Contact: David Rodighiero, Partner and Marnie Carroll, Solicitor; Carter Newell (Queensland, Australia)
The introduction of security of payment legislation in all Australian jurisdictions has reinforced the common law position that ‘pay when paid’ and ‘pay if paid’ clauses are void in respect of contracts for construction works performed or related goods and services supplied in Australia.
In Queensland for example, s 16 of the Building and Construction Industry Payments Act 2004 (Qld) provides that ‘a pay when paid provision of a construction contract has no effect in relation to any payment for construction work carried out or undertaken to be carried out, or related goods and services supplied or undertaken to be supplied, under the construction contract’. Prior to the bar on 'pay when paid' and 'pay if paid' provisions under security of payment legislation, courts had viewed such clauses unfavourably: see Ward v Eltherington [1982] QdR 561; Sabemo (WA) Pty Limited v O’Donnell Griffin Pty Limited (1983) (unreported, Court of Western Australia); Crestlite Glass & Aluminium Pty Ltd. v. White Industries (QLD) Pty Ltd (Unreported, Federal Court of Australia).
While head contracts are typically drafted to avoid such clauses, 'pay if paid' and 'pay when paid' mechanisms tend to inadvertently creep into subcontract provisions concerning the release of security or head contract claims.
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