OUT-LAW ANALYSIS 7 min. read
There have been a string of rulings across Australia concerning principals’ recourse to performance security in recent months. Julia Gomina/iStock.
28 Jul 2026, 9:45 am
There has been a recent ‘uptick’ of injunction applications seeking to restrain principals, the owners of major projects, from having recourse to performance security throughout Australia.
Off the back of rulings last year in the cases of Primero Group Limited v Coburn Resources Pty Ltd, Synergy Construct Australia Pty Ltd v GSA North Terrace Pty Ltd, and Cobolt Constructions Pty Ltd v Duke Ventures Wellington Street Pty Ltd – in Western Australia, South Australia, and Victoria respectively – the latest attack on principals’ rights has come from the Supreme Court of New South Wales in the case of Alstef Australia Pty Ltd v Brisbane Airport Corporation. The matter concerned a Queensland project, at Brisbane Domestic Airport, and legislation, the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act).
The Supreme Court of New South Wales reaffirmed that performance bonds operate on a ‘pay now, argue later’ basis, while contractual security arrangements cannot be used to override statutory payment protections.
The court confirmed that parties are entitled to have recourse to unconditional performance security despite ongoing disputes, while also noting that contractual arrangements requiring equivalent security as a condition of receiving statutory progress payments may be ineffective under Queensland’s security of payment regime.
The proceedings arose from a contract between contractor Alstef Australia Pty Ltd (Alstef) and Brisbane Airport Corporation (BAC) for the design and construction of a new baggage handling system at Brisbane Domestic Airport.
A mezzanine steel platform designed and constructed by Alstef under the contract included a structural steel defect, and the contract was ultimately terminated. Both parties alleged that the other had repudiated the contract, with substantial claims expected to follow.
Alstef sought an interlocutory injunction restraining BAC from having recourse to five bank guarantees provided under the contract, two for the performance of the works under the contract (performance bonds) and three to secure payment of unfixed goods and materials (payment security bonds).
A central issue was whether BAC was entitled to have recourse to the performance bonds and payment security bonds despite the ongoing dispute. In considering the application, the court was obliged to determine whether Alstef had, on the face of it, a case for the return of the performance bonds and payment security bonds and, if so, whether the balance of convenience favoured their return.
The court reaffirmed that commercial contracts are to be construed objectively by reference to what a “reasonable businessperson” would understand the parties to have intended.
The contract in this dispute did not have a specific provision addressing the circumstances where BAC could have recourse. Instead, the contract provided that the return of the performance bonds was “subject to the principal’s right to have recourse to security”. Having regard to the contract as a whole, together with the terms of the unconditional bank guarantees, BAC was entitled to have recourse to the performance on any demand that is not fraudulent, made in bad faith or otherwise unconscionable.
In the circumstances, the court considered it strongly arguable that the parties intended the performance bonds to operate as “risk allocation devices”. Given that it was not persuaded that the Alstef would suffer substantial financial and reputation damage in the event that BAC had recourse, the court declined to restrain BAC from having recourse to the performance bonds.
For the payment security bonds, Alstef argued that BAC had no entitlement to hold the bonds in the first place. Its argument was based on its belief that clause 12.7(a)(ii) of the contract, which required Alstef to provide the payment security bonds, was void under section 200 of the BIF Act. That section prohibits parties from contracting out of the BIF Act or limiting its operation.
Clause 12.7(a) of the contract appears to be based on an amended combination of two versions of an optional clause from a standard form contract – Alternative 1 and Alternative 2 of clause 42.4 of an unamended Australian Standard AS2124-1992. It is also conceptually similar to clause 37.4 of an unamended Australian Standard AS4000-2025. The purpose of including such a clause is to provide comfort to a principal that has paid for the procurement of plant and materials which have not yet been incorporated into the works and to allow a principal to assist a contractor to lock-in a price for the procurement of long lead items.
In Queensland, section 67K(3) of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) expressly contemplates that retention amounts or securities can be held in excess of the statutory restriction of 5% of the contract price prior to practical completion provided under section 67K(2) of the QBCC Act in limited circumstances. That is, if the retention amounts or securities are for the financial protection of the contracting party, having regard to amounts paid by the contracting party that relate to something that has not yet been installed in accordance with the requirements of the contract.
Similar to security of payment legislation throughout Australia, the BIF Act gives claimants a statutory right to progress payments under the rationale of ‘pay now, argue later’ and to promote cashflow.
The court considered the intent of the BIF Act and focused on the commercial reality of the arrangement whereby Alstef was required to provide the payment security bonds to secure payment of unfixed goods and materials provided by Alstef.
Although BAC made progress payments, the court found that Alstef received no real cash flow benefit because it was required to provide equivalent security as a condition of payment. On an interim basis, the court considered that outcome inconsistent with the purpose of the BIF Act, which is to ensure contractors receive prompt progress payments while disputes remain unresolved. The decision does not expressly acknowledge, as a matter of practicality, that security is able to be provided by a contractor for an establishment fee and/or an ongoing maintenance payment of an amount that is a small percentage of the value of the security. The contractor then incorporates that establishment fee and/or ongoing maintenance payment into the contract price.
The court therefore accepted that Alstef had, on the face of it, established a strong case that the relevant contractual provision was void or of no effect because it effectively restricted the statutory right to progress payments under the BIF Act, and because withholding the payment security bonds could rise to be a breach of the Australian Consumer Law such that it would be unconscionable for BAC to retain them in the event that Alstef was ultimately successful. In the circumstances, the court considered that the balance of convenience favoured restraining BAC from having recourse to the payment security bonds until further order of the court. Only time will tell if the court will consider the clause is void after the final hearing.
The court also accepted that Alstef had established a strong case, on the face of it, that BAC's continued retention of the payment security bonds could amount to unconscionable conduct under section 21 of the Australian Consumer Law.
A significant factor was BAC’s acceptance that it had no present claim on the payment security bonds, and there was no evidence that such an entitlement was likely to arise. If the contractual provision requiring the bonds were ultimately held to be void under section 200 of the BIF Act, the court considered that BAC’s continued retention of the security could fall “outside societal norms of acceptable commercial behaviour”.
The court was also influenced by the fact that title to the relevant goods had already passed to BAC, which retained contractual rights regarding their storage and custody. In those circumstances, the payment security bonds arguably provided protection beyond BAC’s legitimate commercial interests.
While not cited, the court's reasoning aligns with the Victorian Court of Appeal's decision in the 1998 case of Olex Focas Pty Ltd v Skodaexport Co Ltd, which recognised that unconscionability may justify restraining recourse to otherwise unconditional security. In that case, Skodaexport sought payment of the full amount of certain unconditional bank guarantees despite having already recovered most of the advances they secured. The Victorian court granted interim relief in respect of the mobilisation guarantees, but not the performance guarantees.
The interaction between the BIF Act, or other security of payment legislation in Australia, and contractual rights and obligations can be vexing. There does not appear to be a harmonised approach across the states as to what extent ‘no contracting out’ provisions are applied, and whether a provision is void only insofar as it relates to security of payment legislation or for all purposes. This decision supports a more expansive approach and that void under security of payment legislation means void for all purposes – potentially unravelling common critical contractual provisions such as the requirement to provide security for unfixed plant and equipment.
Until further judicial guidance is provided, principals should carefully consider whether there is a risk that their contracts, inadvertently, do not comply with the contracting out provisions of the BIF Act. It may still be open for parties to:
Principals also need to consider when title to unfixed goods and materials passes and should ensure that any rights available under the Personal Property Securities Act 2009 (Cth) are exercised.
This decision also serves as a reminder that where securities are provided under a construction contract to secure the performance of specific contractual obligations, the circumstances under which recourse can be had to each different type of security and the circumstances under which securities must be returned should be specifically identified in the construction contract. At the very least, it is prudent to specify that payment securities cannot be called upon for performance related issues.
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