Subcontractor fails in £480k claim against council over school extension project

That ruling has come from the High Court in a case heard by HHJ Keyser KC and brought against the council by E & TL Jones (Civils).

Jones in August 2023 entered a contract with ISG Construction to carry out groundworks on a council school extension project.

The main contract provided for a project bank account to protect money owed to subcontractors.

Jones said Vale of Glamorgan breached the main contract by making payments, including sums for some of its work, directly to ISG rather than the project account.

ISG became insolvent and entered administration before paying Jones, which said it had no realistic prospect of recovering the £480,000 owed from the administration and so claimed this from the council.

It said the original invitation to tender included a provision that the contractor use a project bank account as the primary method of payment for works by sub-contractors.

Work was in progress in the spring of 2024 and the establishment of the account became of more pressing significance.

In June that year an official of construction consultant AECOM complained to ISG: “I am concerned regarding the lack of confirmation on the completion of the Project Bank Account. It is imperative that we receive this confirmation as soon as possible to ensure the smooth progression of future valuations, in accordance with Welsh Government requirements.

“The timely confirmation of the Project Bank Account is not only a critical administrative step but also a contractual necessity. If we do not receive confirmation before next month's valuation, we will likely be asked by the Vale of Glamorgan's finance team to withhold payment. This is a scenario we are keen to avoid.

"Please can you confirm what the hold up is?"

The judge said it appeared the account was delayed due to mislaid paperwork within Santander bank.

ISG entered administration in September 2024 without having set up the PBA and no party ever became a ‘named supplier’ under the contract.

Jones argued that for the council to pay ISG directly rather than pay into the PBA was a breach of contract.

HHJ Keyser said: “The disputed question that determines whether the claimant satisfies the requirement in section 1(1)(b) concerns the class or description of third parties on whom Clause Y1.8 purports to confer a benefit. “

He said Jones argued this clause mandated payments be made by the council only into the PBA.

After various stages the contractor was to have submitted to the project manager that a subcontractor become a named supplier.

Jones accepted it never became a named supplier, and the judge said it was impossible for it to bring itself within the protections of being one “because it cannot satisfy the requirement in section 1(3)” as it had never been a named supplier.

The sub-contractor’s counsel argued that its absence from the list of named suppliers was a breach of the main contract by the council, which could not take advantage of its own breach of contract.

The judge said: “However, the argument cannot succeed. The claimant was not a party to the main contract. Therefore it can only sue on the main contract if it qualifies under section 1 of the 1999 Act. The claimant does not qualify…To say that the claimant can circumvent section 1 in reliance on a breach of the clause sought to be enforced under section 1 is tantamount to saying that the claimant can enforce a contractual term without satisfying the requirements of the 1999 Act.”

HHJ Keyser turned to whether Clause Y1.8 required payments under the main contract to be made only to the PBA, so that for the council to make any other constituted a breach of contract.

He said: “As there were never any named suppliers, there were never either any third parties who might have enforceable rights under the main contract or any third parties who were privy to the 2024 Trust Deed and entitled to contractual or proprietary rights under it.

“This in turn means that, if both the [council] and ISG wanted to make and accept payments other than in strict conformity with the terms of the main contract, there was nothing and no-one to stop them doing so.”

Mark Smulian