Can Someone Who Isn’t a Formal Party to a Contract Sue Upon it?

The Supreme Court recently examined the principle that a person who appears not to be a formal party to a contract can still bring legal action if they are the actual party in interest, meaning the one who actually negotiated, paid, or was directly affected by the deal. In this case, the Court upheld the decision of the Commercial High Court of Colombo, ruling that a Korean businessman who had personally arranged and funded a copper export transaction worth USD 96,000 had the right to sue in his own name, even though the money had been transferred through his father’s company in South Korea. 

The story began in 2010, when the Korean businessman came to Sri Lanka to start a venture to export copper to South Korea. He was introduced to a local businessman who showed him several tonnes of copper and offered to supply 15 tonnes for export. Trusting this representation, the Korean investor entered into an agreement and transferred USD 96,000 to the local businessman’s personal bank account. However, no copper was ever exported, and the money was not returned, prompting the Korean investor to file a case in the Commercial High Court.

The local businessman argued that the contract was between two companies, a Korean company and a Sri Lankan company that he represented. He further claimed that the Korean individual had no locus standi (legal standing) to file the case since the funds came from his father’s company, not from himself. He also denied signing the agreement presented by the plaintiff and claimed that the documents were fraudulent.

However, the High Court found that the Sri Lankan company the defendant claimed to represent had already been struck off the register before the agreement was signed, meaning the deal was made in his personal capacity. The Court also noted that the defendant received the money directly into his personal bank account and failed to supply any copper or refund the money. These facts showed that the transaction was effectively between the two individuals, not the companies.

The Supreme Court, agreeing with the High Court, referred to legal principles recognizing an agent’s right to sue when he has a direct interest in the contract. The Court found that the Korean businessman had acted throughout as the person directly involved in the transaction, giving him full legal standing to sue for the recovery of the money.

The Supreme Court therefore dismissed the appeal, confirmed the Commercial High Court’s judgment, and ordered the defendant to pay Rs. 100,000 in costs. The Court also ruled that the plaintiff was entitled to recover his costs from the earlier High Court proceedings as well.

“…In the case of Jack Hunt Vs. R. C. Wright, Supreme Court of Iowa, United States – dated 17 November 1964, it was held; 

1. Right of an agent to sue on a contract for disclosed principal: if an agent has a beneficial interest in a contract executed for a disclosed principal he may sue in his own name.  

2. Nominal and real party interest: the law looks beyond the nominal parties to the real parties in interest, and determined the case according to the rights of the latter.  

3. Real party in interest: a party is to be regarded as the real party in interest whenever a payment to him would protect the defendant from the claims of third persons.  

I am of the view that the principles discussed in the above-mentioned case is directly applicable to the facts and the circumstances of the case under appeal.  It is abundantly clear that although the money had been transferred by a Korean company owned by the father of the plaintiff to the account of the 1st defendant for him to supply copper, the actual party in interest had been the plaintiff, and the actual transaction had been between the plaintiff and the 1st defendant.  – Justice Sampath Abayakoon

Case No: SC/CHC/Appeal No: 54/2017 [Decided on 01.08.2025]

Before: Kumudini Wickremasinghe, J. , Arjuna Obeyesekere, J. , Sampath B. Abayakoon, J.