Background
Vale of Glamorgan Council engaged ISG Construction Ltd under an amended NEC4 contract to extend a school in Penarth. The contract required ISG to establish a project bank account intended to protect payments owed to qualifying subcontractors. ISG engaged E & TL Jones (Civils) Ltd as its groundworks subcontractor, but the account was never opened and Jones never signed a Joining Deed or became a “Named Supplier” under the main contract.
The Council made certified payments directly to ISG, including £486,017.67 attributable to work certified under Jones’s fourth subcontract application. ISG entered administration before paying that amount, and Jones expected no recovery in the administration. Jones sought slightly more than £480,000 in damages from the Council, arguing under the Contracts (Rights of Third Parties) Act 1999 that it could enforce clause Y1.8 of the main contract and that the Council breached that clause by paying ISG directly.
The Court’s Holding
The High Court dismissed the claim. Clause Y1.8 conferred a benefit on “Named Suppliers,” not on the broader class of all “Suppliers.” Although Jones became a Supplier when it entered the subcontract, it never became a Named Supplier because it did not execute the Joining Deed. It therefore did not satisfy section 1(3) of the 1999 Act and had no right to enforce clause Y1.8. The Council’s alleged breach could not be used to bypass those statutory requirements.
The court also held that the Council did not breach the main contract by making direct payments. With no project bank account and no Named Suppliers, ISG and the Council could agree to make and receive payments directly. Clause Y1.8 imposed a positive obligation to pay into an existing account; it did not prohibit direct payment when the account did not exist, and its performance depended on the account having been established.
Alternatively, Jones failed to prove causation. The evidence indicated that Santander’s internal delays and later know-your-customer concerns prevented establishment of the account, rather than any loss of pressure on ISG caused by the Council’s payments. In addition, ISG’s request for and acceptance of direct payments would have waived any supposed breach, giving the Council a defence under section 3(2) of the 1999 Act.
Key Takeaways
- A subcontractor that is merely a “Supplier” cannot enforce NEC4 project-bank-account provisions benefiting the separately defined class of “Named Suppliers.”
- Execution of the required Joining Deed was substantive: without it, Jones acquired neither third-party enforcement rights under the main contract nor rights under the trust deed.
- Clause Y1.8 did not prohibit direct payments where no project bank account existed, and Jones also failed to prove that the direct payments caused its loss.
Why It Matters
The decision illustrates that the Contracts (Rights of Third Parties) Act 1999 does not extend construction-contract protections beyond the class expressly identified by the contract. A subcontractor’s intended participation in a project bank account is not equivalent to completed participation where the contractual joinder process has not occurred.
It also clarifies the operation of the NEC4 project-bank-account provisions used here: the client’s payment obligation presupposed an existing account and did not itself impose a negative prohibition against paying the contractor directly. Subcontractors seeking insolvency protection should ensure that the account is operational and that the required joining documentation has been executed.