• Aitchison Reid

When are my retentions due?


Receiving your retentions is vital for business survival, growth and satisfaction. Unfortunately, in their last bite of the cherry, some builders attempt to avoid paying retentions through tricky contract drafting.

In February this year, the High Court of Australia handed down an epic decision for subcontractors on the subject of retentions.[1]

In this article, we investigate how this new decision affects when your retentions are due.

The facts

The case involved a builder, Maxcon Constructions Pty Limited (‘Maxcon’) and a piling subcontractor Mr Vadasasz trading as Australasian Piling Company (‘Mr V’, the ‘subbie’). As part of the contract, Maxcon was to pay retentions to Mr V 90 days after CFO was achieved and then 365 days after the CFO was achieved (the ‘retentions clause’). CFO was defined as when the certificate of occupancy and other required approvals that enabled the works to be lawfully used for their respective purpose.

On 25 February 2016 Mr V issued his payment claim for $204,864.55 (including GST).

On 8 March 2016 Maxcon issued a payment schedule for $141,163.55. The deductions made by Maxcon consisted of retentions and other administrative charges.

Mr V applied for adjudication and was successful. The adjudicator found that the retentions clause was in fact a ‘paid when paid’ clause because it “makes the liability to pay money owing or the due date for payment of money owing, contingent or dependent on the operation of another contract”.[2]

Maxcon applied to have the matter judicially reviewed. The primary Supreme Court judge dismissed the application.

Maxcon appealed to the Full Court of the Supreme Court. The Full Court dismissed the appeal.

Maxcon appealed to the High Court of Australia. The High Court gain dismissed the application, but most importantly, the High Court agreed with the adjudicator that the retentions clause was indeed a paid when paid clause.

So how does that affect my retentions in Queensland?

It is important to note that the Maxcon decision related to a South Australian dispute and that means that the South Australian Security of Payment legislation applied.

However, the part of the South Australian Security of Payment Act that was relied on by the adjudicator, the Supreme Court and finally the High Court is virtually identical to section 16 of Queensland’s Building and Construction Industry Payments Act 2004 (BCIPA), which states:

“(1) 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.

(2) In this section—

an amount owing, in relation to a construction contract, means an amount owing 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.

pay when paid provision, of a construction contract, means a provision of the contract—

(a) that makes the liability of one party (the first party) to pay an amount owing to another party (the second party) contingent on payment to the first party by a further party (the third party) of the whole or any part of that amount; or

(b) that makes the due date for payment of an amount owing by the first party to the second party dependent on the date on which payment of the whole or any part of that amount is made to the first party by the third party; or

(c) that otherwise makes the liability to pay an amount owing, or the due date for payment of an amount owing, contingent or dependent on the operation of another contract.” (highlighting added).

This means that the High Court’s interpretation of section 12 of the South Australian Act will be relevant to how Queensland courts interpret our own clause 16.

The wording of the subcontract in the Maxcon case is slightly different from the wording that we commonly see in Queensland subcontracts. Queensland subcontracts often state:

  • 2.5% of retentions will be paid on practical completion; and

  • The remaining 2.5% will be paid 12 months after the date of practical completion (or the end of the defects liability period) of the head contract.

However, taking the same reasoning of the Maxcon case and the wording of clause 16(2)(c), the requirement for the head contractor to pay the subcontractor 12 months after the date of practical completion (or the end of the defects liability period) of the head contract makes the due date for payment of the retentions “contingent or otherwise dependent on the operation of another contract”, being the head contract. In other words, it is a paid when paid clause and void.

So when are my retentions due?

If you have a clause in your contract that states your due date for payment is contingent on the defects liability period or practical completion of the head contract, you could have a paid when paid clause on your hands, which is void under BCIPA.

This means that the default provisions of section 17A(3) of BCIPA apply, being:

“If the payment claim relates to a final payment, the claim must be served within the later of the following—

(a) the period, if any, worked out under the relevant construction contract;

(b) 28 days after the end of the last defects liability period, if any, worked out under the relevant construction contract;

(c) 6 months after the later of—

(i) completion of all construction work to be carried out under the relevant construction contract; or

(ii) complete supply of related goods and services to be supplied under the relevant construction contract.

If you think you have a paid when paid clause and you want to claim your retentions, we strongly recommend that you seek legal advice to make sure you take the right steps in claiming your retentions. You generally only have one last final payment claim, as a result it’s worth making sure you get it right!

Contact Us

To be sure that you take the right steps in claiming your retentions, let our experienced construction law team give you peace of mind. Call us on (07) 3128 0120 or email us at subcontractors@arbuildinglaw.com.au.

End Notes

[1] Maxcon Constructions Pty Limited v Vadasz [2018] HCA 5.

[2] Section 12 Building and Construction Industry Security of Payment Act 2009 (SA).

#retentions #subcontracts #subcontractors #getpaid

0 views
Aitchison Reid Building and Construction

​© 2020 Aitchison Reid Pty Ltd trading as Aitchison Reid Building and Construction Lawyers, a law practice incorporated in Queensland, Australia. Call 07 3128 0120 or email subcontractors@arbuildinglaw.com.au. ACN 160 577 364. ABN 85 787 028 300.

Disclaimer: The commentary and information on this website is not legal advice, IT advice, risk advice, management advice or general advice. Seek advice on matters of interest arising from the commentary and information on this website. Any reference made on this website to law practice Aitchison Reid Pty Ltd or anything else does not imply any warranty or any guarantee from Aitchison Reid Pty Ltd for the reference made.