Royal Brunei Airlines Sdn Bhd v Tan Kok Ming

JurisdictionUK Non-devolved
Judgment Date24 May 1995
Date24 May 1995
CourtPrivy Council
[PRIVY COUNCIL] ROYAL BRUNEI AIRLINES SDN. BHD. APPELLANT and PHILIP TAN KOK MING RESPONDENT [APPEAL FROM THE COURT OF APPEAL OF BRUNEI DARUSSALAM] 1995 March 22; May 24 Lord Goff of Chieveley, Lord Ackner, Lord Nicholls of Birkenhead, Lord Steyn and Sir John May

Trusts - Constructive trust - Dishonesty - Controlling director of company dishonestly assisting in breach of trust by company - Whether director liable to beneficiary for resulting loss

The plaintiff airline appointed as its agent in a particular area for the sale of passenger and cargo transportation a company of which the defendant was the managing director and principal shareholder. Under the agreement the company was to hold in trust for the airline money received from such sale until it was accounted for by the company to the airline. With the defendant's knowledge and assistance the company paid the money into its current bank account instead of into a separate account, and in breach of trust the company used that money for its own business purposes. The company failed to pay to the airline sums due within the time specified by the agreement. The airline terminated the agreement and, the company having become insolvent, commenced proceedings against the defendant to recover the money owed by the company. The judge held that the defendant was liable as constructive trustee to pay that amount to the airline. On appeal the Court of Appeal of Brunei Darussalam reversed that decision, holding that the defendant could not be so liable because it had not been established that the company was guilty of fraud or dishonesty in relation to the money held in trust for the airline.

On the airline's appeal to the Judicial Committee: —

Held, allowing the appeal, that where a third party dishonestly assisted a trustee to commit a breach of trust or procured him to do so, the third party would be liable to the beneficiary for the loss occasioned by the breach of trust, even though the third party had received no trust property and irrespective of whether the trustee had been dishonest or fraudulent; that in the context of such accessory liability honesty was to be judged objectively and acting dishonestly, or with a lack of probity, which was synonymous, meant not acting as an honest person would act in the circumstances and could usually be equated with conscious impropriety as distinct from inadvertent or negligent conduct or carelessness, although a third party might be acting dishonestly if he recklessly disregarded the rights of others; that the third party's conduct had to be assessed on the basis of his actual knowledge at the time not what a reasonable person would have known or appreciated, and regard could be had to his personal attributes including experience and intelligence and the reason for him acting in that way; and that, accordingly, since the defendant had caused or permitted the company to commit a breach of trust by using in the conduct of its business money held in trust for the airline when he knew that the company was not authorised to do so by the terms of the trust, the defendant had acted dishonestly, and was, therefore, liable to the airline for the amount owed to it by the company (post, pp. 73B–D, 74F, H–75A, 76D–E, H).

Dictum of Lord Selborne L.C. in Barnes v. Addy (1874) L.R. 9 Ch.App. 244, 251–252 and Belmont Finance Corporation Ltd. v. Williams Furniture Ltd. [1979] Ch. 250, C.A. considered.

Semble. Although mere negligence by a third party acting for or dealing with trustees would not normally render him liable to the beneficiaries in respect of losses resulting from a breach of trust, there might be cases where, in the light of particular facts, an honest third party will owe a duty of care to the beneficiaries in respect of the conduct of the trustees (post, p. 76A).

Decision of the Court of Appeal of Brunei Darussalam reversed.

The following cases are referred to in the judgment of their Lordships:

Agip (Africa) Ltd. v. Jackson [1990] Ch. 265; [1989] 3 W.L.R. 1367; [1992] 4 All E.R. 385

Attorney-General v. Corporation of Leicester (1844) 7 Beav. 176

Baden v. Societe Generale pour Favoriser le Developpement du Commerce et de l'Industrie en France S.A. (Note) [1993] 1 W.L.R. 509; [1992] 4 All E.R. 161

Barnes v. Addy (1874) L.R. 9 Ch.App. 244

Belmont Finance Corporation Ltd. v. Williams Furniture Ltd. [1979] Ch. 250; [1978] 3 W.L.R. 712; [1979] 1 All E.R. 118, C.A.

Carl Zeiss Stiftung v. Herbert Smith & Co. (No. 2) [1969] Ch. 276; [1969] 2 W.L.R. 427; [1969] 2 All E.R. 367, C.A.

Cowan de Groot Properties Ltd. v. Eagle Trust Plc. [1992] 4 All E.R. 700

D.P.C. Estates Pty. Ltd. v. Grey and Consul Development Pty. Ltd. [1974] 1 N.S.W.L.R. 443; sub nom. Consul Development Pty. Ltd. v. D.P.C. Estates Pty. Ltd. (1975) 132 C.L.R. 373

Eagle Trust Plc. v. S.B.C. Securities Ltd. [1993] 1 W.L.R. 484; [1992] 4 All E.R. 488

Eaves v. Hickson (1861) 30 Beav. 136

Equiticorp Industries Group Ltd. v. Hawkins [1991] 3 N.Z.L.R. 700

Fyler v. Fyler (1841) 3 Beav. 550

Karak Rubber Co. Ltd. v. Burden (No. 2) [1972] 1 W.L.R. 602; [1972] 1 All E.R. 1210

Marr v. Arabco Traders Ltd. (1987) 1 N.Z.B.L.C. 102,732

Marshall Futures Ltd. v. Marshall [1992] 1 N.Z.L.R. 316

Montagu's Settlement Trusts, In re [1987] Ch. 264; [1987] 2 W.L.R. 1192; [1992] 4 All E.R. 308

Nimmo v. Westpac Banking Corporation [1993] 3 N.Z.L.R. 218

Polly Peck International Plc. v. Nadir (No. 2) [1992] 4 All E.R. 769, C.A.

Powell v. Thompson [1991] 1 N.Z.L.R. 597

Reg. v. Ghosh [1982] Q.B. 1053; [1982] 3 W.L.R. 110; [1982] 2 All E.R. 689, C.A.

Selangor United Rubber Estates Ltd. v. Cradock (No. 3) [1968] 1 W.L.R. 1555; [1968] 2 All E.R. 1073

Springfield Acres Ltd. v. Abacus (Hong Kong) Ltd. [1994] 3 N.Z.L.R. 502

Westpac Banking Corporation v. Savin [1985] 2 N.Z.L.R. 41

The following additional cases were cited in argument:

Gathergood v. Blundell & Brown Ltd. [1992] 3 N.Z.L.R. 643

Lion Breweries Ltd. v. Scarrot [1986] B.C.R. 242

Reg. v. Sinclair [1968] 1 W.L.R. 1246; [1968] 3 All E.R. 241, C.A.

Savin & Boyle v. De Vere [1983] 1 B.C.R. 545

Appeal (No. 52 of 1994) with leave of the Court of Appeal of Brunei Darussalam by the plaintiff airline, Royal Brunei Airlines Sdn. Bhd., from the judgment of the Court of Appeal of Brunei Darussalam (Fuad P., Cons and Kempster, Judicial Commissioners) given on 2 June 1994 allowing an appeal by the defendant, Philip Tan Kok Ming, from the judgment of Roberts C.J. delivered on 14 October 1993 in the High Court of Brunei Darussalam at Bandar Seri Begawan, whereby he had ordered the defendant to pay the airline the amount which was owed by Borneo Leisure Travel Sdn. Bhd. to the airline. The Chief Registrar of the High Court on 14 December 1993 had assessed the damages to which the airline was entitled as amounting to B.$335,160 with interest.

The facts are stated in the judgment of their Lordships.

Michael Beloff Q.C., Raymond Lam (of the Brunei Bar) and Murray Hunt for the airline.

Daljit Singh Sandhu and Geoffrey Sim (both of the Brunei Bar) for the defendant.

Cur. adv. vult.

24 May. The judgment of their Lordships was delivered by Lord Nicholls of Birkenhead.

The proper role of equity in commercial transactions is a topical question. Increasingly plaintiffs have recourse to equity for an effective remedy when the person in default, typically a company, is insolvent. Plaintiffs seek to obtain relief from others who were involved in the transaction, such as directors of the company, or its bankers, or its legal or other advisers. They seek to fasten fiduciary obligations directly onto the company's officers or agents or advisers, or to have them held personally liable for assisting the company in breaches of trust or fiduciary obligations.

This is such a case. An insolvent travel agent company owed money to an airline. The airline seeks a remedy against the travel agent's principal director and shareholder. Its claim is based on the much-quoted dictum of Lord Selborne L.C., sitting in the Court of Appeal in Chancery, in Barnes v. Addy (1874) L.R. 9 Ch.App. 244, 251–252:

“[The responsibility of a trustee] may no doubt be extended in equity to others who are not properly trustees, if they are found … actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But … strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a court of equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.”

In the conventional shorthand, the first of these two circumstances in which third parties (non-trustees) may become liable to account in equity is “knowing receipt,” as distinct from the second, where liability arises from “knowing assistance.” Stated even more shortly, the first limb of Lord Selborne L.C.'s formulation is concerned with the liability of a person as a recipient of trust property or its traceable proceeds. The second limb is concerned with what, for want of a better compendious description, can be called the liability of an accessory to a trustee's breach of trust. Liability as an accessory is not dependent upon receipt of trust property. It arises even though no trust property has reached the hands of the accessory. It is a form of secondary liability in the sense that it only arises where there has been a breach of trust. In the present case the plaintiff airline relies on the accessory limb. The particular point in issue arises from the expression “a dishonest and fraudulent design on the part of the trustees.”

The proceedings

The essential facts are these. In 1986 the plaintiff airline, Royal Brunei Airlines Sdn. Bhd., appointed Borneo Leisure Travel Sdn. Bhd. (“B.L.T.”) to act, in various places in Sabah and Sarawak...

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