Your selected location:
  1. Home
  2. /
  3. HHG Articles
  4. /
  5. Construction Law Update: Bank Guarantees/ Performance Bonds Affirmed – Contractors Beware
20 May 2015

Lend Lease Services Pty Ltd, contracted to construct a refined sugar plant for Sugar Australia Pty Ltd, granted performance bonds totalling just over $4 million.  Alleging delayed completion, failure to comply with the principal’s lawful directions and other breaches, Sugar gave Lend Lease a five-day notice of its intention to call on those bonds to cover its losses.  Lend Lease applied for an urgent interim (temporary) injunction to restrain Sugar from cashing in the bonds before the alleged breaches had been determined on the evidence after a trial.






The Victorian Supreme Court granted Lend Lease the injunction, saying no payment would be available under the bond unless and until Sugar proved that it was entitled to the damages which the bonds were there to secure.  Sugar appealed to the Victorian Court of Appeal which allowed Sugar’s appeal, reversed the Supreme Court’s decision and discharged the injunction.  Sugar was then free to call on the bonds without first having to prove its underlying claims against Lend Lease.






In allowing Sugar’s appeal, the Victorian Court of Appeal reaffirmed the following principles stated in Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812:





1.       Performance bonds give principals security for payments which contractors might owe them under a construction contract at some future point in time when the contractor may no longer be able to make those payments.


2.       Performance bonds also shift the risk of being out of pocket while the parties are waiting for determination of a dispute under a construction contract, from the principal (which has to make progress payments in the meantime) to the contractor (which receives those payments in the meantime).


3.       It would defeat these purposes if performance bonds were not payable until determination of the very claims they are designed to secure.


4.       However, before having recourse to the bonds, the principal must have a genuine claim against the contractor and cashing in the bonds must not cause overwhelming injustice to the contractor.


5.       This means that a contractor’s application to restrain a call on its performance bond will be denied if:


(a)    the principal has an arguable claim against the contractor which could possibly succeed at a trial;


(b)   recourse against the bond is reasonable in light of that arguable claim; and


(c)    there is no reason in justice why the  Court should prevent the principal’s recourse to the bond (for example, significant reputational damage to the contractor, a real risk that the principal will be unable to compensate the contractor for losses resulting from the pay-out should the principal’s claims fail and no real inconvenience to the principal if recourse to the bond monies were refused).






This decision should give principals renewed confidence that their right to cash in a contractor’s bank guarantee to secure a genuine claim under a construction contract will not be restrained except in the most unusual circumstances.






This is only general information and does not constitute specific legal advice.  If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.






*This is general information only, and does not constitute specific legal advice. Please consult one of our experienced Legal Team for specific advice relevant to your situation.

Supporting Western Australians for more than 100 years

"Always fast and thorough service. Thank you"

Sitka Pil

My circumstances at the time I made contact with HHG were dire following my argument being rejected by two no win no fee firms. Following my initial meeting with HHG's employment law team I was left feeling extremely positive by the response and concern shown by HHG in regards to their support of my argument along with their preparedness to pursue an outcome on my behalf.

I accept the fact that nobody really wins in these cases (mental health/ workplace) however the end result was what would be considered most favourable and far in excess of what would have been achieved had I not sought the advice from HHG.

I have no hesitation in recommending HHG to anyone caught up in the messy circumstances I found myself in at the time.

Great advice and five-star commitment to their client!!"

Nathan Lynch

"Thank you for such great assistance with the transaction of Flying Domestics on behalf of Lorna Good. It has been such a pleasure to work with the HHG Legal Group and I look forward to working with you in the future."

Jim Goodwin

"Simon Creek and his team were at all times empathic, professional and confident.  My matter needed to be addressed within a pressing time frame, and their availability at short notice and contact after hours was much appreciated.  It caused me considerable stress, but having such a thoroughly reliable and competent team to call on helped me to feel in control. Although I hope not to need their services again in future, I would be confident in doing so!"

Dr Lana Bell

"A good outcome is what we can expect.  A great outcome is a sign of a company which does the very best for their clients. A very big thank you to Daniel Morris for showing empathy towards my small and much needed legal action.

To HHG Legal Group, thank you for a great outcome.  I would recommend your company to anyone seeking legal services."

Jan Atkinson

"Your support this morning was amazingly kind, not to mention your totally reassuring competence, knowledge and wisdom that you used on my behalf.  It was extremely reassuring to have your knowledgeable support, and I particularly appreciated your real and obvious kindness to me. It means so much at a very difficult time. I'm so grateful to you."

Family Law Client

"Janene was very professional and we established a good rapport quickly. The subject of death and wills can be quite confronting to deal with, however, Janene's approach was soft and accommodating."

Lynette Livesey

"A big thank you to HHG for their professional service, continued support, and wide range of legal knowledge. Our clients have given us nothing but kind words regarding HHG Legal Group and so we have no hesitation in referring and recommending Simon Creek and HHG Legal Group for their outstanding services and legal expertise."

Nigel Plowman, Director at McKinley Plowman & Associates

"Simon is a friendly and practical legal advisor. I have received great feedback from the clients I have referred to him and his team at HHG Legal Group."

Richard Beal, Director at BDO

"Over the last few years, I have been impressed by Simon’s legal ability, management skills, entrepreneurial spirit, personal integrity and people skills. He appears to be that rare breed of lawyer – both knowledgeable and commercial."

Michael Malone, Founder of iiNet

"Our family has been a client of HHG Legal Group over many years.  Business has included drawing up of wills for three generations and preparing of probate for my father in law. I would have no hesitation in recommending HHG Legal Group to anyone requiring such services."

Bernice Climie

"You should be congratulated for the manner in which your staff address clients and we found our dealings with your company, once again a very pleasant experience and we would like to truly thank you for your efforts."

Steve Harvey and Jane Powell

"HHG Legal were absolutely fantastic. Extremely responsive and brought calm to our chaotic family situation through their knowledge and caring attitude. Extremely professional from our very first contact with them and they expertly guided our family though the required legal process over almost a 12 month period."

Amanda Williamson

"Fantastic team! They really care about their client. Tim Colcutt is a 'go that extra mile' guy who gives his client his all. I can't recommend HHG and Tim enough."

Kerry Samson

"I had a fantastic lawyer in Matthew Lilly. He helped me out a great deal with good, sound advice in a friendly, professional manner. First class, thanks Matthew"

Graeme Hammond

"Marine Plant Systems has been working with HHG Legal Group for a few years now and they continually provide first-class service. Their professional advice has been invaluable to our company."

Carolin Grimm - Marine Plant Systems

"We were kept up to date at all times. Pricing was always updated over the time period so we remained "in budget". Personal access to someone whenever I had questions. All in all a great experience without too much fuss."

Rosslyn Tasker - COO AltusQ Pty Ltd

"Good service you can count on."

Miles Lee

"HHG Legal Group has provided outstanding support as I have taken the journey of buying a business, their professionalism is beyond reproach. Their assistance throughout the Due Diligence process has been invaluable, I would fully recommend them."

Mark Armitage

"Very friendly and efficient service - what a pleasure working with Matthew."

Jacques Taylor

"I highly recommend Daniel from HHG Lawyer in Mandurah. When dealing with a complicated legal property matter recently I was extremely impressed by Daniel's honesty and integrity and the legal advice I received. I am very happy with the service from HHG Legal."

Tony Walker

Select your location:

Please select your nearest office location so we can show you the most relevant information.