Refusing to Pay an Invoice in Queensland: Legal Overview
Legal Basis for Refusing to Pay an Invoice in Queensland
The starting point in any invoice dispute is the contract between the parties. An obligation to pay an invoice arises because one party has agreed, expressly or implicitly, to pay for goods or services.
Whether payment can be refused depends on whether the other party has performed its contractual obligations and the legal consequences of any failure to do so.
Queensland law distinguishes between different types of contractual breaches. Not every breach entitles a party to refuse payment.
Whether payment may be withheld depends on the terms of the contract and the nature of the alleged breach. While serious breaches may justify termination or refusal of further performance, other rights to withhold payment may arise through contractual set-off, equitable set-off, abatement, failure of consideration, or contractual payment mechanisms.
In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61 the High Court explained the contractual context in which termination disputes arise,
The Court stated at [1]:
This litigation arises from the termination, or purported termination, of a joint venture agreement for the commercial development of land.
The Court stated that this characterisation framed the issue of whether the conduct in question justified bringing contractual obligations to an end.
The seriousness of a breach is central to whether a party can lawfully refuse further performance.
A breach must go to the root of the contract or deprive the innocent party of a substantial benefit before non-performance is justified.
Similarly, where one party indicates it cannot perform its obligations, this may constitute repudiation.
In Foran v Wight [1989] HCA 51 the High Court considered a situation where a party indicated it would be unable to complete on the required date.
The Court stated at [5]:
The vendors’ solicitor replied, ‘We have a problem here. We won’t be able to settle on Wednesday 22 June because the Right of Way … is not registered as yet’.
The Court recorded that this communication formed part of the factual matrix relevant to whether the contract had been validly terminated.
Such conduct may entitle the other party to terminate the contract and refuse further performance.
However, the existence of a dispute alone is not sufficient. The dispute must have a proper legal foundation.
A party cannot rely on minor defects or dissatisfaction to justify withholding payment.
Whether payment remains enforceable will depend on the terms of the contract, any available rights of set-off or abatement, and the nature of the alleged breach.
Australian Consumer Law and Payment Disputes
In addition to contract law, statutory regimes may affect whether an invoice must be paid. The most relevant are the Australian Consumer Law and in Queensland the Building Industry Fairness (Security of Payment) Act 2017 (Qld).
Under the Australian Consumer Law, a party must not engage in misleading or deceptive conduct in trade or commerce.
Where an invoice is based on misleading representations, this may provide a basis for disputing liability.
In Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 the High Court considered advertising conduct that conveyed a misleading price representation.
The Court stated at [2]:
The advertisements deployed in TPG’s campaign prominently displayed the offer to supply broadband internet ADSL2+ service for $29.99 per month.
The Court explained that the headline representation did not reflect the full cost structure of the service being offered.
Where an invoice reflects misleading pricing or undisclosed conditions, liability to pay may be challenged under these principles.
However, misleading conduct does not automatically extinguish a payment obligation, and the available remedies must be considered in context.
In some industries, statutory payment regimes impose strict procedural requirements that override general contractual principles.
For example, where a document is a payment claim under the Building Industry Fairness (Security of Payment) Act 2017 (Qld), the respondent must either pay the claimed amount in full by the due date or give a payment schedule within the earlier of the contractual period or 15 business days after receiving the claim.
Failure to do so can have serious statutory consequences.
Failure to do so may result in liability for the full claimed amount, even where a dispute exists.
These regimes operate on a pay now argue later basis. Although parties retain certain statutory and judicial review rights, these regimes generally operate on a pay now, argue later basis, meaning payment obligations may arise before the underlying dispute is finally determined.
Before refusing to pay an invoice, it is therefore necessary to consider both the contract and any applicable statutory framework.
When You Can Legally Refuse to Pay an Invoice in Queensland
A party may refuse to pay an invoice where there is a genuine dispute as to whether the debt is owed.
The concept of a genuine dispute is not satisfied by mere assertion or disagreement.
It requires a dispute that is real, plausible, and supported by some factual foundation.
In Eyota Pty Ltd v Hanave Pty Ltd [1994] FCA 1418 the Court considered the meaning of a genuine dispute in the context of statutory demands.
The Court stated:
The meaning of the expression ‘genuine dispute’ in s 450H of the Law connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the ‘serious question to be tried’ criterion which arises on an application for an interlocutory injunction or caveat extension application.
This establishes that the threshold is relatively low but still requires more than a bare denial.
A dispute will be genuine where there is a credible basis to question whether the invoiced amount is properly payable.
Common examples include situations where work has not been performed, where services are fundamentally defective, or where the invoice contains clear errors.
In such cases, refusal to pay may be justified because the underlying obligation itself is in dispute.
In Queensland, these principles are commonly applied in both court proceedings and statutory demand applications.
Refusing to Pay an Invoice for Breach of Contract
A party may also refuse to pay an invoice where the other party has committed a sufficiently serious breach of contract.
The breach must be of such a nature that it justifies withholding performance or terminating the contract.
This aligns with the principles discussed in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61, where the seriousness of the breach determines the available remedies.
A failure to perform a fundamental obligation, or a defect that substantially deprives the innocent party of the benefit of the contract, may justify non-payment.
By contrast, minor defects or incomplete performance will not usually relieve a party from the obligation to pay.
In those circumstances, the appropriate course may be to pay the undisputed amount and pursue damages, abatement, or set-off for the defective work, depending on the contract, the seriousness of the breach, and the relationship between the claim and cross-claim.
Refusing to Pay an Incorrect or Misleading Invoice
A party may refuse to pay an invoice that is factually or legally incorrect. This includes situations where the invoice overstates the amount due, includes charges not agreed to, or reflects work that was not performed.
In some cases, the issue may arise from misleading conduct. In Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 the High Court considered representations that conveyed an incomplete or misleading price.
The Court stated at [2]:
Much less prominently, the advertisements qualified this offer, stating that it was made on the basis that the ADSL2+ service was available only when bundled with a home telephone service … for an additional $30.00 per month.
Where an invoice reflects a similar mismatch between what was represented and what is actually charged, there may be a basis to dispute liability.
However, the presence of misleading conduct does not automatically extinguish the obligation to pay, and the available remedies must be carefully considered.
Using Set-Off to Refuse Payment of an Invoice
A party may also refuse to pay an invoice where it has a valid right of set-off. Set-off allows one party to reduce or extinguish a debt by reference to a cross-claim against the other party.
This typically arises where both parties owe each other money under related transactions.
In such cases, the party receiving the invoice may withhold payment to the extent of its countervailing claim.
In the case of equitable set-off, the cross-claim generally must be closely connected with the claim for payment so that it would be unjust to enforce the claim without taking the cross-claim into account. A clear and identifiable cross-claim is required.
If no such claim exists, withholding payment on this basis may expose the party to recovery action.
The availability of set-off will depend on the terms of the contract and is frequently raised in Queensland commercial disputes involving competing claims.
When You Cannot Legally Refuse to Pay an Invoice
Not all disputes justify withholding payment of an invoice. Even where a party has concerns about the goods or services provided, the law imposes limits on when payment can be refused.
In many cases, the obligation to pay remains enforceable despite the existence of a dispute, particularly where the issue is minor, procedural requirements have not been followed, or a statutory regime applies.
Minor Defects or Trivial Disputes
A party cannot refuse to pay an invoice simply because there is a minor issue with the goods or services provided.
Not every defect or complaint affects the enforceability of the payment obligation.
The law distinguishes between serious breaches and issues that do not go to the root of the contract.
In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61 the High Court addressed the factual context in which contractual obligations were assessed.
The Court stated at [3]:
Although attempts were made to obtain the approval of the relevant authorities … the project … never proceeded even to the initial stage of obtaining rezoning of the land.
This illustrates that the consequences of contractual performance turn on substance rather than the mere existence of complaints. A refusal to pay based on minor dissatisfaction will not generally be justified.
Where the issue does not deprive the innocent party of the benefit of the contract, payment must still be made. Any remedy lies in a separate claim rather than withholding payment.
“Pay Now, Argue Later” Situations
In some contexts, a party must pay an invoice even where a dispute exists. This is particularly relevant in statutory regimes such as security of payment legislation.
These regimes impose strict procedural requirements that override general contractual principles.
Failure to comply may result in an obligation to pay regardless of any underlying dispute.
The limited role of disputes in this context is consistent with how courts approach disputed debts more broadly.
In Eyota Pty Ltd v Hanave Pty Ltd [1994] FCA 1418 the Court emphasised the limits of its role in determining disputes at this stage.
The Court stated at [1]:
The court is not required to uncritically accept as giving rise to a genuine dispute every statement in a supporting affidavit.
The Court further stated at [1]:
There is no room for any discretion … to resolve the merits of a dispute.
This reinforces that disputes must be pursued through the correct procedural framework. Where that framework requires payment, refusal to pay will not be permitted.
In Queensland, this principle is particularly relevant under the Building Industry Fairness (Security of Payment) Act 2017 (Qld), which requires strict compliance with payment and response timeframes.
Failure to Follow Contractual Dispute Procedures
Many contracts require specific steps to be taken before a dispute can justify withholding payment.
These may include providing notice, identifying the nature of the dispute, or engaging in a dispute resolution process.
Failure to comply with these requirements may prevent a party from relying on the dispute. Even where a genuine issue exists, non-compliance with contractual procedures can render refusal to pay ineffective.
In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd [1997] FCA 681 the Court considered whether an asserted dispute met the required threshold.
The Court stated:
while disputes were alleged … they failed to meet the threshold of genuineness … [and] constituted no more than bare assertions.
This demonstrates that unsupported or procedurally deficient disputes will not justify withholding payment.
Practical Risks of Refusing to Pay an Invoice
Refusing to pay an invoice carries significant legal and commercial risks.
Where a refusal is not supported by a proper legal basis, the consequences can escalate quickly.
These risks include court proceedings, statutory demands, and exposure to costs and insolvency pressures.
Exposure to Debt Recovery Proceedings
If an invoice remains unpaid, the creditor may commence debt recovery proceedings.
Where there is no genuine dispute, courts are generally willing to enforce payment obligations.
A weak or unsupported defence may result in judgment being entered against the debtor.
Courts focus on whether there is a legally enforceable obligation to pay for work performed.
Where work has been carried out and accepted, the law recognises an entitlement to payment.
In Pavey & Matthews Pty Ltd v Paul [1987] HCA 5 the High Court considered claims for payment for work performed in the absence of a formally enforceable contract.
The Court stated at [2]:
the appellant … sued the respondent … being an amount claimed to be due and payable … [which] represents a reasonable sum for the work done and materials provided.
This reflects the broader principle that where services have been provided, the law will recognise an entitlement to payment. A party cannot avoid liability simply by refusing to pay without a proper legal basis.
Where no genuine dispute exists, the creditor may proceed to obtain judgment. This exposes the debtor to enforcement action and associated costs.
In Queensland, certain debt disputes and minor civil disputes involving amounts up to $25,000 may be commenced in QCAT, depending on the nature of the claim, the Magistrates Court for claims up to $150,000, the District Court for claims between $150,000 and $750,000, and the Supreme Court for claims over $750,000.
Statutory Demands and Insolvency Risks
For companies, the risks of refusing to pay an invoice are significantly more serious. A statutory demand may only be used where the debt, or total debts, meet the statutory minimum, which is currently $4,000, and the demand must require payment, security or compounding within 21 days. Failure to comply may give rise to a presumption of insolvency.
The ability to set aside a statutory demand depends on demonstrating a genuine dispute recognised by law. The High Court considered this issue in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41.
The High Court’s decision in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41 demonstrates that the position is more complex.
The case concerned statutory demands issued by the Commissioner of Taxation for substantial tax debts. The taxpayer companies argued that they had commenced review proceedings challenging the underlying tax assessments and therefore there was a genuine dispute about the debts.
The High Court rejected that argument.
The Court emphasised that the statutory demand regime is intended to provide a mechanism for the speedy resolution of insolvency issues. The Court referred to the purpose of the legislation as follows:
The evident purposes of Pt 5.4 of the Act include speedy resolution of applications to wind up companies in insolvency.
The Court held that the existence of separate proceedings challenging the underlying liability did not automatically create a genuine dispute for the purposes of setting aside a statutory demand.
Importantly, the Court stated:
Nothing turns upon the attribution to a s 459G application of the character of a proceeding in which, as Keane JA said, a tax debt may be disputed by the applicant taxpayer.
The Court further held:
That state of affairs places the existence and amounts of the ‘tax debts’ outside the area for a ‘genuine dispute’ for the purposes of s 459H(1) of the Corporations Act.
Although Broadbeach concerned tax debts and statutory demands, the case illustrates a broader principle that is relevant to invoice disputes generally. The mere existence of a dispute, objection, review application or separate proceeding does not necessarily mean that a debt will be treated as genuinely disputed for every legal purpose.
Whether a statutory demand can be set aside depends on whether the alleged dispute is legally capable of constituting a genuine dispute within the meaning of section 459H of the Corporations Act 2001 (Cth).
The High Court also rejected the argument that a statutory demand should be set aside simply because winding up proceedings may cause disruption to the company, its creditors or its shareholders. The Court held:
But these considerations are ordinary incidents of reliance by the Commissioner upon the statutory demand system.
Accordingly, where a creditor serves a statutory demand, a company must do more than merely assert that the debt is disputed. It must establish a genuine dispute recognised by the law and supported by evidence. Bare assertions, tactical objections, or the existence of separate proceedings will not necessarily be sufficient to prevent the statutory demand process from continuing.
In Eyota Pty Ltd v Hanave Pty Ltd [1994] FCA 1418 the Court clarified how that threshold operates.
The Court stated:
a court should not embark, except in an extreme case, on an inquiry as to the credit of a witness.
The Court also stated:
the court’s task is not to resolve any dispute nor to assess the merits.
These principles show that while the threshold is limited, it still requires a properly arguable basis.
If a company cannot establish such a dispute, the statutory demand may stand. This exposes the company to winding up proceedings.
These processes apply uniformly across Australia, including in Queensland, and are frequently used in commercial debt recovery.
Liability for Interest, Costs and Enforcement
Refusing to pay an invoice may also result in additional financial consequences. These may include contractual interest, legal costs, and enforcement expenses.
Where court proceedings are commenced, costs typically follow the event. This statement should be read as referring to court proceedings. In QCAT, the usual position is different, and costs are not awarded in the same way as ordinary court proceedings.
A party who unsuccessfully resists a claim may be ordered to pay the other side’s legal costs.
The risk of additional liability reinforces the importance of ensuring that any refusal to pay is properly justified. A weak dispute can significantly increase the financial exposure beyond the original invoice amount.
Enforcement of judgments in Queensland is governed by the Uniform Civil Procedure Rules 1999 (Qld), including processes such as enforcement warrants.
| Situation | What Happens | Risk Level |
| Invoice overdue | Reminder notices sent | Low |
| Continued non-payment | Final demand issued | Medium |
| Legal action | Statement of claim filed | High |
| No response | Default judgment entered | Very High |
| Enforcement | Assets, wages, or accounts targeted | Severe |
| Company only | Statutory demand issued | Critical |
| Non-compliance | Presumed insolvency | Extreme |
Practical Steps Before Refusing to Pay an Invoice
Before refusing to pay an invoice, a party should take careful steps to ensure that its position is legally justified.
A premature or unsupported refusal can significantly increase legal risk and weaken any later defence.
The focus should be on identifying whether a genuine dispute exists and ensuring that it is properly raised and supported.
This is particularly important in Queensland, where procedural compliance can directly impact the outcome of a dispute.
Identify the Legal Basis of the Dispute
The first step is to identify whether there is a valid legal basis for disputing the invoice. This requires more than dissatisfaction or disagreement.
The issue must relate to a recognised legal ground such as breach of contract, non-performance, or incorrect charging.
In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61 the High Court set out the relevant framework for determining whether contractual breach can justify termination.
The Court stated at [94]:
Both taxonomies arrange the decisional law into a tripartite scheme of classification.
The Court further stated at [94]:
Both recognise that a right to terminate will arise in respect either of a breach of an ‘essential’ term or ‘repudiation’ (in the sense of conduct manifesting that one of the parties is unable or unwilling to perform).
This shows that the legal basis for refusing further performance must be tied to a recognised category of serious contractual default.
Only disputes grounded in that kind of legal foundation are capable of justifying non-payment.
Notify the Other Party Clearly and Promptly
If a dispute exists, it should be clearly communicated to the other party. This typically involves setting out the nature of the issue and the basis on which payment is being withheld.
Clear communication helps establish that the dispute is genuine and not an afterthought. It also reduces the risk of escalation by giving the other party an opportunity to respond or rectify the issue.
A failure to properly articulate the dispute may undermine its credibility. This is particularly important where the dispute may later be scrutinised in court proceedings.
Comply with Contractual and Statutory Requirements
Many contracts impose specific requirements for raising disputes. These may include time limits, notice provisions, or mandatory dispute resolution processes.
Failure to comply with these requirements may prevent a party from relying on the dispute. This is especially relevant in regulated industries where strict procedural compliance is required.
Courts expect parties to adhere to agreed contractual mechanisms. Ignoring those mechanisms may itself amount to a breach of contract.
Maintain Evidence Supporting the Dispute
A party refusing to pay an invoice should ensure that it has evidence to support its position.
This may include correspondence, contractual documents, invoices, and records of performance.
The existence of supporting material is critical in establishing that a dispute is genuine. Unsupported assertions are unlikely to be accepted.
The importance of a properly grounded dispute is reinforced by authority. In Eyota Pty Ltd v Hanave Pty Ltd [1994] FCA 1418 the Court explained that a dispute must meet a minimum threshold.
The Court stated:
The meaning of the expression ‘genuine dispute’ … connotes a plausible contention requiring investigation.
This highlights that a party must be able to point to material that supports its position. A failure to do so may expose the party to immediate recovery action.
Taking these steps does not guarantee that a refusal to pay will ultimately be upheld.
However, it significantly reduces the risk of the refusal being characterised as unjustified or premature.
The central question remains whether the dispute is legally valid, properly raised, and supported by evidence.
A failure in any of those respects can expose a party to immediate legal and commercial consequences.
Understanding both the limits and risks of refusing to pay an invoice is therefore essential before taking that step.
Conclusion
Refusing to pay an invoice is not a general right that arises simply because a dispute exists.
The ability to withhold payment depends on whether there is a genuine dispute grounded in recognised legal principles.
A party must be able to identify a clear legal basis for non-payment, such as a serious breach of contract, non-performance, or a properly supported cross-claim.
Absent that foundation, the obligation to pay will remain enforceable.
The risks of getting this wrong are significant. They include court proceedings, statutory demands, cost exposure, and potential insolvency consequences for companies.
Not all disputes will meet the required threshold. A party cannot rely on bare assertions or tactical positions to justify withholding payment.
Ultimately, the decision to refuse payment should be approached cautiously.
It requires a clear understanding of the contractual position, compliance with any procedural requirements, and sufficient evidence to support the dispute.
Where those elements are present, refusing to pay may be justified.
Where they are not, the consequences can be immediate and costly.
Frequently Asked Questions
The following frequently asked questions address some of the most common practical issues arising from refusal to pay an invoice in Queensland civil litigation, including genuine dispute, potential consequences and timing.
Can I refuse to pay an invoice if I dispute it in Queensland?
Yes, but only if the dispute is genuine and legally valid. Simply disagreeing with an invoice is not enough.
You must have a proper basis, such as defective work, incomplete services, or incorrect charges. If the dispute is minor, unsupported, or does not affect the enforceability of the payment obligation, you may still be required to pay and pursue any separate claim for damages, compensation or set-off.
Refusing payment without justification can lead to debt recovery action or additional legal consequences.
What is considered a “genuine dispute” for an unpaid invoice?
A “genuine dispute” is one that is real, plausible, and supported by evidence not just a bare denial. It exists where there is a credible basis to question whether the invoice is owed, such as non-performance, defective work, or incorrect charges. The threshold is low but requires an arguable case. Courts assess whether the dispute is genuine, not whether it will ultimately succeed.
Can I ignore an invoice if I think it is wrong?
No, ignoring an invoice is not a safe option. Even if you believe the invoice is incorrect, you should formally dispute it and explain why. Failing to respond may result in the creditor assuming the debt is accepted and taking recovery action. This can escalate quickly to court proceedings or, for companies, a statutory demand. Always raise the issue clearly and promptly to protect your position.
What happens if I refuse to pay an invoice without a valid reason?
If you refuse to pay without a valid legal basis, the creditor may commence debt recovery proceedings. This can result in a court judgment against you, along with liability for interest and legal costs. For companies, it may also lead to a statutory demand and potential insolvency proceedings. The financial and reputational consequences can be significantly greater than the original invoice amount.
Do I have to pay an invoice if the work is defective?
It depends on the seriousness of the defect. If the issue is minor, you will usually still need to pay the invoice and pursue compensation separately. However, if the defect is significant and goes to the core of the contract, you may be entitled to withhold payment. The key question is whether the defect substantially deprives you of the benefit of what was agreed.
Can I withhold payment if the invoice amount is incorrect?
Yes, you may dispute and refuse to pay an invoice that contains clear errors, such as overcharging or billing for work not performed. However, the dispute should be limited to the incorrect portion where possible. It is often appropriate to pay any undisputed amount and formally dispute the balance. This demonstrates good faith and reduces the risk of escalation or legal action.
What should I do before refusing to pay an invoice?
Before refusing payment, you should review the contract, identify the legal basis for the dispute, and gather supporting evidence. You should also notify the other party in writing, clearly outlining the issue. If the contract includes dispute resolution procedures, ensure you follow them. Taking these steps helps establish that your position is genuine and reduces the risk of adverse legal consequences.
Can a company be wound up for not paying an invoice?
Yes, if a company fails to pay a valid debt, the creditor may issue a statutory demand. If the company does not comply within 21 days or successfully challenge it, it is presumed to be insolvent. This can lead to winding up proceedings. However, a statutory demand can be set aside if there is a genuine dispute or other valid grounds, making early action critical.
Is it better to pay under protest than refuse to pay?
In some cases, yes. Paying under protest can reduce the risk of immediate legal action while preserving your right to dispute the amount later. This is particularly useful where the dispute is uncertain or the consequences of non-payment are significant. It allows you to avoid escalation while still pursuing recovery through negotiation or legal proceedings if necessary.
Can I refuse to pay an invoice as leverage in a dispute?
No, withholding payment purely as a negotiating tactic is risky and generally not supported by the law. A refusal to pay must be based on a genuine legal dispute, not strategic pressure. If the dispute lacks substance, the creditor may take enforcement action, and your position may be weakened. Using non-payment as leverage without a proper basis can lead to serious legal and financial consequences.
