Spelling out the rights and responsibilities of the various parties thus becomes very difficult, because the main contract may exist between the client and the contractor, but may not take into account the rights of the other third parties. It may not also adequately represent the rights of the client if there is a violation by the third parties in question.
Collateral contracts are required in construction contracts, where subcontractors perform services for the main contractor rather than the customers themselves and their rights need incorporation into construction agreements. Collateral contracts in effect, establish a connection between parties such as the client and the subcontractors who would not otherwise enter into a direct contractual relationship.
When a contractor expresses an intent to utilize the services of a particular subcontractor, who commences work on this basis, it will be entitled to take legal action if the contractor fails to fulfil any of the implied terms, even if no formal contract exists. In the case of British Steel Corporation v Cleveland Bridge and Engineering Co Ltd (1984)1, the Court held that there was no true agreement between the parties, but the claimants were entitled to recover certain payments due to them on a quantum meruit basis2 and the defendants’ counter claims were not entertained.
Collateral warranties are required to counteract the difficulty associated with establishing a liability in tort when a construction contract is in place; as stated by Lord Scarman, “Their Lordships do not believe there is anything to the advantage of the law in searching for a liability in tort where the parties are in a contractual relationship.”3 The extent to which the Courts could apply duty of care and the tort of negligence would be circumscribed within the contractual terms and