Summary

The claimant was ISG's groundworks subcontractor on a school extension in Penarth. ISG's own contract with the council required a project bank account, the device that holds subcontractors' money on trust against a main contractor failure. That account was never opened. When ISG entered administration in September 2024, the subcontractor was left unpaid on a certified application for £486,017.67, with no realistic prospect of recovery in the administration.

It sued the council rather than ISG, contending that the council broke the main contract by paying ISG directly instead of into the account, and that it could enforce the payment clause against the council through the Contracts (Rights of Third Parties) Act 1999.

Judge Keyser KC dismissed the claim. It failed at the first step: the clause benefited Named Suppliers, a status the subcontractor never held. On assumptions he did not need to make, the judge added that there was no breach, no loss caused, and a waiver by ISG in taking the direct payments. The council won.

Background and facts

The council engaged ISG on 23 August 2023 under an amended NEC4 Engineering and Construction Contract, Option A, at a price of £20,897,221.77. Secondary Option Y(UK)1 required ISG to establish a project bank account with Santander within three weeks of the Contract Date. The Contract Data recorded "named suppliers are TBC". Under clause Y1.6, ISG had to propose each supplier for addition as a Named Supplier, and the supplier, the council and ISG would then sign a joining deed. ISG proposed nobody. Nobody signed.

The subcontract of 15 May 2024 was worth £2,950,574.69, some 14 per cent of the main contract price. The account itself sat with the bank, delayed first by mislaid paperwork and then by customer due diligence checks awaiting ISG's proposed sale. The sale collapsed, and ISG entered administration on 20 September 2024.

The council meanwhile paid ISG directly: seven certified payments between November 2023 and September 2024, the last including the £486,017.67 owed to the claimant on its fourth subcontract application. ISG never passed it on.

The issue

The subcontractor argued that clause Y1.8, which channels the client's payments into the account, purported to confer a benefit on it as a Supplier, so sections 1(1)(b) and 1(3) of the 1999 Act allowed it to enforce the clause. Had the council withheld the direct payments, it said, ISG would have opened the account and the money would have reached it on trust.

The council answered that the class benefited was Named Suppliers, which excluded the claimant; that nothing was breached because the account never existed; that the hold-up lay with the bank; and that ISG had in any event waived any breach.

The decision

The claim failed at the first hurdle: the judge held that the third parties on whom clause Y1.8 purported to confer a benefit were those admitted to the trust arrangements, and only them.

The relevant class of third party is Named Suppliers. The claimant was never a Named Supplier.His Honour Judge Keyser KC, paragraph 34

The subcontractor could not escape that by blaming the council.

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.His Honour Judge Keyser KC, paragraph 36

There was no breach in any event. Clause Y1.8 imposes a positive duty to pay into the account; it says nothing about payments made where no account exists.

But the obligation in Clause Y1.8 was a positive one, not a negative one, and it was impossible of performance, because it was premised on the existence of a PBA. The condition precedent to performance of the obligation in Clause Y1.8 had failed. Therefore the failure to pay into a PBA was not a breach of contract.His Honour Judge Keyser KC, paragraph 56

The judge went further, though he did not need to. With no account and no Named Suppliers, he considered the council obliged, or at the least entitled, to pay ISG directly, read with the payment machinery in clause 51. Causation failed too: the account was stuck at the bank and would not have opened before the administration whatever the council did. ISG had also applied for and accepted every payment, waiving any breach, a defence open to the council under section 3(2) of the 1999 Act. The claim was dismissed.

Practical implications

The danger is plain. A project bank account clause on paper is not money on trust. Until the account is open and the subcontractor has signed the joining deed, the trust never bites, and a subcontractor who assumed protection is unsecured when the main contractor fails.

The two steps are separate, and both matter. Joining does not wait for the account: the judge rejected the submission that a supplier could not be added until the account existed. A subcontractor can press for Named Supplier status from the first day of its subcontract.

For employers, the judge's view, which he did not need to reach, was that with no account and no Named Suppliers the council was obliged to pay ISG directly, or at the least permitted to. He held that the October 2020 amendments to Option Y(UK)1, which expressly allow direct payment where no account exists, say nothing about how the earlier wording is read.

E & TL Jones (Civils) Ltd v Vale of Glamorgan Council [2026] EWHC 2054 (TCC). Technology and Construction Court (KBD), Business and Property Courts in Wales, Cardiff. His Honour Judge Keyser KC, sitting as a Judge of the High Court. Judgment handed down 4 August 2026. Case reference HT-2025-CDF-000009.