Bailey v Angove’s Pty Ltd

Corporate insolvency – agency – termination of authority – irrevocable authority – constructive trusts

Angove appointed D Ltd their distribution agents in the UK. The agency was terminable on notice with immediate effect on the appointment of an administrator whereupon D Ltd was required to pay Angove the price of the goods less commission within 90 days from the bill of lading, whether or not the customer had paid D Ltd.

D went into administration. Angove terminated the agency. Later, D went into liquidation. The appellant liquidators argued that D’s authority to collect money from customers survived termination of the agency because D needed it in order to recover its commission. They contended D was entitled to collect the money and leave Angove to prove in the liquidation for the price of the goods less commission.

The Supreme Court held that the general rule is that authority of an agent may be terminated even if it is stated to be irrevocable (giving rise to a claim in damages). The main exception is where the agent has a relevant interest of his own in the exercise of the authority. Two conditions have to be satisfied: (i) there must be an agreement that the agent’s authority shall be irrevocable and (ii) the authority must be given to secure an interest of the agent, being either a proprietary interest or a liability owed to him personally.

Agreement that the authority is irrevocable may be inferred.  The mere existence of an interest is not sufficient.  What has to be agreed is not just that the authority is irrevocable but that it is intended to secure the financial interest. The ability to earn his commission is not a sufficient interest but an interest in recovering commission already earned may be, provided it is sufficiently clear that the parties intended that the agent’s authority should secure it. Neither condition was satisfied on the facts. Accordingly, D Ltd’s authority was terminated and it was not entitled to collect outstanding sums.

Angove’s alternative argument was that D held sums collected on constructive trust.  In overruling Japan Leasing Europe Plc [1999] BPIR 911 and Neste Oy v Lloyds Bank [1983] 2 Ll Rep 658, the Supreme Court pointed out that the result in Neste Oy might have been justified on the grounds of mistake but that had not been argued. The court held that the mere fact that an agent receives funds from or on behalf of his principal when he will be unable to perform his contract of agency because of his insolvency does not give rise to a constructive trust.

Principals will want to try to ensure that they can terminate their agents’ right to collect funds following insolvency.  That will depend on the terms of the agency.   Whether an agent holds the funds collected on trust or simply as a debtor will also depend on the agreement and the facts but a constructive trust will not arise simply because the agent can no longer perform the agency by reason of insolvency.