Hiding behind the veils? Court upheld undisclosed principal's right to enforce contract in rejecting section 67 challenge

Summary

In MSH Ltd v HCS Ltd [2025] EWHC 815 (Comm) the English High Court rejected a section 67 challenge brought by MSH Ltd (the Claimant) against an arbitral award (the Award) for lack of jurisdiction. The court upheld the arbitral tribunal's finding that HCS Ltd (the Defendant) was entitled to enforce a contract as an undisclosed principal. While carrying out the full re-hearing of the evidence adduced in the arbitration, the court provided a helpful overview of the relevant legal principles and their application to the facts in this particular case.

Background

A dispute arose out of a contract for the sale and purchase of Colombian nut coke dated 28 September 2020 (the Contract), the named parties to which were the Claimant, as seller, and CTW Ltd, as buyer. The Defendant brought an arbitration against the Claimant, claiming it was party to the Contract as an undisclosed principal for CTW Ltd. On 5 April 2024 the arbitral tribunal issued its majority Award finding that the Defendant was entitled to enforce the Contract as an undisclosed principal.

The Claimant sought to challenge the Award for lack of jurisdiction under s67 of the Arbitration Act 1996, arguing that the Defendant was not entitled to enforce the Contract and, accordingly, the arbitral tribunal did not have jurisdiction to determine the Defendant's claim.

Legal principles

The court summarised the key principles regarding an undisclosed principal as follows, with reference to Teheran-Europe Co Ltd v S T Belton (Tractors) Ltd [1968] 2 QB 545, Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199, Kaefer v AMS Drilling [2019] 1 WLR 3514, and Bowstead & Reynolds on Agency (23^rd):

1. An undisclosed principal may sue and be sued on a contract made by an agent on their behalf, acting within the scope of their actual authority.
2. The agent must intend to act on the principal's behalf in entering into the contract.
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 their principal.
5. The terms of a contract may expressly or impliedly exclude the principal's right to sue or be sued. This is not a binary enquiry of whether the contract does or does not exclude the undisclosed principal doctrine. Instead, the contractual terms form part of a "broader evidential mix" indicating whether the agent intended to act on behalf of the principal.
6. The doctrine of ratification does not apply to undisclosed principals.

The court considered that the burden of proving that an undisclosed principal can enforce a contract varies depending on the case and type of contract. It is not necessarily a "heavy" burden, but must be established based on the specific circumstances and evidence. 

Issues in the case

The court identified four issues in the case and reached the following conclusions on each of those issues:

1. Was CTW Ltd able to transact on the Defendant's behalf and, if so, in what circumstances?

• The court found that CTW Ltd had the authority to act on behalf of the Defendant. This was based on the established business model where CTW Ltd acted as an agent for the Defendant, with the Defendant providing the necessary financing and CTW Ltd receiving an agreed percentage of the profits of the transaction.

2. When was the Contract concluded? Was it open for the Defendant to argue that the Contract was concluded later than the date referred to by the arbitral tribunal?

• The Defendant tried to argue that the Contract was concluded later than 28 September 2020, which was the date referred to by the Award.
• The court observed that both parties had agreed to forgo the right to call any further evidence at the section 67 hearing beyond the documents which were before the arbitral tribunal. The Claimant would be prejudiced if the Defendant is permitted to raise this point at this late stage.
• The court therefore concluded that the Contract was effectively agreed on 28 September 2020 as determined by the arbitral tribunal, despite the final signed contract with additional terms being executed in October.

3. Did CTW Ltd have the authority to enter into the Contract on the Defendant's behalf when the Contract was concluded?

• The court concluded that CTW Ltd both intended to act as the Defendant's agent in entering into the Contract and was specifically authorised by the Defendant to do so at the time the Contract was concluded. The court found that CTW Ltd had the necessary authority from the Defendant by 28 September 2020.
• As obiter dictum, the judge stated that the court would have accepted the Defendant's alternative case that the Defendant authorised CTW Ltd to do so in the course of WhatsApp exchanges on 12 and 13 October 2020.

4. Did the terms of the Contract preclude the Defendant from enforcing the contract as an undisclosed principal?

• The court held that none of the four clauses relied on by the Claimant (entire agreement, confidentiality, assignment limitation) were sufficient to exclude the operation of the undisclosed principal doctrine. In particular, the court noted:
  • the fact that the Defendant was identified as providing the means of discharging CTW Ltd's key obligation under the Contract was said to "if anything make [the Defendant] a more likely candidate for an undisclosed principal".
  • a clause limiting (but not excluding) the right of assignment does not have much weight when determining whether there is an implied exclusion of the undisclosed principal doctrine.
  • while this was a "most vanilla" entire agreement clause, the court noted obiter that even a strongly worded entire agreement clause could be overridden if there are strong commercial reasons. In this instance, the contract clearly contemplated someone other than the named signatory provides payment and accordingly did not exclude an undisclosed principal.

Accordingly, the court found that the Claimant's s67 challenge failed.

Comment

This case provided a helpful summary of the legal principles related to an undisclosed principal. In particular, the court clarified that the burden of showing an undisclosed principal was entitled to enforce a contract was not necessarily a "heavy" one and would vary between different types of contracts.

The case also highlights the importance of carrying out due diligence before entering into a contract to discover whether there is an undisclosed principal. For example, the Contract here identified the Defendant as the party providing the letter of credit, who was described by the court as a "likely candidate for an undisclosed principal". If contractual parties wish to exclude an undisclosed principal, they should look carefully for such "likely candidates" and express their clear intention to exclude undisclosed principals in the contract.

Looking ahead, section 67 challenges will be governed by the new additional rules in the Arbitration Act 2025 (see section 11 of the Arbitration Act 2025). These new rules would prevent the English court from re-hearing evidence that has already been heard by a tribunal and would restrict parties' ability to raise new grounds or evidence, subject to the court ruling otherwise in the interests of justice. Further information on the Arbitration Act 2025 is covered by this previous blog post.

The authors would like to thank Michael Lam for his contribution to this blog post.