Technology and Construction Court

Before Mr Justice Akenhead

Judgment delivered on 30 November 2007

The Facts

By a contract based on the JCT Standard Form of Building Contract, Private Edition with Contractor’s Designed Supplement, 1998 edition (“the Contract”), Mr Mattu engaged Bodill to construct new apartments and convert two warehouses . The contract sum was £3.79 million. By 12 October 2007, £3.97 million had been certified although retention was still being held. Clause 30..1 of the contract provided that:

“the Employer’s interest in the Retention in fiduciary as trustee for the contractor and for any nominated subcontractor (but without obligation to invest)”.

Clause 30.5.3 of the standard form goes on to state that:

The Employer shall…if the Contractor…so requests at the date of payment under each Interim Certificate place the Retention in a separate banking account (so designated as to identify the amount as the Retention held by the Employer on trust ... and certify to the Architect with a copy to the Contractor that such amount has been so placed…”

In the last week of September 2007, Bodill asked Mr Mattu to set up the requisite bank account and pay the retention money into it. On 19 October 2007, Mr Mattu instructed his bank, the Royal Bank of Scotland, to set up a separate account and they did so within a few days. Mr Mattu instructed the bank to transfer monies into the new account but due to an oversight on the part of the bank this did not happen. Bodill’s solicitors wrote to Mr Matthu on 19 October 2007 threatening to seek an injunction to enforce clause 30.5.1 if, within 48 hours, confirmation was not given that the retention had been placed in a separate bank account. On the same day, RBS wrote to Bodill stating that they had been instructed to open a new account in the name of “Harmail Singh Mattu, trading as Urban Surburban re: Bodill retention monies”. RBS stated that the account would be opened within two to three working days.

Bodill received no confirmation that the account had been set up and that it had the requisite money in it. Bodill therefore issued proceedings for an injunction on 9 November 2007. By the time the matter came to a hearing (30 November 2007), the account was open and the sum of £123,207.93 had been transferred by Mr Mattu into the account. Two issues were raised at the hearing. Firstly, what was a reasonable time for the account to be set up and secondly, whether the account was sufficiently a trust account as envisaged by the contract.

Issues and Findings

How long should it take for such an account to be set up?

A reasonable period to set up the account and transfer money is two to three weeks.

What should the status of the account be?

It should be clear to the bank that the account is a trust account or that the sums in it are impressed with a trust. The account should have been designated a trust account.

Commentary

Whilst the principle that retention is held on trust is well established, this case provides much needed authority on whether the bank account envisaged by the JCT scheme should expressly be designated a trust account so that the bank, and others, are aware of the status of the money being held in it. The name of the account is of great practical importance in asserting a right over the monies held by the bank should the employer become insolvent or try to dissipate the funds. This case now provides the necessary clarity that the account should clearly be set up as a trust account and that this must be reflected in its title.