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1
Subcontractors' Charges Amendment Bill 2001
SUBCONTRACTORS' CHARGES
AMENDMENT BILL 2001
EXPLANATORY NOTES
SHORT TITLE
Subcontractor's Charges Amendment Bill 2001
GENERAL OUTLINE
Objective of the Legislation
The objective of the legislation is to amend the Subcontractors' Charges
Act 1974 to enhance security of payment to subcontractors within the
building and construction industry.
Objective of the Legislation
The Queensland Government initiated a Commission of Inquiry into
Security of Payment within the Building and Construction Industry, which
commenced on 28 March 1996. Its terms of reference included
consideration of the adequacy of the Subcontractors' Charges Act 1974.
Following the Inquiry, in November 1996, a Government Discussion Paper
on security of payment in the building and construction industry was
released for public comment.
In response to the Discussion Paper, 11 industry groups formed the
Implementation Steering Committee (ISC), which was established in
January 1997 to consider the issues raised in the Government Discussion
Paper. The ISC report, containing a series of recommendations for reform
of the building and construction industry, was released in November 1997.
As part of the reforms, the ISC report proposed a number of amendments to
the Subcontractors' Charges Act 1974 (the Act).
The Bill incorporates a number of the ISC recommendations, together
with additional amendments to enhance security of payment to
subcontractors.
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Subcontractors' Charges Amendment Bill 2001
ACHIEVEMENT OF POLICY OBJECTIVES
The Bill is intended to expand the application of the Act to enable
subcontractors to claim a charge not only on moneys payable under the
contract, but also on security for the performance of a contractor's
obligations to the employer. Security may only be utilised if other moneys
payable are not sufficient and the rights of the holder of the security will
have priority over any other interest, including a subcontractor's charge.
Amendments are proposed that will expand the categories of persons
entitled to claim a charge under the Act to include manufacturers of project
specific material and suppliers of labour, increasing the number of parties
that may claim a charge.
The Bill contains measures to better ensure that subcontractors' claims
relate only to the work carried out for a contractor under the subcontract,
and are not unreasonable. These include an amendment requiring the
subcontractor to provide a statutory declaration declaring that the amount
claimed is correct.
The Bill makes provision for partial withdrawal of a claim by a
subcontractor, and partial acceptance of liability by a contractor. These
provisions should facilitate settlement of claims under the Act.
The Bill also clarifies a number of provisions the interpretation of which
has been uncertain.
ASSESSMENT OF ADMINISTRATIVE COST TO GOVERNMENT
The Bill enhances and clarifies the operation of the Subcontractors'
Charges Act 1974 and does not add to the administrative costs to
Government.
CONSISTENCY WITH FUNDAMENTAL LEGISLATIVE
PRINCIPLES
Allowing a claim of charge against contract securities may have some
impact on the rights and obligations of the contractor or superior contractor
who provided the security for performance of the contract. However, a
person prejudicially affected may apply to the court to have the charge
cancelled or its effect modified. A claim of charge against contract
securities may also have some impact on the rights and obligations of the
issuer of the security given to secure the performance of the contract. As it
is the practice of security issuers to require some form of security or asset
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Subcontractors' Charges Amendment Bill 2001
upon which to issue the security, it is considered unlikely that the interests
of security issuers will be materially affected. In addition, these provisions
will not have retrospective effect. Therefore, any impact on the issuer of a
security will be reflected in the commercial dealings between the issuer and
the person procuring its issue, generally a contractor.
It is concluded that the Bill is consistent with fundamental legislative
principles as outlined in the Legislative Standards Act 1992.
EXTENT OF CONSULTATION
Representatives from the Department of the Premier and Cabinet,
Department of Justice and the Attorney-General, Department of Public
Works, Department of Housing, Department of Tourism, Sport and Fair
Trading, Department of Main Roads, Department of Transport, Department
of Industrial Relations and Queensland Treasury have been consulted in the
preparation of the Bill.
NOTES ON PROVISIONS
Clause 1 sets out the short title.
Clause 2 provides that the commencement day is to be fixed by
proclamation.
Clause 3 states that the Act to be amended is the Subcontractors'
Charges Act 1974.
Clause 4 updates the drafting of the section and includes in section 3:
· a new definition of "land" to include land that is under water;
· a new definition of "project specific materials" to include
materials made specifically for inclusion in the work, but
excluding materials that could without substantial change be
incorporated in other work or which could reasonably be
converted to other use;
· a new definition of "security" to describe the instruments used to
secure performance under a contract;
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Subcontractors' Charges Amendment Bill 2001
· a new definition of "structure" to clarify the application of the
Act to structures on land which is under water;
· a new definition of "supply of labour" to specifically exclude
from the definition of "work" the supply of persons who perform
only administrative functions;
· a new definition of "valuable instrument" to describe those
instruments which are included within the scope of security;
· an extension to the definition of "work" to include the
manufacture of project specific materials and supply of labour
for work the subject of a contract or subcontract.
Clause 5 amends section 5 of the Act relating to charges in favour of
subcontractors. It inserts a provision entitling the subcontractor to a charge
on a security given for the purpose of securing, wholly or partly, the
performance of a contract by the contractor or superior contractor.
Subsection 5(4) is inserted to provide for the circumstances in which
security may be used to satisfy a charge under the Act.
Subsection 5(5) is inserted to clarify that a subcontractor's charge for
retention money only is not limited to a charge on retention money, and that
a subcontractor's charge upon security is not limited to a charge on security
held in place of retention money.
Subsection 5(6) is inserted to clarify that any contractual provision still
to be complied with (such as the certification of work or a dispute
resolution procedure) does not have to be completed for a subcontractor to
be entitled to claim a charge. However, provisions in the subcontract may
have to be complied with by the subcontractor to entitle the subcontractor
to enforce the charge.
Clause 6 omits section 7A - Schemes of arrangement binding on
subcontractors, as the Corporations Act 2001 (Cwlth) and Bankruptcy Act
1966 (Cwlth) apply irrespective of the provisions of this Act.
Clause 7 amends section 8 and clarifies that if there is an insufficiency of
securities to meet claims payable under the Act, the insufficiency (as is the
case for moneys payable) is to be borne in proportion to the amount of the
claims.
Clause 8 amends section 9A and provides that, when requested by a
subcontractor, the identifying information about the contract between the
employer and contractor which the contractor is obliged to provide,
includes identifying information about the contract, securities issued
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Subcontractors' Charges Amendment Bill 2001
securing the performance of that contract, and the name and address of the
holder of any security.
Subsections 9A(1A) and 9A(1B) provide for the disclosure of
information to a subcontractor about the holder of security for the contract.
Clause 9 inserts provisions in section 10 which:
· require that, if a person other than the employer or superior
contractor holds security for the contract, notice in the approved
form must be given to that person (subsection (1)(aa)), and that if
notice is not given to that security holder, the charge does not
attach to the security, but otherwise attaches (subsection 4A);
· require that, a notice of claim of charge must be supported by a
statutory declaration of the subcontractor in the approved form
declaring that the claim is correct (subsections (1B) and (1C));
· clarify that, for the purposes of a charge, a claim in respect of
money payable under a contract includes retention money
(subsection (1D));
· clarify that the contract referred to in subsection 10(3), is the
contract between the contractor and the employer or superior
contractor;
· clarify that a subcontractor may make 2 or more claims if each
claim concerns a separate and distinguishable item of the work
under the subcontract and no 2 claims concern the same item
(subsections (7) and (8)); and
· defines the "officer" of a corporation for the signing of the
statutory declaration under subsection (1B).
Clause 10 amends section 10A to allow persons licensed, within the
appropriate class, as supervisors under the Queensland Building Services
Authority Act 1991 to certify a claim of charge.
Clause 11 amends section 11. Subsection 11(3) is amended to permit a
contractor to give a notice accepting liability to pay part only of a
subcontractor's claim. Subsection 11(4A) requires payment of this amount
by the employer or superior contractor to the extent the amount is required
to be retained. Subsection 11(4B) provides that payment of money, if there
is acceptance of liability, must occur only if the employer or superior
contractor has retained a sufficient amount to cover all unsatisfied claims.
Subsection 11(6) is amended to clarify that a payment into court by an
employer or superior contractor under subsection 11(5) discharges the
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Subcontractors' Charges Amendment Bill 2001
employer or superior contractor from the costs of any court proceeding in
relation to the amount paid.
Subsection 11(8) is amended to allow for partial withdrawal of a notice
of claim of charge, and provides that a withdrawal of a claim must also be
given to the holder of a security to whom notice was given under section
10(1)(aa). These provisions are intended to facilitate settlement of claims
under the Act.
Subsection 11(9) introduces the concepts of "retained amount" and
"unsatisfied amount" to facilitate interpretation of section 11.
Clause 12 provides for the use of security for the purposes of satisfying a
subcontractor's charge and inserts sections 11A, 11B, 11C, 11D and 11E.
· Section 11A applies if the contractor has not accepted liability for
the subcontractor's claim, and if an employer or superior
contractor, or another person, holds a security for securing
wholly or partly, the performance of the contract. Contract
security may be called upon only if the amount retained or paid
into court by the employer or superior contractor under section
11 is less than the total of claims received. If there is such a
"difference amount" the contract security must be retained by the
holder of the security, until the court gives directions in relation
to the security, or the security is no longer required to be
retained. If the security is an amount of money, the money may
be paid into court. If the security is able to be converted to
money, the security may be converted to money and paid into
court. Subsection 11A(2) provides that a person failing to retain
a security is personally liable to the subcontractor to the extent to
which the security would have satisfied the claim. Subsection
11A(3) provides that if money is paid into court, the holder of the
security is discharged from all further liability for the amount
paid and costs of any proceeding. Subsection 11A(4) provides
that the rights of the holder of the security for securing
performance of the contract have priority over any claim of
charge until the security would be required to be surrendered,
wholly or partly. Subsection 11A(5) provides that the operation
of any provision in the contract, security or other arrangement
about the security will not prevent a security holder from
retaining a security, converting it to cash, or paying the security
into court under the section. Subsection 11A(6) requires that
money paid into court under section 11A may be paid out only
by order of the court. Subsection 11A(7) inserts definitions of
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Subcontractors' Charges Amendment Bill 2001
"difference amount", "retained amount", "section 11A security"
and "unsatisfied amount" for the purpose of calculating the
amount of security to be retained under the section.
· Section 11B applies if the contractor has accepted liability for all
subcontractor claims directed to an employer or superior
contractor in respect of a contract. Subsection 11B(1) provides
that if there is an unsatisfied amount for a contract greater than
the retained amount for the contract the holder of a security must
retain the security until a court makes an order under section 11C
enforcing the charge or, instead of retaining the security, if the
security is held as money, pay an amount up to the difference
amount for the contract to the subcontractors to whom the
acceptance of liability relates or convert the security wholly or
partly into money and pay the subcontractors to whom the
acceptance of liability relates, an amount up to the difference
amount. Subsection 11B(2) provides that a person failing to
retain a security is personally liable to pay the subcontractor to
the extent to which the security would have satisfied the claim. If
the security is an amount of money, the money may be paid into
court. Subsection 11B(3) provides that if money is paid into
court, the holder of the security is discharged from all further
liability for the amount paid and costs of any proceeding.
Subsection 11B(4) provides that the rights of the holder of the
security for securing performance of the contract have priority
over any claim of charge until the security would be required to
be surrendered, wholly or partly. Subsection 11B(5) provides that
the operation of any provision in the contract, security or other
arrangement about the security will not prevent a security holder
from retaining a security, converting it to cash, or paying it to a
subcontractor or contractor under the section. Subsection 11B(6)
inserts definitions of "difference amount", "retained amount",
"section 11B security" and "unsatisfied amount" for the purpose
of calculating the amount of security to be retained under the
section.
· Section 11C applies to securities retained under sections 11A or
11B. Subsection 11C(2) provides that a court may make any
order it considers appropriate for enforcing the charge, including
realising the security. Subsection 11C(3) provides that the
realisation of a security is subject to the rights of the holder of the
security to use it to secure performance of the contract or to
secure another right provided for in the contract. Under
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Subcontractors' Charges Amendment Bill 2001
subsection 11C(4) the court may order the production of a
security to the court. Subsection 11C(5) provides that a
precondition or expiry provision of a security is of no effect to
stop realisation of the security under section 11C. Subsection
11C(6) defines "expiry provision" and "precondition provision"
used in subsection 11C(5).
· Section 11D provides that a security given by or for a
subcontractor is of no effect for securing, wholly or partly, the
performance by a contractor or superior contractor of their
contract or subcontract.
· Section 11E provides that if a subcontractor has given notice of a
claim of charge to an employer or superior contractor and to a
security holder, the security holder may seek the information
which will reasonably enable the security holder to comply with
section 11A or 11B. Under subsection 11E(3), the employer or
superior contractor must comply with the request to the greatest
practicable extent. Under subsection 11E(5) if a failure to
comply with section 11E(3) would lead to the security holder
becoming liable to a subcontractor under section 11A(2) or
11B(2) the employer or superior contractor will be liable to the
subcontractor instead of the security holder.
Clause 13 clarifies that
· Payment of moneys into court by an employer or superior
contractor, is a "satisfactory arrangement" under section 12;
· Section 12(3A) does not operate to revive a charge that has been
extinguished under section 15.
Clause 14 amends section 15. Subsection 15(1) is amended to reduce
the time period for commencement of a court proceeding following notice
of a claim of charge from two months to one month. Subsection 15(2) is
amended to refer to securities.
Clause 15 updates section 17 by removing a reference to a repealed
provision.
Clause 16 inserts subsection 21(3) to provide for specific instances in
subsection 21(1) where a person may be prejudicially affected by a claim
of charge. If, because of a claim of charge, the payment or release of
security to a person (the affected person) higher up the contractual chain
than the subcontractor is delayed or otherwise affected and the affected
person has made payment to a person who is a contractor or superior
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Subcontractors' Charges Amendment Bill 2001
contractor of the claiming subcontractor, the affected person is
prejudicially affected within the meaning of subsection 21(1). This
provision effectively limits the circumstances in which a subcontractor may
successfully claim a "leap frog" charge. The court can then determine
whether a claim of charge should be either cancelled or its effect modified.
Clause 17 amends section 22 and provides that a notice of claim is given
without reasonable grounds if the person making the claim knows or
reasonably ought to know that the amount of the claim significantly
exceeds the amount actually payable to the person.
Clause 18 inserts a new section 27 providing that amendments to the Act
allowing claims of charge over contract security will only apply to
contracts entered into after the commencement of the section. If a contract
is varied after the commencement of the section, the amendments to the
Act will apply to the contract variation. The reduction from 2 months to
one month in the period for commencement of court proceedings to
enforce a claim under section 15(1)(b) applies to notices of claim of charge
given after commencement of the amendments to the Act.
The Schedule provides for the updating of various provisions of the Act
to enhance consistency within the Act.
© State of Queensland 2001