REUTERS | Kevin Coombs

It’s the principal of the thing! Filatona Trading Ltd v Navigator Equities Ltd

In the recent decision of Filatona Trading Ltd and another v Navigator Equities Ltd and others, the Court of Appeal acknowledged the possibility that a disclosed but unnamed principal could be excluded from relying on an arbitration agreement in a contract concluded by its agent.

Principles for principals (and agents) following Filatona

A principal may be bound by an arbitration agreement contained within a contract that it has not itself physically signed, but which has been executed on its behalf by its agent.

It is well established in English law that an agent acting within the scope of an express or implied actual authority binds its principal (see, for example, Calder v Dobbell). Accordingly, where an agent is acting for a disclosed principal, whether identified or unidentified, whose interest in the transaction is known to the counterparty at the relevant time, that disclosed principal (and not the agent) may sue or be sued on the contract.

If the parties wish to prevent the principal from being able to rely on the arbitration agreement, they should include an express clause in the contract clearly excluding the possibility of intervention by the principal.

In Filatona, Simon LJ stated that “there is a heavy burden of persuasion on a party who seeks to argue that a known and identified principal is to be excluded”, and suggested that the rare circumstances in which such burden might be satisfied were limited to where:

  • Parties had included an express clause in the contract.
  • A party was “identified by a material description which applies only to that party and where the intervention of an undisclosed principal may be presumed to be excluded: for example, in a contract to paint a portrait, where the identity of the painter is likely to be crucial”.
  • The background or the contractual terms are otherwise sufficient to demonstrate a clear intent to exclude the principal from exercising his or her rights or incurring obligations under the contract.

Agents may, in order to make it clear that they have no intention of being personally bound by a contract, wish to consider qualifying their signature with words such as, “as agents only”, when signing for their principal.

Although such qualifying words must be construed in accordance with the rest of the contract, they are likely to be persuasive. In Electrosteel Castings Ltd v Scan Trans Shipping & Chartering Sdn Bhd, the court, citing with approval from the earlier judgment in Universal Steam Navigation Company Limited v James Mckelvie and Company, noted that:

“… by adding to their signature the words “as agents” they indicated clearly that they were signing only as agents for others and had no intention of being personally bound as principals… It is, as Bankes, LJ said, to the interest of the commercial community that a signature “as agent” should have a generally accepted meaning, and I agree with him that such a qualification of the signature should be taken as a deliberate expression of intention to exclude any personal liability on the part of the signatory.”

There is no presumption of any agency relationship between separate legal entities in the same corporate group, such that an arbitration agreement in a contract concluded with one group company will automatically bind the others. As noted in Peterson Farms Inc v C&M Farming Ltd, “[t]he questions whether there is a relationship of principal and agent and whether an agent acted as such are questions of fact” and:

“… [i]n commercial terms the creation of a corporate structure is by definition designed to create separate legal entities for entirely legitimate purposes which would often if not usually be defeated by any general agency relationship between them.”

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