By Owen Hayford and Hannah Stewart-Weeks
Senior Fellow in the Melbourne Law Masters and Partner, PwC Legal and Senior Associate, PwC Legal
If you’re a construction lawyer or construction industry professional, by now you’ve probably heard about the recent High Court decision in Maxcon Constructions Pty Ltd v Vadasz  HCA 5 (‘Maxcon’) (handed down at the same time as the decision in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd  HCA 4). Most commentators have focused on the judicial review issue which arose in both of those cases. However, the High Court in Maxcon also determined that a provision in a construction agreement which allowed a head contractor to withhold retention moneys under a subcontract until certain events had occurred under the head contract was a ‘pay when paid’ provision, and was therefore not legally enforceable under the security of payment (SOP) legislation. (See Kiefel CJ, Bell, Keane, Nettle and Gordon JJ at –. Gageler J at  and Edelman J at  agreed with the conclusions of the plurality regarding the operation of the SOP legislation, but did not consider the issue determinative of the appeal).
In this instance, the relevant SOP legislation was the Building and Construction Industry Security of Payment Act 2009 (SA) (‘SA SOP Act’), but most other States apart from Western Australia and the Northern Territory have similar provisions to the SA SOP Act. Thus, the decision has potentially broad implications for head contractors, not only in relation to retention provisions, but also in relation to other provisions which attempt to make a payment under a subcontract contingent upon an event occurring under the head contract. Head contractors may need to review their subcontracts to ensure that they don’t inadvertently contain ‘pay when paid’ provisions as a result of this decision. Continue reading