England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
HHJ PELLING QC
IN THE MATTER OF D & D WINES INTERNATIONAL LIMITED (IN CREDITORS' VOLUNTARY LIQUIDATION)
AND IN THE MATTER OF THE INSOLVENCY ACT 1986

		Royal Courts of Justice Strand, London, WC2A 2LL
		7th March 2014

Lord Justice Patten :

1. The principal issue on this appeal is whether the respondent, Angove's Pty Limited ("Angove"), is entitled to payment of the sums of A$570,843.22 and A$302,773.86 plus accrued interest which are currently held in escrow pending the outcome of this litigation pursuant to a revised undertaking between the joint liquidators of D & D Wines International Limited ("D&D") and Angove dated 26 July 2012.
2. These monies were paid by two third-party customers, Direct Wines Limited ("DWL") and PLB Group Limited ("PLB"), for wine supplied to them by Angove through D&D which acted as its "sole agent and distributor" for the UK under the terms of an Agency and Distribution Agreement ("ADA") dated 18 November 2011. This amended and replaced (with effect from 1 December 2011) an earlier agreement of 21 December 1990 which was itself amended with effect from 1 January 2006.
3. On 21 April 2012 D&D was placed in administration and on 23 April Angove gave written notice to D&D under clause 36(b) of the ADA terminating the agreement with immediate effect. The notice also expressly terminated D&D's authority to collect any further payments from DWL and PLB. The notice had the effect of terminating D&D's appointment as Angove's sole agent and distributor and clause 37 of the ADA provided that:

"37. Upon termination of this Agreement for any reason whatsoever:

(a) each party must pay to the other all money owing up to and including the date of termination in respect of the sale of Products and Angove PBPs and/or commission thereon, without any deduction, withholding or set-off for any reason whatsoever;

(b) Angove will have the right to purchase (and D&D is obliged to sell) any current stock of Products or Angove PBPs then in the hands of D&D which D&D has paid for, at a price equal to "net landed cost".

For the purposes of this sub-clause, "net landed cost" means the aggregate of the Net Selling Price paid by D&D plus any freight and insurance charges and duties paid by D&D in respect of such stock. D&D will ship the same at the direction of Angove FIS to the warehouse nominated by Angove in the Territory. D&D warrants, and shall procure, that any re acquired stock will on its re-delivery be in all respects in the same condition as that in which it was delivered to D&D by Angove;

(c) D&D must promptly deliver to Angove, or at its direction, all point of sale and promotional brochures, displays, banners and other related materials and information in its possession or control; and

(d) Angove will not be obliged, from the date of termination, to fill any orders placed by D&D on its own account which have not yet been delivered to D&D; and

(e) D&D must cease any and all use of Angove's IP Rights.

Termination of this Agreement does not affect the accrued rights or remedies of either party. Obligations expressed to arise or continue on or after termination of this Agreement survive its termination."

4. With the exception of a sum of A$14,430 which I will come to, all of the money in the escrow accounts represents payments made for wine by DWL and PLB after the ADA had been terminated by the notice of 23 April. The A$570,843.32 received from DWL was paid into an account with the administrators who gave undertakings that any monies collected would be held in their general client account "Pending the resolution of the matters in issue between [Angove] and the Administrators". The monies are not to be released except with the consent of Angove or in accordance with an order of the court which determines the ownership of the funds. After D&D was placed in voluntary liquidation the DWL monies were transferred to the joint liquidators and are held by them in an escrow account on similar terms. The liquidators' undertaking of 26 July 2012 contemplated that the A$302,773.86 subsequently paid by PLB would be held in the same escrow account. But these monies were in the event paid directly to Angove. Angove then arranged for them to be held in an escrow account opened by its solicitors for that purpose on the same terms as the 26 July undertaking. They are not therefore to be released except by agreement or in accordance with an order of the court. In these circumstances the liquidators of D&D have been content that they should remain in the solicitors' account pending the outcome of the litigation.
5. In order to decide who was entitled to payment of these monies, Angove issued an application for directions pursuant to s.112 of the Insolvency Act 1986. The principal issue raised on the application was whether the payments by DWL and PLB made after the termination of the ADA were held on trust for Angove or were monies payable to D&D and therefore part of the estate of the insolvent company available for distribution amongst its general creditors. This issue was formulated in the application as being dependent on whether the contractual arrangements under the ADA created a trust in respect of any monies received by D&D as agent or merely rendered it liable to account contractually to Angove for what it had received after payment of its commission and any other deductible expenses. But the issue was argued before the judge (HH Judge Pelling QC sitting as a deputy judge of the Chancery Division) on the basis that the termination of the ADA brought to an end any right which D&D otherwise had to receive the purchase monies from DWL and PLB with the consequence that the monies held in the escrow account can now only belong to the payers and be payable at their direction to Angove.
6. The one exception to this is in relation to the sum of A$14,430 in the account which represents payments made prior to the termination of the ADA. In respect of this money, Angove seeks to set it off against D&D's claims for commission on the sales of wine to DWL and PLB represented by the monies in the escrow account. But this depends upon them establishing that the A$14,430 paid to D&D during the currency of the ADA was held for Angove on trust. It was therefore only in relation to this sum that the trust issue formulated in the s.112 application remained relevant.
7. Part of the argument before the judge centred on whether the effect of the ADA and the invoices and other documentation which it generated was to create a single contract of sale between Angove and the UK purchasers such as DWL and PLB in respect of each order for wine placed through D&D or a chain of two separate contracts of sale: the first between Angove and D&D; the second between D&D and the end purchasers. If the correct analysis was that D&D had contracted with DWL and PLB as principal and that Angove had no contract at all with the UK purchasers then it was, I think, common ground that Angove's termination of the ADA would not prevent the liquidators of D&D from obtaining payment of what was contractually due to the company and that the monies when collected formed part of the insolvent estate and were not held on trust for Angove. Angove, like any other creditor of D&D, would be reduced to proving in the liquidation for the monies due to it under its contracts with D&D.
8. The dispute about whether there were one or two contracts which came into existence whenever wine was ordered from Angove through D&D stems from the machinery in the ADA for the payment of D&D's commission. It is therefore useful at this stage by way of explanation to set out the provisions in the ADA which bear on this point.
9. Under clause 2 of the ADA:

"Angove confirms that from the Effective Date D&D shall be its sole agent and distributor for the sale:

(a) of all Products exported by Angove, or by any company or entity wholly owned by Angove, to customers in the Off Trade and the On Trade; and

(b) of all PBPs exported by Angove, or by any company or entity wholly owned by Angove, to customers in the On Trade, provided that D&D's appointment under this sub-clause 2(b) shall be limited to supplying Angove PBPs to Matthew Clark for onward distribution in the On Trade, on and subject to the terms and conditions of this Agreement."

10. The ADA applies both to sales made to D&D as agent for Angove (which we are concerned with on this appeal) and sales made to D&D on its own account. In relation to the former, clause 10 provides:

"Where sales of Products or Angove PBPs are made by D&D as agent for Angove, the Terms and Conditions of Sale set out as Annexure A to this Agreement, and as amended by Angove from time to time, shall apply to such sales. Angove shall be responsible for communicating the Terms and Conditions of Sale to such customers, and for determining the timing of such notification. Failure by a customer to agree to the Terms and Conditions of Sale does not constitute a breach of this Agreement by D&D, provided that Angove shall be entitled to decline to deal with any such customer without liability to D&D."

11. The terms and conditions of sale set out in Annexure A contain provisions governing the passing of risk and title (including a retention of title clause) and force majeure and jurisdiction clauses. But, for present purposes, I need only set out conditions 1 and 2 and part of condition 10(d) which state:

"1. ACCEPTANCE OR ORDERS. Orders must be submitted to Angove in writing and must include full customer details, and a description of goods ordered including quantity and pricing by product. All orders are subject to acceptance by Angove, and Angove reserves the right to reject any order. Any quotation given by Angove lapses if not accepted within 30 days.

2. TERMS OF PAYMENT. Payment terms are 90 days from bills of lading in the absence of prior agreement with Angove (or through its agent) subject to the shipment being covered by Export Insurance. If payment is not made within the above terms, Angove is entitled to calculate and charge daily interest at a rate not greater than the interest rate charged by Angove bank on commercial overdrafts from time to time plus five (5) per cent.

...

"Angove" means Angove Pty Ltd, and includes D&D Wines International Limited, where it acts as agent for Angove Pty Ltd."

12. Finally, clauses 20, 21, 22, 23 and 45 provide:

"20. Payment for Products ordered by or on behalf of D&D must be made, whether by D&D or the customer, on or before 90 days from the date of bill of lading, or otherwise as may be agreed, by direct credit in Australian dollars into the bank account nominated from time to time by Angove.

21. Angove will pay to D&D commission:

(a) in such amounts as shall be agreed between Angove and D&D based on the Net Selling Price of every sale of Products or Angove PBPs to a customer in D&D's allocated sectors within the Territory arranged by D&D during the term of this Agreement (other than on its own account);

(b) on any Bulk Wine supplies made by Angove, or by any company or entity wholly owned by Angove pursuant to clause 17 during the term of this Agreement.

22. Commission due under clause 21(a) shall be paid to D&D as follows:

(a) Angove will issue an invoice addressed to D&D (identifying the customer as consignee) for the relevant goods, together with a credit note for the amount of D&D's commission on that sale;

(b) D&D will be responsible for collecting payment of the amount of Angove's invoice from the customer;

(c) D&D will pay the amount of Angove's invoice, less the amount of the credit note, on or before the due date in accordance with clause 23.

23. Angove will pay any other commissions due to D&D quarterly after, and only to the extent that, payment for the relevant Products or PBPs has been received by Angove but will pay commission monthly to D&D in respect of any late payment by customers for Products or PBPs.

…

45. Nothing in this Agreement may be deemed to constitute D&D as the employee, joint venturer or partner of Angove. D&D is Angove's agent and distributor only to the extent set out in this Agreement."

13. Although D&D's entitlement to a commission arises from clause 21 of the ADA, the machinery for its payment under clause 22 (in respect of commission due under clause 21(a)) involved a system of invoicing under which Angove invoiced D&D for the full price of the goods but issued a credit note for the amount of the commission. D&D would then obtain payment from the customer (which it would invoice for that purpose) and then pay to Angove the sum due under Angove's invoice less the amount of the credit note. The payment of D&D's commission under this system therefore depended upon it getting in the monies from the customer and deducting its commission from those monies before accounting to Angove for the balance. It is common ground that the reference in clause 22(c) to clause 23 is a typographical error and should be read as a reference to clause 20. There was therefore, on one view, an unqualified obligation on D&D to pay the amount of Angove's invoice (less the credit note) within 90 days of the bill of lading regardless of whether D&D had by then recovered payment from the end purchaser.
14. The judge analysed the invoices issued under these arrangements and concluded that the relationship between Angove and D&D was that of principal and agent and not buyer and seller. He held that the only contract of sale for the wine that was ordered through D&D was between Angove and (in this case) DWL and PLB. In relation to the argument that this was inconsistent with the machinery of clause 22, he said:

"33. It was submitted on behalf of the Liquidators that because the effect of Clause 22(c) was to impose on the Company the obligation to pay the whole invoice sum due for the goods sold less commission in respect of which a credit note was to be issued for the benefit of the Company that necessarily negatives the true relationship between the Company and Angove being one of principal and agent. I am not able to accept that submission.

34. First, as I have said, the contract clearly distinguishes between those transactions in respect of which the Company is described as acting as agent and those where it is buying for its own account. It is only in respect of those transactions in respect of which the Company is described as acting as agent that commission is payable and to which the Clause 22 mechanism applies. Clearly therefore the parties considered that the transactions to which this mechanism applied were different from sales to the Company for its own account, which were expressly excluded from its application by Clause 21(a).

35. Secondly, I do not accept the premise of the submission – namely that because the Company undertakes a direct obligation to pay, that necessarily negatives the relationship being one of principal and agent in relation to transactions to which the mechanism applies. In Teheran – Europe Co. Ltd v. S.T. Belton (Tractors) Ltd [1968] 2 WLR 523, Donaldson J as he then was recognised at 528F that there were three ways in which an agent could conclude a contract on behalf of his principal, the second of which was by creating privity of contract between the third party, the principal and the agent. The outcome of that case was varied on appeal but there was no any disagreement by the Court of Appeal with this part of Donaldson J's analysis. In the result, it does not follow that because an agent undertakes direct obligations owed to the principal therefore the relationship cannot be one of principal and agent.

36. I do not accept either the more restricted submission that because the obligation undertaken is one that involves accepting an obligation to pay for the goods that are being sold to the third party that necessarily prevents the relationship from being one of principal and agent. English law has long recognised the concept of a del credere agent – that is an agent who in consideration of a commission guarantees to his principal that third parties with whom he contracts on behalf of the principal will duly pay the sums due under those contracts.

37. As I have said the ADA must be read as a whole. So read, it applies specifically to at least two types of transaction. It applies primarily to sales to customers identified and introduced by the Company as agent for Angove (in respect of which commission is payable and the Clause 22 mechanism applies) and excepts from this mechanism sales to the Company for its own account. In relation to transactions falling within the last mentioned category the ADA imposes only the limited obligations I mentioned earlier."

15. The judge reached the same conclusion in respect of the contracts for the wine supplied to PLB. But he also rejected the argument advanced by Angove that any monies paid to D&D as agents for Angove under the ADA were held on trust. He said:

"55. The contract contemplates that the Company is entitled to deduct its commission from the price collected by it before accounting to Angove. However, it is not clear whether the entitlement to deduct arises as soon as sufficient money to meet the commission due has been collected and in reality whether it does has no practical significance because of the personal obligation of the Company to indemnify Angove in respect of such part of the price payable by the third party purchaser as has not been collected by the agreed payment date. All this make it unlikely that it was intended to create a beneficial interest in the sums collected by the Company."

16. There is no appeal by the liquidators of D&D against the judge's findings that there was no separate contract of sale between D&D and the UK end purchasers. Nor has Angove sought to appeal the judge's conclusion that the operation of the ADA did not create a trust of monies received by D&D before its termination. His decision that the A$14,430 forms part of the insolvent estate therefore stands. This appeal concerns the balance of the funds held in the two escrow accounts which is all money paid by DWL and PLB after the ADA was terminated. In respect of this money (which I will refer to as the Fund), the judge held that because the agency of D&D and its authority to collect the payment from DWL and PLB had been terminated by the clause 36 notice, any sums received after that date must be held on trust for the payers:

"42. If and to the extent that the Company owed Angove an obligation to collect payment from DWL and PLB, it came to an end when the termination took effect. This is so as a matter of general law – see Bowstead on Agency, 19th Ed., Paragraphs 10-023 – 10-024 and 10-029. This effect may be altered by express agreement but it was not in this case. The proviso to Clause 37 of the ADA makes clear that it is only obligations expressed to arise or continue after termination that survive termination. If and to the extent that Clause 22(b) imposes on the Company an obligation to collect, that obligation is not so expressed. If and to the extent that the transactions with DWL took effect outside the ADA (and as I have said neither party contends for that outcome) and if and to the extent the arrangements that applied to those transactions included any authority being given to the Company to collect the sums due from DWL, then that authority was expressly terminated by the statement in the Notice of termination that "... By terminating the Agreement, we also hereby terminate ... [the Company's] ... authority to collect any further payment ..." from DWL and PLB.

43. It follows that any sum actually received by the Company after the date of termination would be held on trust for the payer – in this case DWL and PLB. By the same token neither DWL nor PLB would obtain a discharge of their respective obligations to Angove by any payment made thereafter at any rate if the fact of termination was known to them at or before the time of payment."

17. He therefore ordered the Fund to be paid to Angove in its entirety free of any deduction for commission or otherwise.
18. The judge's view that the Fund is now payable to Angove on behalf of DWL and PLB seems to be based on the premise that the monies were received by D&D in effect as a stranger once its authority to accept payment on behalf of Angove under the ADA had been terminated. In may be questionable whether the Fund should now be characterised as a receipt in Angove's hands given that it is in fact held in the two escrow accounts pursuant to the undertakings which effectively vest control of the monies in the court. But the real issue is whether, notwithstanding the termination of the ADA, the liquidators of D&D remain entitled to collect payment from DWL and PLB in accordance with clause 22(b) in order to recoup their commission under the machinery in clause 22(c). If this is right then the intervening insolvency of D&D will have the effect of preventing D&D from accounting to Angove for the balance. Angove will recover payment of the balance in the form of a dividend in the liquidation. In these circumstances, Angove submits in the alternative that a constructive trust will arise in its favour in respect of the Fund (or perhaps the Fund less the commission) on the basis that it would be unconscionable for the court to allow the liquidators to take the benefit of the ADA but not to meet the obligations of D&D under it.
19. The first issue therefore is what was the effect of the notice of termination on D&D's rights under clause 22 of the ADA. The consequences of termination are spelt out in clause 37. Mr Riley submits that at the date of termination Angove owed nothing to D&D. Although D&D was entitled to be paid commission on the sales to DWL and PLB under clause 21(a), that commission was payable out of the monies which D&D was obliged to collect from the purchasers. It, on the other hand, had an unqualified liability to Angove under clause 22(c) for the amount due under the sales invoices regardless of whether it had been able to obtain payment from the purchasers by the due date as defined in clause 20.
20. It is therefore implicit in clause 37(a) which requires D&D to pay monies which have accrued due under invoices up to and including the date of termination that D&D should retain the right under clause 22(b) to continue to collect the monies due from the customers. This is confirmed by the concluding words of clause 37 which expressly preserve both parties' accrued rights.
21. As authority for the proposition that termination of an agency does not per se terminate the agent's right to collect monies then due, Mr Riley referred us to the decision of this court in Triffit Nurseries & Others v Salads Etcetera Ltd [2000] 1 AER (Comm) 737. In that case a company (SE) acted as agent and distributor for a vegetable grower. It collected the monies due from purchasers of the produce and remitted the proceeds to the grower after deducting its commission. After SE had gone into administrative receivership the receivers continued to collect the monies due from customers but regarded the entirety of the sums collected as assets of SE which were subject to a debenture in favour of its bank. The grower claimed that the agent's insolvency had terminated the agency agreement and, with it, SE's right to collect payments due from customers so that any monies in fact received were held on trust for the grower. The Court of Appeal (affirming the judge) held that the ending of the agency had not terminated SE's right to collect sums due from customers and that no trust arose in favour of the principal. At p. 747 Robert Walker LJ said:

"Even if the agency relationship between Salads and the claimants did come to an end, by force of circumstances, as soon as the receivers were appointed, that could not by itself alter the right of Salads and its receivers to seek outstanding sums due from customers, or the bank's charge on those book debts. Mr Bannister's use (in his skeleton argument and his oral submissions) of the expression 'defeasible' underlines the difficulty: even if the agency relationship has come to an end, why (whatever sympathy is felt for them as relatively small businesses suffering from the insolvency of a larger business) should the established titles of the marketing agent and its chargee be defeated in favour of the claimants?"

The only persuasive answer to that question is, to my mind, that the claim of the disappointed principal will prevail if (and only if) the circumstances are such that it would be wholly unconscionable for the receivers or the bank to oppose the claim."

22. I will return to the second of these points a little later in this judgment when I consider Angove's alternative argument based on a constructive trust. But the decision in Triffit Nurseries, if of application to clause 22 of the ADA, confirms that parts of the agency agreement may survive the termination of the agency itself. The judge (in [42] of his judgment quoted above) seems to have taken the view that clause 22(b) did not survive the termination because clause 37 only applies to obligations which are expressed to arise or continue thereafter. This, however, ignores the preceding sentence which expressly preserves accrued rights which must, I think, include the right of D&D to recover from customers such as DWL and PLB payments for wine already sold and delivered prior to termination of the ADA.
23. Mr Craig for Angove relies on two lines of argument in response to the liquidators' submissions that clause 22 continues to operate in respect of wine already invoiced and delivered to the purchasers at the date of termination. His first and most draconian submission is that Angove's termination of the agency revoked D&D's authority to collect further payments from the end purchasers regardless of the terms of the ADA. Clause 22, if it continued in effect post-termination, did so only for the purpose of creating a liability in damages on the part of Angove for any loss which D&D may have suffered by not being able to collect the sums due from the purchasers of the wine. In practice, this is unlikely to exceed the amount of its commission. D&D's right, however, to collect the purchase monies is at an end.
24. On the face of it, this submission is inconsistent with the decision in Triffit Nurseries but Mr Craig referred us to a passage in [10-024] of Bowstead on Agency (19th edition) where the authors say:

"The general rule, which is perhaps not widely understood, is that the authority of an agent, whether given by power of attorney, or informally, even if for consideration, and whether or not expressed to be irrevocable, is revocable, without prejudice to the fact that such revocation may be wrongful as between principal and agent. The revocation may be oral whether or not the authority was conferred in writing. There is a power to revoke: but there is not necessarily a privilege to exercise the power-there may indeed be a duty not to do so, with the result that the revocation is a breach of contract. This is subject to the rules as to irrevocable authority set out in Article 118.

The rule is based on policy, and is the same as that relating to dismissal of persons working under contracts of service: "the proper conduct of the affairs of life necessitates that this should be so". It is reinforced by the separate rule that a contract of agency will not usually be enforced by a decree of specific performance. Frequently, of course, the revocation or renunciation constitutes the acceptance of a repudiatory breach by the other party."

25. I have no difficulty with any of this. But the general rule must yield to what the parties have agreed should be their respective legal rights and obligations on the termination of the agency. In the present case, the ADA makes specific and detailed provisions for what is to happen in the event of termination and I can see no reason in principle why the court should not hold Angove and D&D to that bargain. Mr Craig placed some emphasis on the reference in Bowstead to the court not ordering specific performance of a contract of agency. But the position in this case is rather different. The purchase monies have been paid by DWL and PLB and are now held in the escrow accounts to await the decision of the court. The parties are, I think, bound by that regime which they have put in place to allow the issues of beneficial ownership and contractual entitlement to be resolved in this litigation and to ensure that DWL and PLB obtain a good receipt for the payments they have made regardless of the outcome of the proceedings. If we decide that D&D is entitled to be paid the money under the terms of the ADA, it is not now open to Angove to object to the money being paid to the liquidators.
26. Mr Craig's principal argument on the terms of the ADA is that D&D was not indebted to Angove at the date of termination in respect of any purchase monies still outstanding from DWL and PLB. He submits that clause 22(b) should be interpreted as limited in duration to the currency of the ADA so that on termination D&D had no further obligation or responsibility to collect payments still due and owing or to pay the amount of the outstanding (and unpaid) invoices under clause 22(c). Clause 22(c) has therefore to be read as applying only to monies actually received during the term of the agency.
27. On this basis, clause 37(a) would apply only to the A$14,340 received by D&D prior to termination. It would have no obligation (and more importantly) no right to seek payment of monies still due and unpaid by customers at that date. Instead, it would be entitled to be paid its commission on those monies under clause 37(a) and it would be for Angove to seek payment from the customers of unpaid invoices free from the ADA.
28. I was initially attracted to this construction of the ADA but, on further reflection, I have reached the conclusion that it is not correct. Clause 37(a) is obviously intended to provide for the immediate payment on termination of all monies then owing as between Angove and D&D in respect of wine (Products and Angove PBPs) sold under the ADA. Money owing does not include commission which is separately provided for in clause 37(a) but is "commission thereon": i.e. on the sales in respect of which money is owing to Angove by D&D.
29. Under the clause 22 regime in operation up to the date of termination Angove was entitled to look to D&D for payment of its invoices as they fell due for payment in accordance with clause 20 of the ADA. Unless Angove chose to extend the date for payment, this meant that D&D had to provide payment (less the credit note) within 90 days from the bill of lading regardless of whether it was able to recover the monies from the purchasers within that time. There is nothing in clause 22 which expressly limits these payment obligations to the currency of the agency still less anything in clause 22(c) which limits D&D's obligation to pay to Angove the monies it had actually received from the customers by the time the invoices became payable in accordance with clause 20. The latter term would have to be implied and would be inconsistent with the express terms of clause 22(b) and (c) and their obvious commercial purpose which was to guarantee Angove payment of its invoices in full (less commission) and place the risk on D&D of recovering the purchase monies from the customers.
30. The difficulty about the suggestion that the provisions of clause 22 should be time limited is that this would have the effect of terminating D&D's entitlement to commission on the sales of wine delivered prior to the termination of the ADA but still unpaid for. If one takes the DWL and PLB monies as the obvious example, these are the purchase price for goods sold and delivered during D&D's agency and distributorship in respect of which it has earned its commission in accordance with clause 21 of the ADA. But clause 37(a) entitles it on termination to the payment of commission on ("thereon") money "owing up to and including the date of termination". If, as Mr Craig submits, clause 22(c) has no application to monies due under the invoices except to the extent that D&D has actually received payment from the customers prior to termination, it must follow that their right to commission on the balance of those monies has been lost. If, on the other hand, clause 22 continues to operate in the sense that D&D remains liable under clause 22(c) at the termination date to pay what is due under the invoices then clause 37(a) operates to require Angove to pay D&D commission on those monies. What clause 37(a) cannot, of course, do is to impose any obligations on the customers but it seems to me implicit in the operation of clause 37(a) that D&D should retain the right under clause 22(b) to collect from customers the monies due under the invoices which it continues to be liable to pay under clause 22(c). The two go hand in hand.
31. In my view therefore D&D remains entitled under the ADA to collect what is due from customers in respect of goods ordered and delivered prior to the termination of the ADA and the Fund is therefore payable under the ADA to the liquidators.
32. Mr Craig's alternative argument is that even if this is the proper meaning and effect of clause 37 in the circumstances of D&D's insolvency equity will subject the Fund to a constructive trust in Angove's favour because it would be unconscionable for the liquidators, as officers of the court, to accept payment of the Fund but not to pay in full to Angove what is due to it under the invoices in accordance with clause 22(c).
33. This argument is based on two authorities: the decision of Bingham J in Neste Oy v Lloyds Bank plc [1983] 2 Lloyd's Rep 658 and that of Mr Nicholas Warren QC (sitting as a deputy judge of the Chancery Division) in Re Japan Leasing Europe plc [2000] WTLR 301.
34. Neste Oy was concerned with the right of Lloyds Bank to set-off against credit balances in the account of a shipping agent (PSL) sums due to the bank under various group loan facilities. Monies were routinely paid to PSL by the shipowners for it to discharge harbour dues and other similar expenses. Over a six week period the claimant shipowners made six separate payments to PSL to discharge various liabilities. On 22 February 1980, the day when the last payment was made, the directors of the group of companies of which PSL was a member decided that the group must cease to trade and invited the bank to appoint a receiver. On 26 February the shipowners' bank sought repayment of the sixth payment which had been credited to PSL's account but this was refused by Lloyds. They then exercised their right of set-off as between the group accounts. The shipowners claimed that the sixth payment was not available for set off because it was held on trust by PSL to be applied for the payment of the shipowners' creditors. Bingham J rejected the claim based on an express Quistclose type trust (see Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567) in respect of the six payments but held that PSL was a constructive trustee of the sixth payment. At p. 666 he said:

"Given the situation of PSL when the last payment was received, any reasonable and honest directors of that company (or the actual directors had they known of it) would, I feel sure, have arranged for the repayment of that sum to the plaintiffs without hesitation or delay. It would have seemed little short of sharp practice for PSL to take any benefit from the payment, and it would have seemed contrary to any ordinary notion of fairness that the general body of creditors should profit from the accident of a payment made at a time when there was bound to be a total failure of consideration. Of course it is true that insolvency always causes loss and perfect fairness is unattainable. The bank, and other creditors, have their legitimate claims. It nonetheless seems to me that at the time of its receipt PSL could not in good conscience retain this payment and accordingly that a constructive trust is to be inferred."

35. The decision in Japan Leasing concerned an aircraft which was leased to Olympic Airways by Singapore Airlines on terms which required Olympic to purchase the plane at the end of the term. Under these arrangements, four leasing companies purchased the aircraft and then sold it on to Olympic under an agreement which provided for each of the vendors to sell their respective interests in the plane in return for a purchase price payable in 24 instalments, each of which was divided into four tranches payable in different currencies Each tranche was to be paid into a separate account in the name of Japan Leasing (Europe) plc which was designated as the representative vendor for the purpose of the agreement.
36. Japan Leasing went into administration in October 1998 and a month later it received as representative vendor one of the instalment payments (in four tranches) from Olympic. The administrators sought directions as to how they should deal with the payment. The judge held that on the true construction of the agreement the instalment was not subject to an express trust for the four leasing companies but that it was subject to a constructive trust on the basis that it would be unconscionable for the company to receive the instalment as agent knowing that it could not account for it to the other three vendors given its intervening insolvency.
37. The judge (at p. 316), having referred to the decision in Neste Oy, said:

"The constructive trust is imposed because it would be unconscionable for the Company, as agent, to receive money as agent knowing that it could not account for it to its principal. In this context, the passage from Bowstead quoted in Napier (see paragraph 17 above) is relevant and in my judgement the only answer which could be given to the question there posed is that the rights of the Vendors are sufficiently strong, and differentiable from other claims, for the Vendors to be entitled to a prior position in respect of them on the Company's insolvency (whether the question arises in an administration, a voluntary arrangement or a liquidation). The joint administrators have not, of course, acted unconscionably: they have, quite properly, brought the matter before the court. But it would, in my judgment, be unconscionable for them to continue to assert any claim to the monies."

38. He then went on to consider an alternative argument that the monies due to the other three vendors should be paid in full as an expense of the administration. This was based on the judgment of Nicholls LJ in Re Atlantic Computer Systems Plc (No. 1) [1992] Ch 565 who said that the expense principle was applicable not only to new debts incurred by the liquidator or administrator but also to continuing obligations under existing contracts such as leases which the liquidator chooses to continue for the benefit of the winding up. The judge applied this principle to the instalments of the purchase price. He said:

"In my judgment, the case does fall within the expenses principle. It is accepted by Mr Phillips, quite correctly, that prior to the payment of an instalment, the chose in action representing each Vendor's right as against Olympic to its share of the purchase price belonged to that Vendor: it did not belong beneficially to the Company and there had been no assignment by each Vendor to the Company of its rights. Accordingly, when the Company accepted payment of an instalment as agent of the Vendors, it could do so only on the hypothesis that there was a valid agency agreement. In receiving an instalment of the purchase price, the Joint Administrators were making beneficial use of the property of the other Vendors that is to say their respective shares of the purchase price. If the joint administrators chose to take the benefit of that continuing agency relationship, and thereby make use of the other Vendors' property, they must, I consider, meet the obligations of the Company pursuant to the agency agreements by allowing the Vendors to recover to the extent of the benefit received by the Joint Administrators. This approach conforms with the approach adopted in Ex parte James (1864) 9 Ch App 609: in effect, an officer of the Court should behave in a high-minded and honourable way which would not be the case, in my judgment, if I were to allow the joint administrators to retain the instalment payment for the benefit of general creditors of the Company: it would be dishonourable for the Joint Administrators to seek to retain this windfall."

39. Although Angove's case in the present appeal was not put on the basis of the expenses principle, I doubt whether Mr Warren QC (as he then was) was correct in deciding that a constructive trust existed in that case on either of the grounds he relied on. The reasoning of Nicholls LJ was rejected by the House of Lords in Re Toshoku Finance Ltd [2002] UKHL 6; [2012] 1 WLR 671 so far as it rested on the existence of a discretion in the court and it is difficult to see how it can be said that the administrators were using the instalment itself or any other property of the company for the benefit of the administration when all that they did was to receive a payment that was contractually due to them as representative vendor under the sale agreement.
40. Similarly if (as the judge found) the payment in the hands of Japan Leasing was not subject to any express trust of a Quistclose nature, it is difficult to see how it became unconscionable for the company to receive the payment in accordance with the contract notwithstanding its supervening insolvency.
41. It is, I think, important to note that in Neste Oy itself the payments made to PSL were essentially gratuitous. They were made to enable it to pay the debts of the shipowners; not in satisfaction of any liability between the shipowner and PSL. In those circumstances, the use of the sixth payment to meet the claims in the company's insolvency was a real windfall for its creditors. The money would not have been paid to PSL had the shipowners been put on notice that their agent could not carry out the purpose for which the money was paid. But in Japan Leasing and in the present case the payment of the money to the insolvent company was not voluntary. It was money which D&D was entitled to collect in order to recover the commission which it had earned on those sales. Although the insolvency of D&D had unfortunate consequences for Angove (as for all its other creditors), that fact alone is insufficient to make it unconscionable for D&D to receive payment of the Fund. It is simply the product of the contractual arrangements which both parties agreed to.
42. For these reasons, I would set aside the order of the judge under appeal and direct that the Fund be paid to the liquidators.

Lady Justice Sharp :

43. I agree.

Lord Justice Lewison :

44. I also agree.