Royal Brunei Airlines v Tan [1995]
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Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4 is a notable case in English trusts law, addressing the issues of breach of trust and liability for dishonest assistance.
Royal Brunei Airlines appointed Borneo Leisure Travel Sdn Bhd as its agent for booking passenger flights and cargo transport in Sabah and Sarawak. Mr Tan, the managing director and main shareholder of Borneo Leisure Travel, received money on behalf of Royal Brunei, agreed to be held in trust until transferred. However, with Mr Tan's knowledge and assistance, Borneo Leisure Travel deposited funds into its current account and used them for its own business. When Borneo Leisure Travel failed to pay on time, the contract was terminated, leading to insolvency. Royal Brunei sought to recover the money from Mr Tan.
The judge held Mr Tan liable as a constructive trustee to Royal Brunei. The Court of Appeal of Brunei Darussalam, however, ruled that the company was not guilty of fraud or dishonesty, and therefore, Mr Tan could not be held responsible. The case was then appealed to the Privy Council, where the initial decision of the Court of Appeal was overturned in favour of the claimant.
In delivering the advice of the Privy Council, Lord Nicholls emphasised that the crucial factor is the state of mind of the dishonest assistant. Knowledge is assessed along a gradually darkening spectrum. Therefore, the test for liability in assisting a breach of trust must depend on dishonesty, viewed objectively. The primary trustee's state of mind is irrelevant if the assistant is found to be dishonest.
Lord Nicholls clarified that, in the context of accessory liability, acting dishonestly means not acting as an honest person would in the circumstances. This is an objective standard, and the individual's subjective views on honesty do not determine what constitutes honest conduct. Honesty is not a subjective scale; it is an objective standard. Even if a person sees nothing wrong in appropriating another's property knowingly, it does not exempt them from a finding of dishonesty.
Royal Brunei Airlines appointed Borneo Leisure Travel Sdn Bhd as its agent for booking passenger flights and cargo transport in Sabah and Sarawak. Mr Tan, the managing director and main shareholder of Borneo Leisure Travel, received money on behalf of Royal Brunei, agreed to be held in trust until transferred. However, with Mr Tan's knowledge and assistance, Borneo Leisure Travel deposited funds into its current account and used them for its own business. When Borneo Leisure Travel failed to pay on time, the contract was terminated, leading to insolvency. Royal Brunei sought to recover the money from Mr Tan.
The judge held Mr Tan liable as a constructive trustee to Royal Brunei. The Court of Appeal of Brunei Darussalam, however, ruled that the company was not guilty of fraud or dishonesty, and therefore, Mr Tan could not be held responsible. The case was then appealed to the Privy Council, where the initial decision of the Court of Appeal was overturned in favour of the claimant.
In delivering the advice of the Privy Council, Lord Nicholls emphasised that the crucial factor is the state of mind of the dishonest assistant. Knowledge is assessed along a gradually darkening spectrum. Therefore, the test for liability in assisting a breach of trust must depend on dishonesty, viewed objectively. The primary trustee's state of mind is irrelevant if the assistant is found to be dishonest.
Lord Nicholls clarified that, in the context of accessory liability, acting dishonestly means not acting as an honest person would in the circumstances. This is an objective standard, and the individual's subjective views on honesty do not determine what constitutes honest conduct. Honesty is not a subjective scale; it is an objective standard. Even if a person sees nothing wrong in appropriating another's property knowingly, it does not exempt them from a finding of dishonesty.
