In a case that was tried in early 2016, an engineering firm acted as a contractor in a project and assigned a subcontractor a “back to back” clause for certain jobs. The Court held that the purpose of a “back-to-back” clause is generally to prevent the subcontractor from paying the subcontractor for work that has not been approved or paid for by the contracting authority for reasons related to the subcontractor, such as. B than partial or inappropriate work. Despite the existence of a “back to back” clause in the agreement between the parties and even if the supplier has not received payment from the customer, it does not nullify the obligation for the contractor to pay the subcontractor if it is established that the subcontractor did the work properly. In another case, reviewed at the end of April 2016, the client did not pay due to defects in the work. The Court found that, despite the “back-to-back” clause, the principal contractor is required to pay the subcontractor, since the principal contractor was not present. In this newsletter, we discuss the main reasons why return contracts can be particularly controversial and the main editorial issues that need to be considered and addressed in order to minimize the risk of litigation. The link had contracted Wan Chung Construction Co Ltd (“Wan Chung”) to carry out maintenance work in two shopping centres under a term maintenance contract. Wan Chung hired the defendant Super King as a subcontractor, who hired plaintiff Tim Lee as a subcontractor.
One of the issues in court was the meaning of “return to payment.” In the corresponding contract, it was stated that the agreement applied to the supply and installation of the work on a “back-to-back” payment basis. Tim Lee submitted that this term was a reference to the date of payment and that his right was not conditional on Super King receiving payment from Wan Chung. The Court of Justice held that the interpretation of a contractual clause must depend on the circumstances in which the contract was concluded. In this case, neither party had proposed that “return to refund” have any particular meaning, generally understood in trade. In the absence of a particular use in commerce, according to the Court, there is no applicable law principle that favours one interpretation over another. In the end, it was up to the parties to objectively consider what the parties meant by the use of that term in the circumstances of the contract and that, therefore, each case was different. In order for back-to-back contracts to work effectively, the principal contractors and subcontractors must know precisely that, on the whole, two possibilities for structuring back-to-back subcontracting: in a construction project examined in court at the end of June 2016, there was no agreement between the contractor and the subcontractor, however, the Court found that the Court found that , in practice, the parties acted as if there was a “back-to-back” clause and that the original not only approved all payments, but acted directly with the subcontractor to authorize the work.