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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 Leasi
    ng is reliable
    will, it is hoped, be resolved once and for all.

 

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