Filatona Trading Ltd & Anor v Navigator Equities Ltd & Ors  EWCA Civ 109
The Second Respondent (‘Mr Chernukhin’) was a prominent Russian businessman and former State official. In 2001, Mr Chernukhin entered into a joint venture with the Second Appellant (‘Mr Deripaska’), also a prominent Russian businessman, to acquire a controlling interest in a Russian textile company (‘TGM’). It was agreed between Mr Deripaska and Mr Chernukhin that each would contribute equally to the purchase, and that Mr Chernukhin’s then personal partner, one Ms Danilina, would be involved in running the business.
Given Mr Chernukhin’s official appointments as Deputy Minister of Finance in 2000 and Vice President of a Russian financial institution in 1999, it was accepted by Teare J (‘the Judge’) in the court below that discretion was required in respect of his entrepreneurial activities. The joint venture, therefore, was not recorded in writing until some time later by way of a Shareholder Agreement dated 31 May 2005 (‘the SHA’).
Until that time, Mr Chernukhin relied on Mr Deripaska’s ‘word of honour’ in respect of his investment in TGM. The Judge accepted that there was contact between Mr Deripaska and Mr Chernukhin between 2002 and 2004 in relation to their investment in TGM.
Mr Chernukhin was not a party to nor was named anywhere in the SHA. The parties to the SHA were, rather, the First Appellant (‘Filatona’); Mr Deripaska as the Beneficial Owner of Filatona; the First and Third Respondents (‘Navigator’ and ‘Navio’); and Ms Danilina as the Beneficial Owner of Navigator. The Judge found that the contractual purpose of naming the beneficial owner of the two corporate vehicles named in the SHA was to bind the beneficial owner to the contract.
By February 2007, the relationship between Mr Chernukhin and Ms Danilina came to an end; by 2009, disputes arose as to the running of TGM. In December 2010, TGM’s General Director resigned. Shortly thereafter, there was a forcible takeover of TGM’s site and business.
Mr Chernukhin and Navigator accordingly brought a claim against Mr Deripaska and Filatona under the arbitration clause in the SHA. In response Mr Deripaska contended that Mr Chernukhin was not a party to the SHA and that only Ms Danilina could bring a claim as Beneficial Owner of Navigator. In these circumstances, the Tribunal made a determination that it had jurisdiction to hear the claim.
On 14 December 2016, Mr Deripaska and Filatona brought proceedings under s.67(1)(a) of the Arbitration Act 1996 challenging the Tribunal’s determination. Shortly thereafter, Mr Deripaska, Filatona, and Ms Danilina entered into what was called an ‘Interest Purchase Option and Assignment’ agreement which, inter alia, reiterated that Ms Danilina was a party to the SHA and that Mr Chernukhin was not.
On 22 February 2017, Ms Danilina issued her own Part 7 claim in the Commercial Court, asserting that she, and not Mr Chernukhin was a party to the SHA and entitled to exercise rights under it.
The claims were tried in November and December 2018, and January 2019. By a judgment dated 7 February 2019, the Judge found that, although Mr Chernukhin was not named as a party to the contract, he was a disclosed and identified principal. As such, the Judge found that Mr Chernukhin was entitled to rely on its terms.
Permission to appeal was granted on the limited issue of whether the terms and surrounding circumstances of the contract, either expressly or by necessary implication, excluded Mr Chernukhin from exercising contractual rights, including those conferred by the governing law and arbitration clauses of the SHA. The Judge’s findings that Mr Chernukhin was the disclosed but unnamed principal party and that Ms Danilina was his nominee were not open to challenge.
The Court of Appeal
Simon LJ, with whom Males and Lewison LJJ agreed, began by noting that a disclosed principal to a contract, whether identified or not, may sue or be sued on any contract made by his agent acting within the scope of his actual authority.
Given that the parties could not identify any case in which a disclosed principal had been so excluded from suing or being sued on a contract to which he was a party, the parties approached the question by reference to the position on undisclosed principals. From the authorities, the following three points were distilled:
- There is the possibility of inserting an express clause into a contract so as to exclude the possibility of intervention by an undisclosed principal.
- There may be contracts in which a party is identified by a material description which applies only to that party and where the intervention of an undisclosed principal may be presumed to be excluded, e.g., those where the ‘personality’ of the party to the contract is decisive, such as the identity of the painter in a contract to paint a portrait. These are cases where the circumstances make it clear that the counterparty would not be willing to contract with an undisclosed principal.
- Although the contractual terms and the surrounding circumstances may lead to the conclusion that a principal’s intervention is excluded, this will not occur often. In commercial contacts this is due to what has been described as the ‘beneficial assumption’ referred to in the judgment of Diplock LJ in Teheran-Europe Co Ltd v. S.T. Belton (Tractors) Ltd  2 QB 545, at p.555.
Applied to the present case, Simon LJ was of the opinion that there were two main questions: (1) why was Mr Chernukhin not named as a party to the SHA; (2) in light of the answer to the first question, is the SHA to be construed as excluding him from the contract?
Simon LJ considered the Judge’s conclusions, namely that: it was more likely than not that (i) Mr Chernukhin’s did not wish to advertise his position in TGM, given his official positions, and he therefore put forward the name of someone he could trust as his agent; (ii) Mr Deripaska appreciated why Mr Chernukhin did not wish to be named in the SHA; (iii) Mr Deripaska knew Mr Chernukhin was his true joint venture partner; (iv) Ms Danilina agreed to being used as Mr Chernukhin’s agent/nominee.
The Judge also regarded it necessary to consider whether the terms of the SHA, or the circumstances in which it had been concluded were such as to exclude Mr Chernukhin for suing or being sued on it as the disclosed principal.
In this respect, Simon LJ concluded that the Judge was right to consider that, in light of the ‘long-established right’ of a principal to enforce contracts validly made by his agent, ‘very clear words’ were required to show that only the named party were intended to have the right to perform the contract. This did not “add much” to the general principle of contractual construction that “clear and unambiguous language” is necessary before a court will hold that a contract has altered the common law rights of one of the parties.
Simon LJ proceeded to examine the authorities and the significance of particular aspects of the SHA. He concluded that most of the provisions did not ‘come close’ to ‘clear and unequivocal’ words or indications demonstrating a common intention that Mr Chernukhin was excluded from performing and enforcing obligations under the SHA; nor were the indications in the contractual provisions giving weight to the Appellants’ arguments sufficient to demonstrate a clear intention to do so.
Simon LJ therefore concluded that the Judge was right: Mr Chernukhin, not Ms Danilina, was entitled to exercise rights under the agreement. The appeal was dismissed.
This case marks an interesting coincidence between contractual construction and the law of agency. Although the Court of Appeal was clear that it was, in principle, as a matter of contract law, not impossible that a disclosed and identified principal may be excluded by express terms and/or the circumstances of the contract from suing on it, as a matter of the law of agency, such an arrangement would be difficult to prove.
In a short concurring judgment, Males LJ express the view that such a situation may be possible in theory, but there was a ‘heavy burden of persuasion’ on a party who seeks to argue that a known and identified principal is to be excluded from a contract. Such an agreement would be ‘odd,’ and Males LJ continued that he did not find it surprising that the parties were unable to cite any case where a contract was concluded by an agent known to be acting on behalf of an identified principal, but where the contract contained language making it clear that it was the agent and not the principal who was to be bound.