High Court had no jurisdiction over claims under contracts containing English jurisdiction clauses as the defendants were not parties to those contracts as undisclosed principals

In a recent decision, the High Court held that certain New Zealand based defendants were successful in their applications to challenge the court's jurisdiction as they were not parties to the relevant letters of indemnity ("LOIs") as undisclosed principals. Accordingly, although the LOIs contained English jurisdiction clauses, that did not provide a basis for the claimants to serve the proceedings on the relevant defendants outside the jurisdiction: Yangtze Navigation (Asia) Co Limited & Anor v TPT Shipping Limited & Ors [2024] EWHC 2371 (Comm).

The decision illustrates the importance of evidence as to the parties' intentions in cases where it is alleged that there was an undisclosed principal. The alleged agent must have intended to contract on behalf of the principal, and must have had the principal's authority to do so. In this case, on the evidence available at the jurisdiction stage, the court was satisfied that the defendants had the better of the argument. There was no reason to conclude that the LOIs had been entered into by the first defendant as agent for any of the other defendants as undisclosed principals. .

The decision is also instructive as to the correct approach to evidence adduced in the context of a
jurisdiction challenge. The judge noted that the defendants had provided "a very large amount" of disclosure (several thousand documents) pursuant to the claimants' requests, along with eight witness statements, which were consistent with the absence of the alleged principal-client relationship. The claimants' suggestion that further disclosure or cross-examination might turn out to support their case on agency – specifically that such evidence would show a departure from the contractual process – was "simply speculative" and their argument that the jurisdiction challenge should be dismissed on the basis that further evidence might arise in due course was not an appropriate approach to adopt at this stage.

Herbert Smith Freehills LLP represented three of the successful defendants, working alongside New Zealand law firm Russell McVeagh.

Background

The second defendant ("Forests") is a New Zealand company which provides export marketing services to log producers. In order for Forests to insulate its wider business from the risks associated with vessel chartering, a separate company, Shipping, was incorporated in 2004. Shipping and Forests entered into a Shipping Services Agreement in 2012 which provided that Forests would contract with Shipping solely as agent for its export clients and Shipping would provide handling and shipping services to those export clients. 

The third to fifth defendants (the "Exporters") are New Zealand log exporters which contracted with Forests to market and ship their logs internationally. The relationship between the Exporters and Forests was governed by Log Marketing and Sales Agency Agreements ("LMSAAs"), pursuant to which Forests was authorised to enter into ship charters on behalf of the Exporters. A separate provision in the LMSAAs provided that, from time to time, Forests may have access to vessels chartered by Shipping and may offer shipment of the Exporters' goods on those vessels.

In 2019 and 2020, Shipping entered into three relevant voyage charterparties (the "Charters") with the Owners to carry cargoes of logs. The vessels arrived in India and discharged the log cargoes without original bills of lading. LOIs were accordingly issued by Shipping in favour of the Owners. 

Following discharge of the cargoes, a dispute arose alleging mis-delivery of the log cargoes, which resulted in the arrest of the three vessels. Claims were brought against head owners of the vessels alleging that they misdelivered the cargoes under the bills of lading. This resulted in a cascade of claims down through the LOIs, including a claim by Owners against Shipping. Shipping was put into administration as a result in October 2020, which ultimately led to a liquidation process.

Owners successfully applied to join Forests and the Exporters to the proceedings pursuant to CPR 19.4 on the basis that they were "undisclosed principals" of Shipping. Owners served the claim form on Forests and Exporters out of the jurisdiction, relying on CPR 6.33(2B)(b) which applies where the claims fall within a contractual jurisdiction clause in favour of the English court. Forests and the Exporters filed applications pursuant to CPR Part 11 to challenge the jurisdiction of the courts to try the claim.

Decision

The High Court (Christopher Hancock KC) granted the applications of both Forests and the Exporters to set aside service of the Re-Amended Claim Form and found that the court had no jurisdiction to hear the Owners' claims.

The judge noted that it was common ground that the LOIs included English law and jurisdiction clauses. Accordingly, if Forests or the Exporters were parties to those contracts as undisclosed principals, Owners would be entitled to serve the proceedings on them outside the jurisdiction under CPR 6.33(2B)(b). 

At the jurisdiction stage, the question was whether there was a "good arguable case" to that effect. Based on the authorities, the judge noted that this required him to consider whether, on the evidence currently available (which was substantial due to the large amount of disclosure by the defendants), the Owners had the better of the argument on that issue. Only if he could not reliably conclude one way or another on that question should he consider whether there was a plausible evidential basis for the Owners’ contention, in which case the good arguable case test would still be satisfied.

The judge set out the five-limbed test as to undisclosed principals to a contract, which was agreed by the parties, as per the decision of the Privy Council in Sui Yin Kwan v Eastern Insurance [1994] AC 199:

1. An undisclosed principal may sue and be sued on a contract made by an agent on its behalf, acting within the scope of their 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 third party may have against the agent is available against the principal.
5. The terms of the contract may, expressly or by implication, exclude the principal's right to sue, and their liability to be sued. The contract or the circumstances surrounding it may show that the agent is the true and only principal.

Lord Sumption added a sixth limb to the test in Playboy Club v Banca Nazionale del Lavoro LPV [2018] 1 WLR 4041, which is that the third party must "irrevocably elect" whether to sue the agent or the undisclosed principal.

The judge considered separately the claims against Forests and the Exporters, concluding in each case that the Owners had not established a good arguable case that they acted as undisclosed principals to either the Charters or the LOIs. It was therefore not necessary to consider whether the Owners had lost any right to sue Forests or the Exporters by having elected to pursue claims against Shipping.

Forests

Starting with the Charters (which were relevant only as background to the claims under the LOIs, since there was no claim for breach of the Charters), the judge rejected any suggestion that Forests were undisclosed principals to the Charters. This was partly due to the large amount of contractual documentation which had been disclosed, which clearly set out that Forests were only intended to act as agent for the Exporters and not as principal. The judge did not accept the Owners' suggestion that this position varied over time. In addition, the judge accepted the argument that the timing of the Charters was inconsistent with the Owners' argument that they were entered into on behalf of Forests. As Forests and the Exporters argued, at the time of entering into the Charters, Shipping did not know whose cargo would be shipped on the vessels.In relation to the LOIs, the judge accepted that there was a system whereby Shipping would ask Forests for their approval before issuing the LOIs. However, he did not consider that this justified a conclusion that Forests were indicating consent to be bound by or liable for LOIs issued by Shipping. The starting point was that, as the judge had found, Forests had not entered into the Charters, and so would not be expected to have issued the LOIs pursuant to the Charters. There was an obvious reason why Shipping would want Forests' approval to issue the LOIs and discharge the goods, since the goods represented security for payment and that security would be lost on discharge.

The Exporters

In relation to the Charters, the LMSAAs envisaged a dichotomy between situations in which vessels were chartered in by Forests as agent for the Exporters and situations in which Shipping made space available on board ships they had chartered. It was clear from the very fact that Shipping were involved that this was the latter situation – which was also consistent with the fact that Shipping chartered in the vessels before they knew whose cargoes would be carried on board.

In relation to the LOIs, the judge had already found that Forests had the better of the argument that Shipping entered into the LOIs with the Owners. Accordingly, the argument that the Exporters were parties to the LOIs fell away as there was no evidence that the Exporters authorised the issuance of LOIs other than through the agency of Forests. In any event, the LMSAAs provided a particular regime for the request for authorisation for a LOI. The evidence was that that regime was not followed.

The Owners' suggestion that further disclosure or cross-examination of the witness evidence might reveal further detail was not a proper basis to allow the claim to proceed. The court had to do the best it could on the basis of the evidence before it (and the Judge commented that there was a "very large amount of disclosure" in this case), and could not proceed on the basis of speculation as to what might emerge from further disclosure or cross-examination.

Consequentials hearing

In a subsequent judgment ([2024] EWHC 2720 (Comm)), the judge dismissed the Owners' request for permission to appeal and ordered them to pay £550,000 as an interim payment toward the Exporters' costs and £400,000 toward Forests' costs (equal to, respectively, just over and just under 60% of those costs).