The Supreme Court held that an Australian wine producer effectively ended its insolvent English agent’s authority to collect unpaid customer invoices and was entitled to the proceeds. That authority was not irrevocable merely because the agent could deduct commission, and the money was not held on a constructive trust.
The agency and the insolvency
Angove’s Pty Ltd, an Australian winemaker, appointed the English company D&D Wines International Ltd as its UK agent and distributor under an Agency and Distribution Agreement dated 1 December 2011. D&D both bought wine in its own right and sold wine to UK customers as Angove’s agent. The agreement could be ended immediately if an administrator or liquidator was appointed.
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D&D entered administration on 21 April 2012 and creditors’ voluntary liquidation on 10 July 2012. Customers then owed A$874,928.81 on invoices for wine sold by D&D as agent. On 23 April 2012 Angove’s terminated the agreement and D&D’s authority to collect those sums, saying that it would collect them directly and account separately for D&D’s commission. The liquidators said that they should collect the invoices, deduct commission, and leave Angove’s to prove in the winding up for the balance. Sums received were held in escrow by agreement.
His Honour Judge Pelling QC held that D&D had acted only as agent and that the termination notice ended its authority to collect. In the Court of Appeal the liquidators accepted the agency finding, but argued that the authority survived because D&D needed it to recover commission. The Court of Appeal accepted that argument. Angove’s alternative claim that the proceeds were held in trust failed at both stages, although for different reasons.
When an agent’s authority is irrevocable
Lord Sumption, with whom Lord Neuberger, Lord Clarke, Lord Carnwath and Lord Hodge agreed, identified two questions. The first was when the law treats an agent’s authority as irrevocable.
The general rule is that a principal may revoke an agent’s authority even if their contract says that it is irrevocable. Revocation ends the authority, although the agent may claim damages. Agency is a confidential relationship involving loyalty, and the law will not specifically enforce it after revocation.
The main exception is authority coupled with an interest of the agent. Two conditions must be satisfied. The parties must have agreed that the authority is irrevocable, and the authority must have been given to secure an interest of the agent, either a proprietary interest or a personal liability owed to the agent. While that interest continues, the authority is irrevocable. The agreement need not use express words, but the authority must have been intended to support the interest; the mere coexistence of an agency and an interest is not enough.
An agent’s ordinary commercial interest in continuing to act so as to earn commission is not enough. An interest in recovering commission already earned may be, if the parties clearly intended the authority to secure that debt. Lord Sumption considered the narrower formulation in Bowstead and Reynolds too restrictive, because a true agent may act both for the principal and in order to secure a personal debt.
Why the authority ended in this case
Neither condition was met. Clause 22(b) gave D&D responsibility for collecting the customer’s payment, but it did not say that this authority was irrevocable or that it survived termination. Under clause 37, termination left accrued rights unaffected, yet collection was described as a responsibility rather than a right. Customers could also pay Angove’s directly, so collection was a function of the agency rather than a security for D&D.
Commission accrued when the sale was made and therefore survived termination. The arrangement allowing D&D to deduct it before remitting the price was, however, a method of payment rather than a security. If the customer paid Angove’s directly, Angove’s had to pay the commission itself. D&D’s obligation to account within 90 days of the bill of lading date was a right belonging to Angove’s. Once D&D had paid Angove’s, any later right to recover from the customer arose from unjust enrichment, not from Angove’s continuing authority.
The parties had expressly provided for termination on insolvency. Treating the authority as irrevocable would protect D&D’s commission if Angove’s became insolvent, while requiring Angove’s to prove as an unsecured creditor for the much larger balance if D&D became insolvent. The notice of 23 April 2012 therefore immediately ended D&D’s authority to collect the outstanding invoices.
No constructive trust
The second question did not need to be decided, but Lord Sumption addressed it because of its general importance, assuming contrary to his conclusion that the authority had continued. An agent’s duty to account does not automatically make money in the agent’s hands trust property. That depends on the parties’ intentions. The judge’s finding that liability under the agreement was personal rather than proprietary was no longer disputed.
Angove’s relied on Neste Oy v Lloyd’s Bank Plc and In re Japan Leasing Europe Plc, which had treated receipt by an agent who knew that insolvency would prevent performance as giving rise to a constructive trust. Lord Sumption held that there was no such trust here, and not merely because D&D had a contractual entitlement.
The money was not trust property when the customers paid it. A constructive trust arising only on receipt would remove it from the insolvent estate and give Angove’s priority over other creditors. The statutory insolvency scheme is designed to distribute the estate rateably by reference to a common date. English law recognises institutional constructive trusts, which arise by operation of law from settled principles, but not remedial constructive trusts imposed by judicial discretion. A general appeal to good conscience or fairness is not enough to create property rights.
Where money is paid with the intention of transferring the entire beneficial interest, a constructive trust requires at least that the intention was vitiated, such as by fundamental mistake or rescission, or that equity regards the money as having reached the wrong hands irrespective of that intention, such as the proceeds of fraud, theft or breach of fiduciary duty. A prospective total failure of consideration does not vitiate the intention to pass the beneficial interest and creates only a personal claim. On that basis, Neste Oy was not justified on the ground on which it was decided, and Japan Leasing was also wrongly decided because the recipient had a contractual right to receive the money. Mistake did not arise: on the assumption that D&D remained authorised, the customers were not mistaken in paying it.
Verdict: The Court unanimously allowed Angove’s appeal and declared the invoice fund payable to it. The termination notice had revoked the agent’s authority to collect. The alternative constructive-trust argument failed.
Source: Bailey and another v Angove’s PTY Limited [2016] UKSC 47
