Oil, gas and commodities: An undisclosed principal revealed?

In MSH Ltd v HCS Ltd [2025] EWHC 815 (Comm), the English Commercial Court provided valuable insights for practitioners dealing with undisclosed principals in commodity contracts and their ability to bring an arbitration although not named as a party on the face of the contract. 

Facts

MSH Ltd (“MSH”) is a seller of Colombian nut coke, and HCS Ltd (“HCS”) is a trading house. A contract was agreed between MSH and CTW Ltd (“CTW”) for the sale and purchase of Columbian nut coke on or around 28 September 2020, with CTW named as the buyer (the “Contract”).

HCS and CTW had an established relationship, HCS having been a customer of CTW since 2018. There was no written agency agreement between HCS and CTW, with contact between the relevant representatives being limited to phone, text, WhatsApp and occasional emails.

CTW had no standing authority to contract on HCS’s behalf when not doing deals. Non-package deals had to be approved by a Ms PP on a deal-by-deal basis. Therefore, CTW’s actual authority to commit HCS to a contract depended on demonstrating that Ms PP’s specific authority was granted before the contract was concluded.

A dispute emerged between MSH and HCS relating to the Contract (the case report does not reveal the nature of this dispute), that was initially settled by arbitration. MSH challenged the arbitration award under s.67 of the Arbitration Act 1996 on the grounds that HCS was not a proper party to the Contract (or the arbitration agreement in the Contract). If MSH was successful in this claim, the arbitration award could have been set aside in its entirety.

The issue to be resolved was whether HCS was a proper party to the Contract, as an undisclosed principal.

Decision

Legal Principles

The Commercial Court referred to established concepts regarding undisclosed principals, notably from Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd [1968] 2 QB 545 and Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199.  

In Siu Yin Kwan, Lord Lloyd of Berwick summarised the law in the following terms:

1. An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority.
2. In entering into the contract, the agent must intend to act on the principal's behalf.
3. The agent of an undisclosed principal may also sue and be sued on the contract.
4. Any defence which the third party may have against the agent is available against his principal.
5. The terms of the contract may, expressly or by implication, exclude the principal's right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.

Key Issues

Two of the key issues for the Commercial Court to resolve were: (i) whether CTW had the authority to enter into the Contract on behalf of HCS; and (ii) whether the terms of the Contract precluded an undisclosed agency from arising.

In relation to the issue of whether CTW had the authority to enter into the Contract, the Commercial Court carried out a factual enquiry. In deciding that CTW had the authority to act on HCS's behalf the Commercial Court concluded that it was supported by the following:

1. The course of dealings meant that CTW was unlikely to enter into a contract without HCS’s approval.
2. There were regular telephone calls between the relevant persons in the course of which the necessary approval could have been sought and obtained.
3. Subsequent dealings suggested authority had been given.

In addition, the Commercial Court concluded that the contract terms did not preclude HCS from being an undisclosed principal. This is not surprising as the circumstances in which the terms of a commercial contract will imply the exclusion of the operation of an undisclosed principal doctrine are quite rare.

The Commercial Court regarded the four clauses relied on by MSH to suggest that the Contract excluded the possibility of an undisclosed principal “… bring little to the mix, and are not sufficient to prevent the operation of this established doctrine of English commercial law”:

• Clause 11 (HCS to provide letter of credit): The fact that it was HCS that was identified as providing the means of discharging the buyer’s key obligation under the Contract if anything made HCS a more likely candidate for an undisclosed principal. It certainly did not move the needle from the neutral position in MSH favour. 
• Clause 19 (precludes assignment without the other party’s prior written consent): The Commercial Court was not persuaded “that a clause limiting (but not excluding) the right of assignment has much weight when determining whether there is an implied exclusion of the undisclosed principal doctrine”.
• Clause 22 (confidentiality clause): The Commercial Court was less persuaded by the use of a confidentiality clause, as the undisclosed principal is someone who is clearly within the “confidentiality club”. It decided that “[t]he obligation of confidentiality binds the parties to the Contract but does not exclude a long established legal principal arising under the law chosen to govern that contract in deciding who is entitled to enforce and is liable under the Contract”.
• Clause 23 (entire agreement clause): The clause in these circumstances was very basic. However, for such a clause to have been effective in these circumstances, it cannot be of a “boilerplate” nature (it was described as being “of the most vanilla kind”) and must engage directly with the undisclosed principal doctrine.  It was also of significance that the Contract was “at the “non-relational” end of the scale of contracts – the possibility of payment by someone other than the named signatory was again of relevance.

As a result, the Commercial Court dismissed MSH's s.67 challenge, affirming that HCS was an undisclosed principal with the right to enforce the Contract.

Comment

It is a well established facet of English law that only a party to an arbitration agreement may bring an action, or be required to defend an action, commenced under an arbitration agreement.

That said:

1. There are circumstances where the parties named to a contract are not the parties (or the only parties). Whilst there is a significant amount of academic commentary on piecing the corporate veil, when a company seeks to conceal a true actor or evade a right or frustrate its enforcement through separate corporate personalities, the more common circumstance is not one of piercing the corporate veil at all. It is one of agency – which regularly arises in commercial dealings.   
2. Agency need not be disclosed. English law allows undisclosed agency, provided the relevant legal test is satisfied.
3. The key difference between a disclosed and undisclosed agency, when it comes to commencing or defending proceedings, being that in an undisclosed agency the agent is also likely to be treated as a party capable of being sued under the contract (as well as the principal).
4. A party wishing to avoid circumstances where the named counterparty, with whom it is dealing, is not an agent for an undisclosed principal should stipulate so in its contract. That may be desirable if a party wishes to avoid dealing with undisclosed entities, for example due to policy issues concerning nationality of counterparts.
5. General “boiler plate” terms on assignment and entire agreement are likely to be insufficient to prevent an undisclosed agency from being a possibility.
6. It may be the case, as was here, that the principal can be identified through security provided, such as a letter of credit, but that may not always be the case.

Model for commodity sales general terms and conditions rarely deal with restrictions on undisclosed principals. For example, there is no restriction in BP’s General Terms & Conditions for Sales and Purchases of Crude Oil and Petroleum Products or Shell’s General Terms and Conditions for Sales and Purchases of Cude Oil. As a result, if undisclosed principals are a concern, specific drafting may well be required.