Harre CJ
IN THE GRAND COURT OF THE CAYMAN ISLANDS HOLDEN AT GEORGE TOWN, GRAND CAYMAN CAUSE NO. 310/94 BETWEEN: Islena de Inversiones S.A. de C.V. (Islena Airlines) - PLAINTIFF - DEFENDANTS AND: Jefferson Travel Services Ltd. JUDGMENT By a letter dated 2nd August 1991 the plaintiff, which operates an air service between George Town, Grand Cayman and Honduras, appointed new representation in the Cayman Islands. That letter was addressed to Mr. John Jefferson Jr., Jefferson Travel Services Ltd., George Town, Grand Cayman and read as follows - ISLENA AIRLINES will be conducting flights between Grand Cayman and La Ceiba, Honduras and Vice versa. ISLENA AIRLINES will pay Jefferson Travel Ltd a 10% commission on all Sales conducted by the above Agency or your Assistant Mrs. Norma Jean Bennett, under the Cayman rules and Civil Aviation regulations." 1 Mr. Wood is the President and General Manager of the plaintiff. I shall refer to the 2 plaintiff as Islena and shall need to refer to other contemporary documents in some 3 detail to indicate my view of the contractual arrangements between the parties. 4 5 A letter dated the previous day, 1st August 1991 relating to the appointment had been 6 written to the Director of Civil Aviation. It read as follows - 7 8 “Dear Sir: 9 ISLENA AIRLINES has decided to change our Representative - 10 Mr. Graham Thompson to Mr. John Jefferson Jr. Assistant 11 Mrs. Norma Jean Bennett (JEFFERSON TRAVEL SERVICE LTD) 12 as of August 30, 1991. 13 14 I also request you give Mr. Jefferson all the assistance you have 15 rendered to our past Agent Mr. Thompson, to continue serving 16 the Cayman Island, with our Airlines Services uniting your 17 Country with Honduras and Latin America. 18 19 Respectfully, 20 21 ARTURO AL VARADO WOOD 22 GENERAL MANAGER” 23 24 25 26 There was a further letter dated 29th August from Mr. Wood to the Acting Director, 27 Civil Aviation Mr. Pat Johnson, in the following terms - 28 29 “I WISH TO CONFIRM MY REQUEST TO HAVE MY 30 PERMIT NO. 19/1991 REISSUED ON NO. 6 OF SAID 31 PERMIT TO READ AS OR LOCAL REPRESENTATIVE 32 MR. JOHN D. JEFFERSON JR. (OF JEFFERSON 33 TRAVEL SERVICE LTD) TO REPRESENT ISLENA AIRLINES 34 AS OUR NEW AGENT IN THE CAYMAN ISLAND AS 35 OF AUGUST 30, 1991: ALL OTHERS POINTS SHOULD 36 REMAIN THE SAME. 37 38 IF THERE IS NO INCONVENIENCE TO THIS MATTER. WE HOPE OUR REQUEST BE APPROVED IMMEDIATELY.” There is an issue as to whether the appointment was for Jefferson Travel Services Ltd. Mr. John Jefferson Jr or both. The present case concerns the termination of the agreement and its consequences. The plaintiff’s principal witness was Mr. Arturo Wood. He described the nature of the arrangement between the parties and this is common ground to the extent I now describe. Revenue was collected by the agent from ticket sales, express letters and excess baggage charges. From the gross revenue the agent was entitled to deduct 10% commission and office expenses. There is some disagreement as to the extent of the latter entitlement but it is not significant. It was the agents responsibility to pay from revenue banking fees, the price charged by Texaco for aviation fuel, general services by Cayman Airways (“CAL”) such as baggage handling and checking in of passengers. CAL was responsible for collecting excess baggage charges and passing over the money to the agent. According to Mr. Wood, a weekly report and accounting of the balance was to be made to Islena. Mr. Jefferson’s evidence was that that was changed to once every two weeks. In the event neither arrangement was complied with. The evidence of Mr. Wood, which I believe, was that after a while his accountants kept coming to him to ask him to speak to Mr. Jefferson to find out why the weekly reports and cash remittances were not arriving on time. Matters took a more serious turn in 1994. A letter dated 9th February 1994 was sent in the following terms to Mr. Wood in Honduras by the Director of Civil Aviation in Cayman - "I refer to fax of Feb. 3rd, 1994 and write to confirm that the Civil Aviation Authority have no objection to Islena's proposed schedule effective February 12th, 1994. However we do note that your operating permit issued by the Air Transport Licensing Authority expired on December 31st, 1993. Please ensure that you received the necessary permits from the ATLA for your operation." At the foot of the letter is the following handwritten note from Mr. Wood to Mr. Jefferson - "JOHN JEFFERSON GCM PLEASE HAVE AN INTERVIEW WITH ATLA AT CIVIL AVIATION CONCERNING THE ABOVE LETTER, FOLLOW-UP AND ADVISE YOU ARE ISLENA REPRESENTATIVE AND CAN SIGN FOR ME. SINCERELY A. Wood" The annual licence renewal was also the subject of a letter dated 3rd March 1994 addressed to Mr. Jefferson by the Secretary of the Air Transport Licensing Authority. It approved his application dated 1st March and contained the following passage - "A sum of CI$700 or US$853.65 must be paid to the Civil Aviation Authority in respect of Air Operations Permit within 30 days or this 1 approval becomes void." 2 3 No payment was made until after the agency agreement was terminated. 4 Nevertheless, the agent’s report to Islena dated 30th April 1994 showed a deduction of $853.65 in respect of “Islena Licence.” Mr. Jefferson’s explanation for this was that 5 the payment had simply been overlooked. On any view, the failure to attend to such an important matter as the payment of the Air Operations Permit Fee even after reminders and the warning in the letter dated 3rd March from ATLA was a serious default. 6 7 8 9 10 11 The next significant event took place sometime in May 1994. Mr. Wood’s evidence is that he was visited in Honduras by three officials of Cayman Airways, Mr. Mike Adams and two of his assistants, Mr. Watler and Mr. Bodden. Their visit concerned amounts they said were owed by Islena for ground handling charges. Mr. Wood’s response was to produce the agent’s reports showing that the money had been deducted in Cayman. On seeing these, Mr. Adam refused to accept money from Mr. Wood and said he would take the matter up with Mr. Jefferson on his return to Cayman. 12 13 14 15 16 17 18 19 20 When giving evidence Mr. Jefferson questioned whether Mr. Adams and his colleagues had visited Honduras in this way at all, but acknowledged that he had no knowledge one way or the other. There being no evidence to the contrary, I accept 21 22 23 Mr. Wood’s account. 1 Another issue between the parties had arisen in May 1994. On 11th May, Mr. 2 Jefferson had written - on paper headed John D. Jefferson Jr. MLA but signed John D. 3 Jefferson Jr. MLA, Jefferson Travel Services Ltd., President/Chairman - to the Airport 4 Manager of Cayman Airways Ltd. It notified him that “we (my emphasis) have 5 agreed to allow Air Agencies Ltd to serve as our (my emphasis again) Customer and 6 Ground Handling agent.” Various complaints are set out in the letter as factors 7 influencing the decision. 8 9 On receipt of a copy of this Mr. Wood sent a fax to Mr. Jefferson saying that he 10 urgently needed to talk with him about Air Agencies. His evidence was that he was 11 so concerned that he wrote the message himself without getting his secretary. 12 13 On the same day, 11th May 1994, Mr. Wood sent the following message to Mr. 14 Jefferson with a copy to Cayman Airways- 15 “NO INSTRUCTIONS FROM THIS OFFICE HAS BEEN ISSUED TO YOU, OR TO AIR AGENCIES LTD. FOR GROUND SERVICES FOR ISLENA AIRLINES. 16 17 18 19 20 I HAVE INSTRUCTED VIA PHONE TO MR. MIKE ADAMS TO CONTINUE GIVING MY AIRLINE TO NECESSARY ASSISTANCE WHILE OPERATING TO AND FROM THE CAYMAN ISLAND; PLEASE PUT UP TO DATE ALL CHARGES THAT YOU BALANCE CAYMAN AIRWAYS FOR THERE SERVICES ALSO OUR BALANCE TO ISLENA AIRLINES. THAT IS PAST OVERDUE. 21 22 23 24 25 26 27 PERSONALLY I WILL BE TRAVELLING TO GRAND CAYMAN 28 VERY SHORTLY TO TAKE CARE OF ALL MATTERS.” 29 30 31 1 There are two more letters on this topic dated 12th May from Mr. Jefferson. One is to 2 Mr. Wood, the other to Mr. Adams of Cayman Airways. In each he refers to his 3 dissatisfaction with the service provided by Cayman Airways and also acknowledges 4 that sums are due to Cayman Airways for handling charges. He disputes the amount 5 but offers to make arrangements to pay once the correct amount has been determined. 6 7 There is also correspondence addressed to Mr. Jefferson from the General Accountant 8 of Islena during May 1994, culminating in the following on 1st June - 9 10 "I'M TO REMIND YOU AGAIN THAT YOU HAVE NOT SEND 11 ANY SALES REPORT TRANSACTION FOR THE MONTH OF 12 MAY, AND HAVEN'T PUT NO INTEREST ABOUT THE VALUE 13 SUBTRACTED FOR THE COPY MACHINE AND THE AIR 14 CONDITION, SO PLEASE SEND ME THE TRISECTIONS FOR 15 MAY AND THE VALUE SUBTRACTED. 16 17 THANK YOU FOR YOUR ATTENTION," 18 19 Matters came to a head during the first week of June. On the 3rd Mr. Wood wrote to 20 Mr. Jefferson as follows - 21 22 "DATE: 3RD JUNE, 1994 23 24 COMPANY NAME: JEFFERSON TRAVEL SERVICES 25 26 FROM: ARTURO A. WOOD 27 28 Mr. John Jefferson, 29 Georgetown, 30 Grand Cayman, 31 B.W.I. 32 33 34 Effective 4th June, 1994, I have taken the decision to relieve you 35 from the responsibility as Islena Airlines Representative in the 36 Cayman Islands. Past correspondence between you and Cayman Airways and outstanding bills has forced me to take these steps. Please put up to date all monies you have for Islena Airlines, and also accounts outstanding to Cayman Airways and all others. Sincerely Yours Arturo Avarado Wood President & C.E.O. you or anybody else Tarnish our Reputation by Irresponsible and Careless Remarks. As you are aware our Agency Agreement called for Notice with respect to Termination by either Party. I am prepared to Accept an Early Termination of Our Agreement under the following Conditions;
We are given US$30,000.00 in Cash or Credit against Funds Owed to Islena Airline;
US$50,000.00 and a Written Letter of Apology concerning remarks made by Yourself with Respect to the honesty/Reputation of my Sister Norma Jean Bennett and Myself;
We are allowed to retain all assets acquired for Office purposes since September, 1990 when we took over as your Agents. If you continue to Insist on the Early Termination of Our Agreement and Fail to Agree to the Conditions as set out above, then I will have no alternative but to Write to the Airport Transport Licencing Authority requesting Termination of the Licence granted to Islena Airline which permits the Airline to fly into the Cayman Islands, on the Grounds of yourself as an Undesirable Person for Doing Business in these Islands. I will also bring a Case against your before the Courts on Slander Charges with respect to your recent remarks concerning the Honesty, Integrity and Reputation of My Sister Norma Jean Bennett and Myself. Please advise me as soon as possible of Your Decision on these matters. "10th July 1994 Re: Termination of Agency Agreement Further to my letter of 3rd June, 1994, in which was mentioned certain Penalties if our Agency Agreement was Terminated without the Required Notice. There was also a Claim with regard to Slander concerning my Reputation and that of my Sister, Norma Jean Bennett. As the conditions have not been complied with within the time frame given I hereby provide you with a Final Accounting as of 10th July, 1994: US $ Ticket Sales 21,510.50 Excess Baggage Revenue 3,527.50 Letter Revenue 1,775.00 Photocopier/AC 4,751.47 Difference on Manifest 7/5/94 1,998.80 Balance Due on Manifest 2/7/5/94 6,914.05 Total Revenue Due US $ 40,477.32 Less: Rent (June, July, Aug.) (1,250.01) Final Position Personal Severance Fees 30,000.00 Slander Claim for Comments made with respect to the Honesty of myself and my sister, Mrs. Norma Jean Bennett 50,000.00 US$80,000.00 35,331.05 Less: Amount due Islena Airline Amount due to John D. Jefferson - US$44,668.95 I have made separate arrangements with Cayman Airways to repay what is owed to them by Jefferson Travel Services Ltd for handling Charges. You have until the 24th July, 1994 to have the Funds due myself Paid otherwise I will proceed with Legal Proceedings against you in Court on Slander Charges and also submit a recommendation to the Airport Transport Licencing Board to have the Charter for Islena Airline to fly to Grand Cayman Cancelled. I look forward to receiving your check in Settlement in due course." These letters speak for themselves. It suffices for present purposes to say that Mr. Wood was not intimidated. His response dated 15th July enclosed documentation on the basis of which he claimed $59,897.78. Proceedings were issued on 19th September, 1994. Before going to the issues pleaded I now refer to the evidence of Mr. Jefferson. His evidence about the financial arrangement which he had made with CAL accords with that of Mr. Wood about what Mr. Jefferson told him. He had opened an account with CAL on behalf of Jefferson Travel for handling fees incurred, with a credit limit 1 of $5,000. That, Mr. Jefferson said, was so that the fees could be paid when the 2 statement of what was owing was received by CAL which might be up to six weeks 3 after the transaction concerned. He asserted that this arrangement was made with 4 CAL, and the money owed, by Jefferson Travel Services Ltd to CAL and not by 5 Islena, and he did not know why CAL would go to Islena. I shall refer to the way in 6 which that was pleaded later. 7 8 Mr. Jefferson also testified that the arrangement with Islena was with Jefferson Travel 9 Services Ltd., not him personally. Having reviewed the correspondence and the 10 course of dealing between the parties I accept that. 11 12 Aspects of the arrangements which Mr. Jefferson explained included the practice of 13 accepting fares and refunding cash to customers; the receipting of amounts paid for 14 transporting letters and their inclusion on the manifest; the agent’s responsibility for 15 renewal of Islena’s annual licence; He said that he had released to the plaintiff’s 16 attorneys all documents for which they asked and acknowledged that he had given a 17 draft for US$10,000 dated 3rd June 1994 to Mr. Wood on the following day and that 18 if his counterclaim were not taken into account there would then still have been 19 money owing to Islena. 20 21 Everything, he said, was properly accounted for. He was taken through the 22 documents to which I have referred, and others, and did not dispute their authenticity. 23 Cross-examined, he acknowledged the correctness of the figures pleaded by the 24 plaintiff and sought to justify his credit arrangements with CAL and the increase of 1 the indebtedness of Jefferson Travel above the agreed limit, saying that if he took care 2 of the liability it was no business of Islena and in no way affected their operation. I 3 do not accept that. If the money deducted from revenue had been properly paid over 4 there would have been no excess debit balance. He acknowledged that certain 5 business expenses had been paid out of revenue received and asserted that these 6 related to commission to which the agent was entitled. He did not however “audit” 7 the amounts weekly or monthly or, as he put it “penny by penny.” 8 9 There was evidence from Mr. Jefferson that after Mr. Wood and his colleague had 10 collected the documentation on termination of the agreement an envelope of tickets 11 representing a substantial amount of money which had not been reported was 12 discovered. On 3rd June 1994 he and Jefferson Travel had the ability to pay in full 13 but he refused to do so because of the way in which the agreement was terminated. 14 He insisted that a three month notice period had been agreed. He acknowledged that 15 he was Chairman and President of Jefferson Travel Service Ltd and personally kept 16 the account with Islena; that if (which he denied) he had paid out funds in excess of 17 his 10% commission otherwise than in accordance with the agreement, they would be 18 Islena funds and that would be improper; and that on 3rd June 1994 money was owed 19 to Islena and to CAL and that both the CIS and US$ accounts of Jefferson Travel 20 Services Ltd were overdrawn. 21 22 I seek to summarise the plaintiff’s pleaded claims as follows. They relate to moneys 23 which it says were deducted from remittances to it and shown as having been paid on 24 sales returns when they were not so paid; and failure to properly account for and pay 1 monies due to the plaintiff for the period 8th April 1994 to 3rd June 1994 at all. 2 Particulars of these were set out in the statement of claim and were analysed and 3 described as schedules A,B and C in a report prepared for the plaintiff by an 4 accountant, Mr. Julian Campbell who at the material time worked for the firm Moore 5 Stephens. It was conceded that the figures contained in these particulars were 6 accurate or at any rate substantially so. 7 8 It is denied in the amended defence and counterclaim that the first defendant, Mr. 9 Jefferson, was a party to the agreement at all; that there was any trust in relation to 10 moneys received or obligation to hold them in a separate account; that the plaintiff's 11 termination of the contract was lawful; that sums were fraudulently retained; and that 12 moneys owed by the plaintiff to CAL for handling charges were wrongfully retained. 13 14 The defendants deny that anything is owed to the plaintiff and the second defendant 15 counterclaims for loss it alleges that it incurred by reason of the alleged wrongful 16 termination of the agreement without notice. That is particularised as 10% of the 17 plaintiff's ticket, express letter and excess baggage sales from 5th June 1994 to 4th 18 September 1994. There is a claim for an accounting for this period and an alternative 19 claim for damages for wrongful determination of the agreement. Finally, set-off is 20 claimed. 21 22 The case therefore turns upon the resolution of a number of questions of law. They 23 are these - 1. With what party or parties did the plaintiff conclude its agreement - John 2. Jefferson Jr or Jefferson travel Services Ltd or both? 3.
2. What was the period of notice of termination applicable to the agreement? 5 6 3. Was the plaintiff entitled in any event to terminate the agreement without 7 notice by reason of breach? 8 9 4. Did the agreement give rise to a trust or merely a debtor/creditor 10 relationship? 11 12 5. What will be the appropriate orders in relation to any sums found to be 13 owing? 14 15 With regard to the first issue, I have already expressed my finding that the agreement 16 was concluded with Jefferson Travel Services Ltd and not with Mr. Jefferson 17 personally. 18 19 With regard to the second and third issues I find that the period of notice applicable to 20 the contract, whether by express agreement or by implication of a reasonable period 21 was three months. However, the breaches of the agreement revealed by the evidence 22 were of such a serious nature that the plaintiff was justified in terminating it without 23 notice. 24 1 With regard to the fourth issue, it is common ground that the existence or otherwise of 2 a trust depends on the terms of the agreement. Each party relied on a number of the 3 same authorities but drew very different conclusions from them. 4 5 It is, I think, well established that the duties of an agent include the following - 6 7 “It is the duty of an agent 8 (a) to keep the money and property of his principal separate 9 from his own and from that of other persons; 10 (b) to preserve and be constantly ready with correct accounts 11 of all his dealings and transactions in the course of his agency; 12 (c) to produce to the principal, or to a proper person appointed 13 by the principal, all books and documents in his hands relating 14 to the principal’s affairs.” 15 16 17 Boston Deep Sea Fishing v. Ansell (1888) 34 Ch D 339 was cited by the plaintiff for 18 the proposition, which is conceded, that where a principal dismisses an agent - even if 19 he does not know of all the agents derelictions at the time he can rely on what he 20 discovers after. With regard to other aspects of that case, I shall simply say that I 21 shall not be making orders for refunds of commissions under paragraphs 5 and 6 of 22 the statement of claim. 23 I turn therefore to three modern cases next. All involved arrangements between 24 airlines and travel agents. They are - 25 Stephens Travel Services Int. Pty Ltd v. Qantas Airways Ltd. (1988) 13 26 NSWLR 331 (Court of Appeal); 27 Canadian Pacific Airlines v. CIBC (1987) 42 DLR 375 ; 28 Royal Brunel Airlines Sdn Bhd v. Philip Tan Kok Ming (1995) 3 WLR 64 1 It is convenient to deal with these cases in the order in which I have referred to them. 2 3 In Stephens Travel Services Int Pty Ltd v. Qantas Airways Ltd, Qantas as a member of the International Air Transport Association (IATA) was party to a travel agency contract, the terms of which provided, inter alia, that airline tickets and transportation orders owned by Qantas could be sold and issued by the travel agent for Qantas. The contract specifically provided that unless already accounted for “all moneys collected by the agent for transportation and ancillary services sold under this agreement, … shall be the property of the carrier and shall be held by the agent in trust for the carrier or on behalf of the carrier until satisfactorily accounted for to the carrier and settlement made …”. Incorporated into the contract by the adoption of Sales Agency Rules were machinery provisions for the payment by the agent of moneys received by it for tickets issued by it, at fortnightly intervals, to a clearing bank and to be paid by that bank to Qantas. The agent paid moneys received by it for airline tickets and transportation orders into an overdraft account with its bank; each fortnight it drew on this account for payment to Qantas. The bank refused to pay on one such cheque, closed the account, appointed receivers and used what moneys were in the account in reduction of its overdraft. Moneys received for tickets and transportation orders after the appointment of receivers were paid into a trust account in the joint names of the receivers and the administrator appointed under the Travel Agents Act 1973. Qantas sought to recover all moneys received by the agent and the receivers for airline tickets and transportation orders not accounted for. 23 It was held that where parties have agreed that legal and equitable rights and remedies should co-exist in the one transaction, the court will give effect to that agreement, and that having regard to the terms of the travel agency contract the moneys received by the travel agent in respect of tickets issued by Qantas (in respect of which or to the extent to which Qantas had not been paid) were to be held on trust by the travel agent. In Canadian Pacific Airlines v. CIBC, the arrangements between the parties were substantially similar. As noted by Maloney J, the case reduced to two primary issues which he described as follows - "The plaintiff's position is that the relationship is one of principal and agent, with an express trust created by the agreement, requiring proceeds of ticket sales to be held in trust for CP. The financial statements of the agents (which were seen by the bank) do not show ticket sales as income. The only income recorded thereon is commission income. Also, the agreement provides that the blank ticket stock remains the property of CP until sold. The defendant CIBC argues that the relationship is not fiduciary but rather debtor-creditor, the three certainties of a trust relationship not being present. The agreement provides, in subpara. 16(a), that the agent must remit to the airline the price of all tickets sold, regardless of how much of that price the agent eventually collects. The defendant argues that this renders the agency a mere debtor to the airline, responsible only to pay it a specified sum of money from an unspecified source. In order for a trust relationship to exist, argues the bank, the source of the trust must be certain, as otherwise there is no certainty as to the subject-matter of the trust." Subparagraph 16(b) of the agreement provided as follows - "All money collected by the Agent for transportation and ancillary services sold under this agreement, including applicable commissions which the Agent is entitled to claim thereunder will be the property of the Carrier and shall be held by the agent in trust for the Carrier or on behalf of the Carrier, until satisfactorily accounted for to the Carrier, and settlement made." 1 characteristics, known as the three certainties: certainty of intent, of subject-matter 2 and of object. He found that the agreement, in subpara. 16(b), was certain in its intent 3 to create a trust; the subject-matter was to be the funds collected for ticket sales; the 4 object, or beneficiary, of the trust was also clear; it was to be the airline. The 5 necessary elements for the creation of a trust relationship were all present and 6 Maloney J so found. 7 8 The most recent of the cases, and the highest of the authorities, on which the plaintiff 9 relied was Royal Brunei Airlines Sdn Bhd v. Philip Tan Kok Ming (1995) 3 WLR 64. 10 The facts were that the plaintiff airline appointed as its agent in a particular area for 11 the sale of passenger and cargo transportation a company of which the defendant was 12 the managing director and principal shareholder. Under the agreement the company 13 was to hold in trust for the airline money received from such sale until it was 14 accounted for by the company to the airline. With the defendant’s knowledge and 15 assistance the company paid the money into its current bank account instead of into a 16 separate account, and in breach of trust the company used that money for its own 17 business purposes. The company failed to pay to the airline sums due within the time 18 specified by the agreement. The airline terminated the agreement and, the company 19 having become insolvent, commenced proceedings against the defendant to recover 20 the money owed by the company. The judge held that the defendant was liable as 21 constructive trustee to pay that amount to the airline. On appeal the Court of Appeal 22 of Brunei Darussalam reversed that decision, holding that the defendant could not be 23 so liable because it had not been established that the company was guilty of fraud or 24 dishonesty in relation to the money held in trust for the airline. On the airline’s appeal 1 to the Judicial Committee of the Privy Council it was held, allowing the appeal, that 2 where a third party dishonestly assisted a trustee to commit a breach of trust or 3 procured him to do so, the third party would be liable to the beneficiary for the loss 4 occasioned by the breach of trust, even though the third party had received no trust 5 property and irrespective of whether the trustee had been dishonest or fraudulent; that 6 in the context of such accessory liability honesty was to be judged objectively and 7 acting dishonestly, or with a lack of probity, which was synonymous, meant not 8 acting as an honest person would act in the circumstances and could usually be 9 equated with conscious impropriety as distinct from inadvertent or negligent conduct 10 or carelessness, although a third party might be acting dishonestly if he recklessly 11 disregarded the rights of others; that the third party’s conduct had to be assessed on 12 the basis of his actual knowledge at the time not what a reasonable person would have 13 known or appreciated, and regard could be had to his personal attributes including 14 experience and intelligence and the reason for him acting in that way; and that, 15 accordingly, since the defendant had caused or permitted the company to commit a 16 breach of trust by using in the conduct of its business money held in trust for the 17 airline when he knew that the company was not authorised to so by the terms of the 18 trust, the defendant had acted dishonestly, and was, therefore, liable to the airline for 19 the amount owed to it by the company. 20 21 The judgment of their Lordships was delivered by Lord Nicholls of Birkenhead and 22 contains this telling passage - 23 "In most cases there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others property. Unless 1 there is a very good and compelling reason, an honest person does not 2 participate in a transaction if he knows it involves a misapplication of 3 trust assets to the detriment of the beneficiaries.” 4 5 In each of the three cases to which I have just referred the establishment of a trust was 6 an express term of the agreement. In that respect all are distinguishable from the 7 present case. Nevertheless having reviewed the nature of the arrangements between 8 the parties against the background of industry practice in different parts of the world 9 which these cases reveal I find that the three certainties were present and that a trust 10 existed. The first defendant acted dishonestly in causing or permitting the second 11 defendant, the company in which he was the controlling mind to commit breaches of 12 trust and I find both defendants to be liable to the plaintiff. 13 14 15 16 17 18 19 20 21 Oral Judgment delivered and Order made on 10th October 1997. 22 Judgment reduced to writing on 22nd April 1998. 23 24