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.
- Section 5 of the Act gives contractors and subcontractors a lien for their own contract price, so far as accrued due on the owner’s title. But by section 6, the amount of the lien does not extend beyond the portion of the head contract payable by the owner and unpaid. Accordingly, the amount of the available lien is the overlap, if any, between these two amounts.
Who is a subcontractor?
- 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;
- The definition of sub-contractors plainly can include suppliers who furnish materials. But what of the words “in connection with work”? Does that mean any work? Or does is the meaning restricted work done by the sub-contractor? In 1896, Bourne v Kneebone, the Full Court found for the restricted meaning, such that a bare supplier was not included – to come within the definition the materials had to be supplied for the purpose of work to be done by the supplier himself. The result of the decision was a swift amending Act, No 658 of 1896, which provided that “liens shall be had under the Workmen’s Liens Act 1893 for materials furnished, although such materials may not be furnished in connection with work; and the Workmen’s Liens Act 1893 shall be amended and read and construed accordingly.” That provision now appears as Section 9B. And so it is clear that bare suppliers are now included in the definition for the purposes of liens. But see paragraph 168 below for the different position concerning charges.
- Section 6 of the Act limits the extent of a subcontractor’s lien in two respects:
- The lien does not extend beyond that portion of the contract price payable by the owner or occupier under the head contract and unpaid at the time when the owner or occupier receives notice of the lien or of its registration, whichever is first. In other words, the subcontractor has to show both money due to him and money due under the head contract, and the lien is for the lesser of the two sums. There has been considerable judicial difficulty with this limit, and in particular as to whether the head contract money has to be presently payable, or merely contingently payable at some time in the future; this issue is discussed below.
- The lien does not extend at all to cases where there is no such contract binding the owner or occupier to pay a contract price. Thus, in cases where the owner’s obligation is merely in restitutionary quantum meruit, or where there is a statutory bar on contractual recovery because of lack of a building licence, no lien is available to a subcontractor.
Who bears the burden of proving what, if anything, is payable but unpaid under the head contract? In Aberdine v Vineyard Estate Management, the court proceeded on the basis that this is for the plaintiff to plead and prove, but notwithstanding this decision, the courts in practice take a somewhat lenient view of the plaintiff’s burden in this regard. The practice acknowledges the practical difficulty that a plaintiff faces in pleading what is due under the head contract, at any rate pending discovery.
The concept of the fund
- In some cases, the courts have spoken of the “fund”. Such a concept that emphasises the connection between the benefit and by the owner of the land, and the money payable to the sub-contractor or worker who actually does the work. Thus, for example in Albert Del Fabbro v Wilckens & Burnside , Bray J said:
I would say, however, though it is not necessary to decide it, that I think there is much to be said for the proposition that, when the Workmen’s Liens Act refers to money payable to the contractor, it merely designates a fund and refers to money which, under the terms of the contract as executed, is payable by the owner to the contractor.
- Similarly, in Longreef v Leighton, Olsson J. said:
On the other hand, assuming that liability has so crystallised for the purposes of section 5, section 6 then limits the extent of the potential operation of the lien to the fund from which moneys are payable (in the case of a sub-contract situation) by the building owner to the head contractor. That is to say, the word “payable”, as employed in section 6, is, in fact, employed simply to connote moneys which may, from time to time, be or become payable in accordance with the provisions of the head contract by the building owner to the head contractor. So it is that the lien cannot be enforced in a manner which requires a building owner to make payment to a head contractor otherwise than in accordance with the express terms of the relevant contract.
- In some cases, of course, this concept is a meaningful one. But there are also many other cases in which, for one reason or another, the concept fails to withstand any real scrutiny. Thus, for example, whilst payment by the owner to a head contractor will often precede payment due from the head contractor to a subcontractor, sometimes the order is reversed. For all sorts of reasons, the sub-contractor may be entitled to be paid by a head contractor in circumstances where no obligation ever arises on the owner to pay for that specific work; by way of example, the sub-contractor may be carrying out remedial work, by which only defaults of the head contractor are being rectified, or the head contract works may have been abandoned, such that no obligation to pay ever arises, or the owner may have a defence by way of set off.
- In any event, the concept of a fund is founded upon the unstable ground of a certain amount of money in the hands of the owner and which will then be paid out under the head contract. There are all sorts of problems with such a concept:
- The owner does not usually have the money ready in this way; often he will borrow it from a bank as required as the work proceeds;
- In the reality of all but the simplest cases, the dollar figure of the “contract sum” under the head contract is not an amount that will be payable, but merely a starting point for the calculation of what will become payable, depending on a large number of uncertain events such as additions to or omissions from the work by way of variations, delaying events, choices made in respect of PC sums, latent conditions and a host of other matters;
- Further, the contractor’s entitlement to any money is typically conditioned on his performing the work in circumstances that do not entitle the owner to a set-off, and often subject to the obtaining of a certificate for payment.
- Unlike a “fund” as ordinarily understood, therefore, the concept of such a fund must be strained to include something which does not in fact exist, is of no predeterminable amount, and which might or might not become payable at some future time according to many uncertainties. For these reasons, it is suggested that it is unlikely that the concept of a fund would withstand a full-frontal legal attack; a more logical approach is that, when the courts have spoken of a “fund”, they have spoken figuratively. The concept of a “fund” does nothing to answer the more important question – considered below – as to whether the money payable up the line needs to be presently payable, or merely contingently payable in the future
Does the head contract price need to be payable at the time of the lien?
- It is clear that, in the case a lien being claimed by a head contractor, there must be a sum “accrued due” i.e. presently payable at the time the lien claimed. Similarly, where a lien is claimed by a subcontractor, there must be money presently payable to him by the head contractor or intermediate subcontractor. But there is conflicting authority as to whether, in the later case, there must also be money presently due from the owner/occupier to the head contractor. The competing readings of the Act are that:
- A subcontractor can only claim a lien if there is an amount due and presently payable by the owner/occupier under the head contract (the “presently payable” reading); alternatively
- A subcontractor can claim and register a lien notwithstanding that the money under the head contract has not yet become payable: the effect of the lien is that as and when the money becomes payable by the owner, it must be paid by the owner to the subcontractor until the debt secured by the lien has been satisfied. The lien cannot, however, be enforced against the owner until the money becomes due and presently payable by the owner (the “payable now or in the future” reading).
- It seems that there are two ways that the Act can be read so as to get to the second of these possibilities. First, it can be said that “payable” does not necessarily mean “payable now” and this may include money that is going to be payable at some time in the future. Secondly, it can be argued that the words in section 6 “at the time when the owner or occupier shall receive notice of the lien or of its registration, whichever shall first happen” qualify not “payable…and unpaid” but just “unpaid”.
- On any analysis that if the owner has actually paid the money under the head contract, the lien cannot bite.
- The position is not clear. The “presently payable” reading is perhaps a more natural reading of the Act, but the “payable now or in the future” reading has more judicial weight behind it.
In favour of “presently payable”
- If the Act is to be interpreted in such a way that a subcontractor can claim a lien as against the owner at a time when the owner is not then obliged to pay any money at all, then the Act is obviously capable of working considerable injustice on the owner. Circumstances may very well arise that such that no money ever becomes payable by the owner to the head contractor; in particular, the head contractor may well be in breach of his head contract in such a way as to give the owner a complete defence to any monetary claim. It is entirely clear from a number of authorities that if the owner does have a set-off or other defence under the head contract, then the amount treated as payable by him has to be limited to the amount payable by him, if anything, after taking account of such set-off or other defences. Such defences might arise either before or after the lien is claimed, and this approach is entirely consistent with the notion that the contract price payable by the owner is a moveable feast. Accordingly, therefore, the formula “payable now or at some time in the future” can be no more than a contingent formula, depending on future events. It is stretching the rules of statutory interpretation to their utmost to suggest that the word “payable” in section 6 should be treated as meaning “payable, or which might be payable in the future if the head contractor performs the head contract obligations without doing anything to afford the owner a defence to future claims for payment”. Certainly, there is nothing in the Hansard Reports which suggests any such intention of the legislature.
- Any such an interpretation potentially unjust to an owner, but it also is capable of causing considerable administrative the inconvenience, and interference with the rights of the parties to regulate their own affairs by contract. In practice, the effect of the Act is frequently to cause an owner to pay money into court, with the result that neither that the head contractor gets paid, nor the subcontractor, but that instead payment goes to the lawyers as a result of the required litigation.
- Secondly, the effect of the second interpretation is to put subcontractors in a better position than head contractors. It is clear that if an owner pays what is due to his head contractor at the time it is due, then he is immune from the risk of the head contractor claiming a lien against him. It is entirely illogical that we should, in these circumstances, nevertheless be exposed to the risk of claims by liens by subcontractors.
- Thirdly, it seems clear that the word “payable” in section 10(2)(a) means “presently payable”. It is entirely illogical that the word “payable” in section 6 should be given a different meaning from the same word in section 10(2)(a).
- Fourthly, even if the word “payable” in section 6 is construed to include money contingently payable in the future, that the same implication needs to be made into the definition of contract price within the meaning of section 2, which means “money payable”. But this is a yet more difficult implication, because it is well established that under section 10 the “contract price” referred to has to be presently payable, and to import a special meaning of “payable” for the purpose of the whole Act requires yet further contortion than applying a special meaning only for the purpose of section 6.
- Fifthly, the concept of entitlement to money arising under a construction arising as the work proceeds has received statutory recognition under the Building and Construction Industry Security of Payment Act 2009: the period when the money is payable in futuro is merely that between the section 8 reference date and the section 11 due date for payment. In theory, it might be possible to conceive of a construction contract under which the contractor become entitled to a contract price straight away, but the due date for payment is postponed to performance; such a contract however is as rare a chickens’ teeth in practice
- Sixthly, and perhaps most importantly, the alternative construction leads to a ludicrous and unfair result. Suppose a subcontractor claims a lien against an owner when money is due under the subcontract but not under the head contract. The owner in these circumstances is entirely blameless, but what is he to do? If he does nothing, his property is frozen, for months or perhaps years. If he pays the money into court, he is not only disadvantaged in terms of cash flow, but he also loses the ordinary commercial balance which encourages a contractor to proceed with the work in order to obtain payment, and also foregoes his crucial common law right to a set-off in respect of any future breaches by the contractor. What if the contractor, deprived of his cash flow, abandons the work all together? It seems entirely improbable that Parliament intended that an entirely blameless owner should be required either to prejudice himself by paying money that is not payable, or to suffer his property asset to be frozen pending the unfolding of future events over the following months or years.
- There are dicta in favour of the “presently payable” reading. In particular:
- In Longreef, King CJ said:
The extent of the lien is limited by section 6 to the amount due and presently payable by the owner or occupier under the contract for the purpose of which the work was done or the materials supplied.
- In W Curl v Buck Industries, Hogarth J said:
A lien may exist although no moneys are presently due and payable by the owner to the head contractor, even though it is enforceable only when, and to the extent, that such moneys do eventually become due and payable.
- On this test, it seems that the crucial question is whether the moneys have become presently payable under the head contract, not at the time the lien is claimed, but a short time afterwards, when the proceedings are instituted. For it seems to be clear that if enforcement proceedings are instituted at a time when the lien is not enforceable, then the proceedings may be dismissed under section 32.
- In Metropolitan Brick Company v Hayward, Napier J said at page 466:
The natural sense of “payable” is that “that must be paid” and money is not “payable under” a contract until the contract binds the party to pay i.e. until the conditions precedent have been satisfied or excused… when we speak of money as due or payable in the future, or upon the happening of an event, we are using an ellipsis. The full sense is money which will become payable, or may become payable, but the latter is a secondary meaning and is not to be assumed. It requires a context to support it, and I can see nothing in the context which justifies any departure from the literal meaning.
- In Leichhardt Angel J said:
The view that a lien exists although no moneys are presently due and payable flies in the face of section 5 of the Act.
- In Trademark Homes Lander J said:
As already indicated a lien is only available to the extent of moneys unpaid by the owner or occupier. It might be that a worker or subcontractor is unpaid, but no lien arises over the owner’s or occupier’s land unless that owner or occupier is in default of their obligations to a contractor or other subcontractor.
In favour of “payable now or in the future”
- There have been a number of relevant decisions:
- In Pitt v Glenelg, Richards J considered the language of the Act, and concluded
For these reasons I think that a lien or a charge may exist though there is no money presently payable by the building owner to the contractor.
- In Metropolitan; Napier J thought that, because section 37 of the Act allows owners who successfully obtain discharge of liens to deduct their discharge costs from the contract price specified in section 6, that must mean that, in section 6, payable must mean “payable at any time”. But it seems that this was not a necessary deduction, and led him to treat section 6 as if it were concerned with enforceability rather than extent, notwithstanding that there are no words in section 6 suggesting that it is in any way so limited. Indeed, the very short timescale between registration and enforcement suggests that the intention of the legislation is the lien should not be capable of registration unless it is also capable of enforcement. The second reading is also unfortunate inasmuch as it means that the title of a blameless owner can be tainted by a subcontractor’s lien even in circumstances when the owner has paid every cent he owes the moment it has become due. The courts have commented more than once on the difficulty of making sense of the Act.
Quantum payable by the Owner
- On either analysis, the owner is not obliged by this legislation to pay any more than is due, and the question of whether anything and what is due by the owner is to be determined by reference to the owner’s contract; if the sum in question was not due from the owner to his contractor at the relevant time because it had not then been certified by the architect, or by virtue of a cross-claim, then a subcontractor’s lien is not available/enforceable; a subcontractor thus faces a formidable practical difficulty, in that he may be in no position to know what, if anything, is due under the head contract, and what defences the owner may have.
- From time to time, the courts have spoken of liens in their “dormant” state. By this, the courts usually mean a case in which money is due and presently payable to the claimant subcontractor, but that no money is presently payable by the owner.
- The concept first saw the light of judicial day in Metropolitan Brick; Napier J said:
The fair inference is that section 6 refers to the portion of the contract price which is due and payable from time to time, as and when it becomes payable. It follows that the lien and the right to enforce it are separate and distinct, in the sense that the lien is capable of lying dormant, whilst there is nothing payable by the owner under his contract, and becoming enforceable whenever money becomes payable
- In Longreef, King CJ said much the same thing:
It seems to me that a contractor’s or sub-contractor’s lien can only arise when the lienor’s title to the debt has accrued under the terms of his contract (section 5), although it may arise notwithstanding that the debt, having arisen, is payable in the future. The extent of the lien is limited by section 6 to the amount due and presently payable by the owner or occupier under the contract for the purpose of which the work was done or the materials supplied. In a situation in which a lien which has arisen because an amount has accrued due under the contract, but there is no amount presently payable by the owner or occupier, the lien is dormant until an amount becomes so payable.
- These dicta have been referred to a number of times, and form part of the orthodoxy in the line of cases that holds that, in section 6, “payable” means “payable either now, or maybe in the future”. If that line be followed, what is the status of a “dormant line”?
- Can proceeding be issued and maintained to enforce a dormant lien, notwithstanding that it is not enforceable? The bizarre answer to this question, according to this line of authority, appears to be “yes”; the cases referred to above expressly contemplate that a subcontractor may issue proceedings at a time when there is no money due from the owner under the head contract, and speak of the court if need be putting things on hold until it be seen what, if anything, ever falls due by the owner. This approach flies in the face of the ordinary principle that a party must have the cause of action he relies on at the time he issues legal proceedings; the Act requires the proceedings to be for “enforcement” and it is odd indeed that such proceedings should be allowed to succeed in circumstances where the claimant had no right to enforcement at the time of proceedings. This difficulty is of course absent if the view be taken that there is no entitlement to a lien – dormant or otherwise – unless there be money presently due by the owner.
 See Pitt v Glenelg at  SASR 509 below.
 See page 49 below.
 See page 133 below.
 See paragraph 65 above. Contrast the position where there is a breach of formal requirements for writing etc; see paragraph 61 above.
 See paragraph 32 of the judgment at page 205 below.
 For an example of this practice in the context of a charge (where the same issue arises), see the Magistrates Court decision in Simmons v Burge, paragraph 19, at page 797 below.
  SASR 121
 See page 239 below
 See page 466 below.
 Head contracts often now contain a provision that the head contractor is not entitled to be paid unless and until he produces a declaration confirming payment of subcontractors.
 Although it may be noted that the concept sits much more happily with the former reading. The usual position under a construction contract is that no money is due or payable at the outset. At points along the way, the contractor becomes entitled to progress payments, often according to certificates for payment issued by a third party. These certificates then become due for payment, typically 2 or 3 weeks after the issue of the certificate. These principles are recognised at sections 8 and 11 respectively of the Building and Construction Industry Security of Payment Act 2009. During this period between certification and the due date for payment, there is indeed a debt debitum in praesenti, solvendum in futuro, but it is hard to suggest that there is anything payable before that time. It may well be possible to sustain a good case that a fund exists on money to which a section 8 entitlement has arisen pending a section 11 due date.
 I.e. at the time that the lien is claimed.
 That is to say, as at the time the owner first receives notice of the lien or its registration, whichever shall first happen; see section 6.
 See e.g. Longreef v Leighton  SASC 2873 per King CJ at paragraph 14, where it was said that a lien lies “dormant” in such circumstances.
 See the passage from Metropolitan quoted at paragraph 46 of Longreef.
 See e.g. Longreef per Olsson J (with whom Mohr J agreed) at paragraph 50. This line follows at least some part of the reasoning of Napier J in Metropolitan Brick and also the analysis of Hogarth J in W Curl & Sons v Buck Industries  2 SASR 335.
 See for example Pitt v Glenelg at page 518.
 This was described as “obvious” in Pitt v Glenelg; see  SASR at page 521; see page 605 below (editorial paragraph 28 of the judgment).
 See paragraph Unlike a “fund” as ordinarily understood, therefore, the concept of such a fund must be strained to include something which does not in fact exist, is of no predeterminable amount, and which might or might not become payable at some future time according to many uncertainties. For these reasons, it is suggested that it is unlikely that the concept of a fund would withstand a full-frontal legal attack; a more logical approach is that, when the courts have spoken of a “fund”, they have spoken figuratively. The concept of a “fund” does nothing to answer the more important question – considered below – as to whether the money payable up the line needs to be presently payable, or merely contingently payable in the future.
 Overturned in Jovista but not, it seems, on this point.
 See page 656 below.
 At  SASR 519, see page 477 below.
 I.e. either the time the lien is claimed, or when it is sought to be enforced, depending on which reading is being followed.
 Metropolitan Brick Company v Hayward (1938) SASR 462. See also paragraph 17 of the Magistrates Court decision in Simmons v Burge at page 711 below as to the applicability of the Badge v Rule Chambers principle to the debt up the line.
 De Cesare v Deluxe Motors (1996) 67 SASR 28.
 See paragraph 7 of the judgment at page 495 below.
 See paragraph 14 of the judgment at page 448 below.
 See the discussion at paragraph 141 et seq above.
 Longreef, paragraph 14. Note that this analysis applies only in this line of cases; see the contrary view in, for example, Trademark Homes. See paragraph 153 above,
 Metropolitan Brick, paragraph 7