Air Canada v. M & L Travel Ltd., Martin and Valliant, (1993) 67 O.A.C. 1 (SCC)

• Judge: La Forest, Sopinka, Gonthier, Cory, McLachlin, Iacobucci, and Major, JJ.
• Court: Supreme Court (Canada)
• Case Date: April 26, 1993
• Jurisdiction: Canada (Federal)
• Citations: (1993), 67 O.A.C. 1 (SCC)

Air Can. v. M&L Travel Ltd. (1993), 67 O.A.C. 1 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Ross Valliant (appellant) v. Air Canada (respondent)

(No. 22416)

Indexed As: Air Canada v. M & L Travel Ltd., Martin and Valliant

Supreme Court of Canada

La Forest, Sopinka, Gonthier, Cory, McLachlin, Iacobucci, and Major, JJ.

October 21, 1993.

Summary:

Air Canada sued M & L Travel Ltd. (a travel agency) and its owners and directors, Martin and Valliant, personally, for monies owing for air line tickets.

The Ontario District Court, per Flanigan, J., held that there was a trust relationship between Air Canada and the travel agency and that the agency had breached that trust by failing to protect Air Canada's interests. The trial judge held that the directors, Martin and Valliant, were not personally liable. Air Canada appealed.

The Ontario Court of Appeal, in a decision reported 43 O.A.C. 215; 2 O.R.(3d) 184, allowed the appeal and varied the trial judg­ment, holding the directors jointly and sev­erally liable with the corporate travel agency. One of the directors, Valliant, appealed again.

The Supreme Court of Canada dismissed the appeal.

Company Law - Topic 4187

Directors - Liability of directors - For breach of trust - A travel agency, a closely held corporation, entered a passenger ticket sales agency agreement with Air Canada - The agreement provided that monies received for tickets, less commissions, should be held in trust for Air Canada - The agency intermingled the Air Canada funds with other funds - Air Canada was not paid (i.e., there was a breach of trust by the corporate travel agency) - The Supreme Court of Canada affirmed that the agency's director was personally liable for the agency's breach of trust where he knowingly and directly participated in the breach of trust - See paragraphs 1 to 63.

Trusts - Topic 361

Creation of trust - Intention - Trust v. creditor and debtor relationship - A travel agency and Air Canada entered a passen­ger sales agency agreement - The agree­ment provided that monies received for tickets, less commissions, should be held in trust for Air Canada - The agency intermingled the Air Canada funds with other funds - Air Canada was not paid - It was argued that the relationship between Air Canada and the travel agency was one of debtor and creditor, rather than one of trust, because the agency agreement did not require the travel agency to keep sep­arate accounts - The Supreme Court of Canada held that where there was clear evidence of an intention to create a trust in the sales agency agreement, the absence of a prohibition on the commingling of funds was not determinative - See paragraphs 20 to 30.

Trusts - Topic 2350

Constructive trusts - Basis of imposition - Trustee de son tort - The Supreme Court of Canada discussed when a stranger to a trust can be held liable as a constructive trustee for breach of trust - The court noted that there are two general bases for imposition of such liability, i.e., as trustee de son tort and where the stranger knowingly participates in the breach of trust - See paragraphs 31 to 62.

Trusts - Topic 2351

Constructive trusts - Basis of imposition - Where stranger knowingly participates in breach of trust - The Supreme Court of Canada discussed when a stranger to a trust can be held liable as a constructive trustee for breach of trust - The court noted that there are two general bases for imposition of such liability, i.e., as trustee de son tort and where the stranger knowingly participates in the breach of trust - The court held that there are two ways a stranger could be liable to the beneficiaries as a participant in a breach of trust: (1) as one in receipt and chargeable with trust property, and (2) as one who knowingly assisted in a dishonest and fraudulent design on the part of the trustees - The court discussed when liabil­ity would be imposed under category (2) - See paragraphs 31 to 62.

Trusts - Topic 2351

Constructive trusts - Basis of imposition - Where stranger knowingly participates in breach of trust - [See Company Law - Topic 4187 ].

Cases Noticed:

Wawanesa Mutual Insurance Co. v. Chalmers (Fred J.A.) & Co. (1969), 7 D.L.R.(3d) 283 (Sask. Q.B.), consd. [para. 14 et seq.].

Henry Electric Ltd. v. Farwell (1986), 29 D.L.R.(4th) 481 (B.C.C.A.), consd. [para. 14 et seq.].

Schmidt (Andrea) Construction Ltd. v. Glatt (1979), 25 O.R.(2d) 567 (H.C.), consd. [para. 14 et seq.].

Myrta Forastieri v. Eastern Air Lines Inc. (1983), 18 Avi. 17,145 (D.P.R.), refd to. [para. 15].

Canadian Pacific Airlines Ltd. v. Canadian Imperial Bank of Commerce (1987), 61 O.R.(2d) 233, affd. 71 O.R.(2d) 63 (C.A.), refd to. [para. 22].

R. v. Lowden (1981), 27 A.R. 91 (C.A.), refd to. [para. 24].

Bank of Nova Scotia v. Société Général (Canada), [1984] 4 W.W.R. 232 (Alta. C.A.), refd to. [para. 24].

McEachern v. Royal Bank of Canada and Dial Mortgage Corp. (Bankrupt) (1990), 111 A.R. 188; 78 Alta. L.R.(2d) 158 (Q.B.), refd to. [para. 24].

Stephens Travel Service International Pty. Ltd. v. Qantas Airways Ltd. (1988), 13 N.S.W.L.R. 331 (C.A.), refd to. [para. 24].

Hanna (M.A.) Co. v. Provincial Bank of Canada, [1935] S.C.R. 144, refd to. [para. 25].

Henry v. Hammond, [1913] 2 K.B. 515, consd. [para. 25 et seq.].

Air Traffic Conference v. Downtown Travel Center Inc. (1976), 14 Avi. 17,172 (N.Y.), refd to. [para. 27].

Air Traffic Conference of America v. Worldmark Travel Inc. (1980), 15 Avi. 18,483 (N.Y.), refd to. [para. 27].

Morales Travel Agency, In re (1981), 667 F.2d 1069 (1st Cir.), refd to. [para. 28].

Penn Central Transportation Co., In re (1971), 328 F.Supp. 1278 (Dist. Ct.), revsd. (1973), 486 F.2d 519 (U.S.C.A., 3rd. Circ.), refd to. [para. 29].

Montagu's Settlement Trusts, In re, [1987] Ch. 264, consd. [para. 31 et seq.].

Selangor United Rubber Estates Ltd. v. Cradock (No. 3), [1968] 2 All E.R. 1073, consd. [para. 32 et seq.].

Barnes v. Addy (1874), 9 Ch. App. 244, consd. [para. 32 et seq.].

Baden, Delvaux & Lecuit v. Société Generale pour Favoriser le Développe­ment du Commerce et de l'Industrie en France S.A., [1983] B.C.L.C. 325 (Ch.), affd., [1985] B.C.L.C. 258 (C.A.), refd to. [para. 36 et seq.].

International Sales and Agencies Ltd. v. Marcus, [1982] 3 All E.R. 551, refd to. [para. 36].

Karak Rubber Co. v. Burden (No. 2), [1972] 1 All E.R. 1210 (Ch.), refd to. [para. 36].

Belmont Finance Corp. v. William Furni­ture Ltd. (No. 1), [1979] 1 All E.R. 118 (C.A.), refd to. [para. 36 et seq.].

Lee v. Sankey (1873), L.R. 15 Eq. 204, refd to. [para. 36].

Soar v. Ashwell, [1893] 2 Q.B. 390 (C.A.), refd to. [para. 37].

Carl-Zeiss-Stiftung v. Smith (Herbert) & Co. (No. 2), [1969] 2 All E.R. 367 (C.A.), refd to. [para. 38 et seq.].

Shields v. Bank of Ireland, [1901] 1 I.R. 222, refd to. [para. 39].

Gray v. Johnston (1868), L.R. 3 H.L. 1, refd to. [para. 39].

Coleman v. Bucks and Oxon Union Bank, [1897] 2 Ch. 243, refd to. [para. 39].

Fonthill Lbr. v. Bank of Montreal, [1959] O.R. 451 (C.A.), refd to. [para. 39].

Groves-Raffin Construction Ltd. v. Bank of Nova Scotia (1975), 64 D.L.R.(3d) 78 (B.C.C.A.), refd to. [para. 39].

Lipkin Gorman v. Karpnale Ltd., [1992] 4 All E.R. 331 (Q.B.), revsd. in part [1992] 4 All E.R. 409 (C.A.), revsd. in part [1992] 4 All E.R. 512; 127 N.R. 380 (H.L.), refd to. [para. 40].

MacDonald v. Hauer (1976), 72 D.L.R.(3d) 110 (Sask. C.A.), refd to. [paras. 45, 65].

Scott v. Riehl (1958), 15 D.L.R.(2d) 67 (B.C.S.C.), consd. [para. 46 et seq.].

Horsman Brothers Holdings Ltd. v. Panton & Panton, [1976] 3 W.W.R. 745 (B.C.S.C.), consd. [para. 48 et seq.].

Trilec Installations Ltd. v. Bastion Con­struction Ltd. (1982), 135 D.L.R.(3d) 766 (B.C.C.A.), consd. [paras. 49, 66].

Austin et al. v. Habitat Development Ltd. et al. (1992), 109 N.S.R.(2d) 290; 297 A.P.R. 290; 94 D.L.R.(4th) 359 (C.A.), consd. [para. 54].

Statutes Noticed:

Builders Lien Act, R.S.B.C. 1979, c. 40, generally [para. 49].

Mechanics' Lien Act, R.S.O. 1970, c. 267, generally [para. 53].

Mechanics' Lien Act, S.B.C. 1956, c. 27, sect. 3 [para. 46].

Saskatchewan Insurance Act, R.S.S. 1960, c. 77, generally [para. 47].

Authors and Works Noticed:

Pettit, Philip H., Equity and the Law of Trusts (6th Ed. 1989), pp. 152 [para. 32]; 154-156 [para. 41]; 159-160 [para. 36].

Sullivan, Ruth, Strangers to the Trust, [1986] Est. & Tr. Q. 217, p. 246 [para. 57].

Underhill, Sir Arthur, Law Relating to Trusts and Trustees (14th Ed. 1987), pp. 351 [para. 32]; 355-357 [para. 41]; 360 [para. 36].

Waters, D.W.M., Law of Trusts in Canada (2nd Ed. 1984), pp. 401 [para. 39].

Counsel:

Peter J. Bishop, for the appellant;

Guy L. Poppe and Harry G. Leslie, for the respondent.

Solicitors of Record:

Peter J. Bishop & Associates, Ottawa, Ontario, for the appellant;

Guy L. Poppe, Toronto, Ontario, for the respondent.

This appeal was heard on April 26, 1993, before La Forest, Sopinka, Gonthier, Cory, McLachlin, Iacobucci and Major, JJ., of the Supreme Court of Canada. The decision of the court was delivered in both official languages on October 21, 1993, including the following opinions:

Iacobucci, J. (La Forest, Sopinka, Gon­thier, Cory and Major, JJ., concurring) - see paragraphs 1 to 63;

McLachlin, J. (concurring reasons) - see paragraphs to 64 to 69.