Bodill & Sons (Contractors) Ltd v Mattu

Retention monies under a construction contract may be held on an express trust, giving the employer trustee obligations in addition to contractual obligations. Following a request for a separate account, the employer must act within a reasonable period assessed in light of commercial realities. Failure to transfer the retention within that period may constitute a breach of trust and contract.

The account must be clearly designated as a trust account so that the bank and others understand that the money is subject to the trust. An escrow arrangement should not be ordered where it exceeds the contractual protection and there is no evidence of deliberate misconduct. Appropriate undertakings may provide sufficient protection without a further order.

The claimant building contractor sought alternative injunctions concerning retention monies deducted under a construction contract for the development of apartments and warehouse conversions. The contract provided that the employer’s interest in the retention was fiduciary as trustee for the contractor and any nominated subcontractor, and allowed the contractor to request a separate banking account.

The claimant requested such an account in late September 2007. Proceedings were issued after the account had been opened but the money had not been transferred and the account was not clearly designated as a trust account. By the hearing, substantially all the money had been transferred. The issues were whether there had been breaches of trust and contract, whether an escrow account was required, and what relief was appropriate.

1. Trust and contractual obligations. The retention monies were held on trust under clause 30.5.1. The employer therefore owed obligations both under the contract and in the capacity of trustee. Any recourse to the retention required an established right to do so.
2. Reasonable period. Following the claimant’s request, the employer was required to establish the separate trust account and arrange transfer of the retention. The law did not require instantaneous performance. Having regard to commercial realities, two to three weeks was a reasonable period. The failure to pay or secure payment of the retention within that period amounted to a nominal breach of trust and contract, giving the claimant a cause of action when proceedings were issued.
3. Account designation. The account name referring to the defendant, his trading name and Bodill retention money was insufficiently clear. The account had to be designated as a trust account, making clear to the bank and others that the sums were impressed with a trust. This constituted a further, temporary breach.
4. Relief. An escrow account with release only at the direction of the defendant’s solicitors would require more than the contract provided and was not justified absent evidence of deliberate misconduct. The defendant undertook to maintain the money in the account, instruct the bank to redesignate it as a trust account naming Bodill, and give three clear working days’ written notice of any intention to remove or use money in the account. Those undertakings provided sufficient protection, so no further order was made. Permission to apply was granted if the redesignation undertaking was not given by the specified date.

First-instance decision. The judgment states that the proceedings were issued as a Part 8 claim and constituted a final hearing.