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Collateral Contracts and Third-Party Rights in Contract Law

Shanklin Pier Ltd v Detel products Ltd; Defective paint. Representation given to owner of property, who then asked builders to use the paint, but main contract of paint manufacturer was with the builders. Court held that property owner had a right to sue on the basis of collateral contract between paint manufacturer and property owner. Wells (Merstham) Ltd v Buckland Sand & Silica Co Ltd; sand that was not fit for purpose sold. A made representations about sand to T who persuaded B to enter into contract with A on reliance of these representations. Court held that there was a collateral contract between A and T (despite main contract being between A and B). Scruttons Ltd v Midland Silicones Ltd; A contracted with B including a limitation of liability. Goods damaged due to negligence of T, court held that if T must show it intended to be protected by the provisions, must show A is contracting as an agent for T and these provisions should apply to T, and has authority from T (also demonstrate consideration). Not fulfilled in this case bu created a "Himalaya Clause' in carriage of goods contract (exclusion of liability to third party who had to show acceptance). Second exception: establishes a separate contract between A and T giving T contractual rights (difficulty in finding consideration) Collateral contracts Trusts of a promise First exception: B holds the rights against A on trus New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd ('The Eurymedon'); Lord Reid's elements in Scruttons were applied. Held that the clause preventing claims brought after one year applied to T (the servants and agents of the carrier) o Note: this case is also important for consideration - as the fourth element ‘that any difficulties about consideration moving from the stevedore were overcome' proved controversial. This decision has been followed by numerous cases but has also been criticised -- controversial outcome (practical but not theoretically sound?) Maritime contracts Limitations; can avoid unfair outcome but streches principle of privity and consideration. (1) Artificial nature of court's reasoning. (2) Exception of collateral contract is vague, unclear the scope beyond carriage (docking warehousing, oil tanker and tug, but did not extend to construction or employment law) Exceptions to give T rights on the contracvt Junior Books v Veitchi Co Ltd; J employed a contractor to build a factory. The contractor then engaged a subcontractor (V) to do the flooring. The floor was laid defectively, and J sued V directly. The House of Lords allowed the claim on the basis that V "assumed a responsibility" towards J. This case has been criticised significantly, especially in light of the restrictions of pure economic loss in tort law. Norwich City Council v Harvey; A entered into a contract with B to build an extension to A's swimming pool complex. B subcontracted some of the work to T. Both A-B and B-T contracts stated that A should bear the risk of fire damage. A sued T in negligence for