Businesses often assume that contractual risk and benefit sit only with the parties named on the signature page of a contract. In most commercial contexts that assumption is sensible. Under English law, however, it is not always correct. This is because the law of agency recognises circumstances in which a party who is neither named nor visible at the time of contracting may nonetheless enforce a contract — or be bound by it — as an undisclosed principal.
This doctrine can come as an unwelcome surprise to businesses that believe they have carefully defined their counterparty. A recent High Court judgment, MSH Ltd v HCS Ltd, arising from an international sale of goods, illustrates how readily the courts may recognise an undisclosed principal and, more importantly, what commercial behaviour will be taken as evidence of authority and intention. It also highlights why businesses should pay close attention to who is actually standing behind an intermediary.
When will the courts recognise an undisclosed principal?
At its core, the doctrine is straightforward. Where an intermediary enters into a contract in its own name but does so with authority from another and with the intention of acting for that other, English law may treat the unseen party as the true principal to the contract.
In such circumstances, the party standing behind the intermediary may acquire both the right to enforce the contract and liability under it, even though the counterparty neither knew of the agency relationship nor appreciated that it was, in substance, dealing with anyone other than the named contracting party.
Courts typically analyse these cases by focusing on an agent contracting in its own name and then considering the consequences for the principal’s ability to intervene. The enquiry is grounded in orthodox principles of agency rather than abstract notions of fairness.
In MSH Ltd v HCS Ltd, the High Court emphasised that the burden of establishing an undisclosed principal is not a heavy one. The existence of an undisclosed principal turns on three familiar requirements:
- the intermediary acted with actual authority conferred by the principal;
- at the time of contracting, the intermediary intended to create legal relations on the principal’s behalf rather than on its own account; and
- there is nothing in the contract or surrounding circumstances that demonstrates an intention to exclude the possibility of an undisclosed principal or to confine rights and liabilities exclusively to the named parties.
Although the express identification of parties is a powerful indicator, it is not conclusive. Entire agreement clauses will not necessarily prevent the recognition of an undisclosed principal unless they do so in clear and unequivocal terms.
Authority and intention: commercial reality over form
The dispute in MSH Ltd v HCS Ltd arose out of a contract for the international sale of Colombian nut coke, with the seller contracting with a named buyer and no other parties identified on the face of the agreement.
The seller later resisted completion and enforcement on the basis that it did not recognise HCS Ltd as a contractual party, had not agreed to assume obligations to that entity, and did not wish to face liability or enforcement risk in respect of a company that had not signed the contract or been identified as counterparty at the time of contracting.
The Court rejected that position, concluding that the named buyer had acted as agent for an undisclosed principal.
Despite the absence of a written agency agreement, authority and intention were inferred from a consistent course of dealing. The intermediary was not remunerated as a principal trader but instead received facilitation fees or profit participation. Invoices described its role as arranging transactions rather than selling goods on its own account, and there were no back-to-back sale contracts between the intermediary and the principal.
Funding arrangements were particularly significant. The transaction was financed by the principal, even though it was not a lender but a trading house. The contract required a letter of credit, and the documentation identified the principal as responsible for providing it. An intermediary unable to perform the buyer’s primary payment obligation is less likely to have intended to contract on its own account.
The Court also relied on evidence that the intermediary sought the principal’s approval before concluding deals and on the fact that the principal subsequently sold the goods acquired under the contract. These features supported the conclusion that authority existed at the outset and that the intermediary intended to bind the principal.
The judgment is a reminder that courts prioritise commercial substance over contractual labels.
The enduring relevance of established authority
The High Court’s approach aligns with long-established authority. In a frequently cited nineteenth-century judgment involving a business operated through a manager, the court decided that an undisclosed principal could be liable for the acts of an agent even where the agent’s authority had been privately limited, provided the agent acted within the usual authority of someone in that position.
That authority illustrates two further points of continuing importance. First, where an agent contracts in its own name, the agent remains personally liable unless the contract provides otherwise. Second, an undisclosed principal cannot intervene by ratification unless the agent both intended to contract on the principal’s behalf and had authority to do so at the time.
These principles explain why modern courts focus on authority and intention rather than after-the-event assertions.
Can contractual drafting exclude an undisclosed principal?
In MSH Ltd v HCS Ltd, the seller unsuccessfully argued that various contractual provisions excluded any undisclosed principal.
The fact that the principal was named as provider of the letter of credit did not undermine its status; instead, it supported the conclusion that the principal was the true economic actor.
Restrictions on assignment were given limited weight, as the seller’s obligations did not materially change depending on who the principal was. Confidentiality clauses were irrelevant to contractual entitlement.
An entire agreement clause was relevant but not determinative. Without clear wording stating that only named parties may sue or be sued, such clauses will not exclude the doctrine of undisclosed principal.
Why identifying the real counterparty matters
From a business perspective, the identity of the true contracting party may affect credit exposure, regulatory risk, sanctions compliance and enforcement strategy. Courts have repeatedly shown a willingness to look beyond formal structures to economic reality.
In other cases, principals have been allowed to enforce contracts negotiated by intermediaries acting within the ordinary scope of their role. Conversely, courts have refused intervention where the identity of the contracting party was central to the bargain or where personal trust was decisive.
Undisclosed agents, secret profits and fiduciary risk
Separate but related risks arise where an intermediary’s agency role itself is not disclosed, particularly where the intermediary receives benefits or incentives from a third party. Where an intermediary undertakes to act in another’s interests, English law treats the relationship as fiduciary, requiring loyalty and transparency.
In practice, this commonly arises where:
- a sales agent accepts undisclosed incentives from a preferred distributor, distorting commercial decisions and giving rise to claims for secret profit;
- a procurement broker secretly receives volume-based payments from a supplier while negotiating on behalf of a buyer; or
- a finance dealer presents itself as independent while receiving undisclosed commission from a lender, exposing the transaction to challenge.
These scenarios underline that undisclosed agency can generate exposure not only in contract, but also in fiduciary and restitutionary claims.
Practical guidance for decision-makers
For businesses contracting through intermediaries
- Decide whether the agreement is intended to operate solely between the named parties.
- Use unambiguous wording if enforcement is to be confined to named parties.
- Analyse who funds, controls, and approves the transaction, not merely who signs.
For principals
- Ensure authority is clearly conferred before transactions are concluded.
- Align conduct with agency status to avoid later disputes.
For intermediaries
- Be consistent in presenting yourself as agent or principal.
- Document authority where possible and avoid unintended personal obligations.
Disclose commissions and incentives to mitigate fiduciary risk.
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