The Worker’s Liens Act & The Statutory Charge
Issuing a Worker’s Lien is a well known method in the building and construction industry to secure payment of a debt owed by a landowner to a builder for building work carried out on the land.
What is less well known as a debt recovery method is the “Statutory Charge” that the Worker’s Liens Act (“the Act”) creates under section 7 of the Act.
A Statutory Charge allows a sub-subcontractor to “leap frog” the contractual hierarchy and claim monies it is owed by the subcontractor direct from the main contractor.
Put simply, the right to claim a Statutory Charge under section 7 of the Act arises in the following circumstances:
- the principal (usually the landowner) engages the main contractor to construct (eg) a large commercial building;
- the main contractor in turn engages (eg) an electrical services subcontractor;
- the electrical services subcontractor in turn subcontracts some of its works to a sub‑subcontractor;
- if the main contractor has been paid an amount by the principal for works carried out by the sub-subcontractor, but the main contractor has not yet paid that amount to the subcontractor, the sub-subcontractor can claim a “Statutory Charge” under Section 7 of the Act over those monies. The main contractor is then required to pay those monies direct to the sub-subcontractor, and this payment will discharge the main contractor’s liability to pay that amount to the subcontractor.
The Statutory Charge can be particularly helpful when the subcontractor is being slow in making payments to the sub-subcontractor, or has ceased payments altogether.
The amount of money that is “charged” can however be reduced if there are valid set offs in favour of the main contractor as against the subcontractor.
The additional benefit of a Statutory Charge is that the sub-subcontractor becomes a secured creditor of the subcontractor in the event of the insolvency of the subcontractor. The issuing of a Statutory Charge also prevents any payments made to the sub‑subcontractor against the Statutory Charge from being regarded as a preferential payment.
A note of warning however – the Act contains a number of strict deadlines for the issue of a Statutory Charge and related Court proceedings. It is therefore very important to engage a specialist lawyer to assist in the preparation of the Statutory Charge and any Court action.
Clelands Lawyers has significant experience in this area of the law, and is able to assist in the preparation and issue of Statutory Charges and related Court actions.
26 July 2017