Agencies right to withhold money

Are agencies allowed to withhold your payments if they believe you have breached your contract?

I was on a contract over a number of years via 2 agencies. Recently I was advised that since the end client had changed names/merged etc over the time period that the 6 month restrictive trade clause no longer held true for me and that I could cut the number of agencies down to 1. I sent a letter to the agency in question stating my intention and asking for their response. Their response was not kind and they have since withheld all outstanding invoices owing to me.

As it turned out my contract was only renewed for an additional two months and is now over. However following the letter from the 1st agency I decided not to follow through with my intention to cut them out of the loop, and have subsequently invoiced for my last two months via them.

They however insist that I have breached my contract and are not interested in even knowing about the last two months. They have stated I should take them to court if I want to see the money they are withholding.

So as things stand at the moment, agency 1 is refusing to pay 2 months salary to me, while agency 2 also has 2 months worth that I've asked them to hold onto before paying through to agency 1 so I can sort this out.

So if I was wrong to say I wanted to cut out the one agency but not actually follow through with it, and subsequently still try invoice via them, have I actually breached any contract or simply shown an intention to breach a contract?

Secondly, does the 1st agency therefore have any right not to accept the 2 month renewal simply because of my intentions?

And then do they have any right to withhold my money?

What should I do?

-- mitchellwg