Sub-Contractors Statements – Does the Principal Contractor have a right to withhold payment to a Sub-Contractor who fails to provide a Sub-Contractor’s Statement. What are the consequences?

05/02/2018

Subject to a few exceptions there is legislation including the Workers Compensation Act 1987, the Payroll Tax Act 2008 and the Industrial Relations Act 1996 by which a Principal Contractor may withhold payment to a Sub-Contractor if the Sub-Contractor fails to provide a Sub-Contractor’s Statement, in effect a declaration that the Sub-Contractor has paid all its obligations under the Workers Compensation Act, Payroll Tax Act and Industrial Relations Act.

The consequence of failing to provide the Statement is that:

1.        The Principal Contractor may be liable for the payment of the workers compensation insurance premiums, the payroll tax and the entitlements of the employee unless the Sub-Contractor’s Statement is provided; and

2.        The Principal Contractor may withhold any payment due to the Sub-Contractor until this Sub-Contractor gives a written Statement as required under the various Acts.

It is critical that where various Acts applies as referred to above the Principal Contractor does not make the payments to the Sub-Contractor until the Principal receives the Sub-Contractor’s Statement otherwise the Principal may be responsible for further payments.

Compliance with the Sub-Contractor’s obligation to provide the Sub-Contractor’s Statement needs to be considered in relation to claims including a Payment Claim served under the Building and Construction Security of Payment Act (SOP Act).

Also where a Sub-Contractor serves a Creditor’s Statutory demand on the Principal Contractor for failure to make the payment which would otherwise be due, the Principal Contractor needs to consider whether the Sub-Contractor has complied with its obligations (if any) to provide the Sub-Contractor’s Statement and the consequences of either complying with or failing to comply with the Creditors Statutory demand; urgent action is required.

A Creditor’s Statutory demand can be set aside under for example, Section 459G of the Corporations Act if there is a genuine dispute as to whether the debt is payable.

There are numerous cases which deal with the issue as to whether there is a genuine dispute.  Chief Judge McLelland in the Equity Division of the Supreme Court of New South Wales in the case of Eyota Pty Limited v Hanave Pty Limited in 1994 stated:

           “In my opinion the expression genuine dispute denotes a plausible contention requiring investigation and raises much the same sort of considerations as the “serious question to be tried criteria which arises in application for an interlocutory injunction or for the extension or removal of a caveat. 

The question to be considered is whether there is a genuine dispute rather than determining the merits of or resolving such a dispute”.

Does the failure of the Sub-Contractor to provide a Certificate as required by the Workers Compensation Act 1987 of itself give rise to a “genuine” dispute sufficient to set aside a Statutory demand by the Sub-Contractor for the money otherwise due?

This has been considered by the Supreme Court of New South Wales in the cases of Seana Constructions Pty Limited v Bright Construction Group Pty Limited in 2008 by Justice Hemmerschlag and in 2009 in the case of Parkview v Tracktec by Associate Justice Macready.

In the Seana Constructions case, Seana Constructions was the Head Contractor anddid not receive the Sub-Contractor’s Statement from Bright Constructions.

Notwithstanding Bright Constructions issued a Statutory demand on Seana Constructions for payment.  Seana Constructions made an Application to set aside the Statutory demand.

The first issue that arose was that Seana Constructions suggested that there was an offsetting claim against Bright Constructions.  This was unsuccessful.

The second issue related to whether there was a genuine dispute having regard to the failure of Bright Constructions to issue a Sub-Contractor’s Statement.

On the day of the hearing Counsel for Bright Construction indicated that a Sub-Contractor’s Statement was available.  The Court held that until the Certificates were proffered by the Sub-Contractor Bright Constructions, the Plaintiff’s (Seana Constructions) Application was entitled to succeed, however having regard to the fact that the Sub-Contractor’s Statement had been provided by Bright Constructions the Court varied the Statutory demand allowing further time for payment by the debtor Seana Construction of the amount claimed.

In the case of Parkview the Supreme Court accepted the comments of Mr Justice Hammerschlag in Seana Constructions case.

Similar issues arise in relation to claims by a Sub-Contractor under the Building and Construction Security of Payment Act that may be dealt with differently by the Court.

For a Sub-Contractor failing to provide the Sub-Contractor’s Statement and/or a Principal from whom payment is being sought without provision of the Sub-Contractor’s Statement, the consequences of either scenario could be inconvenient, time consuming and costly to resolve.

If you find yourself in either scenario, we would encourage you to contact Richard Watson our Building & Construction Accredited Specialist or Shereen Da Gloria his assistant to discuss your concerns.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.