The law of agency: when are you likely to want the appointment of an agent to be irrevocable?

Anyone running or managing a business is aware that agency relationships play an important role in commercial life.  After all, there are numerous situations in the commercial world of one party (the principal) authorising another party (the agent) to create legal relations with a third party.

In most cases, the appointment of an agent will be revocable.  However, there are certain circumstances where it may make commercial sense for the appointment to be irrevocable. In fact, an irrevocable appointment could arise in many such relationships.  These include (but are not limited to):

  • Estate agents
  • Auctioneers
  • Attorneys (appointed under power of attorney)
  • Distribution agents
  • Finance brokers
  • Insurance brokers
  • Insurance agents
  • Solicitors
  • Receivers
  • Liquidators
  • Travel agents.

When might an irrevocable appointment be revocable?

The recent decision of the Supreme Court of the United Kingdom in Bailey and Another (Respondents) v Angove’s Pty Ltd (Appellants) [2016] UKSC 47 (Angove’s Case) considered the rather oxymoronic legal world of the revocability of irrevocable appointments of agents.  This article reviews this decision and the salutary lessons which it teaches.

According to Lord Sumption (with whom Lords Neuberger, Clarke, Carnwath and Hodge agreed):

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.[1]

But any good lawyer knows that every good general rule typically has at least one exception.

For instance, there are circumstances in which the irrevocable appointment of an agent cannot be revoked by the principal, such as when the agent has a relevant interest of his or her own in the exercise of his or her authority as agent.[2]  That is, the power is irrevocably granted on the basis that it secures to the attorney an entitlement to recover against the principal some benefit granted by the principal to the agent.  As Lord Sumption noted, two conditions must be satisfied in order for irrevocability of the appointment to apply:

  1. There must be an agreement that the agent’s authority is to be irrevocable.[3]
  2. The authority must be given to secure an interest of the agent, being either a proprietary interest or a liability owed to the agent personally.[4]

It follows from these conditions, however, that upon the proprietary interest or liability owed to the agent being satisfied, the principal can revoke the agent’s appointment.

When is an irrevocable appointment NOT revocable?

Under the general law, the following principles must apply if you want to prevent a principal from revoking an irrevocable appointment of an agent:

  • The agreement between the principal and agent appointing the agent must expressly stipulate that the agent’s authority is to be irrevocable.[5]
  • The irrevocable appointment must be coupled with an interest.[6]
  • The appointment must secure an interest of the agent, being either a proprietary interest of the agent or a liability owed to the agent personally.[7]
  • The interest must be for the benefit of the agent so as to ‘protect some title or right in the subject of the [agency] or secure some performance to [the agent]’[8].  As Lord Atkinson stated in Frith v Frith [1906] AC 254:

...where an agreement is entered into for sufficient consideration, whereby an authority is given for the purpose of securing some benefit to the donee of the authority: Story on Agency, sect 476[9].

  • The irrevocability of the agent’s authority may be inferred from the relevant agreement, 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.[10]
  • The irrevocability of the agent’s authority can be found in the following situations:
  • where the authority exists solely in order to secure the agent’s financial interest;[11]
  • where the relationship of principal and agent is broader than the mere collection of money to satisfy the agent’s debt, so that the agent may be said to act both for [itself] and [its] principal.[12]

The murky issue of irrevocability: attorneys (appointed under a power of attorney) and distribution agents

The remainder of this article will focus on two of the following types of agency – attorneys (appointed under a power of attorney) and distribution agents.  Why? Because attorneys (appointed under a power of attorney) are very commonly used in a diverse range of situations from family and other arrangements to specific transactions, and therefore this type of agency relationship regularly arises in daily private and commercial life; and distribution agents, because it was this type of agency relationship which was the context for this article and the subject of the decision in Angove’s Case.

Attorneys appointed under a power of attorney

In New South Wales,[13] the position at common law has been replaced with specialist legislation – the Powers of Attorney Act 2003 (NSW).  Sections 15 and 16 of the Act deal with irrevocable powers of attorney and provide as follows:

15           Irrevocable powers of attorney

An instrument that creates a power of attorney creates an "irrevocable power of attorney" for the purposes of this Act if:

(a)           the instrument is expressed to be irrevocable, and

(b)           the instrument is given for valuable consideration or is expressed to be given for valuable consideration.

16           Effect of irrevocable powers of attorney

(1)           The power conferred by an irrevocable power of attorney is not revoked or otherwise terminated by, and remains effective despite, the occurrence of any of the following:

(a)           anything done by the principal without the concurrence of the attorney,

(b)           the bankruptcy of the principal,

(c)           the mental incapacity of the principal,

(d)           the principal becoming a mentally incapacitated person,

(d1)        the principal becoming a person who is a managed missing person within the meaning of the NSW trustee and Guardian Act 2009,

(e)           the death of the principal,

(f)            if the principal is a corporation, the dissolution of the corporation.

(2)           Subsection (1) has effect except to the extent that the instrument creating the irrevocable power of attorney provides otherwise.

The Act defines an ‘instrument’ to include a deed and ‘valuable consideration’ to include marriage but does not include a nominal consideration, even if it has some value.

The important point to note here is that in New South Wales there is a statutory regime regulating irrevocable powers of attorney that must be followed in order for them to be properly created and effective, which will not be undone if any of the circumstances set out in section 16(1) of the Act arise.  Significantly, however, the regime includes an ‘opt out’ mechanism in section 16(2) of the Act.  As Ward J noted in Quest Rose Hill Pty Ltd v White [2010] NSWSC 939, if the power of attorney meets the statutory requirements, then, for the purposes of the statute it is irrevocable, whether or not it meets the common law requirement of being coupled with an interest.[14]

The distribution agency in Angove’s Case 

The essential facts in the case were as follows:

  • Angove’s Pty Ltd (an Australian winemaker) engaged D&D Wines International Ltd (a UK company) (D&D) as its agent and distributor in the United Kingdom under an Agency and Distribution Agreement dated December 2011 (ADA).
  • D&D went into administration on 21 April 2012 at which time there were outstanding invoices totalling $874,928.81 representing the price of wine sold by D&D to UK retailers.
  • On 23 April 2012 Angove’s gave D&D written notice terminating the ADA and D&D’s authority to collect on the outstanding invoices totalling $874,928.81.  The written notice stipulated that Angove’s would collect on the outstanding invoices and account separately to D&D for its commission arising on these sales referable to these invoices.
  • On 10 July 2012 D&D moved into voluntary liquidation.  The liquidators (Bailey) claimed that Angove’s was not entitled to do what it had done and contended that D&D was entitled to collect on the outstanding invoices, deduct its commission arising on these sales referable to these invoices, and leave Angove’s to prove in the winding up of D&D for the balance of the price of the invoices.
  • As part of its claim D&D argued that the arrangements under the ADA created an irrevocable agency because the ADA created rights allowing D&D as agent to collect its commission out of the proceeds of wine sold by it to customers of Angove’s.

Their Lordships found against Bailey and D&D for the following reasons:

  1. While D&D had express authority to collect from customers, the authority wasn’t expressed to be irrevocable.  Nor was it is expressed as surviving the termination of the ADA.  It would have been easy to have expressed these conditions in the ADA but they weren’t.
  2. While D&D assumed responsibility for collecting payment from customers, there was nothing in the ADA to stop Angove’s assuming responsibility for that task or the customer paying Angove’s directly.
  3. The fact that the ADA allowed D&D to recover its commission by deducting it from the proceeds of invoices upon payment by the customer didn’t infer that the agency was irrevocable.
  4. It was inherently improbable that either D&D or Angove’s intended the arrangement to be irrevocable as the parties had envisaged the possibility of insolvency and had provided for a mutual right of termination in that event.

What can be learned from Angove’s Case?

The lessons are twofold:

  1. If you WANT your agency relationship to be irrevocable it requires express language to record this, and it must found a proprietary or other right in the agent that is personal to the agent.
  2. If you DO NOT WANT your agency relationship to be irrevocable, it is critical that there is express language which records this, and that the terms and conditions of the relationship must have the substantive effect of making it revocable.