LEGAL PRINCIPLE: CONTRACT LAW – Privity – Guarantor Not Party to Principal Contract – Arbitration Clause Not Available to Guarantor
PRINCIPLE STATEMENT
As a general rule only a person who is a party to a contract can sue on it; a fortiori, only such party can take the benefit of an arbitration clause contained therein; the arbitration clause relied on is contained in a contract to which the appellant is not a party; the appellant is not a party to the agreement and cannot therefore rely on the arbitration clause therein.
RATIO DECIDENDI (SOURCE)
"As a general rule only a person who is a party to a contract can sue on it; a fortiori, only such party can take the benefit of an arbitration clause contained therein — see Ikpeazu v. African Continental Bank Ltd. (1965) NMLR 374; Dunlop Pneumatic & Company Ltd. v. Selfridge & Co. Ltd. (1914-15) All ER Rep. 333. The arbitration clause relied on by the appellant is contained in a contract to which he is not a party. The contract is between the plaintiff/respondent and Fedison. The appellant, it has been clearly established, is not a party to the agreement and cannot therefore rely on the arbitration clause therein."
EXPLANATION / SCOPE
This reinforces Principles 224, 416, and 501 while applying privity specifically to arbitration clauses. Privity of contract doctrine means: only parties to contract can sue on it or take benefits from it, including arbitration clauses. “A fortiori” (with stronger reason)—if non-parties can’t sue on contract generally, they certainly can’t invoke specific beneficial clauses like arbitration. Guarantors issuing separate bonds: aren’t parties to principal contract (between creditor and debtor), cannot rely on principal contract’s arbitration clause, and are subject to separate guarantee terms. The arbitration clause belongs to: parties to that contract only, cannot be invoked by third parties, and doesn’t extend to related but separate transactions. This serves: maintaining contract privity, ensuring arbitration remains consensual, and preventing third parties from selecting beneficial contract terms while avoiding burdens. Guarantors wanting arbitration must: include it in their guarantee instrument, be expressly made parties to principal contract, or separately agree to arbitrate with creditor. Without contractual privity, no access to contract benefits including arbitration clauses. This strict privity rule prevents cherry-picking favorable terms from contracts one isn’t party to.