Over time, the principle of publicity developed, which in essence served to notify third parties that a given asset was pledged and that they could not expect to satisfy their claims against the owner from that asset.
In construction and infrastructure projects, however, an interesting tension arises between banks’ rights under registered pledges and employers’ contractual rights of retention.
While banks secure repayment through pledges over contractors’ receivables, FIDIC-based contracts allow employers to withhold a portion of payments (retention) until proper performance and defect remedying.
This often sparks disputes:
- Banks view retention as part of the pledged receivables,
- Employers see it as a reduction of price due to incomplete performance.
The legal framework is clear: The registration of a pledge overrides contractual provisions on its accrual and maturity. A bank may only claim retention if and when the contractor fully performs. Until then, the employer is entitled to use retention to cover the costs of non-performance.
Key takeaway: Any creditor taking a pledge over receivables must carefully examine the underlying contract terms.
A detailed overview of this dynamics is provided by Partner Ivan Petrović, from JPM Belgrade office.
