Bailey & Anor (The Joint Liquidators of D & D Wines International Ltd) v Angove's Pty Ltd

The Court of Appeal allowed the liquidators' appeal and held that monies paid after termination of the Agency and Distribution Agreement were payable to the liquidators under the contractual machinery of the agreement rather than being held on trust for the principal. The court construed the ADA (notably clauses 22 and 37 and the termination under clause 36(b)) to preserve accrued rights on termination, including the agent's right to collect sums due in respect of goods sold and delivered before termination and the concomitant contractual liability to account to Angove. The court rejected the alternative submission that equity should impose a constructive trust in favour of Angove, distinguishing previous authorities upon which Angove relied and concluding that payments which were contractually due to the agent did not give rise to unconscionability justifying a constructive trust.

This appeal concerned two sums of money paid by third-party purchasers (Direct Wines Limited and PLB Group Limited) for wine supplied by Angove through D&D, paid after termination of an Agency and Distribution Agreement (ADA) between Angove and D&D. The monies were held in escrow pursuant to undertakings and directions pending resolution of entitlement.

Procedural posture: Angove applied for directions under section 112 of the Insolvency Act 1986 in the Chancery Division; HHJ Pelling QC held that the post-termination payments were held on trust for the payers and ordered the fund paid to Angove. The joint liquidators appealed to the Court of Appeal.

Issues for decision:

• Whether payments received by D&D after termination of the ADA were held on trust for Angove (or for the payers) or formed part of the insolvent estate payable to the liquidators.
• Whether the contractual scheme of the ADA (in particular clauses 22(b)-(c) and 37) left D&D entitled to collect outstanding customer payments after termination so as to preserve its right to commission and its obligation to account to Angove.
• Alternatively, whether a constructive trust should be imposed in favour of Angove on equitable grounds (unconscionability) so as to prevent the liquidators benefiting from the contractual regime without meeting the corresponding obligations.

Court’s reasoning: The Court of Appeal analysed the ADA, emphasising clause 22 (the invoicing and commission mechanism) and clause 37 (consequences of termination). It held that clause 37 preserved accrued rights and that clause 22 created an unqualified contractual liability on D&D to account to Angove for invoice amounts (less commission) and, correspondingly, an entitlement to collect outstanding sums due in respect of goods sold and delivered before termination. The court relied on authority recognising that an agent’s right to recover outstanding sums may survive termination and rejected Angove’s construction that the agent’s collection right ended upon termination leaving only a claim in damages for lost commission.

The court also rejected the constructive trust argument. It distinguished the authorities relied on by Angove (including Neste Oy and Re Japan Leasing) and concluded that where payments are contractually due to the agent to enable it to recover commission earned under the agreement, it is not in itself unconscionable for the insolvent agent or its officers to receive the sums. The court therefore directed that the escrowed Fund be paid to the liquidators. A separate small sum (A$14,430) paid before termination was not held on trust and remains part of the insolvent estate; that finding was not appealed.

Appeal allowed. The Court of Appeal held that, on proper construction of the ADA (in particular clauses 22 and 37), D&D retained the contractual right to collect monies due in respect of goods sold and delivered prior to termination and the concomitant liability to account to Angove; those monies therefore belong to the liquidators rather than being held on trust for Angove or the payers. The court also rejected an equity-based constructive trust, finding no unconscionability to justify it.

Appeal from the High Court of Justice, Chancery Division (HHJ Pelling QC) in proceedings under section 112 of the Insolvency Act 1986. The High Court ordered payment of the escrowed fund to Angove; the Court of Appeal allowed the liquidators' appeal and directed payment to the liquidators. Neutral citation of this Court of Appeal judgment: [2014] EWCA Civ 215.