Restitution Discussion Group Archives
| Sender: |
Gordon Goldberg |
| Date: |
Sun, 11 May 2003 17:37:23 +0100 |
| Re: |
Tracing Into Proceeds of Illegal Investments |
I attach my contribution to the discussion.
[RDG:] TRACING INTO PROCEEDS OF ILLEGAL INVESTMENTS Lest Steve Hedley's purpose be to bury, I come to praise,
not only Reading v. A.-G.,1
but also (for the sake of consistency) A.-G v. Goddard2
and A.-G. (Hong Kong) v. Reid.3
I beg the Group's pardon for arriving so late. Nor, for present purposes,
do I commend A.-G v. Goddard beyond what is necessary for its consistency
with Reading v. A.-G. In particular, I do not support any suggestion,
seemingly made therein, that the defendant constable was a servant or
agent of the Crown in the same way as if his had been just an ordinary
contract of service. Such a suggestion would contradict Enever v. The
King4.
That the fruit of a tree belongs to the tree and, hence,
to the owner of the tree both explains and justifies tracing. At common
law one's service to another, at least if it be rendered otherwise than
under a contract for services, imposes on one a status.5
Examples of services so rendered are a daughter's to her father, a servant's
to his master and a constable's or a soldier's to the Queen. Within the
consequent status, one's labours are owed, and so in equity belong, not
to oneself, but to him to whom one's service rightly is, or6
ought to be, rendered. So, too, do the fruits of those labours.7
In Reading v. A.-G, A.-G v. Goddard and
A.-G. (Hong Kong) v. Reid each of the army sergeant, the police
constable and the acting Director of Public Prosecutions owed his labours
in the course of his respective service to his sovereign; and so (at least
in a sense analogous to that in which leased land is the property of the
tenant) those labours and their fruits belonged in equity to the Crown.
Because it was his service which alone put each of them in a position
to benefit the bribers and because none of them could take advantage of
his own wrong, none of them could deny that the particular labours, which
earned him the bribes, were performed in the course of his service. According
to Bowmakers v. Barnets Instruments8
the property in the bribes passed at law to the recipients, despite the
illegality of the consideration constituted by their labours. Therefore,
they could, and did, hold that property on trust for the Crown. Because,
in the eyes of equity and the law, Kings George V and VI and Her Present
Majesty could have done no wrong, their respective Attorneys-General could
with clean hands claim execution of the trusts under the direction of
the court.9
Mutatis mutandis, like reasoning would avail Thomas
Mitchell's hypothetical plaintiff. The existence of a trust would follow
from Clarke v. Shee and Johnson10.
There the defendants had received the very coins and notes, which had
been misappropriated from the plaintiff. Because they had not received
them in good faith and so could not take advantage of the principle relating
to negotiable assets now embodied in sections 29(1) and 38(2) of the Bills
of Exchange Act 1882, the Plaintiff recovered from the defendants the
value of the coins and notes as money as had and received. In full, the
relevant common count reads, "The plaintiff's claim is for money had and
received by the defendant [to or] for the use of the plaintiff";11
and "use" is the precursor and basic equivalent of the modern "trust".
Indeed in Straton v. Rastall,12
Buller, J., said,
"Of late years this Court has very properly extended
the action for money had and received; it is founded on principles of
justice, and I do not wish to restrain it in any respect. But it must
be remembered that it was extended on the principle of its being considered
like a bill in equity. And therefore, in order to recover money in this
form of action the party must shew that he has equity and conscience
on his side, and that he could recover it in a Court of Equity."
If a receiver in bad faith of money from a thief holds
it on trust for the thief's victim, a fortiori so must the thief
have done. Therefore Thomas's hypothetical thief would have held the cash
on trust for the hypothetical plaintiff. Pursuant to Bowmakers v. Barnets
Instruments, the price of the cocaine would have become the property
of the thief and so, being the fruit of the stolen money, could and would
be held on trust for the plaintiff. The buyer could not reclaim the price;
for he would have passed beyond his locus pœnitentiae.13
The plaintiff, who (according to Thomas) would have been involved in none
of the wrongdoing, could and presumably would with clean hands claim execution
of the trust.
In Tinsley v. Milligan,14
Lord Browne-Wilkinson asserted there to be another possible approach to
achieving that execution. According to his Lordship, the beneficiary in
Ayerst v. Jenkins,15
which concerned a trust illegal for being against public policy, "was
entitled to enforce against the trustees her equitable rights as beneficiary
under the express trusts against the trustees." If this were true, there
would be no need to rely on Bowmakers v. Barnets Instruments and
the hypothetical plaintiff's clean hands. However, I can find in the case
nothing to support his Lordship's assertion. So far as I can see, the
true explanation of the court's decision is, as Lord Goff hinted in Tinsley
v. Milligan,16 that
the trustees were at all times ready, willing and able themselves to execute
the trust; and so there was no need for the beneficiary to come to equity
to obtain a decree that the trust be executed under the direction of the
court. It was, as Lord Browne-Wilkinson himself stated, a third party
(albeit the settlor's legal personal representative) who was seeking to
have the trust set aside.
Pace Lord Browne-Wilkinson,17
it is a matter of principal substance and not of accessory procedure that
an interest arising under a trust (indeed, any right existing only in
equity, unlike one existing at law) must always remain executory. As Sir
Francis Bacon A.-G. and "the Rest of his [Majesty's] Learned Counsel"
put it in their Certificate to King James I,18
"the Chancery ... only medleth with the corrupt Conscience of the Party".
In other words, Equity's orders are found "operating on the person", and
not otherwise.19 This
doctrine continues to be of fundamental significance: it alone enabled
the Court of Appeal in Anton Piller v. Manufacturing Processes20
to distinguish the order made in that case from the general search warrant
condemned in Entick v. Carrington.21
Therefore, anyone seeking possession of an asset, in which his proprietary
interest is only equitable, requires the assistance of the court in order
to have the relevant trust executed under the court's direction. If the
trust be illegal, such assistance would involve the court in the conspiracy.
Hence, the general maxim, he who comes to equity must come with clean
hands,22 should apply
especially in these circumstances.
In contrast, the recognition of proprietary rights acquired
pursuant to an illegal contract is seen to be independent of the illegal
relationship between the parties;23
and so it is. The court is doing no more than recognize the effect of
the illegal contract in so far as the parties have themselves executed
it by their performance of its terms. That performance has, so far as
it extends, discharged the contract,24
on which the illegal relationship depended. In other words, at law property
passes by the parties' execution of their agreement; and so, if property
has passed, there is to that extent nothing left to execute, whether under
the direction of the court, or otherwise. Maule, J., made the point in
Feret v. Hill:25
"The [lessee] is not calling upon the court to enforce
any agreement at all. The agreement was an agreement on the part of
the [lessor] to demise certain premises to the [lessee] for a given
term. When the instrument was executed and possession was given under
it, it received its full effect: no aid of a court of justice was required
to enforce it. This action of ejectment is brought, not for the purpose
of enforcing the agreement, but the [lessee] asks the court to afford
him a remedy against [the lessor] who has extruded him from a lawful
possession. There is therefore a manifest distinction between this case
and those where the court was called upon to assist the plaintiff in
enforcing an agreement the object of which was to do an illegal act,
as in Ritchie v. Smith."26
Therefore, Lord Browne-Wilkinson's purportedly rhetorical
question in Tinsley v. Milligan27,
"Would the result in Feret v. Hill have been different if there
had only been an agreement for a lease?", was patently a red herring.
The result would have depended on whether or not the lessee's illegal
use of the premises was found to be the purpose of the contract. Once
the estate had passed that purpose was irrelevant.28
--------------------------------
1. [1951] A.C. 507 [back
to text]
2. (1929) 98 L.J.K.B. 743 [back
to text]
3. [1994] 1 A.C. 324 P.C. [back
to text]
4. (1906) 3 C.L.R. 969 H. Ct of Aust.:
expounded and applied in Fisher v. Oldham Corp. [1930] 2 K.B. 364,
372; approved in A.-G. (N.S.W.) v. Perpetual Trustee Co. [1955]
A.C. 457 P.C. at 478 [back to text]
5. A.-G. (N.S.W.) v. Perpetual Trustee
Co. [1955] A.C. 457 P.C. at 483; cf. Lister v. Romford Ice & Cold
Storage Co. [1957] A.C. 555 H.L.(E), 576 [back to text]
6. because "nullus commodum capere
potest de injuriâ suâ propriâ" - no one can take advantage of his
own wrong - Co. Litt. 148b [back to text]
7. Sterling Engineering Co. v. Patchett
[1955] A.C. 534 H.L.(E), 544 [back to text]
8. [1945] K.B. 65 C.A. which, though
ignored and contravened in Lipkin Gorman v. Karpnale [1991] 2 A.C.
548 H.L.(E) was nonetheless approved on all sides in Tinsley v. Milligan
[1994] 1 A.C. 340 H.L.(E). [back to text]
9. C.P.R. 1998, Part 50 and Sch.1,
incorporating R.S.C. 1965, O.85, r.1; cf. R.S.C. 1883, O.55, r.3(e.) and
App.C, Sec.II, No.10. [back to text]
10. (1774) 1 Cowp. 197 K.B. [back
to text]
11. R.S.C. 1883, App. C, Sec. IV,
No.2. [back to text]
12. (1788) 2 T.R. 366 K.B., 370. Nothing
said by Lord Sumner in Sinclair v. Brougham [1914] A.C. 398 H.L.(E.),
nor by Farwell, L.J., in Baylis v. Bishop of London [1913] 1 Ch.
127 C.A. seems to me to contradict the existence of this trust. [back
to text]
13. Taylor v. Bowers (1876)
1 Q.B.D. 291 C.A., 300. [back to text]
14. [1994] 1 A.C. 340 H.L.(E.), 373F-H
[back to text]
15. (1873) L.R. 16 Eq. 275 L.C. for
M.R. [back to text]
16. N.14 above, at 355H [back
to text]
17. Ibid., at 374B-E [back
to text]
18. Transcribed in 21 E.R., beginning
at 581. The words quoted appear at 587. [back to text]
19. East India Coy v. Kynaston
(1821) 3 Bli. (O.S.) 153 H.L.(E.) at 164 per Lord Redesdale. [back
to text]
20. [1976] Ch. 55 C.A. at 60 and 62.
[back to text]
21. (1765) 2 Wils. K.B. 275 C.P. [back
to text]
22. Cadmon v. Horner (1810)
18 Ves. 10 M.R. [back to text]
23. N.8 above, at 71 [back
to text]
24. I know of no judicial statement
that its performance discharges a contract; but, from the text books,
e.g., Anson's "Principles of the English Law of Contract and of
Agency in its Relation to Contract" (17th edn by Miles and Brierly, Oxford
1929) p. 343, I understand it to be trite law. Assuredly it is consistent
with pleas of performance being good defences to claims for breach of
contract (q.v. R.S.C. 1883, App. D, Sec. IV) and with Lord Russell of
Killowen's account of the merger of a contract in the conveyance in Knight
Sugar Co. v. Alberta Ry. Co. [1938] 1 All E.R. 266 P.C. at 269. [back
to text]
25. (1854) 15 C.B. 207 at 224 [back
to text]
26. (1848) 6 C.B. 462 [back
to text]
27. N.14 above, at 370G [back
to text]
28. N 25 above, arguendo, at
209 per Williams, J., and at 219 per Cresswell and Maule,
JJ. [back to text]
(Attachment to Gordon Goldberg's e-missive of 11.v.03)
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