The prohibition on “pay when paid” provisions

In Maxcon Constructions v Vadasz [2018] HCA 5, Maxcon entered into a subcontract with Mr Vadasz in relation to piling works. A clause in the contract stated that Maxcon could retain a sum corresponding to 5% of the contract sum that would only be repaid when a certificate of occupancy and other requirements were obtained by the head contractor. The High Court held that this provision constituted a “pay when paid” provision, since it made the release of the retention dependent upon the head contractor obtaining the certificate. A pay when paid clause is a provision that states that the contractor is obliged to pay its subcontractors follow receipt of payment from the owner. The Court stated that a pay when paid provision makes the liability of money owing or the due date to pay money contingent on the operation of another contract. Accordingly, the Court held that the clause was void.

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