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Court finds subcontractor had no enforceable rights under the main construction contract
The High Court has dismissed a claim brought by civil engineering contractor E & TL Jones (Civils) Ltd against the Vale of Glamorgan Council, ruling that the subcontractor could not rely on third-party rights legislation to recover more than £480,000 following the insolvency of main contractor ISG Construction Ltd. The judgment was handed down on 4 August 2026 by His Honour Judge Keyser KC, sitting as a Judge of the High Court in the Technology and Construction Court.
The dispute arose from the construction of an extension to a school in Penarth. In August 2023, the council entered into a main construction contract with ISG Construction Ltd, while E & TL Jones later joined the project as ISG’s groundworks subcontractor. Under the main contract, the parties agreed to establish a Project Bank Account (PBA), a payment mechanism designed to protect subcontractors by ensuring funds intended for them were held separately before being distributed.
The contract incorporated NEC4 provisions requiring the contractor to establish the Project Bank Account and to include eligible subcontractors as “Named Suppliers” through a formal joining process. Once added, those suppliers would receive payments through the protected account rather than relying solely on the contractor to pass on money received from the employer.
Although the trust deed governing the Project Bank Account was executed in April 2024, the account itself was never opened. The evidence before the court showed that delays occurred while Santander processed the arrangements and later paused progress during corporate developments affecting ISG. Internal communications revealed continuing efforts by ISG to establish the account before the company entered administration in September 2024.
Meanwhile, the council made several certified payments directly to ISG under the main contract. Four of those payments included sums relating to work carried out by E & TL Jones. ISG paid the subcontractor’s earlier certified applications but failed to pay application number four, worth £486,017.67, before entering administration. The claimant accepted that it had little realistic prospect of recovering that money through the insolvency process and instead sought damages from the council.
E & TL Jones argued that the council breached the main contract by making direct payments to ISG instead of paying into the Project Bank Account. It relied on the Contracts (Rights of Third Parties) Act 1999, contending that the payment provisions were intended to benefit subcontractors and that the council’s failure to comply deprived it of protection against ISG’s insolvency. The company claimed damages exceeding £480,000.
The council disputed the claim, arguing that only subcontractors who had formally become Named Suppliers by signing a Joining Deed acquired rights connected with the Project Bank Account. Because no suppliers were ever added to the scheme, the claimant never became a Named Supplier and therefore had no right to enforce the relevant contractual provisions.
Judge Keyser agreed with the council’s interpretation. He concluded that the relevant contractual benefit applied only to Named Suppliers, not to every subcontractor engaged on the project. Since E & TL Jones had never signed a Joining Deed and had never become a Named Supplier, it could not satisfy the statutory requirements needed to enforce the payment clause under the 1999 Act.
The judge also rejected the claimant’s argument that the council’s direct payments to ISG amounted to a breach of the main contract. He held that, because no Project Bank Account had ever been established and there were no Named Suppliers entitled to receive payments through such an account, there were no third-party rights capable of being enforced. In those circumstances, both the council and ISG were free to make and accept direct payments without breaching the contract.
The court examined the payment provisions in detail and found that the obligation to establish the Project Bank Account rested with ISG rather than the council. The claimant’s case focused on the council’s payment obligations, but the judge noted that the council could not be held responsible for ISG’s failure to create the account or complete the process required to admit subcontractors as Named Suppliers.
Judge Keyser further concluded that the contractual payment clause imposed a positive obligation to pay into an existing Project Bank Account. Because no such account existed, that obligation could not operate in the way argued by the claimant. The court rejected the suggestion that the clause created a separate prohibition preventing the council from making payments directly to ISG while the account remained unopened.
The judgment also addressed the issue of causation. E & TL Jones argued that, had the council refused to make direct payments, ISG would have been compelled to establish the Project Bank Account before its financial collapse, ensuring that the subcontractor received the money due to it. The court found that this argument was unsupported by the available evidence.
Instead, the documentary evidence indicated that the principal obstacle to establishing the Project Bank Account was the delay in Santander’s processing of the arrangements, followed by the bank’s decision not to proceed until issues surrounding the proposed sale of ISG and its know-your-customer requirements had been resolved. Those events ultimately coincided with ISG entering administration before the account could be opened. The judge therefore concluded that withholding payments by the council would not, on the evidence before the court, have resulted in the Project Bank Account being established in time to protect the claimant’s payment.
The court also observed that ISG had itself requested the payments that the council later certified and made. Having applied for and accepted those payments, ISG could not realistically have alleged that the council had acted in breach of the contract by paying them directly. That conclusion further undermined the claimant’s attempt to pursue the council under the Contracts (Rights of Third Parties) Act 1999.
In dismissing the claim, Judge Keyser held that E & TL Jones was never a member of the class of parties entitled to enforce the relevant payment provisions because it had not become a Named Supplier through the contractual joining process. The court also found that the council had not breached the payment provisions as alleged and that, even if a breach had been established, the claimant had failed to prove that it caused the loss claimed following ISG’s insolvency.
The decision provides guidance on the operation of NEC4 Project Bank Account provisions and the limits of the Contracts (Rights of Third Parties) Act 1999 where subcontractors have not completed the contractual steps necessary to acquire protected status. It also highlights the distinction between obligations placed on an employer and those resting with the main contractor when a Project Bank Account has not been established before an insolvency event.