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The Operation of a Travel Agent and the Criminal Code
Micheal Lipton, Q.C.

In a case entitled Lowden v The Queen, decided in 1982, the defendant was a travel agent who had run into financial difficulties and who was to all intents and purposes insolvent. Eventually the bank started returning the business's cheques marked NSF - non-sufficient funds. In order to remain in business the defendant began to take clients' money given to the agency for one purpose i.e., purchasing travel arrangements and using it for another - simply paying off the general debts of the business.

The Supreme Court of Canada held that the accused travel agent was properly convicted where money was paid to him by his clients for the express purpose of purchasing airline tickets for a specific trip on a regular carrier and the accused accepted the money for the purpose of satisfying these expectations and then dealt with the money so as to defeat that purpose. The central issue before the court focused on the interpretation of "direction," under section 332 (formerly 292) of the criminal Code. Section 332 stated:

"(1) Everyone commits theft who, having received, either solely or jointly with another person, money or valuable security or a power of attorney for the sale of real or personal property, with a direction that the money or a part of it, or the proceeds or a part of the proceeds of the security or the property shall be applied to a purpose or paid to a person specified in the direction, fraudulently and contrary to the direction applies to any other purpose or pays to any other person the money or proceeds or any part of it.

(2) This section does not apply where a person who receives anything mentioned in subsection 1 and the person from whom he receives it, deal with each other on such terms that all money paid to the former would, in the absence of any such direction, be properly treated as an item in a debtor and creditor account between them, unless the direction is in writing"

The Supreme Court found that mere expectations of consumers standing alone were not directions and were not sufficient to create a trust object. However, the court stated that when those expectations are known by the recipient of the money, they may, given the proper setting, be tantamount to a direction. Consequently, expectations known to the recipient of the money as a result of express instructions are directions and it was not necessary that the recipient be further told expressly what no to do with the money or what to do with the money if the expectations could not be met as this was implicit by reason of the nature of the relationship.

Put more prosaically what this means is that if I employ you to decorate my house and I give you a sum of money and direct you that this is to be used solely for the purpose of buying paint and you disobey my instructions and use the money to pay off your gambling debts then you would have committed an offence. It would be different if I had simply paid you in advance of doing the job in the mere expectation that you would use my sum of money to buy paint with.

More recently, John Milan Kubik, who managed Happy Day Travel Inc. a registered travel agent under the Ontario Travel Industry Act was charged under section 332(1) of the Code with six counts of misapplying funds in 1992 which were held under direction. The facts in that case were quite similar to those in Lowden and wisely Mr. Kubik pled guilty to all six counts. On June 27, 1994, he was sentenced to 30 days in jail on each count with the sentences to run concurrently. Additionally, the court made a restitution order against Mr. Kubik pursuant to section 725 of the Code requiring him to compensate a number of individuals from whom he had received monies as well as the Ontario Travel Industry Compensation Fund to the extent of 418,853 to which it had become subrogated when it paid a number of claims submitted to Happy Days' customers.

What is interesting about both the Lowden and Kubik decisions is that they were decided before Regulation 806/93 was made under the Travel Industry Act 806/93 was made under the Travel Industry Act. Section 36(1) of that Regulation which became effective December 9, 1993 requires a registrant to maintain a trust account to protect consumer funds if the registrant is required to maintain a trust account under terms and conditions specified in the registrant's registration or is registered after the date the Regulation becomes effective and has not been registered throughout the previous 12 months. Section 36 further provides that the registrant shall not disburse or withdraw any monies held in the trust account until payment is made to the supplier of the travel services for which the monies are received or until a refund is to be made to the consumer.

These provisions clearly establish an express trust obligation on the part of the travel agent who receives money for travel services from a consumer. Moreover, they reinforce the position that the travel agent will certainly be aware of the purpose for which the money is paid or the expectations of the consumer. As a result a travel agent who misapplies the consumers moneys will find it quite difficult to deny that they money was received without a direction as contemplated by section 332 of the Criminal Code. Accordingly, it will now be much easier for a Crown Attorney to prove beyond a reasonable doubt that a travel agent who is subject to the trust obligations as set out in Regulation 806/93 and misapplies consumer money paid for travel services is guilty of theft under section 332 of the criminal Code.

In view of the trust obligation provisions is Regulation 806/93 and the Lowden and Kubik cases, it is quite apparent that travel agents are now more at risk. It will be interesting to observe how the authorities react in the future when a travel agency fails and a deficiency in its trust accounts is discovered.

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