The principles for a disclosed principal

Godwin Tan

In Filatona v Navigator, the Court of Appeal held that a disclosed principal was entitled to bring a claim under a contract signed on their behalf between their agent and a third party. While the “terms and surrounding circumstances of the contract” may exclude a principal from the contract, the threshold to meet is exceptionally high.

Mr Chernukhin and Mr Deripaska wanted, jointly, to acquire a textile company. However, Chernukhin was the Chairman of a Russian state corporation and had to be discreet with his entrepreneurial activities. He appointed an agent, Ms Danilina, to enter into a shareholder agreement with Deripaska on his behalf and provided the funding for the acquisition. The company was later forcibly taken over, and Chernukhin brought an arbitration claim against Deripaska under the agreement.

Deripaska argued that the “terms and surrounding circumstances of the contract” excluded Chernukhin from exercising his right to arbitrate under the agreement. The Court of Appeal disagreed:

  1. Language: There was no “clear and unambiguous” language in the agreement excluding Chernukhin from relying on it. For instance, while the entire agreement clause in the agreement (i.e. “[t]his agreement … is the complete and exhaustive agreement between the Parties”) indicated that the parties intended to only “contract” with each other, it did not go as far as to say that “only the named parties may sue” on the contract.
  2. Naming: Chernukhin was not named in the agreement, but the naming of parties in a contract alone does not “unequivocally and exhaustively” define the parties to it. Chernukhin had clear reasons for not wanting to be named in the agreement.
  3. Funding: Chernukhin provided the necessary funding for the project, and this was a key obligation between the parties. Chernukhin’s agent did not have sufficient money for such purposes and, therefore, was unlikely to be the real joint venture party.
  4. Coherence: The warranties in the agreement could be read “perfectly coherently” as warranties of a disclosed principal.
  5. Supplemental agreement: Lastly, there was a supplemental agreement under which Danilina could transfer her rights to Chernukhin (without triggering the agreement’s change of control clause). Deripaska argued that Chernukhin was, therefore, not the real party to the agreement. However, the court held that the supplemental agreement was consistent with Chernukhin being the principal. Chernukhin simply wanted to ensure that if his position as the real joint venture party was “formally recognised”, Deripaska would not exploit this technicality by invoking the change of control clause.