Экзамен зачет учебный год 2023 / Busch, Indirect Representation and the Lando Principles. An Analysis of Some Problem Areas From the Perspective of English Law

Indirect Representation and the Lando Principles. An Analysis of Some Problem Areas From the Perspective of English Law

D. BUSCH*

Abstract.The unpublished second report of the Lando Commission on The Principles of European Contract Law (‘the Principles’ or ‘PECL’) contains an important recent attempt to harmonise the laws of agency of European jurisdictions. Chapter 3 of the Principles deals with ‘Authority of Agents’. Following the civil law model, Article 3:102 PECL distinguishes between direct and indirect representation.

Direct representation exists where an agent acts ‘in the name of’ a principal (Art. 3:102(1) PECL). If the agent acts within the scope of his authority (real or apparent), his acts bind the principal and third party directly; the agent drops out. Indirect representation covers two types of case in which a principal enlists the assistance of an intermediary to act for him in transactions with third parties (Art. 3:102(2) PECL). The first can be termed ‘undisclosed agency’. In these cases, the principal confers authority on the intermediary to create privity between him (the principal) and third parties. As it happens, however, the third party neither knows nor has reason to know that the intermediary acts as an agent. The second category of indirect representation can for convenience be termed ‘commission agency’. In this case, by contrast, the principal does not confer authority on the intermediary to create privity of contract between him (the principal) and third parties. The intermediary is to act ‘in his own name’: he is to contract with third parties in a personal capacity. In both cases of indirect representation, intermediary and third party are bound to each other; principal and third party are not (Art. 3:301 PECL). Even so, in two situations the principal is entitled to exercise against the third party the rights that are acquired on his behalf by the intermediary: if the intermediary goes bankrupt or is guilty of a fundamental non-performance of his duties to the principal (Art. 3:302 PECL). The third party is entitled, in similar circumstances, to exercise against the principal the rights that the third party has against the intermediary (Art. 3:303 PECL).

Résumé. Le second rapport non encore publié de la Commission Lando sur les Principes du droit européen des contrats (les Principes ou PECL ) comporte un certain nombre de dispositions importantes pour harmoniser les règles sur la représentation dans les différents droits européens. Le chapitre 3 de ces principes traite en effet du Pouvoir des représentants. Suivant le modèle du droit civil, l’article 3 : 102 PECL distingue la représentation parfaite et la représentation imparfaite.

*LL.M. (Utrecht), M. Juris (Oxon.), associate of the Molengraaff Instituut voor Privaatrecht, Utrecht University. I would like to thank Professor F.M.B. Reynolds (Worcester College, University of Oxford) and S.W. Watterson, B.A. (Oxon.) (St. John s College, University of Oxford) for their valuable comments on an earlier draft of this article. This article has previously been published on the Internet in: vol. 2.3 Electronic Journal of Comparative Law, (December 1998), <http://law.kub.nl/ejcl/23-1.html>.

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La représentation est dite parfaite lorsque le représentant agit au nom et pour le compte du représenté (art. 3 : 102(1) PECL). Si le représentant agit dans les limites de son mandat (réel ou apparent), l’acte lie alors directement le représenté et le cocontractant ; le représentant n’est pas tenu personnellement.

La représentation imparfaite, quant à elle, recouvre deux types de cas dans lesquels un représenté recourt aux services d’un intermédiaire pour conclure à sa place un contrat avec une tierce partie (art. 3 : 102(2) PECL). Le premier cas est celui du prête-nom. Dans cette hypothèse, le représenté donne pouvoir à l’intermédiaire pour établir un lien de droit entre lui-même et une tierce partie. Toutefois, cette dernière ne sait pas et n’a aucune raison de savoir que l’intermédiaire agit comme représentant. La seconde hypothèse de représentation imparfaite est le contrat de commission. Dans ce cas, le représenté ne donne pas pouvoir à l’intermédiaire d’établir le lien contractuel entre lui-même et le tiers. L’intermédiaire agit en son nom propre : il conclut le contrat avec le tiers en sa qualité personnelle. Dans chacun de ces cas, l’intermédiaire et le tiers sont liés l’un à l’autre alors que le représenté et le tiers ne le sont pas (art. 3 : 301 PECL). Mais, même ainsi, le représenté peut exercer contre le tiers cocontractant les droits que l’intermédiaire a acquis pour lui si ce dernier fait faillite ou manque à ses obligations à son égard (art. 3 : 302 PECL). Quant au tiers cocontractant, il peut également, dans les mêmes circonstances, exercer contre le représentant les droits qu’ils pourrait exercer contre l’intermédiaire (art. 3 : 303 PECL).

Zusammenfassung. Der unveröffentlichte zweite Report der Lando Commission über die Principien des Europäischen Vertragsrechts ( die Prinzipien oder PECL) enthält einen wichtigen neuerlichen Versuch, das Vertretungsrecht in den verschiedenen Rechtssystemen in Europa zu harmonisieren, Kapitel 3 der Prinzipien behandelt die Vertretungsbefugnis der Vertreter . Entsprechend der zivilrechtlichen Rechtsfigur unterscheidet Art. 3:102 PECL zwischen direkter und indirekter Vertretung.

Direkte Vertretung liegt vor, wenn der Vertreter im Namen des Vertretenen handelt (Art. 3:102(1) PECL). Wenn der Vertreter innerhalb seiner Vertretungsmacht handelt (tatsächlich oder scheinbar), wirken seine Rechtshandlungen unmittelbar für und gegen den Vertretenen und die andere Vertragspartei; der Vertreter wird davon nicht betroffen. Indirekte Stellvertretung hingegen umfaßt zwei Fallgruppen, in denen sich der Vertretene der Hilfe eines Vermittlers bedient, der für ihn bei Rechtsgeschäften mit anderen Vertragsparteien handelt (Art. 3:102 (2) PECL). Der erste Fall kann als verdeckte Stellvertretung bezeichnet werden. In diesen Fällen überträgt der Vertretene Vertretungsbefugnis an den Vermittler, um eine Interessengemeinschaft zwischen ihm (dem Vertretenen) und den anderen Vertragsparteien zu schaffen. In manchen Fällen jedoch weiß weder die andere Vertragspartei noch hat sie Anlaß zum Wissen, daß der Vermittler als Vertreter handelt. Die zweite Fallgruppe der indirekten Stellvertretung kann praktisch alsKommissionsvertretung bezeichnet werden. Im Gegensatz zur ersten Fallgruppe überträgt der Vertretene hier dem Vermittler keine Vertretungsbefugnis, um eine Vertragsinteressengemeinschaft zwischen ihm (dem Vertretenen) und dritten Parteien zu schaffen. Der Vermittler hat in seinem eigenen Namen zu handelt, er hat die Verträge mit den anderen Vertragsparteien in eigener Person zu schließen. In beiden Fällen der indirekten Stellvertretung sind der Vermittler und die andere Vertragspartei wechselseitig verpflichtet, der Vertretene und die andere Partei hingegen nicht (Art. 3:301 PECL). Dennoch ist der Vertretene in beiden Fallgruppen berechtigt, diejenigen Rechte gegen die dritte Partei auszuüben, die in seinem Auftrag von dem Vermittler erworben worden sind: wenn der Vermittler in Konkurs fällt oder wenn er sich wegen grundlegender Nichterfüllung seiner Pflichten gegenüber dem Vertretenen schuldig macht (Art. 3:302 PECL). Unter gleichen Umständen ist auch die andere Vertragspartei berechtigt, die Rechte gegen den Vertretenen auszuüben, die ihr gegen den Vermittler zustehen (Art. 3:303 PECL).

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1. Introduction

1.1 The desirability of unification of the law of agency

A law of agency is a commercial necessity in every developed economic system. Manufacturers may delegate the purchase of raw materials to an agent; wholesalers may sell their goods through trade representatives or commission agents. There are many reasons why people choose not to act for themselves, and instead enlist the assistance of others who transact with third parties for them , on their account ,as their agents or in their interests . It enables them to participate in commercial transactions on a massive scale.

Today, commercial transactions are to a large extent transnational in nature. Despite this, the law of agency still differs from country to country. The absence of a uniform law of agency inevitably leads to intricate questions of the conflict of laws. The various types of difficulties are illustrated by the following example:

Principal P (English), an importer in London, instructs his agent A (English) in Rotterdam to purchase goods from manufacturer T (Dutch) in Amsterdam. P grants A authority to create privity of contract between him (P) and T, with the result that A drops out. A concludes a contract with T, but does not disclose the fact that he is acting on behalf of another (P): A does not want T to bypass him and deal directly with P in future transactions, thereby depriving A of future opportunities to earn commission.

In the above situation, is the relationship between P and A governed by English law or by Dutch law? And which law is applicable to the external part of the transaction? The answer to these questions is important, because English and Dutch law differ in important ways. Under Dutch law, T will generally only have rights against A, unless it was or should have been clear to T that A was only acting as an agent. Under English law, on the other hand, T will prima facie have a right of election by virtue of the undisclosed principal doctrine: he may sue either A or P on the contract. These intricate questions would not arise if European jurisdictions had a uniform law of agency.

1.2 The Principles of European Contract Law

1.2.1 General

The unpublished second report of the Lando Commission on The Principles of European Contract Law ( the Principles or PECL ) contains an important recent attempt to harmonise the laws of agency of European jurisdictions.

1.2.2 Direct and indirect agency in the Principles

Chapter 3 of the Principles deals with Authority of Agents . The scope of the Chapter is limited in several ways. Most obviously, it only governs the authority of

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an agent or other intermediary to bind his principal in relation to a contract with a third party (Art. 3:101(1) PECL).1 In addition, it only applies to the external relationship: that is, the relationship between principal or agent on the one hand, and the third party on the other. It does not deal with the internal relationship between principal and agent (Art. 3:101(3) PECL).2 Finally, the Chapter expressly excludes cases where the agent s authority is conferred by law, or where an agent is appointed by a public or judicial authority (Art. 3:101(2) PECL).

In Article 3:102 PECL, a distinction is drawn between direct representation and indirect representation . Article 3:102(1) PECL expresses the concept of direct representation. This covers cases where the third party knows or has reason to know that his counterparty is dealing as an agent for a principal, named or unnamed.3 The principles governing cases of direct representation are dealt with in Section 2 of Chapter 3 (Arts. 3:201- 3:209 PECL). Where the agent deals within the scope of his express, implied, or apparent authority as defined by Article 3:201 PECL, his acts bind the principal and the third party directly and the agent drops out (Art. 3:202 PECL). Nevertheless, the agent and the third party or the principal and the agent may by agreement depart from this rule and impose personal liability upon the agent. He may become a co-obligor or a guarantor of the principal s obligations. Article 3:203 PECL establishes another exception: where an agent enters into a contract in the name of a principal whose identity is to be revealed later (i.e. an unnamed principal), but fails to reveal that identity within a reasonable time after a request by the third party, the agent himself is bound by the contract.

Article 3:102(2) PECL expresses the concept of indirect representation. This covers two types of case. The first is where an intermediary acts in his own name but on behalf of a principal (a notion the meaning of which is discussed in section 2 below). The third party may or may not know that the party with whom he is dealing is acting on behalf of another. The most typical commercial example, found in continental countries, is the so-called commission agent . The second type of case is where a principal has granted his agent authority to create privity of contract between him (the principal) and the third party, but where the agent does not disclose that he is acting as an agent and acts in his own name instead. So described, this second form of indirect representation seems to cover the situation which is known in English law as the situation of the undisclosed principal . As a rule, and contrary to the rule for direct representation, no direct relationship between the principal and the third party comes into being between principal and

1Principles of European Contract Law (1996) p. 65.

2Ibid., p. 64. However, this separation cannot completely be preserved. In particular, some of the grounds for termination of the agent s authority are rooted in the internal relationship (see Art. 3:209 PECL) (ibid., p. 64).

3It is pointed out in ibid., p. 66, that direct representation also covers the case where an agent acts in the name of a principal but does not disclose that principal s name. It is even said, more controversially, that the agent may not even have a principal at the time of the conclusion of the contract. The agent is, however, bound to reveal the name of the principal if the third party so requests. See Article 3:203 PECL.

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third party; instead, the intermediary and the third party become bound to each other (Art. 3:301(1) PECL).4

1.2.3 The legal significance of the agency provisions in the Principles

The Principles are a private initiative. As such they do not have the authority of national, supranational, or international law.5 This does not mean, however, that the agency provisions of the Principles are of no present legal relevance at all. One would also hope that the provisions will provide a basis for a European law of agency in the future.6

Even now, the Principles may become legally relevant if the third party is situated in a different state from the principal and his agent. In such circumstances, a question clearly arises as to what legal rules govern the relationship between the parties. The Principles may come to govern the legal relationship between the parties in two different ways.

First, where the third party is situated in a different state from the principal and his agent, the principal may give his agent instructions to make a choice for the Principles. The contract that the agent concludes may be one between the principal and the third party or one between the agent and the third party, depending on whether there is a case of direct or indirect representation. A reason for giving instructions to make a choice for the Principles may be to avoid difficulties in agreeing on a national system of law with the third party. A choice for the Principles may be made in two different forms which have different effects. First, where the parties have agreed that their contract is to be governed by the Principles (Art. 1:101(2) PECL), this may have the same effect as an ordinary choice of law clause: the contract is not subject to the legal system (including its mandatory rules) which would govern it without the ordinary choice of law clause. One additional condition must, however, be fulfilled according to Article 1:103 PECL: the law of the forum must allow the parties to choose the Principles as if they were the rules of a national legal system. This is a severe limitation. Secondly and alternatively, the parties may agree merely to incorporate the Principles into the body of the specific contract (Art. 1:101(2) PECL). Here, the contract remains subject to that legal system which according to the forum state s conflict of laws rules determines the applicable national law, including its domestic mandatory provisions.7 A choice for the Principles in the latter way may exclude application of the agency provisions in the Principles. It may therefore be preferable for the principal to instruct his agent to make a choice for the Principles so that they govern the contract.

4See the Appendix for the text of the relevant provisions.

5O. LANDO and H. BEALE (eds.) Principles of European Contract Law, Part I: Performance, NonPerformance and Remedies (Dordrecht/Boston/London: Martinus Nijhoff Publishers, 1995), p. 40.

6The longer-term objective of the Principles is to help bring about the harmonization of general contract law within the European Union. Ibid., pp. xviii-xix.

7Principles of European Contract Law, pp. 1-2.

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Disputes may arise as to whether the principal gave his agent instructions to make a choice for the Principles or even whether he gave his agent authority to conclude the contract at all. This is a question of construction of another contract, namely the contract between the agent and the principal. The law which governs this contract must apply its rules of construction to solve the dispute. It is possible that the principal and his agent may make a choice for the Principles as regards the contract between them. In that case, the rules of interpretation given in Chapter 5 (Arts. 5:101-107 PECL)8 must be taken into account in resolving the dispute. However, whether there is a case of apparent authority cannot usually be determined by construing the contract between the principal and the agent, because it is something between principal and third party rather than between principal and agent.9 The question of apparent authority should therefore be governed by the law which governs all other external issues. This means that where the contract which is concluded with the third party is governed by the Principles, the question whether there was apparent authority should be solved by applying the Principles. It is, however, a well-known problem of the conflict of laws which law governs the question whether the parties have agreed at all.10 The dominant view applies the putative proper law, which could lead to application of the Principles.11 But they do not necessarily apply where they are only incorporated into the contract, because whether there is apparent authority or not may be a domestic mandatory rule.

Secondly, the Principles may also be relevant where the principal did not give his agent any instructions to make a choice for the Principles or a national legal system. Where the contract contains clauses referring to general principles of law or the lex mercatoria , some courts and arbitral tribunals may apply the Principles (Art. 1:101(3)(a) PECL). Where the contract does not contain these clauses courts and arbitral tribunals may similarly apply the Principles (Art. 1:101(3)(b) PECL). The justification for applying the Principles in both these cases is that it is hoped that the Principles will furnish a more appropriate basis than any system of national contract law for the adjudication of an international contract.12

1.3 The subject matter of this article

This article seeks to ascertain whether the indirect representation provisions in the Principles could be acceptable to English lawyers.13 These provisions deal with

8Ibid., pp. 133-44.

9It is therefore clear that the question of apparent authority cannot arise in undisclosed agency situations.

10Rome Convention, Art. 8.

11This is the view which is assumed in Article 1:104 PECL.

12LANDO and BEALE, Principles of European Contract Law (1995) pp. 41-42.

13See for a comparison between the indirect representation provisions in the Principles, in the Unidroit Agency Convention and in the Dutch Civil Code: A.S. HARTKAMP, Indirect Representation According to the Principles of European Contract Law, the Unidroit Agency Convention and the Dutch Civil Code, in: J. BASEDOW, K.J. HOPT, H. KÖTZ , (eds.), Festschrift für Drobnig zum 70. Geburtstag (Tübingen: Mohr Siebeck, 1998) pp. 45-46.

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two types of case, which can conveniently be described as undisclosed agency and commission agency . At first sight, both categories of indirect representation may cause difficulties for English law.

The first category ( undisclosed agency ) is problematic because English law and the Principles appear to take opposite positions on the legal relationships which result where an undisclosed agent contracts with a third party. Under English law, the undisclosed principal doctrine has the effect (as a rule) that where an agent does not reveal to the third party that he has authority to create privity of contract between the principal and the third party, the third party has the right to sue either the agent or the principal (the right of election) and the principal may sue the third party. By contrast, under the Principles, situations involving undisclosed principals amount to indirect representation with the result that (as a rule) the third party may only sue the agent and that the principal has no action against the third party.

The second category ( commission agency ) is problematic for a different reason. English law seems to be unfamiliar with the idea of intermediaries acting on behalf of a principal but in their own name. It does not seem to acknowledge the existence of the commission agent known in continental countries. In the Principles, this type of case also amounts to indirect representation, with the effect that principal and third party may not (as a rule) sue each other.

This article compares the relevant body of English law with the relevant agency provisions in the Principles in order to find out whether these problem areas are such that the agency provisions in the Principles are unacceptable from the perspective of English law. To the extent that they are unacceptable, the Principles may not serve their immediate and longer-term objectives.14

2. Terminology used in the Principles

2.1 General

Common lawyers will generally be unfamiliar with the rather continental terminology in which the Principles are drafted. It might not be clear to common lawyers what it means to say that an agent acts in the name of his principal or in his own name , or that an intermediary acts in his own name but on the principal s behalf . Common lawyers express themselves differently. In English law, agency is generally regarded as a situation in which a person acts on behalf of another, either with the knowledge of the third party with whom he deals (disclosed agency) or without his knowledge (undisclosed agency).15

The focus of this article is on the two problem areas outlined above. But before turning to these areas, it is necessary to explain some of the terminology used in the Principles. Unfortunately, the drafters did not explain their expressions in a

14See section 1.2.3.

15F.M.B. REYNOLDS, Bowstead & Reynolds on Agency, 16th edn. (London: Sweet & Maxwell, 1996), pp. 1-29.

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way which would make them comprehensible to common lawyers. Both have essentially the same meaning in most continental jurisdictions.16 The explanations which follow will nevertheless refer principally to Dutch law: that is the jurisdiction with which the author is most familiar.

2.2 Agents acting in the name of their principal and agents acting in their own name

Agents act for , on behalf of or in the interest of their principals, in a factual sense, whether they act in the name of their principal or in their own name . The distinctive characteristic of agents who act in the name of their principal is that the third party with whom the agent deals understands that the latter is only acting (and contracting) in the capacity of a representative of someone else (his principal) who authorised him to do so.17 The principal may be named or unnamed. The third party may understand that the agent acts in a representative capacity because he is expressly informed of that fact by the agent. Alternatively, it may merely appear to be so from the circumstances of the case.18

It is only if agents act in the name of their principal in this sense that a direct contractual relationship can arise between principal and third party as a result of the agent s dealings. This is the effect of the continental publicity principle .19 The explanation for that principle can be traced to the doctrinal foundations of contractual obligations in continental jurisdictions. It is generally thought thatautonomy of the will is a fundamental notion in contract law. One manifestation of this idea is the proposition that a party should be free to decide with whom to contract.20 That freedom does not exist unless the third party knows that the other party is actually contracting as representative of another rather than in a personal capacity.

Where a third party does not understand that that the other party (the agent) was acting (and contracting) as a mere representative, he can only intend to contract with the agent personally. He is therefore permitted to treat the undisclosed agent as a party to the contract and is not compelled to deal with the

16R. ZIMMERMANN, The Law of Obligations: Roman Foundations of the Civilian Tradition (Oxford: Clarendon Press, 1996), pp. 46-47, 49-50; H.L.E. VERHAGEN, Agency in Private International Law: The Hague Convention on the Law Applicable to Agency (The Hague/Boston/London:Martinus Nijhoff Publishers/T.M.C. Asser Instituut, 1995), pp. 32-33. Also on representation: K. ZWEIGERT and H. KÖTZ , An Introduction to Comparative Law, 2nd edn. (Oxford: Clarendon Press, 1992), pp. 459-70.

17The principal either expressly or impliedly granted his agent authority to act as his representative or is treated as having granted authority if his statements or conduct induce the third party reasonably and in good faith to believe that the agent has been granted authority for the act performed by him. See Article 3:201 PECL.

18E.g. Hoge Raad (Dutch Supreme Court) 11 March 1977, Stolte v. Schiphoff, NJ 1977, 521.

19Art. 1984 Code civil; Art. 1388 Codice civile; § 164 II BGB; Art. 3:60 BW. On the publicity principle see, e.g., ZIMMERMANN, pp. 46-47; VERHAGEN, pp. 32-33.

20E.g. A.R. BLOEMBERGEN, C.C. van DAM, Jac. HIJMA and W.L. VALK, Rechtshandeling en overeenkomst, Studiereeks Burgerlijk recht deel 3, 2nd edn. (Deventer: Kluwer, 1998), No. 119. In addition, the publicity principle may also be for the benefit of third parties, who have an interest in the certainty and clarity of legal relations. See ZIMMERMANN, p. 47 n. 91.

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undisclosed principal - a stranger with whom he never intended to contract. If it were otherwise, and the third party was compelled to treat the undisclosed principal as a party to the contract, the third party s intentions would not be respected.

Of course, if the agent and third party become bound by the contract, the intentions of the agent may not be respected: he may not have intended to become a party to the contract. But this is acceptable: the agent induced the third party to believe that he (the agent) intended to contract personally and the third party contracted on that basis. The intentions of the principal are not respected either: he intended that the agent should so act as to establish privity of contract between him (the principal) and the third party. Again, this is acceptable. The principal chose to act through an agent. He, rather than the third party, should bear the risk that his plans may fail if the agent acts contrary to his instructions.

2.3 Intermediaries acting in their own name but on behalf of their principal

The phrase in his own name refers to the extent of the agent s authority to create relationships with third parties. An agent or intermediary acts in his own name when he acts for , in the interest of or on behalf of a principal in a factual sense, but does not have authority to create privity between his principal and third parties. In these circumstances, if the agent contracts with a third party, he can only do so in personal capacity. Any contract will be between the agent and third party; no direct contractual relationship can be created between principal and third party. It is irrelevant that the third party knows that the agent is, in a factual sense, actingon behalf of another. However, the economic involvement of the principal is not disregarded in all circumstances.21

The foreign words usually translated into English by the words on behalf of 22 denote the fact that, as between principal and agent, the risk of loss and the opportunities for profit from dealings with third parties lie with the principal.23 An intermediary of this sort is typically remunerated by commission, with the result that it is the principal who benefits most from any transactions. The following example illustrates how it is the principal rather than the intermediary who bears the risk arising from transactions with third parties:

21See Articles 3:302-304 PECL, discussed in section 3 below.

22In the Netherlands: op eigen naam, maar voor rekening van de lastgever handelen (to act on account of the principal but in the agent s own name, Art. 7:414 (1) and (2) BW); the German HGB § 383 gives the following definition of the commission agent: Kommissionär ist, wer es gewerbsmässig übernimmt, Waren order Wertpapiere für Rechnung eines andern (des Kommittenten) in eigenem Namen zu kaufen und zu verkaufen.

23E.g. S.C.J.J. KORTMANN, L.J.M. de LEEDE and H.O. THUNNISSEN (eds.), Mr. C. Asser s handleiding tot de beoefening van het Nederlands burgerlijk recht. 5. Bijzondere overeenkomsten. Deel III. Overeenkomst van opdracht, arbeidsovereenkomst, aanneming van werk, 7th edn. (Zwolle: Tjeenk Willink, 1994), No. 152.

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Principal P instructs intermediary A to buy in his own name but on P s behalf goods from third party T. T fails to deliver the goods to A. A will in principle24 not be liable in damages to P. A will only be liable where T s failure to deliver the goods to A is somehow due to A s fault. The position would be entirely different where A resells the goods to P. In that case, A is in principle liable in damages to P for non-delivery of the goods where T fails to deliver them to A, even where this is not due to A s fault.

3. The position of the undisclosed principal

3.1 General

Lord Lloyd of Berwick summarised the common law doctrine of the undisclosed principal in the case Siu Yin Kwan v. Eastern Insurance Co. Ltd.:25

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

The starting point in English law as regards agents of undisclosed principals is therefore that the principal may sue and be sued on the contract concluded on his behalf.26

The starting point in the Principles is completely different. Where the third party neither knows nor has reason to know that the intermediary acts as an agent, the undisclosed agent and the third party are bound to each other. Article 3:301(1) PECL reads:

Where an intermediary acts

(a)on instructions and on behalf of, but not in the name of, a principal, or

(b)on instructions from a principal but the third party does not know and has no reason to know this, the intermediary and the third party are bound to each other.

24This may, of course, be different where principal and intermediary agree that the latter is a del credere agent.

25[1994] 2 A.C. 199, 207.

26See also, inter alia, the cases Thomson v. Davenport (1829) 9 B. & C. 78, 90; Boyter v. Thomson [1995] 2 A.C. 628; REYNOLDS, pp. 408-26.