07 March 2014
[2014] EWCA Civ 215
Court of Appeal, Civil Division (Patten, Lewison and Sharp LJJ)

The Court of Appeal, reversing the first instance decision, held that moneys paid to an agent after the agent’s insolvency were available for agent’s creditors generally and were not held on trust for the principal.

A company, D&D Wines, was the agent and distributor for the respondent, Angove.  The agency agreement between Angove and D&D provided that Angove would, in respect of each sale, send an invoice to D&D for the price which named the end-purchaser as consignee.  Angove would also issue a credit note which represented D&D’s commission.  D&D would collect the moneys from the end-purchaser and pay to Angove the sum due under Angove's invoice less the amount of the credit note.  The termination clause in the agreement provided that termination of the agreement would not affect the accrued rights or remedies of either party.

Shortly after D&D entered administration, Angove terminated the agency.  Shortly thereafter D&D received substantial moneys from two end-customers.

The first instance judge held that because the agency agreement had been terminated at the time D&D received those moneys it had no right to them.  The moneys were held on trust for the end-customers and were payable to Angove on their behalf.

The Court of Appeal rejected this analysis.  On the true construction of the agency agreement D&D’s right to collect moneys from the end-customers for past sales survived the termination of the agency.

The Court of Appeal also rejected Angove’s submission that there arose a constructive trust of the moneys because it was unconscionable for D&D’s liquidators to get the benefit of receiving the moneys but not be obliged to meet D&D’s obligations to Angove.  Patten LJ said that it was hard to see how it could be unconscionable to receive payment under a subsisting contract notwithstanding the supervening insolvency.  This case was distinguishable from Neste Oy v Lloyds Bank [1983] 2 Lloyd's Rep 658 since in that case the payment held subject to a constructive trust had been essentially gratuitous.

Where an insolvent agent remains entitled to collect moneys, the fact that this may have unfortunate consequences for the principal is not enough to make it unconscionable for the agent’s liquidators to retain the moneys for the benefit of all the creditors.