The Contractors Debts Act 1997 is often overlooked but, used correctly, can assist unpaid subcontractors, typically tradesmen, suppliers or labourers, when they are owed money by a builder.
In these circumstances, the CDA entitles a subcontractor to leapfrog over the builder and obtain payment directly from the principal (or home-owner) who engaged the defaulting contractor.
In other words, the CDA assigns the debt due from the principal to the contractor, to the subcontractor. Parties cannot contract out of the CDA.
The CDA provides a two-stage process: Attachment and Assignment.
First, an ‘unpaid person’ issues recovery proceeding in a court or applies for adjudication under Security of Payment legislation. As soon as proceedings are started the ‘unpaid person’ can apply for an attachment order. If made, the order freezes monies in the principal’s hands, preventing it paying money to the contractor until the subcontractor has had the opportunity to obtain a judgment for the monies it is owed from the contractor.
Once the subcontractor has established the debt it obtains a debt certificate from the court and serves a notice of claim upon the principal. The notice of claim acts to assign the debt and the principal must pay the subcontractor. If it does not the subcontractor can sue the principal directly.
Time limits apply. Acclaim on a principal must be made within 12 months of the debt arising.
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Clare Peacock is an experienced construction lawyer working on Sydney’s Northern Beaches. Clare provides practical, cost-effective building approval advice to property owners, builders and strata managers. Services include residential building disputes, body corporate issues and strata building problems.