Claims Against Agents in Insolvency

Businesses looking to work with an agency under an agency and distribution agreement should take note of a case considered by the Court of Appeal early in 2014.

The case of Bailey v Angove’s Pty Limited [2014] raises an interesting issue for businesses regarding their right to terminate an agency agreement. Generally a principal can revoke an agent’s authority to act on their behalf but in this case an attempt to terminate the contract and the agent’s authority due to an insolvency event was deemed ineffective.

The case has since been appealed to the Supreme Court but it is a useful reminder of the need for careful drafting in agency and distribution contracts and the potential risks if something goes wrong.

Background to Bailey v Angove’s Pty Limited [2014]

D&D Wines International Limited was appointed as sole agent and distributor for Angove’s Pty Limited’s wines. D&D charged the full price of the wines to the customers which it was charged for in turn by Angove’s. A commission was then payable to D&D for the amount of wine sold. D&D collected the monies from the customers and then retained its commission out of those monies.

When D&D went into administration Angove’s wrote a letter purporting to end the agency agreement and explicitly ending D&D’s right to collect monies from its customers. At that time, sums of A$570,843.22 and A$302,773.86 were owed by two of Angove’s customers which paid the monies to D&D.

In the lower court a judge held that those sums should be paid to Angove’s in their entirety free of deduction for commission or otherwise. The liquidators of D&D appealed and the Court of Appeal overturned this decision due to the specific wording of the agency and distribution agreement.

The Court of Appeal’s Reasoning in Bailey v Angove’s Pty Limited [2014]

The wording of the agency and distribution agreement made between D&D and Angove’s meant that Angove’s attempt to end it was actually a breach of contract. Notwithstanding this, the Court of Appeal recognised the right of a principal to end an agent’s authority even if that were the case.

The issue that stood in the way of the principal relying on its revocation of authority in this case was the fact that the parties had made specific provision in the contract regarding their rights upon termination. Within those provisions, D&D’s right to collect the monies from customers that had ordered and received goods prior to the contract being terminated was not mentioned.

The Court of Appeal held that D&D could still accept those monies and the monies therefore remained available to the liquidators.

For specialist advice regarding agency agreements, or for litigation and insolvency advice contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.