Bailey v Angove's Pty Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Sumption,Lord Neuberger,Lord Clarke,Lord Carnwath,Lord Hodge |
| Judgment Date | 27 July 2016 |
| Neutral Citation | [2016] UKSC 47 |
| Date | 27 July 2016 |
| Court | Supreme Court |
[2016] UKSC 47
Lord Neuberger, President
Lord Clarke
Lord Sumption
Lord Carnwath
Lord Hodge
Appellant
Stephen Moriarty QC Francis Reynolds QC (Hon) Nicholas Craig
(Instructed by APP Law Solicitors)
Respondents
Jamie Riley Philip Hinks
(Instructed by Shoosmiths LLP)
Heard on 8 June 2016
(with whom Lord Neuberger, Lord Clarke, Lord Carnwath and Lord Hodge agree)
This appeal raises two important and controversial questions of commercial law. The first is: in what circumstances will the law treat the authority of an agent as irrevocable. The other is whether the receipt of money at a time when the recipient knows that imminent insolvency will prevent him from performing the corresponding obligation, can give rise to liability to account as a constructive trustee.
Angove's Pty Ltd is an Australian winemaker, which for many years employed an English company called D&D Wines International Ltd as its agent and distributor in the United Kingdom. D&D acted in both capacities. It bought wines from Angove's in its own right and it sold wines on Angove's behalf to UK customers, generally retailers. Both activities were governed at the relevant time by an Agency and Distribution Agreement (or "ADA") dated 1 December 2011. Under clause 34, the ADA was terminable by either side on six months' notice, or, under clause 36, by notice with immediate effect in a number of events, including the appointment of an administrator or liquidator.
On 21 April 2012, D&D went into administration, and on 10 July 2012 moved into creditors' voluntary liquidation. At the commencement of the administration, there were outstanding invoices amounting altogether to A$874,928.81, representing the price of wine which D&D had sold to two UK retailers, but which the latter had not yet paid. On 23 April 2012, Angove's gave written notice terminating the ADA and any authority of D&D to collect the price from these two customers. The notice declared that Angove's proposed to collect the price directly from the customers and would account separately to D&D for their commission.
In due course, the liquidators objected to this course. They claimed to be entitled to collect on the outstanding invoices, deduct commission due to D&D, and leave Angove's to prove in the winding up for the rest of the price. The liquidators have never denied that Angove's was entitled to terminate the ADA or that their notice of 23 April 2012 had that effect. But they contended that the relationship between D&D and Angove's in relation to the transactions covered by the invoices was that of buyer and seller, not agent and principal, and that accordingly the company's liability to Angove's at the commencement of the administration was a simple debt for goods sold and delivered. Angove's disputed this contention. They also argued that any moneys held by D&D for their account were held in trust for them. By agreement between the parties, the sums paid to D&D on the invoices after the notice of termination were held by the liquidators in an escrow account pending the resolution of the dispute, and the sums paid directly to Angove's were held in their solicitors' client account on the same terms.
The matter came before His Honour Judge Pelling QC, sitting as a judge of the High Court, on an application under section 112 of the Insolvency Act 1986 [2013] EWHC 215 (Ch). He held that in the relevant respects the relationship between Angove's and D&D was that of principal and agent only, and that D&D's authority to collect the price from customers came to an end upon service of Angove's termination notice. In the Court of Appeal, the liquidators did not challenge the judge's finding that D&D acted as agents. Their case was that if D&D acted in the relevant respects as agents, their authority to collect the price of goods which they had sold on Angove's behalf survived the termination of the ADA because they needed it in order to recover their commission. The Court of Appeal (Patten, Lewison and Sharp LLJJ) accepted this argument and allowed the appeal on that basis [2014] EWCA Civ 215; [2014] 2 BCLC 129; Angove's alternative case that the proceeds of the invoices were held in trust for them failed at both stages, although for different reasons.
The general rule is that the authority of an agent may be revoked by the principal, even if it is agreed by their contract to be irrevocable. The revocation is effective to terminate the agent's authority, but gives rise to a claim for damages. Powers of attorney were said by Lord Kenyon to be "revocable from their nature": Walsh v Whitcomb (1797) 2 Esp 565, 566. In Story's Law of Agency, 2nd ed (1864), p 598, at para 463, the rule was said to be "so plain a doctrine of common sense and common justice that it requires no illustration or reasoning to support it." Nonetheless, its basis has never really been in doubt. An agent is empowered to commit his principal within the limits of his authority as if the principal had agreed personally. This is a confidential relationship importing a duty of loyalty, and normally of undivided loyalty, on the part of the agent. As Lord Atkinson observed, delivering the advice of the Privy Council in Frith v Frith [1906] AC 254, 261, to allow the agent to exercise his authority after it has been revoked would amount to the specific enforcement of a relationship which is by its nature not specifically enforceable.
The main exception to the general rule is the case where the agent has a relevant interest of his own in the exercise of his authority. The exception applies if two conditions are satisfied. First, there must be an agreement that the agent's authority shall be irrevocable. Secondly, the authority must be given to secure an interest of the agent, being either a proprietary interest (for example a power of attorney given to enable the holder of an equitable interest to perfect it) or a liability (generally in debt) owed to him personally. In these cases, the agent's authority is irrevocable while the interest subsists.
Both conditions are now reflected in section 4(1) of the Powers of Attorney Act 1971, as regards authority conferred by a power of attorney. The first condition is perhaps self-evident, but so far as authority is required, it is supplied by the decisions of the Privy Council in Esteban de Comas v Prost and Kohler (1865) 3 Moo PC NS 158 and Frith v Frith [1906] AC 254. The second condition was established in Walsh v Whitcomb, supra, where the exception was said to apply in "every case where a power of attorney is necessary to effectuate any security". In Smart v Sandars (1848) 2 CB 895, 917–918, commonly regarded as the leading case, Wilde CJ, delivering the judgment of the Court of Common Pleas, declared that:
"where an agreement is entered into on a sufficient consideration, whereby an authority is given for the purpose of securing some benefit to the donee of the authority, such an authority is irrevocable. This is what is usually meant by an authority coupled with an interest, and which is commonly said to be irrevocable. But we think this doctrine applies only to cases where the authority is given for the purpose of being a security, or, as Lord Kenyon expresses it, as a part of the security; not to cases where the authority is given independently, and the interest of the donee of the authority arises afterwards, and incidentally only."
These cases demonstrate that an agreement that the agent's authority is to be irrevocable may be inferred, but not from the mere co-existence of the agency and the interest. It is necessary that the one should be intended to support the other. The exception thus stated follows from the logic of the rule. Where the parties agree that the agent is to have a personal financial interest in the performance of his agency, over and above the receipt of his remuneration, his duty of loyalty is to that extent compromised. The reason for declining to enforce his right to act for the principal therefore falls away.
The ambit of the exception for authority coupled with an interest is more narrowly defined by the editors of Bowstead and Reynolds on Agency, 20th ed (2014), para 10–007. They say that it applies
"where the notion of agency is employed as a legal device for a different purpose from that of normal agency, to confer a security or other interest on the 'agent'. In such a case it is intended that the agent use the authority not for the benefit of his principal but for his own benefit, to achieve the objects of the arrangement."
This would appear to confine the exception to cases where the authority exists solely in order to secure the agent's financial interest, and is in reality no more than the commercial equivalent of an assignment. In such a case, the editors suggest, the law of agency is not really engaged at all, because the beneficiary of the authority is only nominally an agent. In my opinion, this is too narrow. It is no doubt a fair description of the simplest cases, but I do not accept that it can be a general principle of law. At one extreme lie cases such as Walsh v Whitcomb, supra, where a power of attorney was granted solely to enable the grantee to satisfy a pre-existing debt owed to the agent, or Gaussen v Morton (1830) 10 B&C 731, where an owner of land gave a power of attorney to a creditor to sell the land to satisfy the debt. No one doubts that the exception applies in such cases. At the opposite extreme, it does not apply where the agent's only interest is a commercial interest in being able to earn his commission. The reason is that in that case, the authority is not properly speaking a security at...
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