In the case of Bailey v Angove's Pty Ltd, Supreme Court, The Supreme Appeal has concluded that an agent's authority came to an end when the agency agreement was terminated by the principal.
An agent was commissioned to sell wine for a principal. The terms of the agency agreement stated that the principal would invoice the agent for the full value of a customer order and provide a credit note against the invoice for commission payable to the agent. The agent was to receive payment for a customer order directly from the customer and then use these customer funds to pay the invoice from the principal to the agent (less the commission).
The agent later went into administration and the principal gave notice to terminate the agency agreement with immediate effect. The notice included a term which confirmed that the agent no longer had authority to collect customer payments and that all customer payments were to be made direct to the principal. Some customers, however, made direct payments to the agent for orders placed before the notice was effective.
The question before the court was whether the agent had authority to accept the payments received from customers after termination by the principal but in respect of customer orders placed before termination by the principal. If the agent did have authority, the customer payments would belong to the agent and the principal would have to apply for a proportion of the money from the agent as an unsecured creditor. If the agent did not have authority, the money was to be held by the agent on trust for the principal. The High Court ruled that the agent did not have authority. The Court of Appeal disagreed and concluded that the agent did have authority. The question was then referred to the Supreme Court for a final answer.
The Supreme Court concluded that the agent's authority ended on termination and therefore the principal was entitled to all of the customer payments rather than a proportion as an unsecured creditor. The Supreme Court explained that its interpretation of the contract was that the payment and termination clauses in the agency agreement stated that the agent's authority ceased on termination. There was no express provision which stated that the authority was to survive termination. As a result, the agent's authority ended on termination and the money was therefore held by the agent on trust for the principal.
This case confirms the rule that an agent must have authority to act on behalf of a principal in order to validly accept customer payments. If the agent had been allowed to retain its authority after termination, this would lead to a dangerous situation of an irrevocable agency relationship. Although things worked out for the principal here, this was not without the cost, expense and uncertainty in having to go all the way to the Supreme Court. In order to avoid ambiguity, businesses should be careful to ensure that their agency agreement includes a clause which confirms that the agent's authority comes to an immediate end on termination of the agreement.