Bailey and another v Angove’s PTY Limited

This appeal considered (i) when an agent's authority is irrevocable and (ii) whether money received by a recipient who knew imminent insolvency would prevent performance can give rise to a constructive trust. The court reaffirmed the general principle that an agent's authority is revocable by the principal unless two conditions are met: there is an agreement that the authority is irrevocable and the authority was intended to secure a personal proprietary or debt-like interest of the agent. The Court held that both conditions must be satisfied by construction of the parties' agreement and that the Court of Appeal had only applied part of that test.

Applying the Agency and Distribution Agreement (notably clauses 10, 20, 21, 22 and 37), the Supreme Court concluded that D&D's authority to collect money from customers was not expressed to be irrevocable and was not intended as security for a pre-existing or otherwise secured interest. Angove's termination notice therefore revoked D&D's authority.

On the constructive trust point the court rejected a proprietary constructive trust arising merely because the payee knew insolvency made future performance impossible. The court emphasised the need for identifiable trust property and institutional (not remedial) constructive trusts in English law and concluded that established authority such as Neste Oy and Japan Leasing could not be extended to give proprietary priority in these circumstances. The fund of invoice proceeds was declared payable to Angove's.

Background and parties: Angove’s Pty Ltd (exporter) appointed D&D Wines International Ltd as agent and distributor in the United Kingdom under an Agency and Distribution Agreement (ADA). D&D acted both as purchaser on its own account and as Angove's agent. D&D went into administration and thereafter liquidation in April–July 2012. At the time of administration certain customers had outstanding invoices of A$874,928.81.

Procedural history: The matter was determined at first instance by HHJ Pelling QC on an application under section 112 of the Insolvency Act 1986 ([2013] EWHC 215 (Ch)), who found the parties were principal and agent and that D&D's authority to collect ended on Angove's termination but held the escrow arrangement made the point academic. The Court of Appeal ([2014] EWCA Civ 215) allowed the liquidators' appeal on the ground that the agent's authority to collect survived termination to secure D&D's right to commission. Angove’s appealed to the Supreme Court.

Nature of the claim / relief sought: Determination of entitlement to the proceeds of specified invoices and whether monies collected by D&D were held on trust for Angove's.

Issues framed: (i) When will an agent's authority be treated as irrevocable? (ii) Can receipt of money by a recipient who knows impending insolvency will prevent performance give rise to a constructive trust?

Court's reasoning: On irrevocability, the court reiterated the general rule that agency authority is revocable and identified the established exception: authority coupled with an interest, which requires both an agreement that the authority is irrevocable and that it was given to secure a proprietary interest or a personal liability of the agent. Both elements require proper construction of the ADA. The court analysed clauses 10, 20, 21, 22 and 37 and concluded the agreement did not show the authority to collect was intended as security: collection was expressed as a responsibility, payments could be made directly to Angove's, and commission could be recovered in other ways; clause 37 did not imply an irrevocable collection right. It was also commercially improbable the parties intended an irrevocable authority in the event of insolvency.

On the constructive trust issue, the court held that English law recognises institutional constructive trusts only and stressed the need for identifiable trust property and established equitable bases (e.g. mistake, fraud, or otherwise wrongful retention) to displace the statutory insolvency distribution rules. The court criticised the reasoning in Neste Oy and Japan Leasing to the extent they supported a proprietary trust simply because insolvency would prevent performance, and concluded no constructive trust arose here.

Conclusion: The Supreme Court allowed the appeal and declared the fund representing the proceeds of the invoices payable to Angove's.

Appeal allowed. The Supreme Court held that the general rule of revocability of an agent's authority applies unless (i) the agreement shows the authority is intended to be irrevocable and (ii) the authority was given to secure a proprietary interest or a liability of the agent. On construction of the ADA neither requirement was satisfied so D&D's authority to collect terminated on Angove's notice. The court further held that no constructive trust arose in these circumstances because English law requires identifiable trust property and an institutional basis for proprietary restitution; it was not unconscionable in law to permit the monies to form part of the insolvent estate.

First instance: HHJ Pelling QC, High Court, Chancery Division, application under section 112 Insolvency Act 1986 ([2013] EWHC 215 (Ch)). Court of Appeal: appeal allowed in favour of the liquidators ([2014] EWCA Civ 215). Supreme Court: appeal allowed ([2016] UKSC 47).