The High Court recently handed down judgment in Maxcon Constructions Pty Ltd -v- Vadasz.
Relevantly, the construction contract between the parties provided that the retention sum was to be released upon the issue of a certificate of occupancy under the Development Act 1993 (SA).
The High Court held that this provision constituted a “pay when paid” provision within the South Australian Security of Payment Legislation, because the issue of a certificate of occupancy was contingent upon Maxcon completing the building works under the head contract.
The Building and Construction Industry Payments Act 2004 (Qld) has the same provision as the South Australian Legislation which renders “pay when paid” provisions of no effect.
This decision will have significant implications for head contractors relying on retention sums as security. Subcontractors may be able to challenge the effect of retention clauses in construction contracts in an adjudication application where a contractor is refusing to release security under the construction contract.
The Building Industry Fairness (Security of Payment) Act 2017 (BIFSPA) has been passed by the State Government. Chapter 3 of BIFSPA relating to Progress payments will commence from 1 July 2018. Chapter 3 provides the framework and processes for payment claims, payment schedules and adjudication applications. BIFSPA also has a provision that renders “pay when paid” provisions of no effect.
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