This is a part of The Worker’s Liens Casebook, by Robert Fenwick Elliott. Copyright © 2010
Copies of text of no more than 500 words may be made, provided they are accompanied by due attribution.
- Under section 5, contractors are entitled to a lien over the land for the contract price, so far as accrued due, for work done or materials supplied.
- Under section 6, the extent of the lien is limited to what is payable and unpaid.
- Under section 10 the lien must be registered within 28 days of the claimed amount becoming due, within the meaning of the section. This section 10 due date is artificial. It is not the date when the money is due under the contract, but 7 days from a section 10(2)(a) notice, or upon the happening of a restricted list of insolvency-type events at section 10(2)(b) (which includes neither receivership  nor liquidation). A section 10(2)(a) notice cannot be served unless the money claimed is “payable”. If the section 10(2) due date does not occur, a lien may come into existence, and even be registered, but it is not “available” for enforcement.
- Under section 15, the lien will cease unless the lienor commences an action within 14 days of registration.
- The lien attaches to the “estate or interest in land of any owner or occupier”, and thus, if the land is subject to a lease, to the title of both landlord and tenant.
- The work has to be done with “the assent, express or implied, of the owner or occupier”. This might seem a somewhat odd requirement, since there needs to be a contract, and such a contract will typically amount to more than mere “assent” that the contractor do the work. But note the position where there is both a landlord and a tenant; typically only one of these parties will have a contract with the lienor, and a lien will only be available against the other where there has been this assent.
The need for a contract
- Under section 5, for a lien to arise, there needs to be a contract price due to lienor. It follows that there must be a contract for qualifying work; see the discussion at paragraph 59 et seq above.
The amount of the lien
- The effect of the Act is that a lien is only enforceable for the net amount due, after taking account of abatements and set-offs.
- The lien does not extent to interest, even contractual interest.
- The procedure is thus as follows:
|There must be a contract price actually payable to the lienor|
|Section 10(1)||Section 10(2) event, usually a notice under section 10(2)(a), created the deemed “due date”||After the contract price becomes payable|
|Section 10(1)(a)||Lien becomes available||After 7 days from section 10(2)(a) notice, or on section 10(2)(b) event|
|Section 10(3)||Registration of the lien, by lienor lodging notice in prescribed form to Registrar-General||After the contract price becomes payable, before the expiration of 28 days from the lien becoming available under section 10(2)|
|Section 15||Litigation commenced by lienor against lienee||Within the 14 days from registration of the lien|
The Nature of a Lien
- What is the nature of the lien provided for by the Act? It is plainly not in the nature of a lien in the ordinary sense of the word, since it gives no right to the lien holder to retain possession of anything.
- Section 12 of the Act provides that liens, once notice of them be lodged, are deemed to be caveats forbidding the registration of any dealing with the estate or interest sought to be affected by the lien, unless such dealing shall be expressed to be subject to the claim of the person lodging the notice.
Is a lienor a secured creditor?
- In a sense, of course, such a deemed caveat represents a form of security, but is a lienor a secured creditor as such for the purpose of insolvency ranking? The point is potentially important as to the ranking that a lienor is entitled to in the event of an insolvency his employer. In particular, the question arises as to whether there is an unfair preference where a lien enables the lienor to get more than he would otherwise get on an insolvency. Section 588FA(1) of the Corporations Act provides that:
A transaction is an unfair preference given by a company to a creditor of the company if, and only if:
(a) the company and the creditor are parties to the transaction (even if someone else is also a party); and
(b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company;
even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
- There is a divergence of authority on this point. The more recent cases are as follows:
- In Re RGP Constructions, the Full Court adopted the single judge analysis comparing and contrasting charges under the Act with liens under the Act: liens do not have the effect of giving the lien holder “secured creditor” status.
- In Re Trademark Homes (Aust) Pty Ltd, however, Lander J found that a lien holder was a secured creditor for the purposes of the Corporations Law.
- In Re Stockport (NQ) Pty Ltd, the Federal Court cited the Lander decision in Re Trademark Homes in the course of its consideration of the Queensland Act.
- Conversely, in ADX v ADFL, the District Court preferred the decision in Re RGP Constructions, treating Re Trademark Homes as per incuriam.
- Which view is to be preferred? The point is arguable either way, but it is submitted that the Re RGP Constructions view (i.e. that lien holders are not secured creditors) is marginally the stronger, for these reasons:
- It is the only full court decision directly on point;
- Since a charge holder under the Act is plainly a secured creditor, it is not necessary to presume that the Act intended the same status also to apply to a lien holder;
- The analysis by Lander J in Re Trademark Homes of the position of a party entitled to a lien over goods is less than compelling, since a lien over goods (which a lien in the true sense of the word) is different in kind from the statutory lien over land (which is not truly a lien at all);
- The opposite view creates serious difficulty in quadripartite cases, where a sub-subcontractor has a lien over the land of the owner, and also a charge over the debt due from the head contractor to the subcontractor. It was surely not the intent of parliament that the sub-contractor should be a secured creditor in respect of both the head contract price and the subcontract price.
The question of whether a lienor is a secured creditor may not, however, be determinative of whether he is entitled to keep the fruits of his lien notwithstanding the unfair preference rules, since:
- As was pointed out in the ADX case, an insolvent head contractor is unlikely to be a party to a transaction for direct payment, and
- In any event, a payment obtained by a claimant subcontracting lienor from an owner is not a receipt from the insolvent head contractor within the meaning of section 588FA(1)(b).
When does a lien validate direct payment?
- It is trite law that, where A owes B money, and B owes C money, A cannot ordinarily discharge his obligation to pay B by paying C instead. If A volunteers to pay C, then he remains liable to pay B. This general rule means that if a subcontractor claims a lien to which he is not entitled, and in response, the owner chooses to pay the subcontractor direct, then the owner remains liable to pay the head contractor, with no allowable credit for his direct payment. There are exceptions to this general rule, of course. In particular:
- Where C obtains a garnishee order, requiring A to pay C instead of B;
- Where C is entitled to a charge over A’s debt to B;
- Where there is express contractual provision entitling such direct payment;
- Where B assigns to C its entitlement to be paid by A.
- These are each specific exceptions to the general rule, and unless such an exception is established, the general rule will prevail. It is worth briefly considering the nature of these exceptions:
- Garnishee orders, or attachment orders as they are sometimes known, are creatures of procedural legislation. They allow a judgment creditor to enforce a judgment debt by obtaining direct payment from a party who owes money to the judgment debtor, often the judgment debtor’s employer. The procedure has long been used throughout the common law world: typically, the order is made first by way of garnishee order nisi, an order obtained ex parte, which freezes the money in the garnishee’s hands, and then, if appropriate having heard all the parties, by way of garnishee order absolute. It is pertinent to note that there must be an existing debt, not just something capable of becoming a debt: Webb v Stenton (1883) 11 QBD 518 at 522.
- In South Australia, the procedure is now contained in section 6 of the Enforcement of Judgments Act 1991, which provides as follows:
(1) The court may, on application by a judgment creditor (which may be made without notice) order that—
(a) money owing or accruing to the judgment debtor from a third person; or…
be attached to answer the judgment and paid to the judgment creditor…
(3) If an order is made under this section on an application made without notice to the judgment debtor or the garnishee (or both), the following provisions apply:
(a) the order will operate to restrain the garnishee from dealing with money to which the order relates until both the judgment debtor and the garnishee have had an opportunity to be heard in the proceedings;
(b) the court will adjourn the proceedings to give the judgment debtor and the garnishee an opportunity to be heard;
(c) at the adjourned hearing the court will allow the judgment creditor and the garnishee to give evidence or make representations (or both);
(d) after consideration of the evidence and representations (if any), the court will confirm, vary or revoke the order.
- There are obviously both some important differences and also some similarities between the garnishee process and the lien process. In Albert del Fabbro, the court expressly disapproved the suggestion that the Act provides for a “sort of garnishee”. It is certainly clear that a lien does not amount to any sort of deemed right to a garnishee order; they are entirely distinct processes.
- A full discussion of legal and equitable charges is well beyond the scope of this casebook. Suffice here to say that the law recognises that an interest in property or an obligation to pay money may be subject to a charge whereby, subject to detailed rules as to registration and notices, a purchaser or creditor is obliged to pay the person entitled to the charge instead of the person with whom he has dealt. The charge is treated as a right “in rem” that is to say, binding on the world at large. In such cases, the purchaser or creditor is entitled to “good receipt” for such payment, which means he has a good defence to any claim from anyone else for payment of that same money.
- It is clear that a subcontractor’s charge under section 7 of the Act is such a charge. It is also tolerably clear that a lien under section 5 is not such a charge. Thus, if a claimant has both a lien and a charge, then the party against whom the charge applies can get good receipt by direct payment. Where there is a lien but no charge against that person, then the question arises: does the lien provide a further exception against the general rule?
Express contractual provision
- Normally, if there is a contractually binding stipulation in the head contract to the effect that a direct payment of a subcontract is to be treated as a credit against what would otherwise be due to the head contractor, that stipulation will be effective.
- Such provision must be clear; Milestone v Yates  2 All E.R. 439. Examples are more frequently encountered in bespoke contracts than standard forms; the quality of drafting varies.
- Even clear provision may offend against the insolvency scheme, and thus be ineffective, if the effect of the contractual arrangements is to confer unjustified preference on the subcontractor over the general body of an insolvent head contractor’s creditors.
- It is open for B to assign to C his right to be paid by A. Legal assignments of debts and other choses in action are regulated in South Australia by section 15 of the Law of Property Act 1936:
(1) Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be effectual in law (subject to equities having priority over the right of the assignee), to pass and transfer from the date of such notice—
(a) the legal right to such debt or chose in action; and
(b) all legal and other remedies for the same; and
(c) the power to give a good discharge for the same, without the concurrence of the assignor.
(2) However, if the debtor, trustee, or other person liable in respect of such debt or chose in action has notice—
(a) that such assignment is disputed by the assignor, or any person claiming under him; or
(b) of any other opposing or conflicting claims, to such debt or chose in action,
he may, if he thinks fit, either call upon the persons making claim thereto to interplead concerning the same, or pay the debt or other chose in action into court, under the provisions of the Trustee Act 1936.
- The key feature of such an assignment is, of course, a voluntary transfer by B: typically the head contractor. That feature is almost always missing in lien cases.
Is a lien under the Act a further exception?
- The question arises: when, if ever, does a lien, claimed or established, give A the right to discharge his obligation to B by paying C, or by paying into court or the Registrar-General? It is not a new problem: Sir John Downer identified the problem in parliamentary debate back in 1896, remarking that, “It was possible under the present act for an owner to have to pay money twice over, though the Act did not contemplate that.” The question is not, “Is the owner entitled to pay?” but, “If the owner does pay, does that payment reduce his liability to his own contractor?”
- Often, a claimant will be entitled to a charge under section 7 as well as a lien, and in those circumstances, it seems clear that direct payment will entitle the paying party to deduct his direct payment from what he would otherwise owe his own contractor, since a charge under the Act is a charge in rem; see paragraph 113 above. But what about a lien, in the absence of a section 7 charge?
- If the claimant succeeds in obtaining an order for enforcement of his lien, it seems clear that the owner will get good receipt if he pays the claimant. The claimant then has a statutory right to sale of the property, and the purchaser under such a sale would plainly get good receipt if he pays the claimant. It would be wholly illogical if the owner could not also get good receipt by paying in order to avoid a sale.
- Unless and unless the claimant gets such an order, the position is much more doubtful. It needs to be remembered that in these circumstances, the claimant has not established that he is entitled to his lien – he is merely entitled to some holding protection not unlike a garnishee order nisi. The fact that the Act gives the lien the status of a caveat – a warning – is consistent with such a view. It is suggested that an owner does not get good receipt if he pays the sum claimed by the claimant lienor in these circumstances, either by paying the lienor direct or by paying into court or to the Registrar-General. If it be later established that the claimant is entitled to enforcement of the lien, then the payment will amount to good receipt. Unless and until that time, the owner remains liable to pay the head contractor again. If and when the claimant fails in his enforcement proceedings, then the owner is probably entitled to repayment of any sums he has paid direct to the claimant.
- What if the enforcement proceedings are stymied by a stay following head contractor insolvency? Again the position is untested and unclear. The practice seems to be that, if the liquidator admits the debt, then a direct payment is treated as made pursuant to an enforcement, but there appears to be no authority binding on the point.
- The discussion above has focussed on the question of whether a direct payment by the owner to a claiming subcontractor relieves the owner of the obligation to pay again to the head contractor. But what is the position where the owner makes a payment in, whether by way of
- Deposit into court to abide the event under section 10(5) ; see paragraph 282 below, or
- Payment into Court under section 26; see paragraph 287 below, or
- Deposit with the Registrar-General by way of discharge, under section 16 or to abide the event, under section 16; see paragraph 291 below.
- It is typically assumed that, if any of these payments is made, then the head contractor is bound to give credit for the sum paid in, at any rate unless and until there is a finding that the claimant is not entitled to his lien. But this assumption may well be misplaced.
- It is convenient to start with payment by way of payment into court. Section 26(1) is in these terms:
In case of an action to enforce a lien the person against whose property such lien is sought to be enforced or any person interested in such property may by payment into court of the amount claimed in respect thereof relieve himself and the property from liability with regard to the lien or in respect of the costs of further proceedings.
- The section thus spells out what the payor relieves himself of: the lien over his property and legal costs. There are no words to suggest that he relieves himself of liability to pay the head contract price. Nor would it be logical that such an expedient, to which the head contractor’s consent is unnecessary and unlikely, should prejudice the head contractor’s right to payment. Indeed, if there is a section 26 payment in, then the question of the account between the owner and head contractor is never adjudicated by the court, and it would seem to offend against legal principle that a bare, unproven claim by a subcontractor, followed by a unilateral election by the owner, should be capable of permanently extinguishing the head contractor’s right to payment by the owner.
- Thus, although there appears to be no authority on the point, it is tentatively suggested that, absent a charge, a section 26 payment does not entitle the owner to a credit as against the head contractor.
- A deposit to abide the event under sections 10(5) or 16 is more problematic, since the Act is silent as the effect of such deposits, and they do not dispose of the enforcement proceedings against the owner, and thus the question of the payability of the head contract price remains in issue in those proceedings. Perhaps a court would be more inclined, in this case, to treat the question of the credit as sub jure, as a necessary incident of the ongoing proceedings. If the court took that approach, it might be reluctant to allow the head contractor to enforce its right to payment by the owner until it had determined the proceedings as a whole: depending on the conclusion reached, it might order payment out to the owner, or to the head contractor, or to the subcontractor. That is not to say that court would necessarily interfere with the exercise of any contractual rights of the head contractor, and if the head contractor himself claimed a lien, the court might well leave it in place to be sorted out at the end. The position is unclear.
- If the claimant subcontractor is also claiming a charge, the position is all the more opaque. There is a significant difference between liens and charges in terms if timing. A claimant gets a lien simply by registering it, which he can do without any judicial sanction. He might at the same time claim a charge, but the question of whether he has actually got will remain uncertain until the point is settled.
 See Sarah v Phillips  SADC 137 at page 409 below for an example of the court deducting set-offs.
 Sarah v Phillips, ibid.
 Page 174 below.
 (1982) 31 SASR 170; see page 640 below.
 (1996) 67 SASR 107; see page 667 below.
  FCA 31; see page 630 below.
  SADC 7
 See paragraph 75 of the judgment at page 173 below.
 See Re Holt Ex p. Gray (1888) 58 LJQB 5 (such a direct payment being described as “a pure piece of impertinence” by Cave J.)
 In particular, since the Common Law Procedure Act 1854 (UK).
 See paragraph 46 at page 203 below.
 This was noted during the debate in parliament in 1893; see the speech of Edward Hawker on 31st October 1893 at page 739 below.
 Because, for example, the claimant is a mere supplier, or because the charge bites on some other party lower down in the contractual chain.
 See page 739 below.
 By analogy with the position concerning garnishee orders: see Halsbury’s Laws of Australia paragraph [325-9965]:
It is doubtful that the judgment debtor has any right of action against a judgment creditor who wrongfully obtains a garnishee order absolute that is subsequently discharged. However, a garnishee who erroneously pays a judgment creditor in the mistaken belief that the money was due to the judgment debtor may recover the moneys from the judgment creditor in an action for moneys had and received (Beauchamp v Nathan (1868) 5 WW & A’B (L) 219)
 In which case there would probably be no credit.
 In which case there would probably be credit.
 In which case there would probably be credit.
 See paragraph 233 below for a list of the section 10(2) insolvency events