Sub-contractors’ Charges

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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.

  1. These are not charges on the land, but charges over debts up the contractual chain. They enable sub-contractors to claim payment direct from their employer’s employer (typically the owner, but sometimes an intermediate party in the contracting chain). Claiming a charge is unlikely to lead to any prompt payment, and will typically bog a claim down into court proceedings. Charges are often claimed in parallel to liens. These charges are entirely a creature of section 7 of the Act; there is no underlying common law principle.

Who is a subcontractor?

  1. As noted above, the Act contains a definition of “sub-contractor” at section 2:

sub-contractor means a person contracting with or employed by a contractor or sub‑contractor to do work, or to procure work to be done, or to furnish materials in connection with work for the purposes of the contract made by such contractor or last-mentioned sub-contractor;

but it seems that a party who is a sub-contractor for the purposes of a lien is not necessarily a sub-contractor for the purpose of a charge, and further that a party may be a sub-contractor for the purpose of part of only of his contract.

Bare Suppliers not Entitled to Charge

  1. In Pitt v Glenelg, it was decided that, following Bourne v Kneebone, that for the purpose of sub-contractor’s charges, the words in the definition “in connection with work” mean “in connection with the sub-contactor’s own work” and accordingly that a bare supplier is not entitled to a charge. The amending Act of 1906[1], permitting liens in favour of bare suppliers, did not extend to charges; in order to be entitled to a charge, a sub-contractor must undertake not merely to supply materials but to do work and “the work must be a substantial part of his undertaking”[2].
  2. This decision has been followed a number of times:
  • In Ready Mixed Concrete v Constructions (Broken Hill) (1963)[3] the point was reargued out.
  • In Re RGP Constructions (1982) the point was conceded[4];
  • In ADX v ADFL (2009)[5], Re RGP was treated as authority for the point.
  1. Accordingly, a bare supplier (who may be entitled to a lien) is not entitled to a charge[6]. Nevertheless, it is by no means uncommon for this point to be overlooked, and for a bare supplier to claim a charge.
  2. What of the case where a sub-contractor supplies and fixes some of the materials he supplies, but merely supplies others? In this case, he is treated as a sub-contractor entitled to a charge in respect of the former but not the later:

For example, if a man entered into a contract with [the head contractor] to supply all the fibrous-plaster work for the ceilings and to fix it, and simply to supply all the timber for the buildings, he would be a “sub-contractor” and have a charge in respect of the plaster supplied as well as in respect of the fixing of it, but not in respect of the timber supplied[7].

  1. The mere fact that a concrete supplier continues to agitate concrete until the moment it is poured is not sufficient to make him a sub-contractor[8].

Sub-subcontractors are included

  1. Sub-contractors are defined by section 2 to include both sub-sub-contractors and also suppliers.

Workers entitled to duplicated charge

  1. Further, the definition of sub-contractors at section 2 appears to include workers, and so workers appear to be entitled to a charge both under section 7(1) and section 7(2). There appears to have been no comment on this point in the decided cases, and since there are no recent cases of workers pursuing these rights, the duplication would be appear to be of no practical significance.
  2. The wording of sections 7(2) and (3) is dense, and is best analysed separately for tripartite and multi-partite cases.

Tripartite cases

  1. In tri-partite cases, the three parties are:
  • Owner
  • Head contractor
  • Sub-contractor (or supplier)
  1. Omitting the redundant words, and identifying the head and the sub-contracts, the subsections are as follows:

7(2)            A sub-contractor shall have a charge on any money payable to the [head] contractor … with whom he shall have contracted for that portion of the [sub] contract price payable to the … sub-contractor in respect of work done or materials furnished or manufactured for the purposes of the [head] contract of such contractor…

7(3)            A charge under this section shall attach only to money payable under the [head] contract for the purposes of which the work or materials have been done, supplied, or manufactured

  1. Thus, the sub-contractor will have a charge over money payable under the head contract if the following conditions are satisfied:
  • There must be money payable to the head contractor under the head contract;
  • There must be money payable to the sub-contractor under the sub-contract;
  • The money payable under the sub-contract must be in respect or work done or materials supplied for the purposes of the head contract.
  1. Accordingly, there is no charge if:
  • The head contractor does not have a necessary licence, such that no money is payable under the head contract, or
  • The sub-contractor does not have a necessary licence, such that no money is payable under the sub-contract, or
  • The money is due in respect of work outside the scope of the head contract.

Multipartite cases

  1. In multipartite cases, there may be four or more parties in the contractual chain, as follows:
  • Owner
  • Head contractor
  • Intermediate sub-contractor
  • Sub-sub-contractor (or supplier)
  1. In such a case, the subsections read, again omitting the irrelevant words and identifying the contracts:

(2)              A [sub-] sub-contractor shall have a charge on any money payable to the [intermediate] sub-contractor with whom he shall have contracted for that portion of the [sub-sub] contract price payable to the first-mentioned [sub-] sub-contractor in respect of work done or materials furnished or manufactured for the purposes of the [intermediate sub-] contract of such … [intermediate] sub-contractor.

(3)              A charge under this section shall attach only to money payable under the [intermediate sub-] contract for the purposes of which the work or materials have been done, supplied, or manufactured

  1. Thus, the sub-sub-contractor will have a charge over money payable under the intermediate sub-contract if the following conditions are satisfied:
  • There must be money payable to the intermediate sub-contractor under the intermediate sub-contract;
  • There must be money payable to the sub-sub-contractor under the sub-sub-contract;
  • The money payable under the sub-sub-contract must be in respect or work done or materials supplied for the purposes of the intermediate sub-contract.
  1. It will be seen that in this multipartite situation, the owner, and the head contract, are irrelevant to the charge. But a sub-sub-contractor may well, in such a case, also seek a lien under section 5, and in that case, the owner will be very much involved, since it is his land that is affected by the lien.

Does the head contract price need to be presently payable?

  1. Judicial views have differed as to whether the subcontractor’s charge comes into existence even before the head contract price becomes presently payable. The question turns on whether the word “payable” in section 7(2) means “presently payable” or merely describes a sum that will, or perhaps might, become payable in the future. The issue is parallel, but not identical, to the question that arises is to the meaning of “payable” in section 6; see paragraph 141 et seq above.
  2. In Pitt v Glenelg, Richards J said that a charge may exist though there is no money presently payable by the building owner to the contractor[9], albeit that the charge cannot be enforced until the money is due and payable.
  3. In Miller’s Lime, Angas Parsons J disagreed; he said the charge only arises for money actually due and payable[10].

The effect of a charge

  1. The effect of a charge over a debt is that a debtor with notice of the charge (the owner or intermediate sub-contractor) is obliged to pay the party entitled to the charge (the sub-contractor) instead of the creditor (the head contractor). If he goes ahead and pays the head contractor regardless, he may be required to pay again, to the sub-contractor. The owner’s liability is personal[11].
  2. The practical difficulty that an owner faces is that he is unlikely to know with any certainty whether or not the alleged charge is legally effective. A sub-contractor may be claiming a charge to which he is not entitled; the alleged charge will not be legally effective if the sum claimed is not due from the head contractor to the sub-contractor, and this something that the owner will typically have no way of knowing. In such circumstances, the owner cannot safely pay the sub-contractor, for he would then be liable to pay the head contractor again, and indeed, under most head contracts, a failure by an owner to pay what is due to the head contractor may have serious consequences, including the right of the head contractor to terminate the head contract[12].
  3. Section 22(2) of the Act provides that, in case of an action to enforce the charge, the person against whom the charge is sought (usually the owner) may pay the amount claimed into court and thereby relieve himself of liability in respect of the charge and the costs of further proceedings. That sounds good, and if it is eventually established in the proceedings that the sub-contractor is not entitled to the charge, then the money may be paid out to the head contractor. But note that whilst section provides the owner with protection against liability in respect of the sub-contractor’s charge, it says nothing about his liability to the head contractor, and so if the head contractor is impatient, he may well sue the owner himself for the money, or terminate his contract, or even put his own lien on the property. If it transpires that the sub-contractor is not entitled to the charge that has been claimed, then it seems that the head contractor may well be entitled to do any of these things.

The need for notice of the charge

  1. Curiously, the Act does not require the sub-contractor to give notice to the owner of the charge he claims, and indeed, the mechanism of the Act seems to be that the charge arises regardless of whether it is claimed or not. This mechanism is however of little more than theoretical significance, since by section 7(5) the charge does not “avail” as to any moneys paid over bona fide without notice of the charge. That provision means that a sub-contractor who seeks to enforce a charge is well advised to give notice to the owner (or head contractor or other party two up from him in the contractual chain). This curious drafting means that the sub-contractor need not give notice of the charge to the head contractor (or other party employing him in the contractual chain).
  2. Thus, the charge becomes “available” when the chargee is on notice of it. An unavailable charge would appear to have more or less no legal effect whatsoever.

The need for a section 10(2) Notice or Event

  1. Conversely, it was said by Murray CJ in Miller’s Lime[13] to be necessary for the claimant to serve a notice under section 10(2)(a), or for one of the section 10(2)(b) insolvency events[14] to occur, before the charge comes into existence. The section 10(2)(a) notice, is of course, a notice given (in the normal tripartite situation) to the head contractor, not to the owner, and so the owner may well know nothing of a section 10(2)(a) notice.

The need for proceedings

  1. By section 7(3) the charge lapses unless an action is brought to enforce it within 28 days from the section 10(2) “due date”; see paragraph 247 et seq below for a more detailed discussion of the necessary proceedings.

When should a charge be claimed?

  1. In most cases, claiming a charge is little more than a reflex action, done because it can be done at the same time as a lien is claimed, and the precedents often provide for it.
  2. Normally, this is the best approach, and it is generally wise for a claimant to seek a charge in addition to a lien whenever he can, that is to say when
  • He is further down in the contractual chain than the head contractor with whom the owner has contracted, and
  • He is not a bare supplier.

[1] Which now appears at Section 9B of the Act, see page 49 below.

[2] Pitt v Glenelg at [1927] SASR at 511; see page 473 below.

[3] See page 665 below.

[4] See paragraph 8 of the judgment at page 642 below.

[5] See paragraph 63 of the judgment at page 183 below.

[6] RD Elliott comes to the same conclusion at page 91 of The Artificer’s Lien:

It must be noted however that subcontractors who do no work to the land but merely supply materials for the work to the contractor or a subcontractor, are not given a charge on monies owing.

His footnote adds:

Section 9b of the Act provides that liens may be had for materials supplied, by a person who however does none of the work. The Section does not however mention statutory charges for materials supplied by such a person.

[7] Pitt v Glenelg ibid.

[8] Ready Mixed Concrete (SA) Pty Ltd v Constructions (Broken Hill) Pty Ltd, see page 672 below.

[9] See paragraph 27 at page 467 below.

[10] See paragraph 32 of the judgment at page 414 below.

[11] Pitt v Glenelg [1927] SASR 501 at 533; see paragraph 62 of the judgment at page 615 below.

[12] Section 44 of the Act express provides that nothing in the Act shall prejudice any remedy that any person (which must include a head contractor) may have in relation to any contract price payable to him.

[13] See paragraph 11 of the judgment at page 408 below. This was not the view of Richards J in Pitt v Glenelg.

[14] See paragraph 233 below for a discussion of section 10(2)(b) insolvency events.

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