Court Of Appeal Upholds High Court Decision That A Disclosed Principal Is Entitled To Enforce An Arbitration Agreement Despite Being A Non-Signatory

In Filatona Trading v Navigator Equities [2020] EWCA Civ 109, the English Court of Appeal upheld a judgment of the High Court (which we discussed here) relating to an LCIA arbitration concerning ownership of a Russian textile company. The main issue in the appeal was whether a party who did not sign an agreement was entitled to enforce rights under it (including the right to arbitrate), on the basis that an agent had entered into the agreement on the non-signing party's behalf.

The Court found, in the circumstances of this case, that the principal was able to enforce the agreement and so the LCIA arbitration initiated by the principal was validly commenced. The judgment offers important guidance on when a person who is not a signatory to a contract can enforce its terms, including the arbitration clause.

Background

We discussed the background to this case in more detail in our previous post here. Briefly, Ms Danilina and Mr Deripaska were signatories to a shareholders agreement ("SHA") relating to the ownership of shares in a Russian textile company. Mr Chernukhin was not a signatory to the agreement, nor was he named in the SHA. However, he argued that Ms Danilina entered into the agreement on his behalf and Mr Deripaska knew this. Mr Chernukhin was thus, he claimed, a party to the SHA as a disclosed principal, with Ms Danilina as his agent.

A dispute arose under the SHA and Mr Chernukhin commenced an LCIA arbitration. The tribunal issued an award, finding that Mr Chernukhin was a party to the SHA and that the tribunal had jurisdiction over the claim. Ms Danilina and Mr Deripaska challenged the award under s67 of the Arbitration Act 1996 ("the Act"), arguing that the tribunal had no jurisdiction over the claims by Mr Chernukhin as he was not a party to the SHA. Mr Deripaska also challenged the award under s68 of the Act on the basis that there was a serious irregularity affecting the award.

Commercial Court decision

The Commercial Court dismissed the claims of Ms Danilina and Mr Deripaska, finding that Ms Danilina had, in fact, entered into the SHA as an agent for Mr Chernukhin and that there was nothing in the SHA that prevented Mr Chernukhin from enforcing its terms. The Commercial Court judgment addressed other issues, including whether the tribunal had the power to order a buy-out of shares pursuant to Cypriot company law, but this and other issues were not the subject of the appeal.

Court of Appeal decision

The permission to appeal...