The engineering consultants entering into a domestic contract with the chief designer means there is no contractual relationship between the client and the engineering consultants. Thus the client could only sue the consultants in tort and this would require proving that a duty of care was owed.
Therefore a collateral contract between the client and the consultants will allow the client to directly sue them for any breach of the warranties conditions – commonly including promises on the part of the consultants to achieve the standard of design and workmanship as specified by the client.
The terms of this collateral contract could impose the liabilities/responsibilities the client considers appropriate, as long as the consultants are aware of such and are willing to tender and enter into this. It is important to make sure that the obligation to enter into the warranty and its full wording also, form part of the legal obligations set down by the terms of the contract between the client and the consultants. There must be a clear intention to enter into such a contract. The matter of deleterious materials should also be addressed in order to ensure that such are not specified or employed in the works.
In Blackpool and FyIde Aero Club Ltd v Blackpool Borough Council the council had granted previously a concession to the claimants to operate pleasure flights from Blackpool airport. Yet when the time came for renewal, the council invited tenders for the concession which were to be received by 12 p.m. on 17 March 1983. The defendant’s letterbox was supposed to be emptied by 12 pm everyday but this was not done on the final day and the club’s tender was rejected for being late. The club sought damages in contract for breach of this warranty, and also in the common law of negligence for breach of the duty they claimed was owed them.
The court held that the form of the invitation to tender meant that, provided an invitee had submitted their tender by the deadline then they were entitled under an implied collateral contract, to be sure that his tender would be considered with any others notwithstanding the usual disclaimer as to acceptance. The claimants were awarded damages of equal value to their tendering costs and the award of damages did not take into account potential success/failure of the tender. The court applied similar reasoning to the Shanklin Pier case albeit in different circumstances as seen below.
This contract therefore does not put a stop to the contractor approaching the client for compensation for loss suffered where the fault lies with the consultant, yet the employer is indeed able to meet this compensation claim by being able to sue the consultants in order to meet the costs. Thus the client’s objective is achieved in part.
Here, a collateral contract may run parallel to the main contract with the client continuing entering into its contract with the contractor, and on the basis of which the contractor then enters into a contract with the consultants for design used in the construction. (A collateral contract will be entered into between the third party and the consultants – an original party). This may be a useful device for avoiding privity of contract. There must again, be an intention to create such a contract before it can be formed. The client may then be able to sue the consultants for compensation if the design turns out to be defective, or they have provided late or incorrect information. Therefore this collateral contract between the parties requires them to fulfil their individual obligations appropriately to each party and is effectively thus a warranty.
Parliament has recognised this need in The Contracts (Rights of Third Parties) Act 1999 which gives somebody who is not party to a contract (i.e. the third party) a right to enforce a term of the contract if the contract expressly provides that he may do so, or it purports to confer such a benefit. (Note that it does not apply if on proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party).
In Shanklin Pier Ltd v Detel Products Ltd the claimant ordered their contractor to use paint to paint a pier that was to be supplied by the defendant Detel Products who had represented to the claimant that the paint would last for seven years. This contract to supply the paint was between the defendant and the contractor. The paint proved to have a defect with the paintwork falling apart after just three months and the claimant, despite being third parties to the supply contract was held entitled to sue for breach of the promise of durability. This was because the transaction gave rise to an additional collateral contract between the claimant and the defendant where the factor was the claimant’s ordering the contractor to enter into the principal contract for supply of the paint. In similar circumstances to the above case, Judge Newey QC in Greater London Council v Ryarsh Brick Co Ltd accepted that even without express representations there may be a collateral contract which contains implied terms as to suitability of fitness of the goods.
Indeed, where there is no collateral contract found a claimant would still be able to sue in negligence. A claim may be purely economic however and thus this may well prove fatal in establishing a duty of care. Furthermore, claims in contract by implied terms are quite usually strict and have no defence, yet a claim in negligence will require a proof of fault.
Again, this additional collateral contract may not stop the contractor turning to the client to complain and for compensation when the consultants do not fulfil their necessary obligations, but nevertheless the client will then be in a position to seek compensation from the consultants and subsequently pay this to the contractors. The client’s objective could be deemed as being achieved in part therefore – the contractor will still approach the client, but in turn the client will be able to fulfil the contractor’s claim. Clearly then, where there is reliance upon advice in exchange for some benefit (as between the consultants and the contractors here), then a collateral relationship may arise involving separate issues of liability. Parties who are not in a direct relationship under the main contract can become involved and it’s existence can often be inferred from surrounding facts and circumstances.