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Performance security for construction contracts

31/05/2013

St. Hilliers Construction Pty Ltd (In Administration) v. Fitzpatrick Investments Pty Ltd is judicial authority for the proposition that a contractor is not entitled to have its security reduced unless it strictly complies with all contract pre-conditions.

The case concerned a D&C contract for the construction of a commercial building in the Melbourne Docklands. The contract required St Hillers to provide bank guarantees as security for timely completion.   It required the security to be released in exchange for a certificate of practical completion along with “each other document or matter required to be provided or satisfied for practical completion”.   Those documents included certificates from design consultants.

The superintendent certified practical completion and the principal took possession of the works. The principal terminated the contract when the contractor went into voluntary administration. The issue was whether St Hilleiers was entitled to the return of the security.

The administrators agitated for the return of the security because the election to take possession of the works was inconsistent with retention of the security and amounted to a waiver of the contract terms. The court rejected that submission.  It said that “…it is meaningless to speak of the substantial performance of a condition precedent. Either it has been performed or it has not”.   It is not inconsistent for a principal to take possession, and at the same time. to require proper certification. Furthermore, the contract expressly provided that the principal should not be taken to have waived any obligation unless it was written in clear terms.

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