Contracting With Disclosed Principals: Who Is Your Counterparty?

It is often taken for granted that only the named parties to a contract can enforce it.1 The English Court of Appeal has recently considered an important derogation from that assumption in the context of an arbitration claim.

In the combined appeals of Filatona Trading v Navigator Equities; Danilina v Chernukhin [2020] EWCA Civ 109, the issue for the Court was the enforcement of a contract by a person who enters the contract as a disclosed and identified principal of a named party. The Court concluded that there is a heavy burden to show that the terms of the contract and/or the surrounding circumstances exclude a disclosed and identified principal from exercising rights under the contract.

The case highlights the right of a principal to enforce a contract entered on his behalf by an agent where the agency relationship is known to the counterparty and the possibility that a named party who enters a contract as agent may not in fact be a party to it. Even if the counterparty is unaware of the agency relationship (and the principal's existence), the principal may still be able to enforce the contract. Named parties to contracts should be aware of these possibilities and, if they wish to exclude them, make clear provision for it in the contract.

Background

The key facts were these:

In 2001, Oleg Deripaskaa well-known Russian businessmanand Vladimir Chernukhina wealthy Deputy Finance Minister of the Russian Federationagreed to set up a joint venture to purchase a controlling interest in a textile company, TGM. Mr Chernukhin needed to be discreet engaging in business activities while he was a state official. Therefore, Mr Chernukhin wanted Mr Deripaska, as a prominent businessman, to be the public face of the venture and it was intended that Ms Danilina (with whom Mr Chernukhin was in a relationship at the time but who was not independently wealthy) would be involved in running the business. In May 2005, the parties belatedly recorded their agreement to the joint venture in a Shareholders' Agreement (SHA). As to the SHA: Mr Deripaska was identified as the beneficial owner of Filatona Trading and together they were described asParty 1. Ms Danilina was identified as the beneficial owner of Navigator Equities and together they were described asParty 2. TheParties were defined as Party 1, Party 2 and Navio Holdings. Mr Chernukhin was not mentioned in the document, nor did he sign it. However, a separate document recorded that Party 1 and Party 2 to...