{"id":2544,"date":"2023-10-07T13:18:44","date_gmt":"2023-10-07T13:18:44","guid":{"rendered":"https:\/\/ahujalawoffices.com\/alo\/?p=2544"},"modified":"2023-10-07T13:18:44","modified_gmt":"2023-10-07T13:18:44","slug":"pay-if-paid-pay-when-paid-clause-in-back-to-back-agreements","status":"publish","type":"post","link":"https:\/\/ahujalawoffices.com\/alo\/2023\/10\/07\/pay-if-paid-pay-when-paid-clause-in-back-to-back-agreements\/","title":{"rendered":"\u201cPay if Paid\u201d & \u201cPay when Paid\u201d clause in back-to-back agreements"},"content":{"rendered":"\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t\t\t\t\tINTRODUCTION<\/strong>\n

\nBack-to-back agreements, also known as parallel contracts, are a common practice in the business world. Most of the real estate companies and Tech companies enter into back to back agreements with the sub-contractors. These agreements involve two separate contracts, one agreement between a principal and a main contractor and other agreement between the main contractor and a sub contractor for performing a part of the job for principal on behalf of the main contractor. While they serve various purposes, such as risk mitigation, financing, and supply chain management, the legality of such back-to-back agreements specially where the agreement contains clause of \u201cPAY IF PAID\u201d AND \u201cPAY WHEN PAID\u201d is contained has been debated and scrutinized in legal circles. This article aims to explore the concept of \u201cPAY IF PAID\u201d AND \u201cPAY WHEN PAID\u201d CLAUSE IN back-to-back agreements and examine their legality, with reference to relevant case laws.<\/p>\n\nUNDERSTANDING BACK-TO-BACK AGREEMENTS <\/strong>\n

\nBack-to-back agreements involve a chain of contracts, where the terms and conditions of main contract are closely tied to the sub contracts entered by main contractor with sub-contractors. Although back to back agreement are essential for development of the society but these agreement involve certain risks and issues which need to be looked after by the government so that general public or small contracts will not suffer losses. One of the major issued faced by subcontractors are with clause \u201cPay if Paid\u201d and \u201cPay when Paid\u201d.\n<\/p>

\nThe main contractor generally uses this term to delay the payment or to not to make the payment on the ground that they have not been paid by principal. Different countries have taken different view on the clause\/term wherein it is mentioned \u201cPay if Paid\u201d &\/or \u201cPay when Paid\u201d clauses in the agreement. Some of the countries have declared the term \u201cPay if Paid\u201d & \u201cPay when Paid\u201d clauses as against Public Policy and some have taken a view that it can be used to delay the payment for reasonable period, but the contractor is entitled for the payment for the work performed by them.<\/p>

\nThe different view points taken by different countries are as follows:-\n<\/p>

\nUnited States of America (USA)<\/strong>
\na. West Fair Electronic Contractors Vs. Aetna Casualty & Surety Company. (United States court of Appeal, Second Circuit). The New York Court of Appeals reasoned that a \u201cpay-when-paid\u201d provision which operates as a true condition precedent, rather than as a mere schedule for the\ndisbursement of payments, requires a subcontractor to await payment until the general contractor has been paid by the owner. Because the sub contractor’s right to receive payment is contingent upon this uncertain event, and because a sub contractor cannot enforce a mechanic\u2019s lien until the debt becomes due and payable, see, e.g., In re Schiavone Counstr. Co.,181 A.D.2nd 580, 581 N.Y .s.2d 322(1st Dep\u2019t 1992), the pay-when-paid condition precedent operates to waive Coppola\u2019s rights to enforce its mechanic\u2019s liens. The New York Court of Appeal concluded that this result conflicts with New York\u2019s Lien law, which words any agreement to waive rights granted under the Lien Law. Thus, the court held that a pay-when paid-provision which transfers the risk of the owner\u2018s default from a general contractor to a sub contractor violates the public policy of New York as set forth Lien and Laws.\n<\/p>

\nUnited Kingdom<\/strong>\n
\nAs per Section 113(1) of Housing Grants, Construction and Regeneration Act 1996, provides that any term making payment under the contract conditional on the payer receiving payment from a third person is ineffective.\nIn addition, section 110 of the Construction Act 1996 provides that every construction contract is required to contain an \u201cadequate mechanism\u201d for determining what and when payments are due. In respect of conditional payment terms, the parties are free to fix the time of payment.\n<\/p>

\nIndia<\/strong>\n
\nIn a matter titled as National Project construction Vs. Harvinder Singh Hon\u2019ble Division bench of Delhi High Court held that these clauses cannot be interpreted in such a way, as to disentitle the respondent to payment for\nwork rendered by it, as instructed by the appellant and in accordance with the agreement between the appellant and the respondent, merely because the appellant did not receive payment from CONCOR. Any such interpretation would be grossly unjust, inequitable and against public policy, as it would amount to holding that the services rendered, and work done, by the respondent for the appellant, in terms of a bilateral contract duly drawn\nup between them, would have to be treated as rendered gratis, without any payment therefor. Such an interpretation, needless to say, cannot be adopted or accepted, by any court of law.\n<\/p>

\nSingapore<\/strong>\n
\nThe Singapore Government had passed a bill on 1st April 2005 whereby enforcing Building and construction Industry Security of Payment SOP Act 2005 with an aim to improve cash flow and protect the interest of the subcontractor. It also provides a fast and low cost adjudication mechanism to\nresolve payment disputes.<\/p>

\nThe main highlights of the SOP Act are :-\na. Ensuring parties carrying out work or supplying goods or services for all construction projects in Singapore have a right to payment.\nb. Barring any \u201cpay when paid\u201d and \u201cPay if Paid\u201d in any contract.\nc. Providing defaults \u201cstatutory payments period\u201d if there are no contractual provision on terms of payment.\n<\/p>

\nCONCLUSION<\/strong>\n
\nThus looking at various judgments and ordinance passed by the different countries we can easily conclude that \u201cPay if Paid\u201d & \u201cPay when Paid\u201d clauses in Back to Back agreement are illegal and against the public policy, as it gives right to main contractor to sit on the payment of sub-contractor\nand further the same can be used to delay the payment but it does not mean that if the contractor is not paid he will not pay the sub-contractor.\n<\/p>\nWritten by:\n
\nVarun Ahuja,\n
\nPartner, Ahuja Law Ofices, New Delhi\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"

INTRODUCTION Back-to-back agreements, also known as parallel contracts, are a common practice in the business world. Most of the real […]<\/p>\n","protected":false},"author":1,"featured_media":2556,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"disabled","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"set","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[3],"tags":[],"class_list":["post-2544","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-agreement"],"_links":{"self":[{"href":"https:\/\/ahujalawoffices.com\/alo\/wp-json\/wp\/v2\/posts\/2544","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ahujalawoffices.com\/alo\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ahujalawoffices.com\/alo\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ahujalawoffices.com\/alo\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ahujalawoffices.com\/alo\/wp-json\/wp\/v2\/comments?post=2544"}],"version-history":[{"count":0,"href":"https:\/\/ahujalawoffices.com\/alo\/wp-json\/wp\/v2\/posts\/2544\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ahujalawoffices.com\/alo\/wp-json\/wp\/v2\/media\/2556"}],"wp:attachment":[{"href":"https:\/\/ahujalawoffices.com\/alo\/wp-json\/wp\/v2\/media?parent=2544"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ahujalawoffices.com\/alo\/wp-json\/wp\/v2\/categories?post=2544"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ahujalawoffices.com\/alo\/wp-json\/wp\/v2\/tags?post=2544"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}