A subcontractors’ charge under the old Subcontractors’ Charges Act 1974 (Qld) has been repealed and replaced with Building Industry Fairness (Security of Payment) Act 2017 (Qld) (“BIFA”).
The provisions of the repealed legislation have been amended and incorporated into BIFA.
A subcontractors’ charge under the old Subcontractors’ Charges Act are dealt with in Chapter 4 of BIFA.
This article will deal with making a subcontractors’ charge under BIFA in more detail below.
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Very strict time limits apply to the different stages of BIFA. Ensure that you do not miss out on claiming your subcontractors’ charge by contacting our building and construction lawyers today
Subcontractors’ Charge
If you are a subcontractor, owed money by a debtor contractor, then you may be able to serve a Notice of Claim on the person obliged to pay the money under the contract (superior contractor by whom money is claimed as payable). This is a subcontractors’ charge.
By serving this notice correctly, a subcontractor becomes a secured creditor of the debtor contractor, and in the event of insolvency may have a priority claim or be allowed to commence or continue with legal proceedings.
You will also need to serve a copy of the notice to the debtor contractor.
If eligible, and completed correctly, it is the superior contractor’s responsibility to pay to the subcontractor, the money owed to it by the debtor contractor.
This article will outline if you are eligible, explain the process, and provide useful information and links to guild you through the subcontractors’ charges chapter of BIFA.
Parties Involved in the Subcontractors’ Charge
BIFA provides definitions for the following:
Subcontractor – Section 6(3) of BIFA says:
If the party to a contract, who is required to carry out work under the contract, subcontracts all or part of the work – the resulting subcontract is a subcontract for the contract; and the person required to carry out the work under the subcontract is a “subcontractor” for the contract; and the work required to be carried out under the subcontract is the “subcontracted work” for the contract.
Contractor – Section 104 of BIFA says:
“contractor” for a contract, means the party to the contract who is required to carry out work under the contract.
Person – Section 104 of BIFA says:
“person” includes an unincorporated association.
Qualified Person – Section 147 of BIFA defines a qualified person to be:
- an architect registered under the Architects Act 2002; or
- a registered professional engineer under the Professional Engineers Act 2002; or
- a person licensed under the Queensland Building and Construction Commission Act 1991 to carry out or supervise work of the type to which the claim relates; or
- a quantity surveyor who is a member of the Australian Institute of Quantity Surveyors; or
- a person having expert knowledge of the work to which the claim relates and who is accepted in a particular case as a qualified person by the contractor and subcontractor.
Once you have correctly identified the parties to the Notice of Claim then you are able to give the relevant parties your Notice of Claim.
The next eligibility criteria is to establish if the work conducted or goods are services provided are meet the requirements under BIFA.
The Meaning of Work
Section 105 of BIFA says “Work” for a contract:
- means labour, whether skilled or unskilled, carried out by a person in connection with:
- the construction, decoration, alteration or repair of a building or other structure; or
- the development or working of a mine, quarry, sandpit, drain, embankment or other excavation in or on land; or
- the placement, fixation or erection of materials, plant or machinery used or intended to be used for a purpose mentioned in subparagraph (i) or (ii); or
- the alteration or improvement of a thing; or
- the demolition, removal or relocation of a building or other structure;
- and includes:
- the supply of materials used by a subcontractor in connection with other work the subject of a contract; or
- the manufacture or fabrication, wherever it happens, of project-specific components for a contract; or
- the supply of labour for a contract, other than labour that is only administrative in nature.
So, if the construction debt relates to “Work” as defined in BIFA, and the subcontractor knows the relevant parties to the contract and the subcontract, then the subcontractor can issue a Notice of Claim.
What is a Subcontractors’ Charge?
Section 207 of BIFA says:
“subcontractors’ charge” means a charge within the meaning of section 3 of the repealed Act (Subcontractors’ Charges Act 1974 (Qld)).
Section 3 of the Subcontractors’ Charges Act 1974 (Qld) defined “Charge” as:
“charge” means a charge under this Act.
A charge pursuant to this Act is a security interest on monies owed to a subcontractor by a contractor, from monies payable to the contractor by the person obliged to pay the money under the contract.
The BIFA allows the payment of monies owed to a contractor, to essentially “leapfrog” the contractor, and be paid directly to the subcontractor.
To do so, the subcontractor must issue a Notice of Claim on the person obliged to pay the money under the contract.
Notice of Claim
If eligible, as discussed above, then a subcontractor must serve a Notice of Claim on the person obliged to pay the money under the contract. This is an approved form – FORM S122 – which you can download from the QBCC website.
Section 122 of BIFA says:
- The notice of claim must be made in the approved form and:
- State the amount of the claim; and
- Include details of the work done by the subcontractor, certified as prescribed by a qualified person; and
- Include the other information prescribed by regulation.
The Form S122 has the following headings:
- Details of Claimant of Subcontractor Subcontract;
- Details of Superior Contractor by Whom Money is Claimed as Payable;
- Details of Contract;
- Certification by Qualified Person; and
- Witness Certification.
It is very important to get these details correct. Failure to do so may mean that the form is defective, and the subcontractor may lose their secured interest. We strongly suggest engaging a solicitor to complete this Notice of Claim.
Strict Time Limits for Notice of Claim
Section 122 of BIFA says that:
(4) The notice of claim may be given even if the work is not completed, or payment of the money relating to the charge is not yet due.
(5) However, if the work has been completed, the notice of claim must be given within 3 months after practical completion for the work.
(8) If the notice of claim relates only to a retention amount for the contract, the notice (a) may be given at any time while work under the contract is being performed; and (b) must be given within 3 months after the expiration of the defects liability period for the contract.
This means:
- Any time that the works are still being completed; or
- After completion – for money owed under a contract – within three (3) months after the completion of works; or
- After completion – for retention money – within three (3) months of the expiration of the maintenance period.
Copy of Notice of Claim to Contractor
After giving a copy of the notice of claim to a person obliged to pay money to a contractor under a contract, the subcontractor must give a copy of the notice to the contractor.
Section 123 of BIFA says:
The subcontractor must (a) give the contractor a copy of the notice of claim; and (b) advise the contractor of the name and address of the person given the notice of claim. If the subcontractor does not comply … the notice is of no effect and the subcontractor’s charge does not attach.
So, the contractor must have a copy of the notice of claim and be given the name and address of the person given the notice of claim.
Failure to do so means that the charge does not attach, and the subcontractor loses its security interest.
We strongly suggest engaging a solicitor to complete this.
Very strict time limits apply to the different stages of BIFA. Ensure that you do not miss out on claiming your subcontractors’ charge by contacting our building and construction lawyers today
Ok, so you have done all of that, now what happens?
Person Must Retain Money
Once served with the notice of claim, the person obliged to pay money to a contractor under a contract must retain the money payable to the contractor.
Section 126(2) of BIFA says:
(2) The person must retain a sufficient part of the money that is or is to become payable by the person under the contract to satisfy the claim until the court in which the claim is heard makes an order about to whom, and in what way, the money is to be paid.
If the person fails to retain the money and pays it to the contractor, then the person becomes liable for that amount of the claim. Section 126(3) of BIFA says:
(3) If the person fails to retain the money as required under subsection (2), the person is personally liable to pay to the subcontractor the amount of the claim, not exceeding the amount that the person is required to retain under subsection (2).
As well as the person having to retain the money, the contractor has to respond to the notice of claim. Failure to do so will incur a maximum of 20 penalty units.
Contractor given copy of Notice of Claim must Respond
The contractor must respond to the notice of claim within 10 business days.
Section 128(2) of BIFA says:
(2) The contractor must give both of the following persons a written response to the claim within 10 business days after the contractor is given the copy of the notice of claim, unless the contractor has a reasonable excuse (a) the person given the notice of claim; (b) the subcontractor.
The response to the claim must be made in the approved form and:
- Accept liability to pay the amount claimed; or
- Accept liability to pay an amount stated in the response, but otherwise dispute the claim; or
- Dispute the claim.
The approved form for the contractor’s response is Form S128 – Response to a Notice of Claim.
The details the contractor must include:
- Details of claimant subcontractor (person who gave the notice of claim);
- Details of superior contractor (by whom money is claimed as payable);
- Details of contractor;
- Details of the work done by the claimant subcontractor;
- Declaration including if the contractor:
- Accepts liability to pay the amount claimed; or
- Accepts liability to pay an amount stated; or
- Disputes the claim.
- States amount for which liability is accepted
If the Debtor Accepts Liability to Pay an Amount Claimed
If the contractor accepts the liability for the amount claimed, then the person must pay that amount to the subcontractor.
Sections 129(2) of BIFA says:
If, in the response to the claim, the contractor accepts liability to pay the amount claimed, the person given the notice of claim must pay the subcontractor the amount the person is required to retain.
If the contractor accepts liability to Pay a stated amount in the contractor’s notice, but otherwise disputes the balance of the claim, then the person must pay to the subcontractor the amount stated in the response to the notice of claim and retain the balance (the unsatisfied amount).
Sections 129(3) of BIFA says:
If, in the response to the claim, the contractor accepts liability to pay an amount stated in the response but otherwise disputes the claim, the person given the notice of claim must pay the subcontractor the amount the person is required to retain, up to the amount stated in the response.
If the Contractor Disputes the Claim or Does Nothing
If the contractor disputes the claim, then the subcontractor must commence proceedings in relation to the charge, recover the amount claimed from the person, as a debt owing to the subcontractor, in any court of competent jurisdiction.
Section 136 of BIFA says:
A proceeding for a subcontractor’s charge must (a) be started within (i) if the claim is for the retention amount only – 4 months after the balance of the retention amount is payable; and (ii) otherwise—1 month after notice of the claim is given under section 122 to the person by whom the money is payable; and (b) be brought by way of action.
If the subcontractor does not commence proceedings in the required time to prove the debt, then the charge is deemed to be extinguished unless the subcontractor duly commences a proceeding under section 136 to enforce it.
Debtor Contractor in Liquidation
If the contractor goes into liquidation, then a subcontractor who gave a notice of claim to the person prior to the commencement of the liquidation, and has elevated themselves to the status of a secured creditor, can take advantage of section 471C Corporations Act 2001 (CTH) which says:
Nothing in section 471B affects a secured creditor’s right to realise or otherwise deal with the security interest.
In MSI (Holdings) Pty Ltd v Mainstreet International Group Ltd [2013] QCA 27 the Queensland Court of Appeal said:
Section 471C is concerned with the right of a secured creditor with respect to a security interest. The expression “secured creditor” is defined by s 51E of the Corporations Act to mean: a creditor of the corporation, if the debt owing to the creditor is secured by a security interest.
The expression “security interest” is defined in s51A to have a meaning which includes a charge. According to the definition in the Dictionary in s 9 of the Corporations Act, the word “charge” means: a charge created in any way and includes a mortgage …
Plainly, the charge … was a security interest as defined. Just as plainly, at the time of commencement of the District Court proceeding … there was a debt owed by MSI … which was secured by the charge.
In my view, the commencement and continuation of the District Court proceeding is apt to be characterised as a realisation of [a] security interest for the purposes of s 471C.
As you can see, a subcontractor’s charge may have some substantial benefits for a creditor.
We strongly advise that you seek suitably qualified legal advice in relation to a subcontractor’s charge as soon as possible to secure the money owed to you by a contractor.
Very strict time limits apply to the different stages of BIFA. Ensure that you do not miss out on claiming your subcontractors’ charge by contacting our building and construction lawyers today
Subcontractors Charge FAQ
Whether you’re a subcontractor seeking to secure payment for your work, or simply interested in understanding this legal mechanism, our FAQs are designed to offer valuable insights and guidance.
What is a subcontractor’s charge?
A subcontractor’s charge is a legal claim that a subcontractor can make against money owed to a contractor by a project owner. It’s used when a subcontractor hasn’t been paid for their work. By issuing a Notice of Claim, the subcontractor becomes a secured creditor, gaining priority over other creditors in case of the contractor’s insolvency. This tool is governed by specific construction industry legislation and requires strict adherence to legal procedures.
How does a subcontractor issue a Notice of Claim?
To issue a Notice of Claim, a subcontractor must serve it to the person or entity obligated to pay the contractor. This notice should detail the amount owed and the work done. It’s crucial to follow specific legal guidelines and timeframes when issuing this notice. Failure to comply with these requirements can invalidate the claim.
What are the time limits for issuing a subcontractor’s charge?
The time limits for issuing a subcontractor’s charge are strict and vary depending on the legislation. Generally, a Notice of Claim must be served within a few months of completing the work. It’s essential to check the specific legislation in your jurisdiction to understand the exact time limits.
Can a subcontractor issue a charge for partial work?
Yes, a subcontractor can issue a charge for partial work. The Notice of Claim can be served even if the work is not fully completed, as long as the subcontractor can accurately detail the work done and the amount owed.
What happens if a contractor disputes a subcontractor’s charge?
If a contractor disputes a subcontractor’s charge, the subcontractor may need to commence legal proceedings to enforce the charge. This process involves proving the validity of the claim in court. It’s advisable to seek legal counsel to navigate this process effectively.
Is a subcontractor’s charge applicable in all construction projects?
The applicability of a subcontractor’s charge depends on the specific construction and building industry legislation in the relevant jurisdiction. It’s generally applicable in most construction projects, but there may be exceptions based on the contract type or project nature.
What is the role of a qualified person in a subcontractor’s charge?
A qualified person, such as a registered architect or engineer, may need to certify the details of the work done by the subcontractor in the Notice of Claim. This certification adds credibility to the claim and is often a legal requirement.
Can a subcontractor’s charge be used for retention money?
Yes, a subcontractor’s charge can be used to claim retention money. The notice must be served within a specific timeframe after the expiration of the defects liability period for the contract.
What if the contractor goes into liquidation?
If the contractor goes into liquidation, a subcontractor who has issued a Notice of Claim may have a secured creditor status. This means they have a priority claim over other creditors for the amount owed, under certain conditions.
How does a subcontractor’s charge affect the project owner?
Once a Notice of Claim is served, the project owner (or superior contractor) must retain sufficient funds to satisfy the claim. If they fail to do so and pay the contractor instead, they may become personally liable for the amount of the claim.
Are there any risks for a subcontractor in issuing a charge?
The main risk for a subcontractor in issuing a charge is non-compliance with the legal requirements, which can invalidate the claim. Additionally, if the claim is disputed, it may lead to legal proceedings, which can be costly and time-consuming.
Should a subcontractor seek legal advice before issuing a charge?
Yes, it’s highly recommended that a subcontractor seeks legal advice before issuing a charge. Legal professionals can ensure compliance with the specific legal requirements and timeframes, and provide guidance in case of disputes or complications.
