A Tale of Bribes from Singapore to Hong Kong to England: A Proprietary Overkill By Tan Wei Ming INTRODUCTION This article is concerned with court ordered responses to gains made by fiduciaries, an issue that was very recently examined by both the Singapore Court of Appeal in Guy Neale v. Nine Squares Pty Ltd1 and the English Supreme Court in FHR European Ventures LLP v. Cedar Capital Partners LLC.2 The controversy arises when a wrongdoer fiduciary takes a bribe. While I do not doubt that such a fiduciary must account for the value of the bribe, and any subsequent gains induced by the bribe, it is to my mind incorrect to assert that the bribe was held for the principal on trust from the moment of receipt. Before I proceed, it should be noted that the current law in Singapore, Hong Kong and England and Wales takes the position that a constructive trust does indeed arise at the moment of receipt, thus the bribe and its subsequent proceeds can still be traced even in the event of the defendant fiduciary’s insolvency. My argument therefore takes the unorthodox route but it is hoped that future courts would pause and reconsider this issue afresh. At the outset, I will argue that a fiduciary that takes a bribe does not hold that bribe on trust at the moment of receipt. The principal is limited to a personal claim, either to seek an account of profits or an order for specific performance, forcing the defendant to hand over his gains in specie. The position of Lister v. Stubbs3 and Sinclair Investments (UK) Ltd v. Versailles Trade Finance Ltd ought to be vindicated.4 THE CASE LAW JURISPRUDENCE FOR BRIBES AND SECRET COMMISSIONS In Singapore, this question on bribes first arose in Sumitomo Bank Ltd v. Kartika Ratna Thahir.5 Lai Kew Chai J held that an institutional constructive trust arose at the moment when the fiduciary received the bribe.6 The bribe therefore ‘belongs’ to the principal there and then. Lai J reasoned that ‘a court in Singapore when exercising its equitable jurisdiction must reflect the mores and sense of justice of the society which it serves’.7 Call this the ‘wrongdoing thesis’. Furthermore, Lai J was unconvinced that a honest fiduciary in breach of the no-profit rule (like the defendants in Boardman v. Phipps8) was said to be a constructive trustee while a dishonest fiduciary is only personally liable for the bribe.9 The decision of Lai J was affirmed upon appeal.10 Twenty years down the road, the Court of Appeal in Guy Neale v. Nine Squares Pty Ltd reiterated that a constructive trust arose in respect of bribes taken by a fiduciary. The Privy Council was sufficiently impressed by Lai J’s arguments in Sumitomo Bank and chose to adopt a similar position. Lord Templeman, delivering the decision of the Privy Council in Attorney‐General for Hong Kong v. Reid, described bribery as ‘an 1 [2014] SGCA 64 2 [2014] UKSC 45 3 (1890) 45 Ch.D 1 4 [2011] EWCA Civ 347 5 [1992] SGHC 301 6 Ibid, [241]-[243] 7 Ibid, [241] 8 [1966] UKHL 2 9 [1992] SGHC 301, [241] 10 Thahir Kartika Ratna v. PT Pertambangan Minyak dan Gas Bumi Negara (Pertamina) [1994] SGCA 105
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evil practice which threatens the foundations of any civilised society’.11 His Lordship advanced the ‘wrongdoing thesis’ by arguing that ‘the false fiduciary will receive a benefit from his breach of duty unless he is accountable not only for the original amount or value of the bribe but also for the increased value of the property representing the bribe. As soon as the bribe was received, it should have been paid or transferred instanter to the person who suffered from the breach. Equity considers as done that which ought to be done.12 More recently, the UK Supreme Court in FHR European Ventures LLP v. Cedar Capital Partners LLC affirmed this equitable rule would apply to all benefits received by an agent in breach of his fiduciary duty, including bribes and secret commissions. Writing extra-judicially, Sir Peter Millett (as he then was) argued for a proprietary remedy in respect of bribes as well.13 However, he does not seem to endorse the ‘wrongdoing thesis’ as illustrated above. For him, such cases do not ‘belong in the law of wrongs at all’.14 Millett argues that ‘Equity insists on treating him as a good man, despite all evidence to the contrary; it will not allow him to say that he is a bad one’.15 This is the so-called ‘good man’ doctrine of equity where all fiduciaries are ‘disabled’ from breaching their duties. Call this the ‘disability thesis’. On the other hand, in Lister v. Stubbs, the English Court of Appeal held that though the defaulting agent could be ordered at trial to pay over to his principal the amount of the bribe he received, and could even be ordered to transfer the bribe or its substitute in specie, no trust arises at the moment of receipt. This was also the case in the decision of the Court of Appeal Metropolitan Bank v. Heiron.16 In Sinclair Investments (UK) Ltd v. Versailles Trade Finance Ltd, the Court of Appeal disagreed with the approach taken in Reid and held that in respect of bribes, only a personal claim arises. Lord Neuberger MR (as he then was) distinguished three categories in which a fiduciary obtains a benefit in breach of fiduciary duty: (1) where the benefit is or was an asset belonging beneficially to the principal, (2) where the benefit has been obtained by the fiduciary by taking an advantage of an opportunity which was properly that of the principal, (3) and all other cases.17 In his Lordship’s analysis, only categories 1 and 2 trigger a proprietary remedy. Category 3, to which bribes and secret commissions belong, only triggers a personal claim. However, in a single stroke of the judgment in FHR v. Cedar, Lister, Heiron and Sinclair are now considered overruled. Nevertheless, I shall argue that there is no immediate trust at the moment of receipt of those bribes. REJECTING THE ‘WRONGDOING THESIS’ The argument that bribery is an evil practice and goes against the mores and justice of society should not and cannot be a foundational ground in which the institutional constructive trust is based on. As my learned friend, Myron Phua, has spent considerable effort in rebutting the ‘wrongdoing thesis’, I need not venture down that route again. Instead I will highlight a patent inconsistency in this policy driven argument. If a constructive trust is imposed over bribes taken by fiduciaries on the basis that bribery is a heinous crime, why should a bribe taken by a fiduciary be more ‘evil’ than a bribe taken by a nonfiduciary? 11 12 13 14 15 16 17
[1994] AC 324, 330 Ibid, 331 Sir P. Millett, ‘Bribes and Secret Commissions’ [1993] RLR 7 Ibid, 20 Ibid, 20 (1880) 5 Ex D 319 [2011] EWCA Civ 347, [88]-[89]