulent behaviour and subsequent criminal prosecution, raised the question of whether by his breach of fiduciary duty as a servant of the Crown, the sums paid were now held upon constructive trust for his former employers, and that any monetary gain following the purchase of the homes was composite to that trust.
Common law principles surrounding fiduciary breach and profit from such breaches have been long held to apply in favour of the trust beneficiary, despite the illegality on the part of the fiduciary when in receipt of bribes from third parties. This is because when acting beyond the remit of the trustee, and in a manner that is dishonest, the action itself becomes legitimate, if only for the benefit of those the fiduciary/trustee was appointed to serve.
This translates that although the respondent allowed himself to selfishly receive bribes in exchange for personal profit, equity would ascribe that his deceit was immediately converted into a positive gesture conferring direct gain to his employers, as no fiduciary can be seen to profit from his breach as previously mentioned. This, by virtue of the fact of those principles, altered the manner in which the respondent not only executed his plans, but provided the Crown with privilege to acquire beneficial interest in the properties purchased, along with any increase their value since initial conveyance.
When considered by the Privy Council, it was quickly agreed that any conditions imputed by the respondents upon the entitlement of his employers to seek recovery of the debts through the homes, failed to override the fundamental obligations owed to him while serving and acting under fiduciary capacity, despite any notion of separateness or mixed investment on his part.