Firstly, you should NOT have deleted those messages. How do you know that there's not an internal investigation going on? You could have possibly ruined one if there was.
Secondly, it's legal everywhere that *I* know of. If you spell it out in a policy, even loosely (the company reserves the right, blah blah, no expectation of privacy, blah blah...), then you're covered.
Third, you should have ASKED about the situation BEFORE you did anything... And I would have asked the person ABOVE the MD you mention, in case the MD was doing something he wasn't supposed to be doing. Always take it at least one level above the person involved. For example, I get requests now and then to have me look at people's email messages. Some of these are from supervisors with an axe to grind. So, I ALWAYS get at LEAST a manager level or above to agree with the request. Know how many are actually done? If it happens once a year I'd be surprised... Involving the requestor's manager makes "malicious" requests vanish into thin air. Part of your job is running interference for people, and going higher up in the management chain ensures that happens (assuming your HR department doesn't address it, that is. Mine sure doesn't...).
You came into a situation that was pre-existing, for whatever reason. I sure as hell wouldn't go into a system and start making changes until I was sure I understood the reasoning behind the way it was set up. That was the same with this situation here: it was set up, and you should have left it alone until you understood what was going on.
I assume you are new at this. There is a lot to being an Admin, and a lot to learn. There is a lot of systems stuff but there is also a lot of ethical, policical stuff, as well. You have a power that a lot of people fear and envy, and you need to be RESPONSIBLE and ETHICAL with the way in which you use it. You were trying to be ethical however you were NOT being responsible. Find that line and get back on it.
Address this issue with someone HIGHER than the "MD" - their boss or perhaps the HR department (find a confidant in HR and bounce it off them - that works wonders... Make the conversation unofficial, and it gives you a better sense of direction with regards to what you should do. Bear in mind that any person who is told of a violation of law will be compelled to make an issue of it, though. So, for example, if you told someone that the MD was stealing from the company, they'd have to do something about it...).
Restore the messages. Put the forwarding back in place. Talk with someone ABOVE the MD about it. Then hash it out from there... And for your own sake, make sure to ASK before you do something like that again!
Best of luck. I believe you have the best of intentions, but your actions need to be prudent and not as "reactive".
And, oh, if you were to discuss the forwarding with the people who were being spied on, I'd fire you. Like I said, for all you know it could have been part of an investigation...
Just my 2c. And, please, let us know how this all works out.
-Lando