Key points
- The relationship of agent and principal does not always give rise to fiduciary obligations on the part of the agent to hold monies due to the principal on trust;
- Termination of an agency agreement where the agent is in financial difficulty may help mitigate the principals loss by imposing a constructive trust on the agent for any monies received after that termination; and
- On the insolvency of the agent monies held on constructive trust do not form part of the insolvent estate and must be paid to the principal.
The Court considered whether the relationship between Angove Pty Limited (a wine production company) ("Angove") and D&D Wines International Limited (in liquidation) (the "Company") was an agency relationship or a relationship of back to back seller and buyer.
The facts
Between 18 November 2011 and 23 April 2012 the relationship between Angove and the Company was governed by the terms of an agency and distribution agreement (the "ADA").
The Company entered administration on 21 April 2012 and on 23 April 2012 the ADA was terminated. It was not disputed that the ADA had been terminated.
At the date on which the Company entered administration, there were sums owing to Angove in relation to wine sold to two third party customers to which the ADA applied which totalled 874,928.81 Australian dollars (the "Fund"). This sum was collected after termination of the ADA and held in escrow pending determination of these proceedings.
A sum of 14,430 Australian dollars had been paid by one of the third party customers to the Company prior to the termination of the ADA.
Angove asserted that: the Company had acted as agent for Angove; the Company was obligated to account to Angove for all sums received by it pursuant to the ADA; and all sums so received were held on a constructive trust by the Company for the benefit of Angove.
The Company asserted that the relationship between Angove and the Company was that of seller and buyer and not an agency relationship. In the event the Court disagreed with its interpretation, the Company asserted that the duty to account for any sums collected by it for Angove pursuant to the ADA was a mere personal duty which gave rise to a personal, debtor and creditor, relationship and not a proprietary, constructive trustee and beneficiary, relationship and therefore Angove would only be an unsecured creditor in respect of the Fund.
The court considered the true construction of the ADA and the transactions giving rise to this claim.
Decision
The court concluded that there was nothing in the ADA that suggested that the parties understood that sales to the Company were sales for its own account. The terms of the ADA when taken as a whole were more consistent with an agency relationship and both parties had considered that Angove was acting as the Company's agent in relation to the transactions. In addition, the Company was referred to as having represented Angove in the UK and was expressly appointed as Angove's agent and distributor.
The court ordered that the Fund was payable to Angove as the Fund was never collected by the Company other than as agent for Angove and the Company's authority to collect the Fund was terminated before the sums were paid by the third party customers to the Company.
However, the court considered that Angove had no beneficial entitlement to the $14,430 which was paid to the Company prior to the termination of the Company's authority to collect because the duty to account for any sums collected was personal not proprietary. There had been no express obligation on the Company to credit any sums collected to a dedicated interest bearing bank account and subject any sum so collected to a trust in favour of Angove.
Comment
In each case a principal must carefully consider whether termination of an agency agreement is in its interests in the run up to an insolvency of the agent. If the agency agreement is properly drafted it may already contain provisions which provide for monies collected by the agent on behalf of its principal to be held separately in a trust account. If this kind of provision is not in the agreement serving express notice of termination may be the best option for the principal as it will terminate the agents ability to collect sums due to the principal from customers. If monies are in fact then received by the agent it will hold them as a constructive trustee.
In the matter of Angove Pty Limited (1) and Kerry Bailey and Trevor Birch in their capacity as joint liquidators of D&D Wines International Limited (2) [2013] EWHC 215 (Ch)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.