Rights of third parties to a contract

If a third party gets a benefit under a contract, it doesn’t have the right to go against

the parties to the contract beyond its entitlement to a benefit

Nyakundi Nyamboga

The doctrine of privity in contract law provides that a contract cannot confer rights or impose obligations arising under it on any person or agent except the parties to it.

The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages as such.

In HCCC No 151 of 2008 Graw Enterprises Ltd versus Makupa Transit Shade Ltd, Justice Festus Azangalala ruled that the defendant had no right to detain the plaintiff’s goods on the basis of a relationship it has with the plaintiff.

In the case, Kenya Ports Authority (KPA) issued a notice early in January that was published in the newspapers to the effect that containers that had overstayed by 21 days would be transferred to a yard belonging to Makupa Transit Shade Ltd. Graw Enterprises Ltd, whose 61 containers found their way to this yard in February following the notice, was to move to court in June to challenge the yard owners’ claim for storage money. It sought a declaration that the yard owners had no legal right to carry on a private business on KPA land or to use the Authority’s Personnel to do its business.

It was its case that there was no contractual relationship between it and the yard owners and, therefore, they had no reason for holding on to their containers.

In response, the yard owners saw the move as a ploy to frustrate them from collecting storage charges, which were due and rightly owed.

The yard owners were of the view that the publication created a contractual relationship with it and the plaintiff. Said the judge: "With respect, that cannot be the position of the law.

KPA could not unilaterally create a binding relationship between the yard owners and the plain tiff without the plaintiff’s participation.

The defendant is an independent legal entity separate from Kenya Ports Authority.

If any liability is to attach, the plaintiff and the defendant had to agree to the terms under which KPA allowed them to handle the plaintiff’s goods. The ruling read in part: "If on the other hand the defendant had any claim in respect of the said goods, its remedy cannot be against the plaintiff but against the Kenya Ports Authority."

The dispute is yet to be fully determined by the court. Knowing your rights under contract privity will be crucial if a subcontract dispute ever arises.

If a third party gets a benefit under a contract, it does not have the right to go against the parties to the contract beyond its entitlement to a benefit. This, however, does not mean that the parties do not have another form of action.

The writer is an Advocate of the High Court of Kenya

nnyamboga@ eastandard.net