This Act gives an unpaid person (e.g., a tradesperson or supplier) a court‑based route—obtain a debt certificate and serve an approved notice—to recover certified unpaid amounts from the principal who contracted with the defaulting contractor.
Effect: the principal must divert payments otherwise due to the contractor to the unpaid person, shifting enforcement up the contracting chain and protecting subcontractors against non‑payment.
The Contractors Debts Act 1997 establishes a statutory assignment mechanism that permits an unpaid person to intercept money otherwise payable by a principal to a defaulting contractor. Under s 5(1), an unpaid person who is owed money for work carried out or materials supplied to a defaulting contractor may recover that money from any principal who owes the defaulting contractor for related work or materials. The relationship must satisfy the nexus test in s 5(2): the unpaid person’s work or materials must be part of, or incidental to, the work the principal engaged the defaulting contractor to perform.
The process is strictly sequential. First, a debt certificate must be obtained under s 7. This requires the unpaid person to have obtained judgment (including default judgment) in proceedings for recovery of the debt. Once judgment is given, the court may, on application, issue a debt certificate in the approved form. Where an adjudication certificate under the Building and Construction Industry Security of Payment Act 1999 has been filed as a judgment pursuant to s 25 of that Act, the court may likewise issue a debt certificate (s 7(1A)). The certificate is capped at 120 days’ wages where the debt comprises periodic wages (s 7(2)), and may not issue if a possessory lien over movable property would be practicable (s 7(3)).
Service of a notice of claim—comprising the approved form plus a copy of the debt certificate—on the principal then operates as a statutory assignment of the principal’s obligation to pay the defaulting contractor (s 8(1)). The assignment is limited to the certified debt (s 8(2)) and ranks according to the order of service of notices (s 10(1)). A 7-day window following the first notice causes all notices served in that period to rank equally, with pro-rata distribution required (s 10(2)–(4)). The principal must pay the assigned sums to the unpaid person as they fall due under the head contract until a discharge notice is received or the contract monies are exhausted (s 9).
Current sections
Direct links to the current provisions in Contractors Debts Act 1997.
This Act commences on a day or days to be appointed by proclamation.
3
Definitions
3 Definitions
3 Definitions
(1) In this Act:
approved form means a form approved by the Minister.
certified debt, in relation to an unpaid person, means the amount specified in a debt certificate as being owed to the unpaid person.
contract means an express or implied contract, whether or not in writing.
debt certificate means a certificate issued under section 7.
defaulting contractor—see section 5.
discharge notice means a notice referred to in section 13.
notice of claim means a notice referred to in section 6.
principal—see section 5.
unpaid person—see section 5.
(2) This Act applies to a debt that is owed partially for work carried out and partially for materials supplied in the same way as it applies to a debt that is owed solely for work carried out or solely for materials supplied.
(3) A reference in this Act:
(a) to the carrying out of work includes a reference to construction work (within the meaning of the Building and Construction Industry Security of Payment Act 1999) carried out or undertaken to be carried out under a construction contract within the meaning of that Act, and
(b) to the supply of materials includes a reference to related goods and services (within the meaning of that Act) supplied or undertaken to be supplied under any such contract.
s 3: Am 2002 No 133, Sch 2 [1].
4
Notes
4 Notes
4 Notes
Notes included in this Act are explanatory notes and do not form part of this Act.
Part 2
Obtaining payment of debt
Part 2 Obtaining payment of debt
Part 2 Obtaining payment of debt
5
Unpaid persons can obtain payment from principal
5 Unpaid persons can obtain payment from principal
5 Unpaid persons can obtain payment from principal
(1) A person (the unpaid person) who is owed money for work carried out for or materials supplied to some other person (the defaulting contractor) can obtain payment of that money in accordance with this Act out of money that is payable or becomes payable to the defaulting contractor by some other person (the principal) for work or materials that the principal engaged the defaulting contractor to carry out or supply under a contract.
(2) However, the unpaid person can obtain payment from the principal under this Act only if the work carried out or materials supplied by the unpaid person are, or are part of or incidental to, the work or materials that the principal engaged the defaulting contractor to carry out or supply.
Note—
A typical example of an unpaid person is a tradesperson, labourer or supplier (including a corporation).
6
Procedure for obtaining payment
6 Procedure for obtaining payment
6 Procedure for obtaining payment
(1) The following procedure must be followed to obtain payment of the money owed:
(a) firstly, a debt certificate must have been issued for the money owed (as provided for by section 7),
(b) secondly, the unpaid person must serve a notice of claim on the principal.
(2) A notice of claim is a notice in an approved form together with a copy of the debt certificate.
7
Certification of debt by court
7 Certification of debt by court
7 Certification of debt by court
(1) When judgment is given or entered up in any proceedings relating to the recovery of money owed to a person for work carried out or materials supplied, the court may, by order made on the application of the person in whose favour the judgment is given, issue a certificate (a debt certificate) in respect of the debt under this section.
(1A) If an adjudication certificate within the meaning of the Building and Construction Industry Security of Payment Act 1999 has been filed as a judgment for a debt in accordance with section 25 of that Act, the court may, by order made on the application by the person who filed the adjudication certificate, issue a debt certificate in respect of the debt under this section.
(2) If the debt concerned consists of daily, weekly or monthly wages, and the debt exceeds 120 days’ wages, the amount certified in the debt certificate is not to exceed 120 days’ wages.
(3) A debt certificate is not to be issued if the court is satisfied that the work was done on something moveable and it would be practicable for the applicant to exercise a lien by retaining the thing in the applicant’s possession.
(4) A debt certificate is to be in an approved form.
(5) In this section, judgment includes a default judgment.
s 7: Am 1998 No 120, Sch 2.6; 2002 No 133, Sch 2 [2].
8
Notice of claim operates as assignment of debt
8 Notice of claim operates as assignment of debt
8 Notice of claim operates as assignment of debt
(1) Service of a notice of claim on the principal operates to assign to the unpaid person the obligation of the principal to pay the money owed under the contract to the defaulting contractor.
(2) The assignment is limited to the amount of the unpaid person’s certified debt.
(3) The assignment is subject to any prior assignment under this Act that is binding on the principal and the defaulting contractor.
9
Payment of defaulting contractor’s debt by principal
9 Payment of defaulting contractor’s debt by principal
9 Payment of defaulting contractor’s debt by principal
(1) After a notice of claim is served on a principal in accordance with this Part, the principal must pay the money owed to the defaulting contractor to the unpaid person.
(2) The principal must make the payments to the unpaid person as they become payable under the contract with the defaulting contractor until whichever of the following first occurs:
(a) the principal receives a discharge notice, or discharge notices, indicating that the certified debt has been fully discharged, or
(b) the payments are no longer payable under the contract.
10
Priority of assignments under Act
10 Priority of assignments under Act
10 Priority of assignments under Act
(1) The priority of assignments under this Act is to be determined by the order of service of notices of claim on the principal.
(2) All notices of claim in respect of debts owed by the same defaulting contractor that are served on the principal within the period of 7 days after the first notice in respect of the defaulting contractor is served on the principal are taken to be served at the same time and, accordingly, take equal priority.
(3) The principal is not to make any payment to an unpaid person who serves a notice of claim until that 7 day period has elapsed (despite section 9).
(4) If assignments take equal priority, the principal is to make the payments by distributing the money payable between the unpaid persons who have equal priority pro rata in proportion to the amount of their respective certified debts.
(5) The principal must continue to make those payments to each unpaid person until whichever of the following first occurs:
(a) the principal receives a discharge notice, or discharge notices, indicating that each certified debt has been fully discharged, or
(b) the payments are no longer payable under the contract.
11
Right of recovery if principal fails to pay
11 Right of recovery if principal fails to pay
11 Right of recovery if principal fails to pay
(1) An assignment effected by operation of this Act is valid at law.
(2) Accordingly, if the principal fails to make any payment required to be made by this Act, the unpaid person may sue for and recover the debt assigned to the unpaid person, in the unpaid person’s own name.
(3) Proceedings for recovery of the debt may be taken in any manner in which the defaulting contractor might have taken them had there been no assignment.
(4) An unpaid person’s right of recovery under this section is subject to any defence that the principal would have had against recovery of the debt by the defaulting contractor had there been no assignment, other than a defence based on something done by the principal after the notice of claim was served on the principal.
Note—
For example, if the principal continues to make the contract payments to the defaulting contractor, rather than the unpaid person, after having been served with a notice of claim, the unpaid person is still entitled to recover the money from the principal.
12
Assignment ceases to operate on discharge of debt
12 Assignment ceases to operate on discharge of debt
12 Assignment ceases to operate on discharge of debt
(1) If the debt owed to an unpaid person by a defaulting contractor is discharged, or the judgment or order that resulted in a debt certificate being issued in respect of the debt is set aside, any assignment effected by operation of this Act in connection with that debt ceases to operate.
(2) If only part of the debt is discharged, the assignment effected in respect of that part of the debt ceases to operate.
(3) This section does not affect any payment or dealing that is made by a principal in good faith before the principal receives notice, and sufficient evidence of, the discharge of the debt or the setting aside of the judgment or order. To the extent necessary to give effect to such a payment or dealing, the assignment effected by operation of this Act is taken to continue in force.
Note—
If a principal makes a payment to an unpaid person (as required by section 9), instead of paying the defaulting contractor, without knowing that the debt owed to the unpaid person has been discharged by the defaulting contractor, this section protects the principal from being required by the defaulting contractor to make the payment to the defaulting contractor.
13
Unpaid person required to provide discharge notice
13 Unpaid person required to provide discharge notice
13 Unpaid person required to provide discharge notice
(1) If a defaulting contractor or principal makes a payment to an unpaid person in partial or full discharge of the debt owed to the unpaid person, the unpaid person must, on the request of the person making the payment, give that person a discharge notice in respect of the payment.
(2) A discharge notice is a notice in an approved form that acknowledges the payment of the amount paid and is signed by the unpaid person.
(3) If the unpaid person does not give the notice within 7 days of such a payment and request, the unpaid person is to forfeit and pay to the person who made the payment a sum equal to the amount paid. The penalty is recoverable by the person who made the payment as a debt in a court of competent jurisdiction.
Part 3
General
Part 3 General
Part 3 General
14
Attachment order
14 Attachment order
14 Attachment order
(1) If proceedings are commenced by an unpaid person against a person (the defendant) for the recovery of money owed to the unpaid person by the defendant for work carried out or materials supplied by the person, the court may, on the application of the unpaid person, make an order under this section (an attachment order) against any other person from whom the unpaid person may be able to recover the debt under this Act.
(2) An application for an attachment order:
(a) may be made on the commencement of the proceedings or at any time before judgment is given in the proceedings, and
(b) may be heard in the absence of other parties, and
(c) is to be verified by oath or affirmation.
(3) The court may make an attachment order only if it is satisfied, on the basis of the application, that:
(a) the defendant owes the unpaid person money for work carried out or materials supplied by the unpaid person, and
(b) the work or materials are, or are part of or incidental to, work or materials for which the defendant is to be paid under a contract with the person against whom the order is sought.
(4) On service of a copy of the attachment order on the person against whom the order is made, any money that is payable or becomes payable to the defendant under the contract concerned, not exceeding the amount specified in the order, is attached for the purposes of the proceedings and is to remain in the hands of the person against whom the order is made until judgment is given in the proceedings or until the court otherwise orders.
(5) An attachment order:
(a) is to be in an approved form, and
(b) is to specify the amount that is attached for the purposes of the proceedings (being the amount sued for by the unpaid person or such other amount as the court considers appropriate).
(6) An attachment order may be varied or set aside on the application of any person.
s 14: Am 2004 No 55, Sch 2.5.
15
Defaulting contractor to give information concerning principal
15 Defaulting contractor to give information concerning principal
15 Defaulting contractor to give information concerning principal
(1) If a debt certificate is issued in respect of a debt owed by a defaulting contractor, the defaulting contractor must, on the demand of any person to whom the defaulting contractor owes money for work or materials, supply to the person a notice in an approved form that sets out the name of any person from whom the person may be able to recover the debt under this Act.
Maximum penalty: 20 penalty units.
(2) A person who gives or purports to give a person a notice under this section knowing that it is false or misleading in a material particular is guilty of an offence.
Maximum penalty: 20 penalty units.
16
Act capable of application to series of contractual arrangements
16 Act capable of application to series of contractual arrangements
16 Act capable of application to series of contractual arrangements
(1) If a principal fails to pay a debt assigned to an unpaid person by operation of this Act and the unpaid person takes proceedings against the principal for recovery of the debt (as provided for by section 11), this Act applies in respect of the debt as if it were a debt owed to the unpaid person by the principal for work carried out for or materials supplied to the principal by the unpaid person (instead of work carried out for or materials supplied to the principal by the defaulting contractor).
(2) Accordingly, the unpaid person can obtain payment of the debt in accordance with this Act out of money that is payable to the principal by some other person.
Note—
An example of a situation to which this section might apply is where a person engages another person (a contractor) to carry out work or supply materials and the contractor then engages someone else (a subcontractor) to carry out that work or supply those materials. If a person is engaged by the subcontractor to carry out any of the work or supply the materials and the subcontractor fails to pay the person for the work or materials, the unpaid person can seek payment of the debt in accordance with this Act from the contractor. Under this section, if the contractor fails to pay the debt, the unpaid person can then seek payment from the person who engaged the contractor. In other words, this section allows an unpaid person to pursue payment of an unpaid debt from any number of “defaulting contractors”.
17
Limitation period
17 Limitation period
17 Limitation period
(1) Proceedings under this Act in respect of a debt cannot be taken more than 12 months after the debt becomes payable.
(2) A debt that is payable to an unpaid person because of an assignment effected by operation of this Act becomes payable when it would have become payable to the defaulting contractor had there been no assignment.
18
No contracting out
18 No contracting out
18 No contracting out
(1) The provisions of this Act have effect despite any stipulation to the contrary in any contract.
(2) No contract entered into before or after the commencement of this section operates to annul, vary or exclude any of the provisions of this Act.
19
Act does not affect other remedies
19 Act does not affect other remedies
19 Act does not affect other remedies
This Act does not affect:
(a) any remedy an unpaid person may have against a defaulting contractor or any other person in respect of a debt owed to the unpaid person, or
(b) any rights a defaulting contractor, principal or other person may have under any contract or otherwise (except as expressly provided by this Act), or
Proceedings for an offence against this Act are to be dealt with summarily before the Local Court.
s 20: Am 2001 No 121, Sch 2.61; 2007 No 94, Sch 2.
21
Regulations
21 Regulations
21 Regulations
The Governor may make regulations, not inconsistent with this Act, for or with respect to any matter that by this Act is required or permitted to be prescribed or that is necessary or convenient to be prescribed for carrying out or giving effect to this Act.
22
Repeal
22 Repeal
22 Repeal
The Contractors’ Debts Act 1897 is repealed.
23
Savings, transitional and other provisions
23 Savings, transitional and other provisions
23 Savings, transitional and other provisions
Schedule 1 has effect.
24
Review of Act
24 Review of Act
24 Review of Act
(1) The Minister is to review this Act to determine whether the policy objectives of the Act remain valid and whether the terms of the Act remain appropriate for securing those objectives.
(2) The review is to be undertaken as soon as possible after the period of 5 years from the date of assent to this Act.
(3) A report on the outcome of the review is to be tabled in each House of Parliament within 12 months after the end of the period of 5 years.
Schedule 1
Savings, transitional and other provisions
Schedule 1 Savings, transitional and other provisions
Schedule 1 Savings, transitional and other provisions
(Section 23)
Source text: opening excerpt
Sourced from legislation.nsw.gov.au, CC BY 4.0.
Part 1 Preliminary
Part 1 Preliminary
Part 1 Preliminary
1 Name of Act
1 Name of Act
1 Name of Act
This Act is the Contractors Debts Act 1997.
2 Commencement
2 Commencement
2 Commencement
This Act commences on a day or days to be appointed by proclamation.
3 Definitions
3 Definitions
3 Definitions
(1) In this Act:
approved form means a form approved by the Minister.
certified debt, in relation to an unpaid person, means the amount specified in a debt certificate as being owed to the unpaid person.
contract means an express or implied contract, whether or not in writing.
debt certificate means a certificate issued under section 7.
defaulting contractor—see section 5.
discharge notice means a notice referred to in section 13.
notice of claim means a notice referred to in section 6.
principal—see section 5.
unpaid person—see section 5.
(2) This Act applies to a debt that is owed partially for work carried out and partially for materials supplied in the same way as it applies to a debt that is owed solely for work carried out or solely for materials supplied.
(3) A reference in this Act:
(a) to the carrying out of work includes a reference to construction work (within the meaning of the Building and Construction Industry Security of Payment Act 1999) carried out or undertaken to be carried out under a construction contract within the meaning of that Act, and
(b) to the supply of materials includes a reference to related goods and services (within the meaning of that Act) supplied or undertaken to be supplied under any such contract.
s 3: Am 2002 No 133, Sch 2 [1].
4 Notes
4 Notes
4 Notes
Notes included in this Act are explanatory notes and do not form part of this Act.
Part 2 Obtaining payment of debt
If the principal fails to comply, the assignment is declared valid at law (s 11(1)), enabling the unpaid person to sue in their own name and avail themselves of the same procedural rights the defaulting contractor would have enjoyed, subject only to defences that accrued before service of the notice (s 11(4)). Payments made in good faith before notice of discharge are protected (s 12(3)). The unpaid person must, on request, furnish a discharge notice acknowledging payment; failure to do so within 7 days triggers a penalty equal to the amount paid, recoverable as a debt (s 13(3)).
The Act extends beyond two-party chains. Section 16(1) provides that where a principal fails to pay an assigned debt and the unpaid person obtains judgment against that principal, the Act applies again as if the principal were now the defaulting contractor. This permits successive assignments up the contractual ladder. Attachment orders under s 14 may be sought ex parte before judgment to freeze monies payable to the defendant by a further upstream party.
Information obligations are imposed on defaulting contractors. Upon demand after a debt certificate has issued, the contractor must supply an approved-form notice identifying any principal from whom the unpaid person may recover (s 15(1)), with false or misleading notices attracting the same 20 penalty unit maximum (s 15(2)).
The legislation operates notwithstanding any contractual stipulation to the contrary (s 18) and preserves all other remedies (s 19). Proceedings must be commenced within 12 months after the assigned debt becomes payable (s 17), which is the date it would have become payable to the defaulting contractor absent the assignment (s 17(2)).
In essence, the Act converts a judgment debt owed by an intermediary into a direct, enforceable payment stream from the party holding the purse strings, subject to carefully calibrated procedural safeguards, priority rules and information duties.
Who it affects
The Act primarily affects participants in contracting chains for construction work and material supply.
Unpaid persons are the principal beneficiaries. Section 5(1) and the note to that section identify them as tradespersons, labourers, suppliers or corporations owed money for work or materials. Because s 3(3) incorporates the definitions of “construction work” and “related goods and services” from the Building and Construction Industry Security of Payment Act 1999, the class includes head contractors, subcontractors, sub-subcontractors, consultants, plant hirers and material suppliers operating in the building and construction industry.
Defaulting contractors are the intermediaries who have failed to pay. They are defined by reference to the unpaid person’s claim (s 3(1)) and become subject to information obligations under s 15. A defaulting contractor who supplies false information commits an offence.
Principals are the persons or entities who engaged the defaulting contractor and who owe money under that contract. Once served with a notice of claim they assume the statutory duty to redirect payments (s 9) and may face direct suit under s 11. Principals further up the chain can become subject to successive applications of the Act via s 16.
Courts (including the Local Court for offences under s 20) are required to issue debt certificates, make attachment orders and determine priority disputes. The definition of “court” is not limited, so the District Court and Supreme Court may also issue certificates when giving judgment.
The Minister approves forms (s 3(1)) and is obliged to conduct a policy review (s 24), although the latter obligation is spent.
Adjudicators and authorised nominating authorities under the security-of-payment regime are indirectly affected because an adjudication certificate filed as judgment triggers the debt-certificate pathway (s 7(1A)).
The Act does not bind the Crown in right of the State or an authority of the State in a way that would prejudice existing rights prior to publication of transitional regulations (Sch 1 cl 1(3)), but otherwise operates across both private and government contracts.
Key duties and rights
Unpaid persons hold the right to apply for a debt certificate once judgment is obtained (s 7(1)), to serve a notice of claim (s 6), and to receive redirected payments (s 9). They enjoy a statutory assignment valid at law (s 11(1)) and may sue in their own name. They must provide a discharge notice within 7 days of a request after receiving payment (s 13(1)), or forfeit the amount paid. They may also apply for an attachment order before judgment (s 14).
Principals are under a duty, after service of a notice of claim, to pay the assigned sums to the unpaid person rather than the defaulting contractor (s 9(1)). They must observe the 7-day priority window before making any payment (s 10(3)) and, where equal priority exists, distribute pro rata (s 10(4)). A principal who continues to pay the defaulting contractor after notice remains liable to the unpaid person (s 11 note). Principals may rely on pre-notice defences (s 11(4)) and are protected if they make payments in good faith before receiving notice of discharge (s 12(3)).
Defaulting contractors must, on demand, supply the name of any principal (s 15(1)). They retain rights under the head contract except to the extent payments are assigned. They may request a discharge notice and, if the unpaid person fails to provide it, recover the penalty sum as a debt (s 13(3)).
Courts hold discretion to issue debt certificates, refuse them where a lien is practicable (s 7(3)), and make, vary or set aside attachment orders (s 14(6)). They must be satisfied of the jurisdictional facts before granting an attachment order (s 14(3)).
All parties benefit from the preservation of other remedies (s 19) and the prohibition on contracting out (s 18).
Penalties and enforcement
The Act creates two offences. Under s 15(1), a defaulting contractor who fails to supply the required information after demand faces a maximum penalty of 20 penalty units. The same maximum applies to a person who knowingly gives a false or misleading notice (s 15(2)). Proceedings for these offences are dealt with summarily before the Local Court (s 20).
The more significant enforcement mechanism is civil. Failure by a principal to redirect payments gives the unpaid person a direct right of recovery in their own name (s 11). Because the assignment is declared valid at law, ordinary debt-recovery processes apply. An unpaid person who fails to furnish a discharge notice within 7 days after request must “forfeit and pay” a sum equal to the amount paid; this sum is recoverable as a debt (s 13(3)).
Attachment orders under s 14 freeze monies payable upstream, providing pre-judgment security. Breach of an attachment order would constitute contempt, although the Act itself does not create a specific statutory offence.
No criminal sanctions attach to a principal’s failure to pay; the sanction is personal liability to the unpaid person. The 12-month limitation period in s 17 is a strict outer bound for proceedings “under this Act”.
How it interacts with other laws
The Act is expressly linked to the Building and Construction Industry Security of Payment Act 1999. Section 3(3) imports that Act’s definitions of construction work and related goods and services. More importantly, s 7(1A) permits a debt certificate to issue on the basis of an adjudication certificate filed as judgment. This creates a fast-track route for claimants who have used the security-of-payment adjudication pathway.
The Act does not affect rights under the Industrial Relations Act 1996 (s 19(c)), preserving industrial remedies for employees.
It repealed the Contractors’ Debts Act 1897 and contains transitional provisions that extend its operation to pre-repeal work provided the debt did not become payable more than three months before repeal (Sch 1 cl 4).
Because it operates by statutory assignment, it interacts with general assignment and equitable principles, but s 11(1) declares the assignment “valid at law”, removing the need for compliance with equitable formalities. The priority rule in s 10 displaces the ordinary rule in Dearle v Hall for competing statutory assignments.
Section 18 renders void any contractual term that annuls, varies or excludes the Act’s provisions, mirroring similar “no contracting out” clauses in security-of-payment legislation.
The Act sits alongside the Corporations Act 2001 (Cth) in insolvency scenarios; an unpaid person who has obtained an assignment may still need to prove in the defaulting contractor’s liquidation, but the principal’s obligation is to pay the assignee directly.
Recent changes and why
The most significant amendments occurred in 2002 (No 133, Sch 2). These inserted the reference to the Building and Construction Industry Security of Payment Act 1999 into the definitions (s 3(3)) and added s 7(1A) to allow debt certificates on the basis of filed adjudication certificates. The amendments were a direct response to the introduction of the rapid adjudication regime in 1999 and the perception that unpaid subcontractors still faced cash-flow difficulties even after obtaining an adjudication determination. By linking the two statutes, Parliament gave successful adjudication claimants an additional, self-executing recovery mechanism against upstream principals without the need for fresh court proceedings.
Section 14 was amended in 2004 (No 55, Sch 2.5) to update procedural language following court reforms. Minor amendments to s 20 reflect changes to the jurisdiction of the Local Court.
No substantive amendments have been made since 2004. The statutory review required by s 24 was completed within the prescribed timeframe, but the Act has remained largely stable, suggesting that the 2002 integration with the security-of-payment regime addressed the principal policy gap identified at the time of its passage.
Court challenges and controversies
The legislation has generated limited reported case law, consistent with its self-executing design. Disputes that do reach court typically concern whether the nexus test in s 5(2) is satisfied, the validity of the underlying judgment, or the scope of available defences under s 11(4).
A recurring controversy is the interaction with security-of-payment adjudication. Because an adjudication certificate can found a debt certificate, principals have argued that defects in the adjudication process should permit collateral attack on the debt certificate. Courts have generally held that the debt certificate follows the judgment and that substantive challenges must be brought by way of separate proceedings to set aside the judgment.
The 7-day priority window in s 10 has produced practical difficulties where multiple unpaid persons serve notices in quick succession. Principals have complained of administrative burden in calculating pro-rata shares, especially where certified debts are disputed after service. The Act provides no express mechanism for the principal to interplead; the principal must either pay into court or risk multiple suits.
The information obligation in s 15 has been criticised as easily circumvented by contractors who simply refuse to respond, leaving unpaid persons without knowledge of the principal’s identity. While the offence provision exists, enforcement is rare.
In multi-tiered projects, questions arise whether s 16 can be used indefinitely up the chain. The Act’s language supports successive application, but practical obstacles (limitation periods, identification of further principals) limit its utility beyond two or three tiers.
Gotchas
Most practitioners assume the debt certificate is available as of right once judgment is entered. Section 7(1) uses the word “may”, and s 7(3) contains a mandatory refusal where a possessory lien is practicable. Courts have refused certificates where the applicant retains control of plant or materials.
The 120-day wages cap in s 7(2) is often overlooked. A labour-only subcontractor who has gone unpaid for six months can certify only four months’ wages; the balance must be pursued by ordinary debt recovery.
Section 10(3) is a trap for principals. Even though s 9 appears to require immediate payment, the principal must wait until the 7-day period expires before disbursing to any claimant. Early payment to the first server can expose the principal to liability to later claimants who enjoy equal priority.
The discharge-notice penalty in s 13(3) is draconian and self-executing. An unpaid person who cashes a cheque but neglects to provide the approved-form notice within 7 days of request can be required to repay the entire sum. The penalty is not a fine but a civil debt, and courts have enforced it strictly.
Section 16 is more powerful than many realise. It allows an unpaid person to treat a non-paying principal as a new defaulting contractor and serve a fresh notice on the head principal. However, each new assignment still requires a fresh debt certificate against the immediate debtor, creating a chain of judgments that can become costly.
The limitation period in s 17 runs from when the assigned debt “becomes payable” to the defaulting contractor, not from the date of the unpaid person’s own invoice. This can produce counter-intuitive results where the head contract contains milestone or practical-completion payment triggers.
Finally, the Act does not bind the Crown in a manner that prejudices pre-existing rights, yet many government contracts contain “pay when paid” clauses. Although s 18 voids such clauses, enforcement against government entities still requires careful navigation of procurement rules and potential sovereign immunity arguments in respect of attachment orders.
How to comply
For unpaid persons:
Obtain judgment (or file an adjudication certificate as judgment).
Apply promptly for a debt certificate in the approved form.
Serve the notice of claim on the principal as soon as possible to secure priority.
Monitor the 7-day window for competing notices.
Provide discharge notices immediately upon request after receiving payment.
Where the principal’s identity is unknown, first demand information from the defaulting contractor under s 15.
For principals:
Upon receipt of a notice of claim, immediately cease payments to the defaulting contractor.
Do not pay any claimant until at least 7 days after the first notice.
Calculate pro-rata shares if multiple equal-priority claims exist.
Retain records of all payments made to unpaid persons.
If in doubt about validity of the debt certificate, seek urgent legal advice rather than ignoring the notice; continued payment to the contractor will not discharge liability.
Consider inserting contractual mechanisms (consistent with s 18) that require subcontractors to notify of downstream claims.
For defaulting contractors:
Respond immediately to any s 15 demand with accurate information.
Request discharge notices from unpaid persons upon making payment.
Be aware that any payment made directly to you after a notice of claim has been served may still be claimed from you by the unpaid person.
General compliance tips:
Use only Minister-approved forms; deviations risk invalidity.
Diary the 12-month limitation period from the date the money would have been payable to the defaulting contractor.
In construction contracts, maintain clear records of all upstream and downstream agreements to facilitate rapid identification of principals.
Where security-of-payment adjudications are on foot, coordinate the timing of filing the adjudication certificate as judgment with the application for a debt certificate to maximise speed of recovery.
Compliance is essentially procedural. The Act rewards prompt action, accurate documentation and strict adherence to the statutory sequence. Failure at any step—particularly in obtaining the debt certificate or observing the 7-day priority rule—can unravel the entire recovery pathway.
5 Unpaid persons can obtain payment from principal
5 Unpaid persons can obtain payment from principal
5 Unpaid persons can obtain payment from principal
(1) A person (the unpaid person) who is owed money for work carried out for or materials supplied to some other person (the defaulting contractor) can obtain payment of that money in accordance with this Act out of money that is payable or becomes payable to the defaulting contractor by some other person (the principal) for work or materials that the principal engaged the defaulting contractor to carry out or supply under a contract.
(2) However, the unpaid person can obtain payment from the principal under this Act only if the work carried out or materials supplied by the unpaid person are, or are part of or incidental to, the work or materials that the principal engaged the defaulting contractor to carry out or supply.
Note—
A typical example of an unpaid person is a tradesperson, labourer or supplier (including a corporation).
6 Procedure for obtaining payment
6 Procedure for obtaining payment
6 Procedure for obtaining payment
(1) The following procedure must be followed to obtain payment of the money owed:
(a) firstly, a debt certificate must have been issued for the money owed (as provided for by section 7),
(b) secondly, the unpaid person must serve a notice of claim on the principal.
(2) A notice of claim is a notice in an approved form together with a copy of the debt certificate.
7 Certification of debt by court
7 Certification of debt by court
7 Certification of debt by court
(1) When judgment is given or entered up in any proceedings relating to the recovery of money owed to a person for work carried out or materials supplied, the court may, by order made on the application of the person in whose favour the judgment is given, issue a certificate (a debt certificate) in respect of the debt under this section.
(1A) If an adjudication certificate within the meaning of the Building and Construction Industry Security of Payment Act 1999 has been filed as a judgment for a debt in accordance with section 25 of that Act, the court may, by order made on the application by the person who filed the adjudication certificate, issue a debt certificate in respect of the debt under this section.
(2) If the debt concerned consists of daily, weekly or monthly wages, and the debt exceeds 120 days’ wages, the amount certified in the debt certificate is not to exceed 120 days’ wages.
(3) A debt certificate is not to be issued if the court is satisfied that the work was done on something moveable and it would be practicable for the applicant to exercise a lien by retaining the thing in the applicant’s possession.
(4) A debt certificate is to be in an approved form.
(5) In this section, judgment includes a default judgment.
s 7: Am 1998 No 120, Sch 2.6; 2002 No 133, Sch 2 [2].
8 Notice of claim operates as assignment of debt
8 Notice of claim operates as assignment of debt
8 Notice of claim operates as assignment of debt
(1) Service of a notice of claim on the principal operates to assign to the unpaid person the obligation of the principal to pay the money owed under the contract to the defaulting contractor.
(2) The assignment is limited to the amount of the unpaid person’s certified debt.
(3) The assignment is subject to any prior assignment under this Act that is binding on the principal and the defaulting contractor.
9 Payment of defaulting contractor’s debt by principal
9 Payment of defaulting contractor’s debt by principal
9 Payment of defaulting contractor’s debt by principal
(1) After a notice of claim is served on a principal in accordance with this Part, the principal must pay the money owed to the defaulting contractor to the unpaid person.
(2) The principal must make the payments to the unpaid person as they become payable under the contract with the defaulting contractor until whichever of the following first occurs:
(a) the principal receives a discharge notice, or discharge notices, indicating that the certified debt has been fully discharged, or
(b) the payments are no longer payable under the contract.
10 Priority of assignments under Act
10 Priority of assignments under Act
10 Priority of assignments under Act
(1) The priority of assignments under this Act is to be determined by the order of service of notices of claim on the principal.
(2) All notices of claim in respect of debts owed by the same defaulting contractor that are served on the principal within the period of 7 days after the first notice in respect of the defaulting contractor is served on the principal are taken to be served at the same time and, accordingly, take equal priority.
(3) The principal is not to make any payment to an unpaid person who serves a notice of claim until that 7 day period has elapsed (despite section 9).
(4) If assignments take equal priority, the principal is to make the payments by distributing the money payable between the unpaid persons who have equal priority pro rata in proportion to the amount of their respective certified debts.
(5) The principal must continue to make those payments to each unpaid person until whichever of the following first occurs:
(a) the principal receives a discharge notice, or discharge notices, indicating that each certified debt has been fully discharged, or
(b) the payments are no longer payable under the contract.
11 Right of recovery if principal fails to pay
11 Right of recovery if principal fails to pay
11 Right of recovery if principal fails to pay
(1) An assignment effected by operation of this Act is valid at law.
(2) Accordingly, if the principal fails to make any payment required to be made by this Act, the unpaid person may sue for and recover the debt assigned to the unpaid person, in the unpaid person’s own name.
(3) Proceedings for recovery of the debt may be taken in any manner in which the defaulting contractor might have taken them had there been no assignment.
(4) An unpaid person’s right of recovery under this section is subject to any defence that the principal would have had against recovery of the debt by the defaulting contractor had there been no assignment, other than a defence based on something done by the principal after the notice of claim was served on the principal.
Note—
For example, if the principal continues to make the contract payments to the defaulting contractor, rather than the unpaid person, after having been served with a notice of claim, the unpaid person is still entitled to recover the money from the principal.
12 Assignment ceases to operate on discharge of debt
12 Assignment ceases to operate on discharge of debt
12 Assignment ceases to operate on discharge of debt
(1) If the debt owed to an unpaid person by a defaulting contractor is discharged, or the judgment or order that resulted in a debt certificate being issued in respect of the debt is set aside, any assignment effected by operation of this Act in connection with that debt ceases to operate.
(2) If only part of the debt is discharged, the assignment effected in respect of that part of the debt ceases to operate.
(3) This section does not affect any payment or dealing that is made by a principal in good faith before the principal receives notice, and sufficient evidence of, the discharge of the debt or the setting aside of the judgment or order. To the extent necessary to give effect to such a payment or dealing, the assignment effected by operation of this Act is taken to continue in force.
Note—
If a principal makes a payment to an unpaid person (as required by section 9), instead of paying the defaulting contractor, without knowing that the debt owed to the unpaid person has been discharged by the defaulting contractor, this section protects the principal from being required by the defaulting contractor to make the payment to the defaulting contractor.
13 Unpaid person required to provide discharge notice
13 Unpaid person required to provide discharge notice
13 Unpaid person required to provide discharge notice
(1) If a defaulting contractor or principal makes a payment to an unpaid person in partial or full discharge of the debt owed to the unpaid person, the unpaid person must, on the request of the person making the payment, give that person a discharge notice in respect of the payment.
(2) A discharge notice is a notice in an approved form that acknowledges the payment of the amount paid and is signed by the unpaid person.
(3) If the unpaid person does not give the notice within 7 days of such a payment and request, the unpaid person is to forfeit and pay to the person who made the payment a sum equal to the amount paid. The penalty is recoverable by the person who made the payment as a debt in a court of competent jurisdiction.
Part 3 General
Part 3 General
Part 3 General
14 Attachment order
14 Attachment order
14 Attachment order
(1) If proceedings are commenced by an unpaid person against a person (the defendant) for the recovery of money owed to the unpaid person by the defendant for work carried out or materials supplied by the person, the court may, on the application of the unpaid person, make an order under this section (an attachment order) against any other person from whom the unpaid person may be able to recover the debt under this Act.
(2) An application for an attachment order:
(a) may be made on the commencement of the proceedings or at any time before judgment is given in the proceedings, and
(b) may be heard in the absence of other parties, and
(c) is to be verified by oath or affirmation.
(3) The court may make an attachment order only if it is satisfied, on the basis of the application, that:
(a) the defendant owes the unpaid person money for work carried out or materials supplied by the unpaid person, and
(b) the work or materials are, or are part of or incidental to, work or materials for which the defendant is to be paid under a contract with the person against whom the order is sought.
(4) On service of a copy of the attachment order on the person against whom the order is made, any money that is payable or becomes payable to the defendant under the contract concerned, not exceeding the amount specified in the order, is attached for the purposes of the proceedings and is to remain in the hands of the person against whom the order is made until judgment is given in the proceedings or until the court otherwise orders.
(5) An attachment order:
(a) is to be in an approved form, and
(b) is to specify the amount that is attached for the purposes of the proceedings (being the amount sued for by the unpaid person or such other amount as the court considers appropriate).
(6) An attachment order may be varied or set aside on the application of any person.
s 14: Am 2004 No 55, Sch 2.5.
15 Defaulting contractor to give information concerning principal
15 Defaulting contractor to give information concerning principal
15 Defaulting contractor to give information concerning principal
(1) If a debt certificate is issued in respect of a debt owed by a defaulting contractor, the defaulting contractor must, on the demand of any person to whom the defaulting contractor owes money for work or materials, supply to the person a notice in an approved form that sets out the name of any person from whom the person may be able to recover the debt under this Act.
Maximum penalty: 20 penalty units.
(2) A person who gives or purports to give a person a notice under this section knowing that it is false or misleading in a material particular is guilty of an offence.
Maximum penalty: 20 penalty units.
16 Act capable of application to series of contractual arrangements
16 Act capable of application to series of contractual arrangements
16 Act capable of application to series of contractual arrangements
(1) If a principal fails to pay a debt assigned to an unpaid person by operation of this Act and the unpaid person takes proceedings against the principal for recovery of the debt (as provided for by section 11), this Act applies in respect of the debt as if it were a debt owed to the unpaid person by the principal for work carried out for or materials supplied to the principal by the unpaid person (instead of work carried out for or materials supplied to the principal by the defaulting contractor).
(2) Accordingly, the unpaid person can obtain payment of the debt in accordance with this Act out of money that is payable to the principal by some other person.
Note—
An example of a situation to which this section might apply is where a person engages another person (a contractor) to carry out work or supply materials and the contractor then engages someone else (a subcontractor) to carry out that work or supply those materials. If a person is engaged by the subcontractor to carry out any of the work or supply the materials and the subcontractor fails to pay the person for the work or materials, the unpaid person can seek payment of the debt in accordance with this Act from the contractor. Under this section, if the contractor fails to pay the debt, the unpaid person can then seek payment from the person who engaged the contractor. In other words, this section allows an unpaid person to pursue payment of an unpaid debt from any numb
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