| Date | 28 May 2008 |
|
|
| Judgment | Bodill & Sons (Contractors) Limited v Harmail Singh Mattu, Technology and Construction Court, 30 November 2007 |
|
|
| The Issue | The use and operation of retention funds. |
|
|
| Implication | Contractors should establish procedures early in the project to ensure retention funds are treated according to the requirements of the contract, and where separate bank accounts are required these should be clearly set up as trust accounts with the contractor’s name indicated in the account name. |
print| Retention funds are a continual source of irritation to many in the construction industry. Main contractors and sub contractors have lobbied long and hard for their abolition, whilst employers have resolutely refused to accept any change to this time honoured practice. The recent case of Bodill v Mattu highlights how retention funds should be treated and perhaps gives a timely reminder of the steps that might be taken to protect a company’s rights to retention withheld from its account. Bodill was employed by Mattu in February 2006 to construct new apartments and convert two warehouses at Hinckley in Leicestershire. The contract was in the JCT standard form of Building Contract, Private Edition, with Contractor's Design Portion Supplement, 1998 edition. The contract sum was £3.79 million. Although the contract date for completion was 12 February 2007 works continued beyond that date and by 12 October 2007 the total gross amount certified for payment was some £3.97 million. By that stage the total that appeared on the payment certificates as retention was £124,207. This JCT standard form of contract, as many others, provides for retention at a certain percentage to be deducted from interim certificates, and then released in part once the works are partially or practically complete. Most importantly, it is clear from the words of the contract, as well as numerous legal authorities, that the retention monies are held on trust. This means that in the event of the employer’s insolvency, providing the funds have been clearly separated, the contractor’s interests in these monies will be protected. Clause 30.5.1 of the contract conditions says this: As a consequence the employer owes obligations not just contractually but as a trustee, imposing additional duties which may go beyond those arising expressly from the contract. Clause 30.5.3 of the contract goes on to say: This is an important right that few contractors take advantage of. Indeed, Bodill did not make any enquiries in the early part of the contract as to whether or not a separate trust fund had been established in respect of retention monies. In September 2007 however, Bodill asked Mattu to set up a separate banking account and pay the retention money into it. The following month Mattu instructed the Royal Bank of Scotland to set up a separate account for this purpose and to transfer the requisite funds across. Unfortunately the bank did not act on these instructions with any speed and Bodill, who had received no confirmation that the account had been set up and the money transferred, issued court proceedings in November 2007 to require Mattu to comply with clause 30.5. Examining the facts, Mr Justice Akenhead commented that following the request in late September from Bodill it was incumbent for Mattu to set up the separate trust account. However, neither the law of trust nor the law of contract required this to be done instantaneously. The commercial realities must be taken into account and a reasonable period for the setting up of the account and the transfer of the money was two to three weeks. As a consequence of the bank’s failure to act, Mattu had failed to achieve this. In addition, the name of the account was not sufficiently clear that it could be described as a designated trust account. The account name which had been opened was "Harmail Singh Mattu, trading as Urban Suburban, re Bodill retention money account". According to the judge, this did not make it anywhere near clear enough to the bank or anyone else that it was a trust account. To resolve these concerns Mattu gave undertakings to the court that he would immediately instruct the bank to ensure the necessary funds were transferred into the account and that the account would re-designated as a trust account with Bodill also identified in the name of the account. With those undertakings the judge considered it was unnecessary to make any other order.
CJ-0821
|
|||
|
© Brewer Consulting |
|||
 |
|||