NSW: Contractors Debt Act 1997

The Contractors Debts Act 1997 (NSW) provides a mechanism whereby a subcontractor (or supplier of building materials) who has not been paid by a contractor can sometimes obtain payment directly from the principal (the owner).

There are two basic aspects to the legislation:

• Attachment of monies; and
• Assignment of debt.

Attachment is the process of freezing monies in the hands of the principal so that the principal does not pay the money to the contractor until the subcontractor has had the opportunity to obtain judgment of the amount owed by the contractor to the subcontractor.

Assignment occurs after the subcontractor has judgment. Under section 7 of the Contractor's Debt Act, the court may issue a debt certificate for the amount of the judgment. The subcontractor serves the debt certificate on the principal with a formal notice of claim and the principal thereby becomes obliged to pay the subcontractor directly out of moneys, if any, which the principal would otherwise be obliged to pay the subcontractor (section 8). This assignment process is essentially the same as the garnishee process that exists for enforcement of any judgment and does not materially increase the remedies available to an unpaid subcontractor.

If a claimant files an adjudication certificate in a court, the claimant can ask the court to issue a debt certificate under section 7 of the Contractors Debts Act 1997. However such an application will mean a separate application to the court and an appearance before the court with the risk that the court will require a full hearing. Generally a claimant may be better advised to use the garnishee provisions of the rules of the court.

It is strongly recommended that a claimant seek legal advice before proceeding under the Contractors Debts Act.

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