UK: Undisclosed Principal And Agent - A Useful Reminder Of The Law

Last Updated: 31 January 2011
Article by John Simpson and Reza Ispahani

Novasen S.A. v. Alimenta S.A. [2011] EWHC 49 (Comm)

Background facts

Novasen (the Seller) was a trading company based in Senegal. Alimenta (the Buyer) was a company based in Switzerland trading in groundnut and other vegetable oils. Alimenta had previously purchased products from Novasen. The parties dealt directly and not through brokers.

In September 2007, Novasen contracted to sell to Sogescol (another trader in vegetable oils) 2,000 MT of groundnut oil on FOSFA 201 terms. The price was $1,620/MT CIF Brussels with payment to be made in cash against documents (CAD). The contract also stated that "as per our agreement we have provided that Sogescol will be able to receive a brokers fee of 0.5% on this contract". Although Novasen agreed these terms, it subsequently requested that the commission should be deleted and the price changed to US$1,612/MT. Sogescol agreed.

Meanwhile, Alimenta and Sogescol entered into a short form contract, also on FOSFA 201 terms, for the same quality and quantity of groundnut oil, with Novasen as the seller and Alimenta as the buyer. Sogescol was referred to as the "Agent acting for Buyers' Account". The sale price was $1,620/MT and the CAD payment was to be made in Geneva, not Brussels. "Other conditions" included "special conditions: the buying agent, Sogescol, is discharged by buyers [Alimenta] of any costs and consequences resulting from a failure of shippers/sellers [Novasen] in the execution of this contract, particularly short shipped weight, quality and late delivery." At all material times, Novasen was not aware of the contract between Alimenta and Sogescol.

In the event, Novasen did not perform the contract and no goods were shipped. Alimenta initially commenced FOSFA arbitration proceedings against both Sogescol and Novasen for breach of contract but subsequently withdrew its case against Sogescol.

FOSFA arbitration

In the arbitration between Alimenta and Novasen, Alimenta argued that Sogescol had acted as its buying agent and, on this basis, the arbitrators were asked to disregard Sogescol's responsibility. In response, Novasen denied Alimenta's entitlement to intervene in any contract concluded between Novasen and Sogescol.

The umpire found that Alimenta had established that it was the undisclosed principal of Sogescol and was therefore a party to the contract with Novasen. It followed that, in order to rely on any exception to the general rule on undisclosed principals, it was for Novasen to show that it would not have contracted with Alimenta as a principal. The umpire decided that Novasen had not proved that it would not have contracted with Alimenta as principal. Accordingly, Alimenta was a party to the contract with Novasen. Novasen appealed the tribunal's decision.

Appeal to the Commercial Court

Novasen's appeal to the Commercial Court was heard by Mr Justice Mackie. The judge cited Diplock L.J's judgment in Teheran-Europe v. S. T. Belton (Tractors) [1968] 2 Q.B. 545, where he stated:

"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 his principal, or even that he is contracting on behalf of a principal at all, if the other party is willing or leads the agent to believe that he 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."

The Court found that, given Novasen was under economic pressure, it was unlikely that Novasen would, as a matter of principle, have refused to enter into a contract with Alimenta. Furthermore, even if Novasen had taken such a view, there was no evidence that Alimenta was aware of it. Similarly, Sogescol would not have known of any such policy. The Court also considered the change in price to be a minor issue which was within the scope of authority Alimenta had given to Sogescol.

Having reviewed the evidence, the Court held that Alimenta had established the existence of an agreement whereby Sogescol was to act as its undisclosed agent. In this regard, the Court relied on the contract between Alimenta and Sogescol which referred to Sogescol as the buyer's agent and the general commercial framework.


This case highlights that standard form contracts are classic examples of "ordinary commercial contracts" where an agent can assume that the other party is willing to contract with anyone on whose behalf the agent may have been authorised to act. Traders should note that if there are any counterparties with whom they have traded in the past, but with whom they are not now prepared to trade, they would be well advised to notify the counterparty of this in order to avoid an agent later concluding a contract on behalf of that counterparty and seeking to bind the trader to it.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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