Litigation and Dispute Resolution

Setting off an unfair preference payment: what are the rights of a creditor?

10 April, 2022

The recent Queensland decision of Agripower Australia Ltd (Agripower) v Queensland Engineering & Electrical Power Ltd (QEEP) & Ors [2015] QSC 268 has highlighted that a contract between the parties that is illegal and unenforceable cannot be relied upon to found a claim under the Queensland equivalent of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

In that decision, it was held by Justice Douglas that the adjudicator’s decision under the Queensland equivalent of the SOP Act in favour of QEEP was void because the contract between the parties was illegal and unenforceable by virtue of QEEP’s breaches of two statutory provisions. The breaches by QEEP involved:

  • advertising it performed electrical work when it did not hold electrical contractor’s licence in contravention of section of 56 of the Electrical Safety Act 2002 (Qld); and
  • carrying out professional engineering services when QEEP and its agents were not practising professional engineers contrary to section 115(1) of the Professional Engineers Act 2002 (Qld).

The finding that the contract was illegal, meant that QEEP was not entitled to progress payments under the Queensland equivalent of the SOP Act. It followed that the adjudication decision under that act was void for jurisdictional error.

This decision highlights one of the circumstances in which the SOP Act cannot be relied upon. However it is useful to revisit some of the other limited circumstances in which a claim or proceedings under the SOP Act can be resisted.

Resisting a claim under the SOP Act

Ordinarily a debtor will not be entitled to raise any defence or to rely on a set off or counterclaim to resist court proceedings brought by an applicant to recover a debt under the SOP Act: sections 15(4)(b) & 16(4)(b) of the SOP Act.

However, there are at least three instances where the SOP Act (a NSW Act) is ineffective against Commonwealth legislation by virtue of s109 of the Australian Constitution as follows:

  1. where a Creditor’s Statutory Demand (CSD) is issued to a company debtor;
  2. where a company creditor becomes insolvent; and
  3. where service of a payment claim under the SOP Act is ineffective because it involves misleading and deceptive conduct.
1. Creditor’s Statutory Demand (CSD)

If a company debtor has failed to respond to a payment claim under the SOP Act and a CSD is subsequently issued to that debtor, the debtor will not be prevented from raising a defence or set off in seeking to set aside the CSD. This is because a CSD is issued pursuant to the Corporations Act 2001 (Cth) (Corporations Act), a Commonwealth Act, which overrides the SOP Act, a NSW Act, to the extent of any inconsistency.

The take away message from this is that if you have a claim for a debt under the SOP Act against a company debtor, you should commence proceedings against the debtor, instead of issuing a CSD to avoid any right to raise a defence, set off or cross-claim in response to the CSD.

2. Set-off against insolvent claimants

Another circumstance where a set off can be claimed in response to a claim under the SOP Act, is if the company making the payment claim is in liquidation and the debtor is owed money by the company in liquidation.

This is because there is an automatic set-off that arises under section 553C of the Corporations Act at the time that the company goes into liquidation.

Section 553C provides a statutory set-off scheme which operates where there have been “mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company.” In those circumstances, section 553C provides for:

  • an account to be taken of what is due from the one party to the other in respect of those mutual dealings; and
  • a set off of the sum due from the one party to the other party; and
  • only the balance of the account is admissible to proof against the company in liquidation, or is payable to the company in liquidation, as the case may be.

The practical effect of section 553C would include a situation where a liquidator is seeking to recover debts owed to the insolvent company under the SOP Act. Debtors could raise a set-off to satisfy the progress claim despite the restrictions imposed by the SOP Act, including in court proceedings.

The implications of the statutory set-off scheme were considered by Justice McDougall in Veolia Water Solutions & Technologies Pty Ltd v Kruger Engineering Australia Pty Ltd [2007] NSWSC 459:

“…the effect of the progress claim is accepted, because the amount is brought to account in the process of set-off. It may be that the process of satisfaction through set-off rather than satisfaction through payment has an adverse effect on other creditors. But that is a necessary consequence of the application of the scheme of set-off that the legislature, in section 553C, saw fit to enact.”

3. Misleading and deceptive conduct

Misleading or deceptive conduct under the Australian Consumer Law may also be raised by a debtor as a defence in court proceedings which rely upon a claim under the SOP Act.

In Bitannia Pty Ltd v Parkline Constructions Pty Ltd (2006) 67 NSWLR 9, the NSW Court of Appeal held that the SOP Act does not prevent a party from raising a defence that service of a payment claim was ineffective due to misleading or deceptive conduct.

In that case, a payment claim had been served on the appellant in circumstances where the appellant had appointed architects to handle the construction work and all previous claims had been sent to the architects. No copy was received by the architects and therefore a payment schedule had not been prepared or served in time by the architects on behalf of the appellant. The respondent was therefore unable to rely upon its judgment under the SOP Act against the appellant.


Whether you are a party claiming payment under the SOP Act or you are at the receiving end of a payment claim under the SOP Act, it is useful to be aware of the circumstances in which a claim under the SOP Act can be resisted so that you can either avoid, or take advantage of those circumstances.

NSW Fair Trading is in the process of carrying out a comprehensive review of all security of payment laws this year, with an online survey on security of payment laws recently closing on 25 September 2015. It is expected that the results of the survey will be used to inform a Fair Trading Discussion paper, which will be released later this year. Watch this space.

This article was written by Andrew Lacey, Principal, Fiona Lymant, Senior Associate, and Erin Turner Manners, Law Graduate.

This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
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Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. 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Published by Leighton Hawkes
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