The Subcontractors’ Charges Act 1974 (Qld) (Act) is a powerful piece of legislation that can be used to protect the interests of subcontractors as against higher-tier contactors. Despite this, the Act has a number of strict requirements as to how and when its protections can be used.
Many entities misunderstand these requirements and subsequently lose their rights to rely on the Act. In those instances, ‘Piggybacking’ under the Act can help.
What does the Subcontractors’ Charges Act do?
A subcontractor with a money claim against a higher-tier contractor can use the Act to impose a security or ‘charge’ (Charge) over the funds owed to that higher-tier contractor by an even higher-tier contractor or the principal. Once formally notified of the Charge, that entity must either hold the money until the dispute has been resolved or, pay the money into Court (Charged Funds). If the latter, the Court will hold the Charged Funds until the dispute is resolved.
What is ‘Piggybacking’?
To understand Piggybacking, one first needs to understand the Act’s strict requirements to impose a Charge. The first step is to establish the charge by issuing a notice in the correct form (Notice) to the third party holding the funds. Secondly, in most instances, the Act requires that the party issuing the Notice begins court proceedings against the party that owes them money within one month. If proceedings are not started within that time, the Charge lapses and it cannot be re-established by issuing a further Notice. In short, failing to initiate proceedings within a month of serving the initial Notice is a critical, and often fatal, error.
One way to side-step such an error however is to ‘piggyback’ onto the Charge of another subcontractor. The Act states that proceedings brought by one subcontractor in respect of their Charge are also deemed to be brought on behalf of all other subcontractors who have also issued a Notice, provided certain criteria are met. As such, the effect of a failure to initiate proceedings can be erased by that subcontractor ‘piggybacking’ onto the proceedings of another subcontractor.
Broadly, the key requirements to successfully ‘piggyback’ are as follows. For the purposes of this explanation, Subcontractor A has issued a charge but failed to start proceedings in time. Subcontractor B has issued a charge but has begun proceedings in time.
- Subcontractor A must have issued their Notice in the correct form;
- Within 30 days of Subcontractor A issuing their Notice, Subcontractor B must have initiated proceedings that otherwise satisfy the Act’s requirements to preserve Subcontractor B’s Charge. Note that both Charges must be in respect of the same project or works.
- Thereafter, Subcontractor A must take steps to join Subcontractor B’s proceedings as another claimant, in accordance with the terms of the court procedure rules and the Act.
Evidently, the key requirement is (2), that Subcontractor B starts proceedings within the time the Act had allowed for Subcontractor A to begin proceedings. This requirement would not be satisfied if Subcontractor B started proceedings within the time required to preserve Subcontractor B’s charge but not within the time allowed for Subcontractor A’s charge.
For example, if Subcontractor A issued their charge notice on 1 December 2017, then the time allowed to begin proceedings, in most cases, would expire on 1 January. If Subcontractor B issued their charge notice on 15 December, then they would be allowed until mid-January to begin proceedings. If Subcontractor B began proceedings on 5 January, they would have successfully preserved their charge but Subcontractor A’s charge would have lapsed. Therefore, in order to preserve Subcontractor A’s charge, Subcontractor B’s proceedings must be begun in the time allowed by the date that Subcontract A issued their Charge notice.
Avoid situations where you need to use Piggybacking
The above sets out the key requirements to use the Piggybacking provisions in the Act but it is not comprehensive. There are other requirements, some of which are not fully understood and which would be costly to litigate.
We strongly advise that any subcontractor considering issuing a Charge Notice should first seek competent legal advice. Given the catastrophic results of failing to comply with the Act’s deadlines, it is vital that a subcontractor understands its requirements before taking any steps.
If you are considering issuing a subcontractors’ charge, or have questions about a construction dispute, contact Kyle Kimball or Redmond Kirwan-Jones at Sajen Legal on 1800 640 509.