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JAMIE RILEY APPEARS IN SUPREME COURT IN AGENCY AND CONSTRUCTIVE TRUST CASE

On Wednesday, 8 June 2016, Jamie Riley appeared in the Supreme Court as lead advocate for the Respondents in what is set to be a landmark case concerning two key issues: 

  1. the extent to which an agent’s authority is irrevocable; and
  2. whether the line of cases from the decision in Neste Oy [1983] 2 Lloyd’s Rep 658 supporting the imposition of a constructive trust on the sole ground of unconscionability should be overruled.

Background

The Respondents were the Liquidators of D&D Wines International Ltd., a major broker and distributor for the sale of wine which went into administration and then liquidation. The Appellant, Angove Pty Ltd. was one of Australia’s largest wine producers which sold wines to supermarket chains and other bulk purchasers in the UK and Ireland. The UK and Ireland sales were arranged through D&D pursuant to the terms of an Agency and Distribution Agreement ("the ADA”). Under the terms of the ADA, Angove was liable to pay commission to D&D on sales arranged by D&D in accordance with the following scheme: 

  1. Angove would issue an invoice addressed to D&D together with a credit note representing D&D’s percentage commission;
  2. D&D was responsible for collecting payment from the customer; and
  3. D&D was liable to pay Angove’s invoice (less the credit note) with an agreed 90-day credit period.

D&D arranged a number of sales to UK based customers but subsequently entered administration prior to receiving payment from the customers and before having paid Angove’s invoices. Angove gave notice terminating the ADA and purporting to bring an end to D&D’s authority to conclude further sales and collect outstanding sums owed by the customers including the sums owed in respect of the sales already concluded. According to the ADA, upon termination each party was obliged to pay to the other all sums "owing” and termination was expressed to have no effect on "accrued rights”. Angove argued that the termination of authority brought an end to D&D’s right to collect in the monies with the result that they should be paid to Angove. The Liquidators contended that D&D had an accrued right to commission which survived termination. That accrued right included the right to collect in the monies owed in respect of concluded sales pursuant to the contractual scheme for payment under the ADA. On that basis the monies were payable to D&D and fell within its assets for distribution to the general body of creditors. The sums paid by the customers were placed in an escrow account pending determination of the issue as to whom the monies were payable.

The decisions at first instance and in the Court of Appeal

At first instance the Judge held that monies paid to D&D during the term of its authority under the ADA were not held on trust for Angove but that, once the ADA was terminated, D&D’s authority to collect the monies was brought to an end and they became payable to Angove; see [2013] EWHC 215 (Ch). On appeal the Judge’s decision was reversed. The Court of Appeal held that, notwithstanding termination of the ADA, D&D had an accrued right to receive its commission in accordance with the contractual scheme. It was therefore implicit in the scheme that D&D had a continuing authority to collect the sums from customers since that was how the parties had agreed the commission and the sums owing on termination should be paid. On that basis the Court of Appeal held that the general rule that a principal may revoke its agent’s authority even if the revocation amounted to a breach of contract (‘the general rule”) should yield to the bargain expressly agreed by the parties. The Court of Appeal also rejected Angove’s residual argument relying on the decisions of Neste Oy and Re Japan Leasing (Europe) plc. That argument proceeded on the basis that, if D&D retained authority to collect in the monies, it would be unconscionable for D&D and its creditors to retain the benefit of those sums when D&D was insolvent and so unable to discharge Angove’s invoices. In rejecting that argument and doubting Re Japan Leasing, the Court of Appeal held that there was no element of unconscionability: the receipt and retention of the sums by D&D was merely the product of the contractual arrangements agreed by the parties; see [2014] EWCA Civ 215.

The issues before the Supreme Court

Before the Supreme Court the issues were as follows: 

  1. On the revocation of authority issue, Angove contended that the Court of Appeal’s construction of the ADA contravened the general rule. In response the Liquidators argued that the general rule did not apply relying upon the established exception that the authority to collect in the monies was an "authority coupled with an interest”. The interest in question was the contractual right to commission which the continued authority to collect payment was intended to secure;
  2. As to the constructive trust issue, Angove argued that, even if D&D remained authorised to collect the payments, its retention of the sums when it was insolvent was unconscionable because D&D’s authority to collect payment from the customers was for the benefit of Angove and it would be unfair for D&D’s creditors to receive a windfall. Relying on Re Japan Leasing. Angove submitted that the payments were the subject of a constructive trust for Angove’s benefit and so did not fall within D&D’s assets.

The awaited outcome

The Supreme Court’s judgment is awaited but it is set to be a landmark case on two fronts: 

  1. for the first time in a modern commercial context, the extent to which an agent’s authority is irrevocable will be confirmed; and
  2. the debate as to whether the line of authority including Neste Oy and Re Japan Leasing is reliable will, it is hoped, be resolved once and for all.

 

Posted: 13.06.2016 at 12:36
Tags:  Cases  Commercial Law  Insolvency  Dispute Resolution
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