Construction Disputes Update: Going to court to protect your retentions

A plumbing subcontractor has recently successfully obtained an interim injunction, on a without notice basis, requiring a head contractor to pay retention funds into a separate trust account pending determination of the subcontractor's claim (Hanlon Plumbing Ltd v Downey Construction Ltd [2020] NZHC 2457).
 
Justice Venning found that it was seriously arguable that the practice of the head contractor in relation to retention monies did not comply with s 18C(1) of the Construction Contracts Act 2002 which requires "All retention money must be held on trust by party A, as trustee, for the benefit of Party B."
 
In particular, on the information before the Court, it appeared that while the head contractor held (approximately) $590,000 in retentions for various contractors, the bank statement purporting to cover retentions had $190,000 in it. The Court held that the balance of convenience favoured the monies being held in a clearly identified trust account rather than mixed with other (retention) monies. For reasons not explained in the judgment, the Court also considered that there was a risk of the retention money being dissipated, which the injunction was intended to prevent. 

Key takeaways

• It is possible to obtain a mandatory injunction to compel a party holding retentions to take steps to create and maintain a trust.
• This is a potentially significant benefit to both contractors and subcontractors.
• Further reform to the retention regime is awaited. This is to include new offences and penalties for directors and firms who do not comply.

Further information on legal obligations relating to retention sums can be found in our previous publication discussing the High Court decision of Bennett v Ebert Construction Ltd [2018] NZHC 2934.

This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.