Equity and Trust Essay

Equity and Trust – Dishonesty
Question 1
The nature of the case of the Royal Brunei Airlines Sdn Bhd Vs Philip K.M. Tan involves a look at the role of equity in commercial transactions and contracts. The airline company had contracted BLT as it agents to carry out the sale of airline tickets to both passengers and cargo clients on its behalf. The agent was allowed to deduct the agreed commission from the sale of the airline ticket and account to the airline all amounts received. The agreement constituted BLT as a trustee of all the money it received on behalf of the airline from the sale of transport tickets. Mr. Philip Tan Kok Ming was the founder, principal shareholder, and managing director of the agent company.

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When the airline company terminated its contract with BLT due to insolvency, it commenced a legal action against Mr. Tan holding him liable for all the unpaid money.

Although Mr. Tan signed the agency agreement on behalf of BLT, he was not party to the agency agreement. The issue was heard by the court of appeal in Brunei and it allowed Mr. Tan to appeal. Mr. Tan’s counsel agreed that there had been a breach of trust and the Mr. Tan participated in the breach with actual knowledge but the issue at hand was whether dishonest and fraudulent design by BLT can be established.

The court of appeal judge stated that as long standing and high authority shows, conduct that may amount to a breach of trust, however morally reprehensible will not render the person who has knowingly assisted in the breach of trust liable as a constructive trustee, if that conduct falls short of dishonesty.

The ruling was upholding an already existing precedent set in the English Court of Appeal that sets that dishonesty and fraudulent design can only be understood based on the principle of a court of equity. The issue in this case was to establish if the breach of trust, a precondition to accessory liability, need to be itself a fraudulent and dishonest breach of trust by an entity, as the trustee.

Question 2
The important facts of the case were the breach of trustee trust by the agency company to the airline. The airline company and Mr. Tan were the parties to the case with the airline company as the respondent and Mr. Tan as the appellant. Michael Beloff QC, Raymond Lam, and Murray Hunt (Norton Rose) represented the plaintiff. Daljit Singh Sandhu and Geoffrey Sim (Denton Hall) appeared for the defendant. Mr. Tan tried to establish if his acts amounted to dishonesty and fraudulency on his part as the director of the company and if this warranted the airline holding him liable.

Question 3
The Court of Appeal found that dishonesty and fraudulent act on part of BLT was never established in relation to amounts held on behalf of the airline company. This indicated that the airline failed to prove that Mr. Tan intended to defraud it as he used the money hoping to pay the airline later. The appeal court finds that the inability of the company to pay the airline mounted to a breach of trust. However, it cannot hold Mr. Tan liable, as there was no dishonesty on his part.8 The ratio of the decision was 4 to 1.

Question 4
The decision by the Court of Appeal upholds an already existing precedent in the English courts that indicated that for one to be held liable there is need to establish dishonesty and fraudulency.9 This required that the airline establish dishonesty on the part of Mr. Tan beyond the already existing breach of trust that Mr. Tan accepts.

The ruling can be employed as an excuse to allow for the breach of trust on the part of trustee companies. This is the case when companies lose money due to poor mismanagement of trustee companies.

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