Bailey and another v Angove’s PTY Limited

An agent’s authority remains revocable even where the parties agreed that it would be irrevocable. It becomes irrevocable only where they also intended the authority to secure the agent’s proprietary interest or personal liability.

An agent’s opportunity to earn commission is insufficient, although a debt for commission already earned may qualify if the authority was intended to secure it. A duty to account does not itself create a trust. English law recognises institutional, not remedial, constructive trusts. Knowledge of impending non-performance or insolvency cannot alone convert a personal restitutionary claim into a proprietary one.

An Australian winemaker appointed an English company as its agent and distributor. After the company entered administration, the winemaker terminated the agreement and its authority to collect unpaid invoices. The liquidators claimed that the collection authority survived because it secured commission already earned.

The High Court, [2013] EWHC 215 (Ch), held that the authority ended upon termination. The Court of Appeal, [2014] EWCA Civ 215, reversed that conclusion. Both courts rejected the winemaker’s alternative claim to the proceeds under a trust.

The Supreme Court considered when an agent’s authority is irrevocable and, on an alternative hypothesis, whether receipt of money with knowledge of impending insolvency can create a constructive trust.

1. Appeal allowed unanimously. Lord Sumption delivered the judgment, with which Lord Neuberger, Lord Clarke, Lord Carnwath and Lord Hodge agreed. The termination notice immediately ended the agent’s authority to collect the outstanding invoices.

2. An agent’s authority is generally revocable even where the contract describes it as irrevocable. Revocation ends the authority, although it may expose the principal to damages. The exception for an authority coupled with an interest requires both an agreement that the authority is irrevocable and an intention that it secure a proprietary interest or personal liability of the agent. Section 4(1) of the Powers of Attorney Act 1971 reflects those conditions for powers of attorney.

3. The exception is not confined to arrangements which are merely assignments in commercial form. A true agent may possess a sufficient personal interest. An opportunity to earn commission is insufficient because it is not a security. A debt for commission already earned may qualify if the parties intended the authority to secure that debt.

4. Neither condition was satisfied by the agreement. The collection function was described as a responsibility, was not expressed to survive termination and was unnecessary to payment of the commission. Customers could pay the principal directly. The agent’s independent obligation to account within 90 days did not preserve its authority. Once the agent paid the principal, any right to recover from the customer arose through unjust enrichment, not agency.

5. Although unnecessary to the result, the court addressed the constructive-trust issue because of its general importance. An agent’s duty to account does not necessarily create a trust. The parties’ intentions and their commercial arrangements must show that the money was unavailable for use as part of the agent’s general assets.

6. English law recognises institutional rather than remedial constructive trusts. Proprietary rights cannot be adjusted merely because fairness appears to favour one creditor. Identifiable trust property or traceable proceeds are essential, apart from liability for dishonest assistance. Where the payer intended to transfer the entire beneficial interest, a constructive trust requires at least a vitiated intention or the receipt of property which equity regards as being in the wrong hands.

7. A prospective or actual total failure of consideration ordinarily produces personal contractual or restitutionary rights, not proprietary rights. The decisions in Neste Oy and Japan Leasing were disapproved. The court declared that the fund representing the invoice proceeds was payable to the winemaker.

1. United Kingdom Supreme Court: Allowed the appeal from [2014] EWCA Civ 215 and declared that the fund representing the invoice proceeds was payable to Angove’s.
2. Court of Appeal: In [2014] EWCA Civ 215 , allowed the liquidators’ appeal and held that the agent’s collection authority survived termination because it protected its right to commission. It rejected the alternative trust claim.
3. High Court: In [2013] EWHC 215 (Ch) , held that the relationship was one of principal and agent and that the termination notice ended the collection authority. It also rejected the proprietary claim to the proceeds.