THE RATIO. One judgment, decoded twice: once for anyone, once for the profession.

Headnote

An Australian winemaker sold wine in Britain through an English company that acted as both its buyer and its sales agent. When that company collapsed, two questions reached the Supreme Court. Could the winemaker cut off the agent’s authority to collect outstanding invoices, even though the agent needed that authority to recover its own commission. And if money still found its way into the agent’s hands, was it held on trust for the winemaker, safe from the agent’s other creditors, or was it simply another debt to be proved in the liquidation like any other. The Court answered no to irrevocable authority and no to the trust, closing off a route that had been quietly opening around one of insolvency law’s most basic rules: that creditors share what is left, in proportion, as of a fixed date, not according to who can make the strongest moral claim afterwards.

Factual Background

Angove’s Pty Ltd, an Australian winemaker, sold its wine in the United Kingdom through D&D Wines International Ltd. D&D played two roles under an Agency and Distribution Agreement dated 1 December 2011. It bought some wine from Angove’s outright, and it sold other wine to UK retailers as Angove’s agent, earning commission on those sales. The agreement could be ended on six months’ notice, or immediately if D&D became insolvent.

D&D went into administration on 21 April 2012. At that point, two UK retailers owed A$874,928.81 for wine D&D had sold them as Angove’s agent, money neither retailer had yet paid. Two days later, Angove’s gave notice ending the agreement and, specifically, ending D&D’s authority to collect that money from the retailers. Angove’s said it would collect the price itself and pay D&D its commission separately. D&D moved into liquidation on 10 July 2012.

D&D’s liquidators disagreed with the effect of that notice. They accepted that Angove’s could end the agency relationship. Their argument was narrower: that D&D’s authority to collect the outstanding invoices survived termination, because D&D needed to keep collecting in order to deduct its own commission before handing over the balance. By agreement, the disputed money was held in escrow while the argument was resolved.

A High Court judge held that D&D’s authority ended with the notice. The Court of Appeal disagreed, reasoning that the agreement’s own terms, D&D’s right to deduct commission and its separate obligation to pay Angove’s within ninety days regardless of whether the retailers had paid, together implied that D&D was meant to keep its collecting authority as a form of security. Angove’s appealed to the Supreme Court.

The Question for Determination

Two distinct questions arose, and Lord Sumption, writing for a unanimous court, treated them as genuinely separate.

The first concerned agency law. The general rule is that a principal can always revoke an agent’s authority, even where the contract says the authority is irrevocable. Revoking it may breach the contract and expose the principal to a damages claim, but it still ends the authority itself. The recognised exception applies where two things are both true: the parties agreed the authority would be irrevocable, and the authority was given specifically to secure a genuine financial interest of the agent, not merely to let the agent go on earning future income. D&D’s liquidators had to show both were present in the agreement.

The second question concerned trusts, and arose only on the assumption that D&D’s authority had in fact survived. If money later reached D&D’s hands from the retailers, would it belong to Angove’s outright, protected from D&D’s other creditors, or would it simply increase the pool of assets available to those creditors generally. The Court of Appeal had suggested that D&D’s own insolvency at the time of receipt might make it unconscionable for D&D to keep the money, and that unconscionability alone could generate a trust.

The Court’s Reasoning

On revocability, Lord Sumption held that the Court of Appeal had asked only half the question. It had focused on whether the parties intended D&D’s authority to be irrevocable, without separately asking whether that authority was intended to secure D&D’s own financial interest, as opposed to merely benefiting D&D in some circumstances. Both elements have to be shown, and neither was present here, for five connected reasons.

D&D’s authority to collect was described in the agreement as a responsibility, not a right, and nothing in the drafting marked it as surviving termination. Customers were free to pay Angove’s directly at any time, which sat awkwardly with treating collection as any kind of security for D&D. D&D’s right to its commission did survive termination, since it accrued the moment a sale was made, but the separate mechanism of deducting that commission from collected proceeds was only one way of recovering it, not the only way, and an incidental benefit from a mechanism is not the same as a security built around it. D&D’s obligation to pay Angove’s within ninety days regardless of actual receipt from customers did survive too, but this gave D&D an independent right to recover from the customer once it had paid Angove’s out of its own funds, a right arising from the ordinary law of restitution rather than from any continuing authority granted by Angove’s. Finally, the parties had expressly planned for exactly this scenario by giving either side a right to terminate immediately on insolvency. Reading the agreement as preserving D&D’s collecting authority through its own insolvency would have protected D&D’s five per cent commission at the cost of the other ninety five per cent to Angove’s, an arrangement no rational commercial party would sign up to.

Angove’s notice was therefore immediately effective, and the appeal succeeded on this ground alone.

Lord Sumption went on to deal with the trust question anyway, since it had been fully argued and raised a point of wider importance. He rejected the Court of Appeal’s suggested constructive trust, on a broader basis than the Court of Appeal’s own reasoning had offered.

At the moment the retailers paid D&D, nothing about that payment was held on trust. If a trust arose at all, it could only arise later, once D&D’s own insolvency made retention feel wrong. That kind of retrospective, fairness driven trust is exactly what English law does not recognise. English courts declare that a trust existed as of a fixed point in time, arising automatically from settled principles, rather than fashioning one afterward as a discretionary remedy for a claimant whose case has moral appeal. Allowing the latter would let a court quietly remove an asset from an insolvent company’s estate, at the direct expense of every other unpaid creditor, on no firmer ground than a judgment that the outcome felt unfair.

Lord Sumption traced this error to two earlier decisions, Neste Oy v Lloyd’s Bank and In re Japan Leasing Europe, both of which had found a constructive trust arose once an agent knew, at the time it received money, that its own looming insolvency meant it could never pass that money on as intended. He held that reasoning could not be justified. Insolvency routinely produces results that feel arbitrary: a customer who pays in advance for goods never delivered has only an unsecured claim for damages, and a supplier who delivers on credit has only an unsecured claim for the price, whichever party happens to fail first. There is no principled reason to treat money received by an agent any differently, unless the parties actually agreed, expressly, that the agent would hold it separately on trust. Since D&D was never required to keep customer payments apart from its own funds, the customers who paid it intended to transfer full ownership of that money, leaving only a personal claim to be repaid. A claim of that kind, however sympathetic, ranks alongside every other unsecured creditor. It does not move ahead of them merely because a court finds the debtor’s conduct distasteful.

Critical Assessment

The strength of Lord Sumption’s reasoning on the trust point lies in exposing that Bingham J’s language in Neste Oy assumed its own conclusion, asking whether retention would offend conscience without first establishing what conscience actually required as a matter of settled property principle. Lord Sumption’s own answer rests on a comparable judgment, reached the other way. His view that money received by an agent for onward transmission should be treated no differently from an ordinary trade debt assumes that consistency of treatment across different kinds of insolvency loss matters more than the specific vulnerability of someone who handed money over purely as a conduit, never intending it for the recipient’s own benefit at all. That is a defensible position, and probably the right one for a legal system committed to fixed property rights, but it is a policy choice about whose unfairness counts, not a discovery that no unfairness exists.

The agency holding leaves a narrower, more practical uncertainty. Lord Sumption widened the exception for authority coupled with an interest, rejecting the view that it applies only where the agency is a mere legal device for a security arrangement, and confirming that a genuine agent can also hold irrevocable authority to protect a real financial interest of its own. Whether that interest was truly intended to be secured by the authority, rather than merely benefiting from it in passing, still depends on construing each contract afresh. Parties who want irrevocable collection rights now know the principle exists, but they must still draft for it in terms clear enough to survive the kind of five point dissection this judgment applies to the ADA.

One loose end deserves plain acknowledgment rather than being smoothed over. Lord Sumption preserves, without explanation, a handful of older cases where courts found irrevocable authority on grounds that do not fit his own framework at all: a share promoter’s authority to subscribe, an auctioneer’s authority to complete a sale, a Lloyd’s Name’s authority to a managing agent. He says only that nothing in his judgment should be taken to touch them. For a judgment otherwise built on close analytical reasoning, this is a candid admission that English law’s treatment of irrevocable authority is not, even now, a single coherent doctrine.

Implications

If you’re not a lawyer: this case matters whenever someone collects money on your behalf and then passes it on to you, an estate agent, a ticket reseller, a payment platform, an import agent. If that person becomes insolvent while holding your money, this judgment confirms you will usually rank alongside their other unpaid creditors rather than getting your money back in full, unless your agreement specifically made them hold your money separately, on trust, from the start. A sense that keeping the money would be unfair is not enough. If separation of funds matters to you, it needs to be written into the arrangement before anything goes wrong, not argued for afterward.

For the profession: this remains the leading modern statement on irrevocable authority, refining rather than narrowing Smart v Sandars, and confirming that a genuine agent can hold a security interest sufficient to make its authority irrevocable, provided the contract shows the authority was intended to secure that interest rather than merely arising alongside it. Anyone drafting a collection or distribution agreement meant to give a party security over sums it collects should say so expressly, addressing both survival on termination and the specific debt the authority is meant to protect, rather than relying on a court to infer it from a commission mechanism. On trusts, this is now the starting point for resisting any claim that an insolvent recipient’s knowledge of its own position generates a constructive trust. Absent a genuine intention that funds be kept separate, or a vitiating factor such as mistake or receipt of property already tainted by fraud or breach of trust, the claimant has a personal claim only, to be proved like any other in the liquidation. Neste Oy and In re Japan Leasing should now be treated as overruled on this point, not merely doubted.

Case Details

  • Citation: [2016] UKSC 47, on appeal from [2014] EWCA Civ 215
  • Court: UK Supreme Court. Judgment given by Lord Sumption, with Lord Neuberger, Lord Clarke, Lord Carnwath and Lord Hodge agreeing
  • Heard: 8 June 2016 · Decided: 27 July 2016
  • Governing principles: the law of agency on revocable and irrevocable authority. The institutional constructive trust as recognised in English law
  • Key authorities discussed: Smart v Sandars (1848) 2 CB 895 · Neste Oy v Lloyd’s Bank Plc [1983] 2 Lloyd’s Rep 658 · In re Japan Leasing Europe Plc [1999] BPIR 911 · Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669
  • Key paragraphs: [6]-[10] (the exception for authority coupled with an interest, restated) · [16] (the five reasons neither condition was met) · [24]-[32] (the constructive trust claim rejected)