There was no foul commited here as the "no fly zone" was never breached and the terms of the truce were maintained. If the pissed lieutenant wanted an all out cease fire he should have asked for one. I am obviously a pussy because I have made truces and never broken them.
Often experienced players have unspoken truces in games, because they know what is required to keep the dominant player from sweeping everyone else off of the map. But there is more security in forming a short treaty that guarantees you won't be broken on a particular common border while using your fortifications to rally an attack elsewhere.
A key factor in avoiding misunderstandings is clearly worded terms known to all involved and I see no impropriety executed in your game, as the borders of the truce were well established.