The Doctrine of the Undisclosed Principal in International Business Transactions

International Business Transactions 1
International Business Transactions
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International Business Transactions 2
International Business Transactions
1. Agency
‘The doctrine of the undisclosed principal is an anomaly. It should be amended or
discarded.’
Introduction
The doctrine of the undisclosed principal is contentious, and often puzzling, both in
application and substance. It is not strange that the doctrine has been described by many authors
as “anomalous”, “odd”, as well as “unsound”. The general and fundamental principle of agency
is that a vinculum iuris is fashioned between the principal and third party, hence entitling them
alone to the obligations along with rights flowing from the contract settled amid the third party
along with the agent on behalf of disclosed principle1. Nonetheless, the undisclosed principal
doctrine is anomalous since the third-party may be liable to and allowed against somebody (the
undisclosed principal) of who have no understanding as the contract is settled amid the third
party beside the agent acting on his identity. Thus, where the agent acts on behalf of an
undisclosed principal, it could seem, rationally and ordinarily, that the legitimate status must not
have been similar to that of the disclosed principal2. Under English law, the undisclosed principal
doctrine has the effect (as a law) that in which an agent doe not reveal to the third party, which
he has authority to form privity of contract amid the principal alongside the intermediary. In this
1 Gillies, P. Business law. (Sydney: Federation Press, 2014).
2 Munday, R. Agency: Law and Principles. (Oxford: Oxford University Press, 2010)12.

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case, the third party has the ultimate right to indict either the principal or agent and the principal
has the authority to sue the third party.
The legal theory behind all this is complex to determine. The context of triangular
consensual transactions appears to need a contract, and the contract will certainly account for the
mutual rights along with responsibilities of third party and agent. Founded on law, in which the
agent works for an unidentified principal, the legal position is much similar to that of the
disclosed principal. This implies that though the third-party is only concerned with the agent,
plus does not recognize the subsistence of the unidentified principal, the later may sue or sued in
his/her identity as he/she sanctioned the agent to proceeds on his/her behalf –where the mediator
proceeds in the scale of that power3.
The principle of the undisclosed principal is reflected by several academicians as
anomalous. Many arguments on whether to amend or discard the undisclosed principal focus on
the anomaly that is on the rights along with the responsibilities of undisclosed principal against
the third-party. This has been attributed to the fact that the doctrine permits an individual who is
not ostensibly part of the contract to sue, as well as sued on the contract. The doctrine has been
widely investigated by Sir Frederick Pollock4. Pollock asserts that it should be forgotten that the
rights along with the responsibilities of an undisclosed principal doctrine is contradictory with
the basic principles of the rule of contract. Thus, the basic right of an individual to litigate
another individual based on the agreement not actually made with the individuals that sues
unidentified to each legal system apart from that of England, as well as England. The paper will
3 Tan Chen-Han, ‘Undisclosed Principals and Contract’ (2004) 120 LQR 481.
4 Loewenstein, M.J. & Robert W. H. Agency and Partnership Law, (Cheltenham, UK : Edward Elgar
Publishing, 2018) 56.

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critically analyze the arguments for and against the undisclosed principal doctrine examining
diverse cases and finally develop a position.
Critical Analysis
The doctrine is a principal that is unknown by the third-party to be linked to the specific
deal or business, that is, the principal whose existence the third-party is not aware of.
Undisclosed principal is not similar to unknown principal whose subsistence the intermediary
understands; however, not his identity. It has been established that the criticisms against the
doctrine has been overdue because it is clearly agreed as component of the English rule of
agency. Thus, the courts in England have not been worried or “excessively challenged” by these
disapprovals against the doctrine5. This is based on the fact that the doctrine has a stable origin of
rational antiquity, considerable solidarity, as well as renowned legal respectability where this has
been reaffirmed in Siu Yin Kwan vs. Eastern Insurance Co. Ltd. Hence, the unrevealed
principal’s ability to the negotiator is what counts in the agreement as going to the principal
rather than the agent6. In the case where the identity of the principal is a point of interest to the
intermediary or third-party then it clears that the intermediary may decline to enter the contract
with the agent without knowing the identity of the principal7.
Arguments For
5 Busch, D & L. Macgregor, ‘Apparent authority in Scots Law: Some International Perspectives’ (2007) 11
Edinburgh Law Review 349-378.
6 Furmston, M. P., Tolhurst, G., & Mik, E. Contract formation: Law and practice. (Oxford: Oxford University
Press, 2010)213.
7 Tan Chen-Han,