Some scenarios involving proprietary remedies

By Legal Eagle

I’m always interested in what people who are not totally devoted to a particular area of law think about certain cases. At the moment I’m working on the issue of proprietary remedies over bribes taken in breach of fiduciary duty. I’m going to put two scenarios to you (derived from the cases) and ask you what you’d do if you were the judge in that case. I don’t care if you’re not a lawyer – in fact I’d love to hear your thoughts.

Scenario One (derived from Attorney-General for Hong Kong v Reid [1994] 1 AC 324)

R is a Crown Prosecutor for the Hong Kong government, and, among other things, he’s employed to prosecute corrupt criminal organisations. Instead of doing so, R accepts large bribes from said criminal organisations to desist from prosecuting them. He uses the bribes to purchase properties in New Zealand, which he places in his own name, and also in the names of his wife and his solicitor. R is caught, gaoled and ordered to pay the government HK$12.4m. R does not pay the Hong Kong government, but the Hong Kong government becomes aware of the properties. The Hong Kong government wants to stop R from selling the properties, and claim the properties for itself, but in order to do so, it has to establish that it has some kind of “ownership” over the bribes, which it then follows through into the properties. R and R’s wife and the solicitor attempt to resist the action.

Would you award the Hong Kong government a property right over the bribe? Why or why not?

Scenario Two (derived from Sinclair Investments (UK) Ltd v Versailles Trade Finance Limited [2011] EWCA Civ 347)

Some investors invest in a fantastic investment scheme. No matter what happens to the market, the investors keep getting excellent returns on their investments, and the investment scheme is described in glowing terms in financial and investor media. The scheme is doing so well that a public company which is related to the investment company has a massive increase in the value of its shares. The same person is director of both companies. He sells his shares in the public company for a profit of £28.69m, and uses them to buy a property in Kensington and to pay off bank loans. Unfortunately, everyone has forgotten the cardinal rule of investment, which is: if it sounds too good to be true, it is. The investment scheme is a ‘Ponzi scheme’ and the ‘dividends’ the investors are receiving are in fact investment funds from later investors. Eventually the scheme collapses. The director is declared insolvent and gaoled. The investors have lost their money. They try to say that the profit from the sale of the shares in the public company should belong to them, because it is ultimately derived from the director’s fraud against them. If they succeed in establishing a property right over the bribe, they remove the profit from the pool of assets available for distribution to other unsecured creditors. The other creditors, secured and unsecured, resist the action.

Would you award the investors a property right over the bribe? Why or why not?


  1. Waistless
    Posted January 26, 2013 at 11:45 pm | Permalink

    Longtime reader here. Not a lawyer, so I’ll give it a bite.

    Sc. 1) Yes, I mean you’ve established that the bribe is at that point in time the property of R. So can’t you demand assets based on due payment of the fine, take whatever action is needed based on a due debt. Is it possible to go through civil court? i.e do something like this: (the debt must be paid, therefore do this to make sure you can) In this case, just try to establish that the properties are worth more to the Hong Kong government as an investment than they are sold immediately?

    Sc. 2) I would say No, because what they owned shares in was purely speculative and didn’t really exist, so the value of all those shares is Null. As in, not even a number.

    Well, that will most likely give you either a smile or a facepalm. Keep up the good work 🙂

  2. Posted January 27, 2013 at 12:28 am | Permalink

    1) Yes. The bribe seems to me to be effectively be a payment for (unauthorised) service (non-prosecution). Given the service is supplied on behalf of the government, I see it as having ownership of the bribe. An analogy would be an employee selling off company assets and pocketing the money for themselves. At the end of the day the company had rights over the assets and if these are unrecoverable then the rights would reside with the money or wherever it had been invested.

    2) No. I would think the people who bought the overpriced shares based on (presumably) fraudulent information provided by the director would have the most direct claim on the profits. Either way I don’t see that as a justification for privileging either group over other people who are owed money.

  3. kvd
    Posted January 27, 2013 at 1:40 am | Permalink

    In the first scenario, based only upon the facts as stated, I can’t see any particular significance in the action to ‘stop the selling’ you mention? It seems as if the HK government would be entitled to either the properties, or their net proceeds, as being assets of R being gained from the proceeds of crime. But your example facts don’t go far enough: if the NZ properties were themselves subject to secured or unsecured creditor charges (i.e. ‘bleeding’ into your second scenario) then I’d hope that the HK govt would get only the net proceeds after those charges were settled.

    In your second scenario I think you need to tidy up the mention of ‘bribe’ towards the end? Can’t see where that reference arose given the facts you state. That aside, and thinking only of the parties you mention, it would be wrong to place the interests of the investors above the interests of the various secured and unsecured creditors (much as in case 1). The second case is more interesting, but you’d need more facts to understand why the investors even considered that they might have a prior right.

    LE, I see in the paper this a.m. that two Woolies executives are involved receiving inducements from suppliers. A bit like your first case, so maybe Woolworths can grab their holiday cottages? Or somebody should 🙂

  4. Posted January 27, 2013 at 6:50 am | Permalink

    Mr & Mrs HongKong R and their counsel have such a nerve to resist the fine for their crime.

    no on Scenario 2: get-rich-quick investments, in my opinion, are equivalent to putting the rent on Race 5. let all the whiners whine.

  5. Posted January 27, 2013 at 8:48 pm | Permalink

    (Background: corporate crank sitting law qualifications, but haven’t done property/proprietary remedies yet!)

    Having read the previous comments, I wonder whether it is relevant that scenario 1’s agitator is the State (or its equivalent in HK), whereas that in scenario 2 is the people.

    There are provisions for proceeds of crime to be confiscated by the State (eg. Proceeds of Crime Act) but not for non-govt victims?

    Therefore I wonder if the lack of remedy for Scenario 2 merely stems from the fact that the victims were non-government, rather than the facts of the case itself?

  6. Allan Thomas
    Posted January 29, 2013 at 1:49 pm | Permalink

    I’m an insolvency specialist, not a lawyer.

    My response to scenario one is:- Yes, based on the ancient common law principle that one should not be able to profit from one’s crime; e.g.; a man who murders his father does not inherit his estate.

    Scenario two. No. The investors took their risk, as did the unsecured creditors. Pari passu should apply

  7. kvd
    Posted January 29, 2013 at 5:14 pm | Permalink

    LE, not to butt in, but that’s an interesting comment. Made me think (re liens) of James Hardie. Would that be correct?

  8. Allan Thomas
    Posted January 29, 2013 at 6:39 pm | Permalink

    Hi, LE.

    I’d have thought that a constructive trust either exists, ab initio, or it doesn’t. In the event of doubt as to its existence, it would be for a Court to determine.

    Assuming that the trust exists, any lien would be subordinate and subject to the “terms of the trust”. A personal remedy would be “third cab off the rank”.

    I’m not familiar with the term “PPSA” so I can’t comment.

    By all means, give me a call if you wish:- 0410747691 or email [email protected]



  9. Posted January 29, 2013 at 7:17 pm | Permalink

    The key factor that I see is whether the liability was voluntary. In the first case, the government never intended for the prosecutor to receive payment for what was essentially a government provided service. While in the second case the investor had voluntarily handed over their money.

  10. Posted January 30, 2013 at 8:18 am | Permalink


    Reid was of course familiar to me but I had to have a look at the second case. Apart from the “bribe” misnomer, I think that there are some other aspects of case which need to be recounted more specifically: from your version it is almost impossible to see why the investors thought they might have a proprietary remedy at all.

    I suspect the reason why you get the answers you do from other commenters may have something to do with the way you tell the facts: it’s a bit like when one asks one’s friends or colleagues for advice. Often one ends up receiving confirmation instead because the conclusion is inherent in the way the tale is told.

    Allan: as LE will doubtless tell you, PPSA is the relatively recently enacted Personal Properties Securities Act.

  11. Miss Candy
    Posted February 11, 2013 at 8:05 am | Permalink

    It would be interesting to see what happens if the Hong Kong prosecutor and his wife separated…

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