Can subcontractors bank on third party claims for breach of a main contract?

In E & TL Jones (Civils) Ltd v Vale of Glamorgan Council [2026] EWHC 2054 (TCC) involving a claim for breach of contract from a third party, the TCC has had a rare opportunity to examine a dispute involving NEC4 option clause Y(UK)1, governing the use of project bank accounts.

In August 2023, ISG Construction entered into an NEC4 contract with Vale Of Glamorgan Council (“the Council”). The contract made provision for the establishment of a Project Bank Account (“PBA”) for the protection of money owed to subcontractors, and required the Council and ISG to use this PBA as the primary method of payment for subcontractors, protecting them from any consequences of the main contractor becoming insolvent by ringfencing funds in the PBA. ISG and the Council took steps to open an account for this purpose, but never completed the process.

NEC4 Optional Clauses Y(UK)1 set out the rules for the PBA, which was to be governed by a “Trust Deed” and was to benefit “Named Suppliers” who would either be party to the Trust Deed, or would later join into it by a “Joining Deed”.

E & TL Jones (Civils) Limited (“Jones”) were hired by ISG as the main groundworks sub-contractor on the project. They were waiting to be paid a sum of £486,017 for work completed when ISG became insolvent and went into administration. There was no realistic prospect of Jones making any significant recovery in the administration.

Jones therefore attempted to make a claim against the Council to enforce the Main Contract between The Council and ISG as a third party using The Contracts (Rights of Third Parties) Act 1999 Act (“the 1999 Act”). They reasoned that funds should have been available in a PBA to pay what Jones were owed. They asserted that by failing to open the PBA, and by paying ISG (instead of paying into the PBA as the contract had intended), the Council were in breach of contract, and caused Jones’ loss of £486,017.

The case hinged on (1) whether the Main Contract give Jones the right to sue for a breach of Option Clause Y(UK)1 of the Main Contract at a third party; and (2) whether or not Jones was a third parties upon whom those rights were conveyed – essentially, were they a “Named Supplier”?

Jones accepted that they were never explicitly made as “Named Supplier” but argued that they were a supplier of the kind that was intended to benefit from the PBA, and that nobody was a “Named Supplier”. Jones also said they could not sign the Trust Deed or Joining Deed to become a “Named Supplier” because the PBA had not been set up, as the Council had failed to do so - refusing their claim on the basis they were not “Named Suppliers” would be allowing the Council to profit from their own breach of contract.

The Court did not agree and decided that Jones were not a Named Supplier, and so were not a member of a class rights had been granted to, as is required for them to be able to make a third party claim by Section 1 Subsection 3 of the 1999 Act. The Court decided that if Jones were allowed to circumvent the requirements of the 1999 Act by relying on a breach of the clause they seek to enforce (the requirement to open the PBA), it would basically be allowing Jones to enforce a contractual term in a contract it isn’t party to without meeting the conditions of the 1999 Act. Jones claim was accordingly dismissed.

While the claim had failed at this first hurdle, the Court took the opportunity to offer an opinion on some of the questions that would have followed. This included considering - “Was the Council actually in breach of the Contract?” The Court found that it was not. As whilst the Contract contained a requirement to pay into a PBA, the Court’s view was that the Council could not be in breach where no PBA existed. As there were no Named Suppliers and no PBA, the Court decided that the Council were free to pay ISG directly.

This case demonstrates that Project Bank Accounts need to be properly established before they can provide any protection to subcontractors. With the decision highlighting the importance of ensuring all PBA documents are finalised, ideally before work begins. It also acts as a reminder that where a PBA has been established, with a Named Supplier, then under Y(UK)1 there is a positive obligation on a Client to pay into that PBA with the potential for third parties to seek to claim for a failure to do so.