The time of service of a notice of claim on a principal under the Contractors Debts Act 1997 (NSW) (CD Act) is critical, particularly where the debts of the defaulting contractor have been assigned.  The Supreme Court of New South Wales in West Tankers Pty Limited v Scottish Pacific Business Finance Limited [2017] NSWSC 621 has confirmed the effects of getting the timing wrong.

Background

West Tankers Pty Limited (West Tankers) was a supplier of diesel fuel.  Prior to February 2016, West Tankers had supplied fuel to Ealwin Pty Limited (Ealwin) to the value of $236,363.79 (West Tankers Debt).  In turn, Ealwin supplied fuel and associated services to McConnell Dowell OHL Joint Venture (Joint Venture) to the value $184,128.71 (Ealwin Debt).

Ealwin failed to pay the Ealwin Debt and West Tankers sought to rely on the procedures under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) and the CD Act to recover the Ealwin Debt.

Long before the West Tankers Debt and Ealwin Debt were incurred, Ealwin entered into an agreement with Allianz Pty Limited (Allianz) whereby Ealwin sold to Allianz debts owed to it for goods and services which it had performed (Agreement).  The rights under the Agreement were subsequently assigned to GE Commercial Corporation Australia Pty Limited (GE) and later Scottish Pacific Business Finance Pty Limited (Scottish Pacific).

On 17 March 2016, shortly after making an application for the adjudication of a payment claim with notice served on Ealwin in respect of the West Tankers Debt, West Tankers served on the Joint Venture a payment withholding request under section 26A of the SOP Act.

On 31 March 2016, GE gave notice of the assignment to the Joint Venture.

On 11 April 2016, West Tankers obtained an adjudication determination and later filed the adjudication certificate as a judgment debt in the amount of $241,813.02.  A debt certificate was subsequently issued to West Tankers, following which, it served a notice of claim pursuant to section 6 of the CD Act on the Joint Venture on 5 May 2016.

As a result, the Joint Venture paid the amount held by it in respect of the Ealwin Debt into Court pending the determination of the competing claims between West Tankers and Scottish Pacific (which had now been assigned the rights under the Agreement) over the entitlement to the money.

The decision

Hammerschlag J held that:

1. GE became the legal owner of the Ealwin Debt on 31 March 2016 upon giving notice of the assignment to the Joint Venture.

2. If section 8(1) of the CD Act operated to assign West Tankers the obligation on the Joint Venture to pay Ealwin, that occurred later in time on 5 May 2016.

3. The obligation on the Joint Venture under section 26B of the SOP Act was to retain money and no more until an event described under section 26B(3) occurred i.e. the service of the notice of claim on the Joint Venture. It did not create any obligation on the Joint Venture to pay West Tankers or create any charge over the money the Joint Venture was obliged to hold under section 26A.

4. The provisions of the Agreement did not in any way subvert the SOP Act and it follows that the assignment to Scottish Pacific was effective and there was no assignment to West Tankers.

Takeaway points

The case is important for subcontractors in circumstances where there is a contractor and head contractor involved.  It is critical that the subcontractor is aware of the assignment of any debts by the contractor before it seeks to rely on the SOP Act and CD Act.

The same equally applies to a subcontractor in liquidation and liquidators should be aware of such before pursuing any claims.

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