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Set-off

Set-off is the right to deduct what you're owed from what you owe. State Security of Payment Acts limit it. NSW SOPA s 9(b) is the strongest example.

By Chalkline. Last updated 14 May 2026. Verified 14 May 2026.

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Set-off is the contractual right of one party to deduct amounts they are owed from amounts they owe the other party, settling the obligations together rather than paying in full and chasing the counterclaim separately. The common residential construction cases:

  • A head contractor back-charging a subbie for defective work, damages, or remedial costs (deducting from the subbie’s progress claim).
  • A client deducting liquidated damages from the builder’s progress payment for late practical completion.
  • Either party deducting agreed remedial costs after a defects-liability claim.

Set-off is not automatic. The contract must expressly provide the right; without an express set-off clause, the party owed money must pay and pursue the counterclaim separately. Even where the contract provides set-off, two layers of statutory regulation can override it.

Security of Payment Acts (SOPA). Each state has its own legislation (NSW 1999, Vic 2002, Qld 2017, plus WA, SA, TAS, NT, ACT equivalents). A respondent withholding or setting off any amount must state the reasons in the payment schedule served within the legislated response window (typically 10 to 15 business days). Reasons not in the schedule cannot be raised later in adjudication.

NSW SOPA section 9(b) is the strongest example. Payment calculations under the act are limited to the value of work performed. If the contract does not expressly authorise set-off in the progress payment mechanism, no set-off right arises in adjudication, regardless of the counterclaim’s merits. Leading authority: J Hutchinson Pty Ltd v Glavcom Pty Ltd [2016] NSWSC 126.

Procedural fairness applies regardless. A party intending to set off must give notice of the amount and basis, and a fair opportunity to respond. Silent deduction weakens the deducting party’s position in any dispute.

Also known as: setoff, offset, back-charge, deduction.

Category: Contracts / payment / disputes.

See also

Last updated: 2026-05-14. Verified: 2026-05-14.

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