Bodill & Sons (Contractors) Ltd v Mattu

Retention monies held under a construction contract may be subject to both contractual and trustee obligations. Following a request for segregation, the employer must establish the separate trust account and transfer the retention within a reasonable period, assessed in light of commercial realities. A delay of two to three weeks may be reasonable for setting up the account, but failure to transfer the money within that period can constitute a breach. The account must be clearly designated as a trust account. An injunction requiring an escrow arrangement should not impose substantially greater protection than the contract requires unless there is evidence of deliberate misconduct. Adequate undertakings to preserve the money, correct the account designation and give notice before dealing with it may make further injunctive relief unnecessary.

The claimant building contractor sought alternative injunctions against the defendant developer concerning retention monies deducted under a construction contract. The contract required retention monies to be held on trust and, on request, placed in a separately designated banking account. The claimant requested segregation in late September 2007, but proceedings were issued after uncertainty about whether the account had been opened, properly designated and funded. By the hearing, almost all the retention had been transferred, and the defendant offered undertakings concerning the account, its designation and notice of any proposed dealing with the funds. The central issues were whether there had been breaches of trust and contract and what relief, if any, was appropriate.

1. Retention monies and breach. The retention monies were held on trust under clause 30.5.1. The employer therefore owed both contractual obligations and the additional obligations arising from the trusteeship. Following the contractor’s request, the employer was required to establish the separate trust account and secure payment of the retention into it.
2. The law did not require instantaneous compliance. Commercial realities justified allowing a reasonable period, assessed here as approximately two to three weeks, for opening the account and transferring the money. The delay in setting up the account was not, to any significant extent, a breach. Failure to pay or secure payment of the retention within that period was, however, at least a nominal breach of trust and contract. Proceedings were therefore issued with a valid cause of action.
3. The account’s description as the defendant’s trading account relating to Bodill retention money did not make sufficiently clear to the bank or others that it was a trust account or that the money was trust property. That created a further, temporary breach of trust and contract. The account had to be clearly redesignated.
4. The claimant’s proposed escrow arrangement sought materially more than the contract required. It might have been justified by evidence of deliberate misconduct, but there was no such evidence. The defendant’s undertakings to maintain the funds, instruct redesignation of the account with the claimant named, and give three clear working days’ written notice of any intended withdrawal or use provided sufficient protection.
5. No further order was necessary. Permission to apply was granted if the redesignation undertaking was not given by the specified deadline or if the undertakings were not honoured.

Not stated in the judgment.