This document provides an overview of security for performance in construction contracts, including different forms of security like bank guarantees, letters of credit, and performance bonds. It discusses key cases like Woodhall Limited v The Pipeline Authority that established the autonomy principle for bank guarantees, meaning they are payable on demand regardless of disputes between the parties. The document outlines exceptions to the autonomy principle such as fraud, statutory provisions, and express contractual exclusions. It also analyzes relevant clauses from the case Rejan Constructions Pty Ltd v Manningham Medical Centre Pty Ltd regarding when a party can have recourse to security or retention money.

1. Lecture by:
Laina Chan, Barrister
Nine Wentworth Chambers, Sydney
For: University of Melbourne
Security
for Performance

2. Security for Performance
Retention
Bank Guarantee
Letter of Credit
Performance Bond
Forms of Security

3. Interests of the Developer
VS
Interests of the Contractor

4. What is an unconditional
bank guarantee?
Woodhall Limited v The Pipeline Authority & Anor
(1979) 141 CLR 443
• The Autonomy Principle
• Commercial currency of a bank guarantee
• “As good as cash”

5. In Wood Hall Limited v The Pipeline Authority & Anor, the High
Court considered a bank guarantee which contained the
following term:
“The bank unconditionally undertakes and covenants to pay on
demand any sum or sums which may from time to time be
demanded in writing by Owner up to a maximum aggregate sum
of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000.00) to be held by Owner as security for and until the
performance and completion by Contractor of all of the conditions
of the said Contract in all respects.”
An unconditional bank guarantee

6. Injunctions
(1) Against Bank/Surety
(2) Against Beneficiary of Security
What are the relevant principles?

7. Exceptions to the Autonomy Principle:
(1) Fraud
Sztejn v J Henry Schroeder Banking 31 NYS 2d 631
Inflatable Toy Company Pty Limited v State Bank of New South
Wales & Ors (1994) 34 NSWLR 243
Quiktrak Networks Pty Ltd v Housely Technology Ltd [2007]
NSWSC 4
Bank of Newport, A California Banking Corporation, Appellant v
The First National Bank and Trust Company of Bismarck, A North
Dakota Corporation, Appellee (1982) 687 F. 2d 1257 (8th Circ)

8. Exceptions to the Autonomy Principle:
Olex Focas Pty Limited & Anor v Skoda Export
Company Limited [1998] 3 VR 380 from
unconscionability falling short of fraud is not a
ground for an injunction (per Batt J at 400).
See also Boral Formwork v Action Makers Limited
[2003] NSWSC 713
(2) s51AA of the Trade Practices Act

9. Exceptions to the Autonomy Principle:
• Express or implied negative stipulation
Rejan Constructions Pty Ltd v
Manningham Medical Centre Pty Ltd (for
Sovereign Garden Pty Ltd [2002] VSC
579; (2003) 19 BCL 451. Application of
obiter comment by Stephen J at Woodhall
Ltd v Pipeline Authority (1979) 141 CLR
443.
(3) Contractual Exclusion
• See also John Holland Pty Limited v Roads
and Traffic Authority of New South Wales
[2007] NSWCA 140; Clough Engineering Ltd
v Oil & Natural Gas Corporation Ltd (2007)
ATPR 42-166; (2008) 24 BCL 35; [2007] FCA
2082; (2008) 249 ALR 458

10. Relevant clauses in Rejan Constructions
1. Clause 5.6 of the AS4300-1995 contract provided that:
A party may have recourse to security, retention moneys or both and may
convert into money security that does not exist of money where –
(a) the party has become entitled to exercise a right under the Contract
in respect of the security, retention monies or both;
(b) the party has given the other party notice in writing, for the period
stated in Annexure Pt A or, if no period is stated, of the party’s intention
to have recourse to the security, retention monies or both; and
(c) the period stated in Annexure Pt A, or if no period is stated, 5 days,
has or have elapsed since the notice was given.

11. Relevant clauses in Rejan Constructions
2. Clause 42.8 provided that:
The Principal may deduct from monies due to the Contractor any money
due from the Contractor to the Principal otherwise then under the
Contract and if those monies are insufficient, the Principal may, subject to
Cl 5.6, have recourse to retention monies and, if they are insufficient,
then to security under the Contract.
3. Clause 42.9 provided that:
There, within the time provided by the Contract a party fails to pay the
other party an amount due and payable under the Contract, the other
party may, subject to clause 5.6, have recourse to retention monies, if
any, and, if those monies are insufficient, then to security under the
Contract and any deficiency remaining may be recovered by the other
party as a debt due and payable.

12. Security for Performance
The Contracts
AS 4000-1995
Clause 5.1 – 5.4
PC1
Clause 4.1 – 4.3