In a recent decision, the Court of Appeal upheld the High Court's decision that the English court lacked jurisdiction over claims brought under letters of indemnity ("LOIs") containing English jurisdiction clauses. This was on the basis that the defendants were not parties to the LOIs and could not be treated as undisclosed principals under them: Berge Bulk Shipping PTE Ltd v Taumata Plantations Limited & Ors [2025] EWCA Civ 876.
The decision provides important clarification of the limits of the undisclosed principal doctrine. The Court of Appeal emphasised that the doctrine is already anomalous and should not be extended beyond its established bounds. It also reaffirmed that the liability of an undisclosed principal can only arise where the agent has actual authority to conclude a contract on behalf of the principal – apparent authority is not sufficient.
The decision also confirms that the test to be satisfied in order for jurisdiction to be established pursuant to CPR 6.33(2B)(b), which applies where claims fall within a contractual jurisdiction clause in favour of the English courts, is that of a good arguable case that the party is contractually bound. Parties should ensure that agency and authorisation arrangements are clearly documented and adhered to, and should not rely on implied agency or economic interest alone to establish liability or jurisdiction. International commercial agreements should be carefully structured to avoid unexpected jurisdictional challenges and liabilities.
Herbert Smith Freehills Kramer LLP represented all three of the successful defendants, working alongside New Zealand law firm Russell McVeagh.
Background
The defendants (the "Exporters") are New Zealand-based log exporters. The sale and marketing of their logs for export was carried out by TPT Forests Ltd ("Forests"). TPT Shipping Ltd ("Shipping"), a New Zealand company which subsequently went into liquidation, was incorporated by Forests in order to insulate Forests' wider business from the risks associated with vessel chartering.
The dispute arose from two shipments of the Exporters' logs from New Zealand to India on different vessels. Shipping had entered into voyage charterparties (the "Charters") with the claimant ship-owner (the "Owner") to carry the logs. The cargoes were discharged in India without production of the original bills of lading. LOIs were accordingly issued by Shipping in favour of the Owner. Following discharge of the cargoes, a dispute arose alleging mis-delivery. This resulted in a cascade of claims down through the LOIs. The LOIs contained English jurisdiction clauses.
The Owner sought to enforce the LOIs not only against Shipping but also against Forests and the Exporters, on the basis that they were Shipping's undisclosed principals and therefore liable under the LOIs. The Owner served the claim form on Forests and the Exporters out of the jurisdiction without permission, relying on CPR 6.33(2B)(b), which applies where claims fall within a contractual jurisdiction clause in favour of the English courts. Forests and the Exporters challenged jurisdiction.
At first instance, the High Court (Christopher Hancock KC) addressed the undisclosed principals issue in two stages. The first stage was to consider whether the Exporters were undisclosed principals under the Charters which had been entered into by Shipping. The second stage was whether the Exporters were undisclosed principals under the LOIs themselves. It was common ground that it was the second stage that mattered (since there was no claim for breach of the Charters), but the parties submitted that their position on the first issue provided support for their position on the second issue. The court held that there was no good arguable case that the Exporters were undisclosed principals to either the Charters or the LOIs. Consequently, the English court had no jurisdiction over the claims.
A detailed summary of the High Court's decision, including an overview of the test as to undisclosed principals, is available in our earlier blog post here.
The claimant appealed, arguing that:
- The judge at first instance had misunderstood his own judgment, having found not that the LOIs were issued by Shipping on its own behalf, only that there was no good arguable case that Forests was acting as Shipping's undisclosed principal.
- Regarding the Charters, the claimant had the better argument that Shipping had been acting as agent for the Exporters for various reasons, including because the Exporters, not Shipping, had an economic interest in the Charters.
- If there was a good arguable case that the Exporters were undisclosed principals to the Charters, there was similarly a good arguable case that they were undisclosed principals to the LOIs, in particular because the Exporters had benefited from the issue of the LOIs by avoiding demurrage for which they would otherwise have been liable.
Decision
The Court of Appeal (Males LJ giving the lead judgment, with which Falk and Zacaroli LJJ agreed) dismissed the appeal, confirming the High Court's conclusion that there was no good arguable case that the defendants were parties to the LOIs.
The court did not consider the judge at first instance to have misunderstood his own judgment. When the judgment was read as a whole, it was plain that he had concluded that Shipping had acted as principal in issuing the LOIs.
The Exporters had the better of the argument that Shipping had entered into the Charters as principal rather than as the Exporters' agent. The creation of Shipping was intended to ring-fence the Exporters from the risks of chartering. This purpose was inconsistent with any intention that Shipping should act as their agent. The various contractual arrangements between Forests and the Exporters supported this conclusion. While the Exporters had an economic interest in the Charters, this did not necessarily establish an agency relationship. It was at least equally consistent with an arrangement whereby Shipping would contract as principal but on the basis that it would be indemnified by the Exporters.
The court's conclusion regarding the Charters was a powerful reason to conclude that the LOIs were also issued by Shipping as a principal and not as agent for the Exporters. Even if this conclusion was mistaken, in order for there to be an agency relationship between the Exporters and Shipping for the issue of the LOIs, it would need to be shown objectively that they each gave their consent to such a relationship. Again, the Exporters had the better of the argument that neither Shipping nor the Exporters gave such consent. In particular:
(i) No actual authority
Although the LOIs were issued by Shipping only after it had first requested approval from Forests, this request did not necessarily mean that Shipping was looking to Forests or the Exporters for reimbursement in the event it was called on to pay under the LOIs. Shipping's conduct did not indicate that it was consenting to issue the LOIs as an agent for the Exporters.
Forests did not have authority to issue an LOI binding on the Exporters other than in accordance with the contractual authorisation procedure between them. This procedure had not been followed. There was no evidence that this procedure had fallen into disuse or that Exporters had in any way authorised the issue of the LOIs.
(ii) No apparent authority
The Owner's argument that Forests had apparent or ostensible authority to authorise the LOIs, such that it should be treated as having actual authority, also failed. The court noted that this point (which had not been advanced at first instance) could not now be raised, but even if it were to be permitted, did not assist. There was no evidence of reliance by Shipping on any holding out of Forests by the Exporters. Moreover, the doctrine of undisclosed principal required an agent to have actual authority to conclude a contact on the part of its principal. It should not be extended to a kind of fictional actual authority arising by estoppel.
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.
