Undisclosed Principal

Question 1

Siu Yin Kwan v. Eastern Insurance Co. Ltd. [1994]

The doctrine

Answer 1

LORD LLOYD OF BERWICK – authoritative statement

“(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.”

Lord Lloyd said here that agent must be acting within scope of his ACTUAL authority (not all cases consistent with this).
Agent must be intending to benefit principal; not himself.
Third party will have choice to sue agent or the principal (unless principal’s liaiblity excluded) - choose who much later.

Cite alongside Diplock LJ in Teheran-Europe Co. Ltd. v. S.T. Belton (Tractors) Ltd.

Question 2

Teheran-Europe Co. Ltd. v. S.T. Belton (Tractors) Ltd. [1968]

Answer 2

DIPLOCK LJ:
“Where an agent has…ACTUAL authority and enters into a contract with another party intending to do so on behalf of his principal, it matters not whether he discloses to the other party the identity of the principal, or even that he is contracting on behalf of a principal at all, if the other party is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract.
In the case of an ordinary commercial contract such willingness of the other party may be assumed by the agent unless either the other party manifests his unwillingness or there are other circumstances which should lead the agent to realise that the other party was not so willing.”

So in ordinary commercial dealings, there is a sort of presumption that a third party is willing to make a contract with the agent’s principal even though he doesn’t know that the agent has a principal - unless third party indicates to the contrary.

Question 3

N.J. Vlassopoulos Ltd. v. Ney Shipping Ltd., The Santa Carina [1977]

Answer 3

Doctrine only applies where the principal is “undisclosed” - not where principal is merely “unnamed” or “unidentified”.
Only applies when third party doesn’t know that any principal exists; doesn’t aply where third party knows that agent is acting for a principal but just doesn’t know who that principal actually is.

Here, contract for supply of fuel to a ship - ordered by agents - selelrs did not know who the owners of the ship actually were.
Q: Were agents liable after the owners of the ship failed to pay for the fuel?
C of A held; NO.
Agents not liable because this was not a case of undisclosed principal, it was simply a case of an unidentified principal.
The sellers knew that the agents didn’t own the ship – but didn’t know who did own the ship.
Therefore, the normal rule that as an agent, they did not become parties to the contract, applied.

Question 4

Keighley, Maxsted v. Durant [1901]

Answer 4

Agent entered into contract with third party in breach of his authority, in furtherance of his own interests, without disclosing who he was claiming to be acting for.
His principlal, undisclosed, then ratified transaction.
Adverse move in commodity - principal denied liability on the contract.

H of L HELD; YES - IN FAVOUR OF PRINCIPAL.
Principal not liable on transaction as ratification was ineffective because IF THE AGENT DID NOT POSSESS ACTUAL AUTHORITY AT THE TIME OF ENTERING INTO A CONTRACT WITH A THIRD PARTY, THE UNDISCLOSED PRINCIPAL CANNOT RATIFY THE TRANSACTION.

Question 5

Rolls-Royce Power Engineering plc v. Ricardo Consulting Engineers Ltd. [2003]

Answer 5

Could a Parent Company sue on a contract made by another company which later became one of its subsidiaries?
Held; no - because there was no evidence that the future subsidiary was actually making the contract on behalf of the Parent Company.

So didn’t satisfy Part (2) of Lord Lloyd’s critera in Siu Yin Kwan v. Eastern Insurance Co:
“In entering into the contract, the agent must intend to act on the principal’s behalf”.

Also example of Part (5) of his criteria - that the principal’s right to sue (benefit) under the contract can be excluded, either expressly or by the surrounding circumstances, so that ‘the agent is the true and only principal’ - (Said v Butt etc.)

Question 6

Watteau v. Fenwick [1893] 1 QB 346

Answer 6

Case appears to put forward the proposition that the undisclosed principal is liable on a contract made by an agent acting within his USUAL authority, even if that is in excess of his actual authority.

Here, contract by pub manager - he used to own put but had sold it to new owners - but hs name still appeared above premises - new owner restricted him from buying cigars for the pub, yet he did so nevertheless, in breach his actual authority.
Q: was the undisclosed principal (the pub owner) liable on the contract with the cigar supplier?
Held; YES - pub manager was acting within the USUAL AUTHORITY of someone in his position

“Once it is established that the defendant was the real principal…the principal is liable for all the acts of the agent which are within the authority USUALLY CONFIDED TO AN AGENT OF THAT CHARACTER, NOTWITHSTANDING LIMITATIONS, AS BETWEEN THE PRINCIPAL AND THE AGENT, PUT UPON THAT AUTHORITY. limitations, as between the principal and the agent, put upon that authority”.

Case has always been strongly criticised.
Since the principal is undisclosed, the third party thinks he’s dealing with someone who is himself a principal - thus questions about the usual authority of the agent cannot be present to the mind of third party to begin with – as the third party thinks he’s dealing with someone who has an unlimited contractual capacity.
BUT NEVER BEEN OVERRULED.

Question 7

Kinahan & Co Ltd v Parry [1910]

Answer 7

Another application of Watteau v Fenwick.

Hotel was run by manager who appeared to be the owner of the business.
Real owner instructed him to only buy spirits from one particular supplier.
Manager ignored this and purchased whiskey on credit from another supplier, in breach of his authority.
Third party brought an action for payment.
Held; the supplier ‘was entitled to sue the real principal when disclosed, notwithstanding any limitations on the authority given to the agent by the principal’.
NOTE: this case was later reversed but on other grounds – so cite, but add caveat.

Question 8

The Rhodian River and Rhodian Sailor [1984]

Answer 8

More modern case- in relation to Watteau v Fenwick:

BINGHAM J:
“The case perhaps reflects an undeveloped doctrine that an undisclosed principal should be vicariously liable on contracts made by an agent where they are contracts which a person would ordinarily make in the position which the principal has allowed the agent to assume…I would myself be EXTREMELY WARY of applying this doctrine, if it exists”.

So limits the authortiative value of Watteau v Fenwick.

Question 9

McLaughlin v. Gentles

Answer 9

Refused to apply Watteau v Fenwick in Canada.

Question 10

International Paper Co. v. Spicer (1906)

Answer 10

Courts in Australia have distinguished Watteau v Fenwick.

Question 11

Professor Tettenborn

Answer 11

He supports the decision in Watteau v Fenwick.
Argues that if you put someone in charge of a business you should be liable for whatever contracts they make which would be normal in the course of such a business – the subjective state of mind of a third party as to whether he’s dealing with an agent or principal should not be relevant.

Question 12

Professor Seavey

Answer 12

Same argument as Tettenborn:
“INHERENT AGENCY POWER”

The subjective state for mind of third party should not be relevant - the principal should simply be liable on the basis that he’s put the agent in this position and therefore should be liable for whatever his agent gets up to, provided it’s in the normal scope of the business.

Question 13

Said v. Butt [1920]

Answer 13

Best illustration of Lord Lloyd’s 5th criterion in Siu Yin Kwan v. Eastern Insurance Co. Ltd:
(That “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.”

Theatre critic - defendant refused to sell him a ticket to his new play after he’d given him bad reviews - so he procured himself a ticket through an agent, acting as an undisclosed principal so as to conceal his identity - but refused entry - sued for breach of contract.
HELD; (first instance) - undisclosed principal knew full well that defendant not willing to do business with him - could not get around this by using as an agent and acting as an undisclosed principal - could be inferred from surrounding circumstances that principal’s benefit under contract (right to sue etc.) was EXCLUDED.

Where there is some personal consideration which forms a material ingredient, the undisclosed principal will not be permitted to intervene on the agent’s contract.

(Note, McArdie J dubiously treated this case as one of unilateral mistake - but still cited as example of all the above).

Question 14

Shogun Finance Ltd v Hudson (FC) [2004]

Answer 14

Lord Millet said that McArdie J in Said v Butt had been wrong to treat it as a contract that was void for mistake on the ground that the agent who bought the ticket still could and should have been able to have used it to gain admission for himself, theoretically.
Nevertheless, Lord Millet still said that the result of the case was correct, because:
“the rule that an undisclosed principal cannot intervene where the nature of the contract shows that the contract was intended to be with the agent personally…The evidence [in Said v Butt] showed that tickets for an opening night are not transferable, from which it follows that they are incapable of being bought for an undisclosed principal”.

Again illustrates Lord Lloyd’s 5th criterion in Siu Yin Kwan v. Eastern Insurance Co. Ltd - that AN UNDISCLOSED PRINCIPAL’S BENEFIT UNDER THE CONTRACT MAY BE EXCLUDED FROM THE SURROUNDING CIRCUMSTANCES - SO THAT IT IS A CONTRACT BY AGENT ONLY.

Question 15

Dyster v. Randall [1926]

Answer 15

Contracts for the sale of land where the undisclosed principal knew that the third party (the vendor of the land) would not sell the land directly to him (as in Nash v Dix).
Here, held; the principal could nonetheless enforce the contract as the identity of the real purchaser was not a material ingredient (so distinguishable from Said v Butt)

“Mere non-disclosure as to the person actually entitled to the benefit of a contract for the sale of real estate does not amount to misrepresentation, even though the contracting party knows that, if the disclosure were made, the other party would not enter into the contract”.

Question 16

Nash v. Dix (1898)

Answer 16

Contracts for the sale of land where the undisclosed principal knew that the third party (the vendor of the land) would not sell the land directly to him (as in Dyster v Randall).

Here, the court interpreted it as two separate contracts: one between the vendor and the agent and another one between the agent and the ultimate purchaser – so agent was buying it on his own account.

Question 17

Humble v. Hunter (1848)

Answer 17

Example of terms of contract made between agent and third party impliedly excluding the intervention of an undisclosed principal.

Agent acting for a ship owner entered into a charterparty in which the agent described himself as the ‘owner of the ship’ (even though he was merely an agent of the actual owner).
Q: could owner himself enforce the charterparty?
HELD; NO – it would be inadmissible to prove that the owner was someone other than the person who had signed as ‘owner’ on the contract - since the agent had described himself as the owner of the ship, he had to be taken to have contracted as the sole principal in the transaction.
Note: case decided when parol evidence rule was rigidly applied.
Said that had the agent described himself im more ambiguous terms, such as ‘the contracting party’, evidence would have been admissible to show who was, in fact, the true principal in the transaction.

So: THE UNDISCLOSED PRINCIPAL’S INTERVENTION IS EXCLUDED WHENEVER THE AGENT CAN BE SHOWN IMPLIEDLY TO HAVE CONTRACTED AS THE SOLE PRINCIPAL IN THE TRANSACTION.
B saying ‘owner’, the agent’s description of himself was inconsistent with him acting on behalf of another.

Question 18

Siu Yin Kwan v. Eastern Insurance Co. Ltd. [1994]

On identifying the principal

Answer 18

Seaman died when ship sunk - widow wanted to sue owners of vessel, but owners were insolvent - she wanted to directly sue the vessel’s insurers - did so under a statute, underwhich someone who has a claim against an insolvent defendant who is insured against the loss being sued for will be given a direct claim against the insolvent party’s insurer herself.

But the original insurance contract here had been entered into by an agent acting for the owners of the vessel, but the identity of the owners had not been disclosed to the insurers - undisclosed principals.

JCPC held; there was a policy of insurance in force between the insurers and the owners of the fishing vessel.
Held; there was a presumption that the insurers would be willing to deal with whoever the insured turned out to be, if the person making the contract was actually an agent acting for them (unless insurer expressly excludes it in policy).
Thus, the principal’s right to sue/be sued wasn’t impliedly excluded by the surrounding circumstances.

Question 19

Clarkson Booker Ltd. v. Andjel [1964]

Answer 19

The third party is given a choice of suing EITHER the undisclosed principal OR the agent.
This choice only has to be exercised before judgment - any time up to the entry of judgment, the third party can choose between the agent or the undisclosed principal.
BUT CAN ONLY GET JUDGMENT AGAINST ONE OF THEM.

Theoretically therefore, the third party can sue both and make his choice late on.
For practical reasons relating to costs, however, third party will really need to choose earlier.
If claimant succeeds against D1, but not D2, he will be ordered to pay the costs of D2, despite recovering costs from D1 - this is a given, because ONE of them HAS to drop out; third party can only get judgment against one of them.
Additional complication:
Sometimes court will make a SANDERSON ORDER
- will not require claimant to pay costs of unsuccessful defendant, but will INSTEAD order the unsuccessful defendant to directly pay the costs of the successful defendant.

Or BULLOCK ORDER
- claimant ordered to pay successful defendant’s costs, but claimant is allowed to add those costs to the costs that he’s allowed to recover from the other one.

Court wil only make these orders in cases where the claimant has joined the successful defendant to the claim because the unsuccessful defendant encouraged him to do so.
PROBLEM is that third party often won’t know at the start of the litigation which of the undisclosed principal or the agent is going to remain solvent – difficult tactical decision to make.

Question 20

Cooke v. Eshelby (1887)

Answer 20

A third party cannot set-off debt owed to him by the agent against a claim by the (undisclosed) principal.

I.E. as a result of previous dealings, the agent owes the third party money, if the undisclosed principal sues the third party, can the third party set off his claims against the agent against the claim by the principle?
H of L held; answer = NO.