Defining dishonesty: A culture clash of law and business Royal Brunei Airlines SDN BHD v Tan
| Date | 01 January 1997 |
| Published date | 01 January 1997 |
| DOI | https://doi.org/10.1108/eb024912 |
| Pages | 83-87 |
| Author | Joanna Gray |
| Subject Matter | Accounting & finance |
Journal of Financial Regulation and Compliance Volume 5 Number 1
Defining dishonesty: A culture clash of law and
business
Royal Brunei Airlines SDN BHD v Tan
(Judicial committee of the privy council) Lord Goff, Lord Ackner, Lord Nicholls
(Giving Judgment), Lord Steyn and Sir John May
Date of Hearing: March 1995
Date of Judgment: 22nd May, 1995
Reported at: [1995] 3 All ER 97
THE FACTS
Royal Brunei Airlines (the airline) had, in
1986,
appointed Borneo Leisure Travel (BLT)
as its agent for passenger and cargo transport
sales in Sabah and Sarawak. Mr Tan was the
founder of BLT, its managing director and its
principal shareholder (the only other director
and shareholder being his wife) and was, in
effect, in sole control of BLT.
The effect of the agency agreement appoint-
ing BLT was such as to constitute BLT trustee
for the airline of all monies received from
ticket sales, with BLT entitled to deduct
applicable sales commission therefrom. What
should then have happened is that BLT should
have treated all receipts as trust monies being
property of the airline and held them in a
separate bank account. Instead, what actually
happened was that no such separate accounting
occurred and the monies received by BLT on
behalf of the airline were paid into BLT's
ordinary current account with its bank and
used for its ordinary business purposes.
Under the terms of the agency agreement
BLT was required to pay the airline within 30
days but it was in arrears by 1988 and these
arrears persisted until 1992 when the airline
terminated the agency. BLT proved to be
insolvent and in 1993 the airline brought an
action against Mr Tan to recover the unpaid
money.
THE ACTION
In 1993 the High Court of Brunei held that
Mr Tan was personally liable as a constructive
trustee because he had knowingly assisted in a
fraudulent and dishonest design on the part of
BLT as trustee for the airline.
Mr Tan appealed against this finding of per-
sonal liability for BLT's debts to the airline to
the Court of Appeal of Brunei. The Court of
Appeal allowed his appeal, ruling in June 1994,
that, since a prerequisite for the kind of 'acces-
sory liability' that the High Court had
imposed on Mr Tan, was a 'dishonest and
fraudulent design' on the part of the trustee in
committing the breach of trust
itself,
the issue
became one of whether a dishonest and frau-
dulent design on behalf of BLT had been
established. The Court of Appeal held that it
had not, and since BLT's (the trustee's) con-
duct fell short of fraud or dishonesty, no con-
sequent accessory liability could attach to Mr
Tan, regardless of whether or not he had acted
honestly or dishonestly in his furtherance and
facilitation of BLT's breach of trust.
The airline then appealed to the Judicial
Committee of the Privy Council asking them
to settle the issue of whether the breach of
trust which is a prerequisite to accessory liabi-
lity must itself be a dishonest and fraudulent
breach of trust. If the answer was 'yes' then
the airline would be unable to recover from
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