This blog was co-authored by Adam Butler, Candidate Attorney.

In September 2024, Christopher Hancock KC handed down judgment in Yangtze Navigation (Asia) Co Ltd & anor v. TPT Shipping Ltd & ors (The “Xing Zhi Hai”) [2024] EWHC 2371 (Comm), providing much needed clarity on when an undisclosed principal may be liable under letters of indemnity issued by a purported agent.

The claimants, owners of the Xing Zhi Hai (Owners), served a claim form on the first defendant (Shipping), which had issued three Letters of Indemnity (LOIs) in order to deliver, in the absence of Bills of Lading, cargoes of logs bound for India from New Zealand.

The holders of the Bills of Lading subsequently made misdelivery claims against the Owners, and arrested various vessels to secure those claims.

The Owners looked to Shipping in response to the claims. Shipping responded by going into administration, and thereafter liquidation. The Owners then turned to the second to fifth defendants and served claim forms on these parties. The Owners’ argument was that the second to fifth defendants were undisclosed principals of Shipping, and therefore liable under the LOIs issued in the name of Shipping.

The second to fifth defendants argued that the English court had no jurisdiction to determine the claims as there was no good arguable case that the second to fifth defendants were principals to the LOIs. This was the primary question dealt with by the court.

Jurisdiction

Rule 6.33 of the English Civil Procedure Rules sets out the instances in which a claim form may be served, without the permission of the court, on a defendant who is outside the United Kingdom. These include instances where a contract provides for the jurisdiction of the English courts.

It was common cause between the parties that the LOIs included English law and jurisdiction clauses. Such clauses would meet the requirements of Rule 6.33. The Claimants would be entitled to serve claim forms on the defendants if the defendants were party to those LOIs.

The central question to establish jurisdiction was therefore whether the second to fifth defendants were parties to the LOIs, by virtue of being undisclosed principals.

The court relied on the three-limbed test laid down in Brownlie v Four Seasons Holdings and endorsed by a unanimous Supreme Court in Goldman Sachs. That test states that when jurisdiction is challenged under Rule 11 of the English Civil Procedure Rules (as it was in this case by the second to fifth defendants), the following three aspects must be applied:

“… (i) that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway; (ii) that if there is an issue of fact about it, or some other reason for doubting whether it applies, the court must take a view on the material available if it can reliably do so; but (iii) the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it.”

In this matter, the court found there was a plausible basis, being the existence of the LOIs, but an issue of fact had arisen – whether the second to fifth defendants were indeed undisclosed principals. According to the second stage of the test, the court was enjoined to consider whether this disputed fact could reliably be determined one way or the other. If not, the third stage would be reached, where the court would consider whether a good arguable case had been presented.

Undisclosed principal

The Owners case that the second to fifth defendants were undisclosed principals differed in respect of the second defendant (Forests) and the third to fifth defendants (Exporters).

Exporters were the producers of the logs, and contracted with Forests for Forests to act as their agent in relation to the sale and marketing of those logs abroad. Forests then contracted with Shipping as agents for Exporters for Shipping to provide handling and freight services in relation to the export and sale of the logs. Shipping then entered into three charterparties with the Owners, as well as issuing the three LOIs.

The case against Forests

The Owners case came to be that Forests was a principal in respect of the LOIs, as the issuing of the LOIs was approved by Forests and therefore according to the Owners, Forests authorised the LOIs and bound itself as liable under the LOIs. In addition, the Owners argued that Forests’ small earnings and low turnover was consistent with its acting as agent only.

The court promptly rejected any suggestion that Forests were an undisclosed principal to the charterparties, on the basis that the contractual documents showed that Forests were acting only as agent for the Exporters, and the court had to decide on the basis of the material before it, with the Judge adding “further documentation which would give the lie to what has been disclosed to date is in my view simply speculative.”

As for the LOIs, the court found that as Forests were not a party to the charterparties, the right to issue LOIs and request discharge on that basis rested with Shipping, as charterers. Further, Shipping had been incorporated precisely to ringfence freight liabilities. For it to contract as agent for Forests would be antithetical to its raison d’être. That Shipping sought Forests approval to issue the LOIs was logical, said the court, as the logs represented security for payment for those logs, and Shipping therefore wished for Forests to approve the loss of that security.

The court therefore held that Owners had no good arguable case against Forests as undisclosed principal, and therefore that it lacked jurisdiction for a claim against Forests.

The case against Exporters

The Owners argued that Exporters were undisclosed principals in respect of both the charterparties and the LOIs. As with Forests, however, the court found that these arguments were unsustainable.

While the contractual arrangements between Forests and Exporters provided for some instances in which Exporters could be the principal charterers of vessels, the court held that this was not what occurred in the present instance. Shipping had chartered vessels before they knew what cargoes would be carried aboard. They could not have entered into those charters on behalf of Exporters in those circumstances.

Turning to the LOIs, the court had already held that the LOIs were issued by Shippers in their own name. Exporters could only have been principals had there been a chain from Shippers, as agent, to Forests, as principal to Shippers and agent in turn to Exporters. As the court had already held that Forests was not a party, this chain could not be established and fell away.

In any event, the agreements between Exporters and Forests provided a particular mechanism for Exporters to authorise the issuance of LOIs where Forests did so on their behalf. This mechanism was not followed, and therefore Forests could not have had authority to act on Exporters behalf in relation to the LOIs.

Conclusion

The court ultimately upheld the second to fifth defendants’ arguments as to a lack of jurisdiction.

This judgment is to be welcomed for three distinct reasons:

  1. First, it clarifies and upholds the principles of agency, avoiding a possible dilution of the requirements for finding the existence of an undisclosed principal. The consequences, had the court found otherwise, would be to introduce significant uncertainty and risk that ordinary commercial relationships might be found to constitute relationships of agency.
  2. Second, the judgment acknowledges and affirms the distinct judicial personality of corporate entities by paying due regard to the fact that Shipping was incorporated precisely to delineate liability between Shipping and Forests. This is a welcome endorsement of corporate structuring and separate corporate personality.
  3. Finally, the Judge’s insistence on dealing with the jurisdictional challenge on the available material, and the correct legal test, is to be lauded. Jurisdictional challenges and other in limine aspects should not fall prey to hypothetical arguments advanced on the basis of evidence which is purely speculative at that early stage of proceedings.