Breaking the Wall: Ghana’s Progressive Shift on Privity of Contract

When Outsiders Want In

Imagine this: your mother’s business partner promises to pay your school fees in a contract with your mum. You’re not part of the conversation; no signatures, no handshakes. But come term time, he changes his mind. Can you sue? Under old English law, the answer would be a sharp “No.” You weren’t a party to the contract. Tough luck.

But in Ghana? The story is changing and for the better.

Let’s talk about the Privity of Contract, a classic principle that once tied the hands of third parties, even when the benefits were clearly meant for them. Under the old English rules, only parties who directly entered a contract could enforce it. That meant no matter how clearly someone outside the contract was meant to benefit, they couldn’t sue if things went sideways.

Thankfully, Ghana took one look at that rigidity and said, “We can do better.”

The Old Way: Common Law Privity

Under English common law, third parties couldn’t sue to enforce a contract or be held to its terms. It didn’t matter if the contract clearly benefited them. This created unfairness, especially in commercial and insurance cases where third-party beneficiaries were common.

Example: In Koah v Royal Exchange Assurance (1964), a third party injured by a car couldn’t claim from the insurance company because only the named driver was covered. The court said, “Sorry, you’re not part of the deal.”

Ghana’s Game-Changer: The Contracts Act, 1960 (Act 25)

Ghana introduced a more flexible approach with Act 25, updating the privity rule and giving third parties more muscle. 

1. Section 5(1): Let the Beneficiaries Speak

This section says if a contract “purports to confer a benefit” on a third party, either named directly or as part of a class, that person can enforce it. But there’s a catch: the benefit must be intentional, not just a happy accident.

2. Section 10: Say Goodbye to “Consideration Must Move from the Promisee”

Under common law, if you didn’t bring something to the table (i.e., give “consideration”), you couldn’t enforce a contract. Section 10 tosses that rule aside, by stating that “No promise shall be invalid as a contract by reason only that the consideration therefore is supplied by someone other than the promisee”. Now, a third party can enforce a promise even if someone else did the bargaining.

But Not So Fast: Built-In Exceptions (Section 5(2))

Act 25 gives, but it also protects. Section 5(2) provides that section 5(1) shall not apply to:

(a) Clauses that enforce resale price maintenance

(b) Clauses that try to exclude or limit the liability of someone who is not a party to the contract.

 These two key exceptions ensure that third-party rights don’t go too far:

1. Resale Price Maintenance Agreements

What it means: If a supplier and a retailer agree to minimum resale prices in a contract, those terms apply only to them. Sub-retailers or other downstream sellers who didn’t sign or negotiate that contract are not bound by its pricing rules and cannot be compelled to follow them.

Why?

• Free market principles: Price-fixing hurts competition.
• Consent matters: Don’t impose terms on someone who didn’t sign up.

2. Exemption Clauses for Non-Parties

What it means: You can’t hide behind someone else’s contract to escape liability. Exemption clauses are meant to limit or exclude liability, but only those who are part of the contract can benefit from them.  Under the principle of privity of contract, a third party cannot use an exemption clause from a contract they didn’t sign. For instance, if a subcontractor causes harm or loss, they cannot claim protection under an exemption clause in the main contractor’s agreement with a client, unless they have their own direct contract that includes such protection.  

Why?

• Avoid unjust immunity.
• Only those who signed should enjoy the shield.

Other Limits to Watch For

The courts and Act 25 place further boundaries:

A. The Benefit Must Be Real

• Ejura Farms v Hartley (1963): No enforcement if the parties didn’t mean to benefit you.

B. Incidental Benefit? No Deal.

• Baidoo v Sam (1981): You can’t enforce a contract just because you got a side benefit.

C. Don’t Change the Rules Mid-Game

• Section 6 says you can’t cancel or change the contract to hurt the third party once they rely on it. But the promisor can still raise defenses like fraud.

Courts: Still Cautious, Still Conservative

Even with these reforms, Ghana’s courts haven’t gone wild. In Mensah v Rhema Motors & Eratruck (2023), Seth Mensah bought trucks from Rhema Motors under a Conditional Sale Agreement, but when Eratruck (the true owner) repossessed them, Mensah sued both. The court dismissed his claim against Eratruck because no contract existed between them.

So, What Does This Mean for Businesses?

If you’re drafting contracts in Ghana, intent matters. If you intend for someone outside the agreement to benefit, say so clearly.

The shift from rigid common law to flexible statute means Ghana is ahead of the curve in protecting rightful beneficiaries, but clarity and careful drafting are still king.

Ghana’s version of privity is no longer a locked door. With the Contracts Act, it’s more like a door with a key available to third parties if they can show the benefit was meant for them.

As commerce grows more complex and layered, this balance of flexibility and caution offers a solid foundation for modern transactions. Ghana isn’t just copying the common law book, it’s writing its own chapter.

David Amaara Adaawin on behalf of OSD and Partners. [email protected]