Primero Group Limited v Coburn Resources Pty Ltd - [2025] WASC 69

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   PRIMERO GROUP LIMITED -v- COBURN RESOURCES PTY LTD [2025] WASC 69
CORAM:   WHITBY J
HEARD:   20 FEBRUARY 2025 & SUPPLEMENTARY WRITTEN SUBMISSIONS FILED 28 FEBRUARY 2025
DELIVERED          :   7 MARCH 2025
FILE NO/S:   CIV 2486 of 2024
BETWEEN:   PRIMERO GROUP LIMITED
Plaintiff
AND
COBURN RESOURCES PTY LTD
Defendant

Catchwords:

Injunction - Application for interlocutory injunction - Proper construction of commercial contract - Provision for security in contract - Whether a party is entitled to have recourse to security

Legislation:

Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2024 (WA)
Legal Profession Uniform Law Application Act 2022 (WA)

Result:

Application for interlocutory injunction dismissed
Declaration as to proper construction of cl 5.2(b) of Contract made

Category: B

Representation:

Counsel:

Plaintiff	:	Dr E M Heenan SC & Ms N Dubey
Defendant	:	Mr J A Thomson SC & Mr D G Johnson

Solicitors:

Plaintiff	:	Lavan
Defendant	:	King & Wood Mallesons

Case(s) referred to in decision(s):

Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57
Bachmann Pty Ltd v BHP Power New Zealand Ltd [1998] VSCA 40
Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618
Corestaff NT Pty Ltd v Insurance Australia Limited [2021] QSC 195
CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2] [2017] WASCA 123
JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASCA 112
Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283
Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98
Wood Hall Ltd v Pipeline Authority [1979] HCA 21; (1979) 141 CLR 443

WHITBY J:

Overview and summary

On 4 May 2021, the parties entered into Contract No. CP01‑DC01-G- CON-001_A, 'Formal instrument of agreement for engineering, procurement and construction of process plant facilities and associated infrastructure: Coburn Mineral Sands Project', varied by Deed of Variation, Settlement and Release dated 27 February 2023 (the Contract).
By the Contract, the defendant, referred to as the Principal, engaged the plaintiff, referred to as the Contractor, to design and construct a Wet Concentrator Plant (WCP) and a Mineral Separation Plant (MSP) for the defendant's Coburn Mineral Sands Project (Project). The plaintiff commenced production of the Project on 4 October 2021. The plaintiff completed works for the WCP on 30 October 2022 and for the MSP on 17 March 2023. In 2023, the parties were in dispute in relation to alleged defects with the Project, and they agreed to vary the Contract by deed.
In accordance with the Contract, the plaintiff provided four insurance bonds to the defendant, each in the amount of AU$3.425 million. The defendant has returned two of those four insurance bonds to the plaintiff and holds the remaining two insurance bonds (the Security).
On 25 November 2024, the defendant sent a 'Consolidated Defects Notice' to the plaintiff alleging several defects associated with the WCP and the MSP, and demanded payment of the following amounts by 23 December 2024:
(1)$421,091.00 for rectification costs already incurred (Rectification Claim); and
(2)$15,740,394.51 for consequential loss, that is 'the loss of profit and production cost' (Consequential Loss Claim).
In the Consolidated Defects Notice, the defendant also foreshadowed that it would incur further claimable amounts for damages related to the defendant's breach of a contractual obligation to allow the relocation of the WCP within 14 days (WCP Claim).
On 13 December 2024, the defendant advised the plaintiff that the amount of its Rectification Claim was, in fact, $473,147.28.
The plaintiff disputes the defendant's entitlement to the Consequential Loss Claim and the WCP Claim. In fear of the defendant having recourse to the Security to recover those amounts, on 17 December 2024, the plaintiff commenced these proceedings seeking declarations in relation to the proper construction of the Contract. On the same date, the plaintiff applied for an interlocutory injunction to restrain the defendant from having recourse to the Security until further order of the court.
In support of its application for interlocutory relief, the plaintiff relies upon the evidence of David Foot,[1] the Chief Commercial Officer of NRW Holdings Ltd (NRW), the parent company of the wholly owned subsidiary plaintiff and Michael Sucher,[2] the Chief Financial Officer of a division of NRW, who has financial oversight of the plaintiff.
[1] Affidavit of David William Foot sworn 17 December 2024 (Foot Affidavit).
[2] Affidavit of Michael Sucher affirmed 17 December 2024 (Sucher Affidavit).
The defendant opposes the plaintiff's application for interlocutory relief and relies upon the evidence of Jonathon Childs,[3] the Technical Services Manager at Strandline Resources Limited, the parent company of the wholly owned subsidiary defendant. Mr Childs was brought into the Project as a technical expert on the operation of the MSP and the WCP and his role included investigating the alleged defects in the WCP and the MSP.[4]
[3] Affidavit of Jonathan Childs sworn 30 January 2025 (Childs Affidavit).
[4] Childs Affidavit [4].
After the filing of the application for an interlocutory injunction, the defendant provided an undertaking that it would not have recourse to the Security in respect of its Consequential Loss Claim without providing 14 days' notice to the plaintiff. Based on that undertaking, the plaintiff does not now seek an injunction to restrain the defendant from having recourse to the Security in respect of the Consequential Loss Claim.
In relation to the Rectification Claim, the plaintiff has given an undertaking that it will pay the amount of $473,147.28 to the defendant if it is successful in obtaining an injunction to restrain the defendant from having recourse to the security. At the hearing of the application, the plaintiff accepted that the defendant was entitled to have recourse to the Security for the Rectification Claim.
The issue that remains to be determined on this interlocutory application is whether the defendant has a right of recourse to the Security, pursuant to cl 5.2(b) of the Contract, for the WCP Claim. In order to decide this issue, it is necessary to construe, and determine the meaning of, cl 5.2(b) of the Contract, having regard to its text, its purpose and the context in which it appears in the Contract.[5]
[5] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 (Mount Bruce Mining), 116 ‑ 117.
For the reasons that follow, on a proper construction of cl 5.2(b) of the Contract, the defendant is entitled to have recourse to the Security only if it honestly believes that the plaintiff is in breach of a material obligation of the Contract. Accordingly, the plaintiff's application for an interlocutory injunction to restrain the defendant's recourse to the Security is dismissed.

The performance of the Contract

On 4 May 2021, the parties entered into the Contract by which the defendant engaged the plaintiff to undertake the engineering, procurement and construction of two of the three main processing areas of the Project, being the WCP and the MSP. The third main processing area of the Project was the Dozer Mining Units (DMU).
The WCP is designed to recover a heavy mineral concentrate from sand reclaimed by the DMU. The WCP involves a number of gravity separation steps. Through this process, most of the non‑valuable, lighter minerals are rejected. The heavy mineral concentrate is then transported by road to the MSP where it is re‑processed and further separated. The MSP is designed to produce saleable mineral sand products - rutile, ilemite, zircon and a zircon concentrate by‑product.
Annexure Part F of the Contract sets out Process Performance Guarantees by which the plaintiff agrees that the WCP and MSP will produce certain guaranteed material properties and volumes of the mineral sand products.
Annexure Part F also sets out the process for the commissioning of the Project. Firstly, after the construction completion of the WCP and MSP, Stage 4 Commissioning is required to be completed by the defendant under the direction of the plaintiff. This is the process by which the WCP and the MSP are brought into service. Secondly, once Stage 4 Commissioning is complete, the plaintiff is required to complete Tests After Completion to ascertain whether the MSP and WCP satisfy the Process Performance Guarantees.
The plaintiff commenced construction of the WCP and MSP on 4 October 2021.
Pursuant to cl 5.1 of the Contract, security was required to be provided for the plaintiff to fulfil all obligations under the Contract. On 17 May 2021, the plaintiff gave security to the defendant in the form of four insurance bonds, each to the value of AU$3.425 million. Two of the four insurance bonds have been returned to the plaintiff.
On 19 May 2022, the plaintiff and the defendant entered into a deed of variation, settlement and release in relation to certain aspects of the Project.
The plaintiff completed construction of the WCP on 30 October 2022 and of the MSP on 17 March 2023.
On 27 February 2023, the plaintiff and the defendant entered into a further deed of variation, settlement and release by which the plaintiff acknowledged that there were certain defects in the WCP and MSP and agreed to rectify those defects.
The defendant alleges however, that there were further defects which it discovered which were not the subject of the second deed of variation.

Rectification Claim

The Principal's Representative (as defined in cl 1 of the Contract) sent the plaintiff several Defective Work Notices, pursuant to cl 29.3 and cl 35 of the Contract, requiring the plaintiff to rectify defects associated with the WCP and the MSP. These notices were sent over the period from 18 October 2022 to 15 March 2024.
Clauses 29.3 and 35 of the Contract provide that if the defendant fails to comply with a direction to rectify defects within the timeframe specified in the direction, then the defendant may have that work rectified by others and the Principal's Representative shall certify the costs incurred in rectifying those defects as moneys due from the plaintiff to the defendant.
On 25 November 2024, the defendant issued the Consolidated Defects Notice to the plaintiff, notifying the plaintiff that, having failed to carry out the rectification works the subject of the Defective Work Notices by the dates directed, the rectification works were or would be carried out by others, with the rectification costs to be certified by the Principal's Representative as money due from the plaintiff to the defendant. The defendant informed the plaintiff that the total cost of rectification that it had incurred to that date was $421,091 and the total estimated cost of rectification for the remaining defects was $16,627,824.
On 5 December 2024, the plaintiff's solicitors wrote to the defendant's solicitors confirming that the plaintiff intended to pay the rectification costs of $421,091, without admitting any liability, subject to being provided with documentary evidence supporting those costs.
On 13 December 2024, the solicitors for the defendant wrote to the solicitors for the plaintiff and provided the supporting documentation for revised rectification costs of $473,147.20. As at 29 January 2025, the rectification costs of $473,147.20 have been certified by the Principal's Representative as money due and payable by the plaintiff to the defendant pursuant to cl 29.3 and cl 35 of the Contract.
The plaintiff does not dispute that the defendant is entitled to have recourse to the Security pursuant to cl 5.2(a) for rectification costs that have been certified by the Principal's Representative.

Consequential Loss Claim

In its letter to the plaintiff dated 25 November 2024, the defendant states that its Consequential Loss Claim arises from errors in the design of the MSP which have affected the performance of the MSP. The defendant alleges that it has suffered loss in profit and an increase in production costs caused by defects in the design of the MSP for which it alleges the plaintiff is responsible. The plaintiff disputes the defendant's Consequential Loss Claim and maintains that it has carried out the work in accordance with design documents provided to it by the defendant and that any defects are not caused by the plaintiff's design and construction of the MSP.
The defendant has provided an undertaking that it will not seek recourse to the Security in relation to the Consequential Loss Claim without first providing the plaintiff with 14 days' notice that it intends to do so. Based on this undertaking, the plaintiff does not seek an injunction restraining the defendant from having recourse to the Security in respect of the Consequential Loss Claim.

WCP Claim

The defendant claims that it has suffered loss arising from the plaintiff's failure to comply with cl 2.7 of the Contract because it has failed to design and construct the WCP in accordance with the Scope of Work so that the WCP would be capable of relocation within 14 days.
Clause 2.7 of the Contract provides:
2.7Contractor's Design Obligations
The Contractor is responsible for and shall complete the design and documentation of the Works in accordance with the Contract.
In completing the design and documentation of the Works, the Contractor shall:
(a)ensure a high standard of design and finish for all parts of the Works such that the quality of the Works is in accordance with the Contract (including but not limited to the Principal's project requirements);
(b)prepare and execute or cause the preparation and execution of all design and documentation work in accordance with accepted practice in the Australian engineering and construction industry and relevant legislative requirements;
(c)ensure the design documents shall be prepared by the consultants and that the consultants have appropriate professional qualifications and membership of appropriate professional associations;
(d)coordinate the activities of the consultants in order to complete such drawings, construction programs, specifications, plans and designs necessary to fully document and complete the Works in accordance with the Contract;
(e)not make, cause or permit to be made any changes or amendments to design documents which have been submitted to the Principal's Representative under clause 8.3 without the prior written approval of the Principal's Representative;
(f)recommend to the Principal's Representative any reviews, updating or revisions to the design documents as may be necessary to facilitate the good and timely completion of the Works; and
(g)submit the design documents to the Principal's Representative in sufficient time for the Principal's Representative to review those documents and require the Contractor to resubmit updated or revised documents.
Section 4.8 ('Engineering Design Basis') of the Scope of Work of the Contract (Annexure Part L.l) provides:
… The contractor shall detail design (but not supply) the insertable WCP transportation chassis and methodology and timeline to enable the Principal to relocate the WCP building and associated WCP facilities with a target production downtime, associated with the move not exceeding 14 days. …
The Relocation Strategy, a document listed in Appendix D of the Scope of Work (Contractor Supporting Documents) (Relocation Strategy) and, pursuant to cl 2.2 of the Scope of Work, is incorporated into the Scope of Work itself, provides:
(a)by section 1.2:
As part of the ongoing operation at Coburn Mineral sands, the WCP plant will be relocated as the mining follows the orebody. It is anticipated that the initial plant relocation will be after 9 years operation, with subsequent moves nominally every 5 years. To facilitate the relocation, the structures and buildings have been designed to be transported. The relocation duration is 14 days. This report outlines the high‑level strategy and costs to relocate the plant and equipment.
(b)by section 4.3:
The WCP is required to be relocated within 14 days.
The defendant says that the ability to relocate the WCP within 14 days is an important feature of the WCP because the WCP is required to be relocated as part of the defendant's ongoing operations as the Project's mining follows the orebody. The defendant says that during relocation, both the WCP and the Project's operation must be shut down. Given the Project's operation has to be shut down, the defendant says that the WCP was required to be relocatable within 14 days so that the shutdown of the Project was minimal.[6]
[6] Childs Affidavit [56].
The defendant commissioned expert reports from Wave International (Wave Reports). The Wave Reports concluded that the process to relocate the WCP would take approximately 18 months to complete.[7] The defendant says that it has not been able to identify any rectification works that could be implemented to make the WCP relocatable within 14 days and therefore, it would need to construct another WCP, which it estimates would cost at least AU$92 million.[8]
[7] Childs Affidavit [59] ‑ [61]; JC‑22 and JC‑23.
[8] Childs Affidavit [69].
The plaintiff disputes the WCP Claim and submits that, as there is plainly a serious question to be tried in relation to the defendant's entitlement to claim damages for the WCP Claim, the defendant is not permitted to have recourse to the Security pursuant to cl 5.2(b) of the Contract in respect of the WCP Claim until the dispute has been independently determined.
The defendant says that it is entitled to have recourse to the Security for the WCP Claim as it honestly believes that the plaintiff is in breach of a material obligation under the Contract.
I am therefore required to determine the proper construction of cl 5.2(b) of the Contract.

Relevant principles

Interlocutory injunctions

The principles governing the grant of an interlocutory injunction are well established and not in dispute in this application. In order for the court to exercise its discretion in favour of interlocutory injunctive relief:
(1)the plaintiff must satisfy the court that it has a prima facie case, in the sense that there is a serious question to be tried as to the plaintiff's entitlement to relief, and a sufficient likelihood of success to justify the preservation of the status quo pending trial;
(2)the plaintiff is likely to suffer injury for which damages will not be an adequate remedy; and
(3)the balance of convenience favours the granting of an injunction.[9]
[9] Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 and reaffirmed in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57.
Each of these matters involve related, not independent, enquiries.[10] When considering whether the plaintiff has made out a prima facie case, how strong the plaintiff's case needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences that will result if the injunction is granted.[11]
[10] Mineralogy Pty Ltd v Sino Iron Pty Ltd [2016] WASCA 105 (Mineralogy) [87].
[11] Mineralogy [87].
The nature of the relief sought in this application, that is to prevent recourse to security under a construction contract, informs the manner in which the court goes about determining the application. The fact that the plaintiff is seeking an injunction to restrain the defendant from having recourse to the Security and a declaration as to the proper construction of cl 5.2(b) necessitates a different approach to this application than that which would ordinarily be taken on an interlocutory injunction application.

In Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd,[12] Osborn and Ferguson JJA observed, at [18], that, while it was not always the duty of a court to decide a question of law on an interlocutory application, 'more often than not performance bonds are in a separate category' and said further:[13]
If a provision in a building contract requiring a performance bond is intended to operate as a risk allocation device pending the final determination of the dispute between the parties then that intention must be fundamental to a consideration of the justice of an application made to restrain recourse to such a bond pending final determination of the dispute.
[12] Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA 98 (Sugar).
[13] Sugar [21].
The authorities identify two principal goals that parties to a construction contract may seek to achieve in requiring the provision of security:
(1)first, to provide security in the event of insolvency of the contractor; and
(2)second, to allocate the risk between the parties so as to provide for who will be out of pocket pending the final resolution of a dispute between the parties, or what has been referred to as a 'pay now, argue later' regime.[14]
[14] CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2] [2017] WASCA 123 (CPB) [87] ‑ [89]; Bachmann Pty Ltd v BHP Power New Zealand Ltd [1998] VSCA 40 [49] ‑ [52]; Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 [39] ‑ [40].
Whether the object of security provided for in a contract is the first or second, or both, is a question of contractual construction. If an object of security is to allocate risk pending determination of a dispute, that informs the status quo that exists between the parties in terms of a principal's right to call on security. In Sugar, Osborn and Ferguson JJA said:[15]
… if it be the case that the commercial purpose of the performance bond was to allocate risk pending final determination of the dispute … [s]uch a contractual provision fundamentally alters the context in which the court must exercise its discretion by changing the complexion of the status quo and raising the prospect of substantial injustice if the purpose of the provision is defeated. That is, the status quo in such circumstances becomes what the parties have agreed as to which of them should bear the financial risk pending final determination, not the continuation of where that risk would naturally fall in the absence of a performance bond to call upon.
[15] Sugar [31].
If the plaintiff is correct in its view of the proper construction of cl 5.2(b) of the Contract, the defendant may not have recourse to the Security for the WCP Claim and the injunction will be granted. Conversely, if the defendant is correct in its view of the proper construction of cl 5.2(b) of the Contract, then it is entitled to have recourse to the Security for the WCP Claim and the plaintiff's application will be dismissed. In either scenario, the question of whether there is a serious question to be tried as to the proper construction of cl 5.2(b) or as to whether the defendant is objectively determined to be in breach of a material obligation under the Contract does not fall for consideration on this application.
The application rests upon the court determining the proper construction of cl 5.2(b). A consideration of the balance of convenience is not a relevant factor on this application.

Contractual construction

In order to determine the proper construction of cl 5.2(b), the court is required to consider what a reasonable business person would have understood the clause to mean, having regard to its text, its commercial purpose and the context within which it appears in the Contract. A commercial contract must not be construed in a manner which results in it making commercial nonsense.[16]
[16] Mount Bruce Mining [47].
Where a party to a construction contract is obliged to provide security in the form of an insurance bond or guarantee, it is a question of construction of the contract when and in what circumstances the other party is entitled to have recourse to the security.[17]
[17] Wood Hall Ltd v Pipeline Authority [1979] HCA 21; (1979) 141 CLR 443, 459.
The court should not adopt, as a starting point, the position that the parties to a construction contract are seeking to allocate risk pending determination of a dispute. Rather, the court should identify the objects of the contract and the security as a matter of contractual construction.[18]
[18] JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd[No 2] [2020] WASCA 112 (JKC) [82.2].
Even if the object of security is to allocate risk so as to provide for which party is out of pocket pending the determination of a dispute, it may be that the contract confines the allocation of that risk to only operate in specified circumstances, and that recourse to security is subject to express or implied limitations in the contract.[19]
[19] JKC [87] citing Sugar [25].
The approaches taken in other cases to construing construction contracts which provide for recourse to security are of limited assistance - that is because the court must consider the actual contract in question.[20]
[20] JKC [76].

Construction of cl 5.2(b)

Clause 5.2(b) provides:
5.2Recourse
Security shall be subject to recourse by the Principal where:
…
(b)the Contractor is in breach of any material obligation under the Contract.
The parties assert the following alternate constructions of cl 5.2(b):
(1)the plaintiff says that, upon its proper construction, cl 5.2(b) permits the defendant to have recourse to the Security only if the plaintiff has agreed that it is in breach of a material obligation under the Contract or if, pursuant to the dispute resolution procedure provided for in cl 42 of the Contract, the plaintiff has been determined to be in breach of a material obligation under the Contract;
(2)the defendant says, upon its proper construction, cl 5.2(b) permits the defendant to have recourse to the Security if the defendant honestly believes that the plaintiff is in breach of a material obligation under the Contract.
The plaintiff and the defendant each seek a declaration that gives effect to their respective constructions of cl 5.2(b). They each accept, and I agree, that it is appropriate and convenient for the court to reach a conclusion on the proper construction of cl 5.2(b) and to make a declaration that gives effect to the proper construction.
The plaintiff also accepts that the defendant's claim that it is entitled to damages for breach of cl 2.7 of the Contract, in this case that is the breach that gives rise to the WCP Claim, is a claim for breach of a material obligation under the Contract. Of course, the plaintiff disputes that claim, otherwise it would not be seeking the relief that it does. In that sense there is a serious question to be tried as to whether the defendant has breached a material obligation of the Contract. But that is not determinative of this application. As I have outlined, if the defendant's construction of cl 5.2(b) is accepted, then the fact that the plaintiff disputes that it is in breach of a material obligation under the Contract does not prevent the defendant from having recourse to the Security - the defendant says that is the very scenario in which cl 5.2(b) contemplates recourse may be had to the Security.
In support of its construction, the plaintiff submits that the words of cl 5.2(b) are clear and mean exactly what they say - the defendant may only have recourse to the Security where the plaintiff is in breach of a material obligation under the Contract and the plaintiff is only in breach of a material obligation where that fact has been objectively determined, or the plaintiff has agreed that that it is in breach. The plaintiff says that the court would be rewriting the Contract by inserting the words 'honestly believes' into cl 5.2(b). The plaintiff says such a construction would lead to further uncertainty as to whether that belief needs to be honest and reasonable and/or whether the defendant does in fact honestly believe that the plaintiff is in breach.
On the other hand, the defendant says that, upon a proper construction of cl 5.2(b), the parties intended to provide that the defendant may have recourse to the Security where the defendant 'honestly believes' that the plaintiff is in breach of a material obligation under the Contract. That must be so, the defendant says, because whether the plaintiff is in breach of any material obligation for the purposes of cl 5.2(b) needs to be assessed by someone - and the clause does not specify whom. That assessment, the defendant submits, must be made in the context of permitting recourse to the Security, not in finally determining whether the plaintiff is in breach. The defendant says that, if the parties intended that a third party must assess whether the plaintiff is in breach, then cl 5.2(b) would have said so and it does not.
Both the plaintiff and the defendant referred to several features, or 'indicia', of the Contract which they each say support their contended construction of cl 5.2(b).
In my view, having regard to the text of cl 5.2(b), the purpose of cl 5.2(b) and other clauses in the Contract, the construction of cl 5.2(b) contended for by the defendant is the proper construction. I set out my reasons for forming this view below.

The Security

I start the construction exercise by considering the context in which the Security is provided for in the Contract.
By cl 1 of the Contract, Security is defined to mean:
Unconditional bank guarantees or insurance bonds materially in the form provided to the Principal on 11 June 2020.
The Contract provides for an approved form of bond that is in the same terms as the plaintiff provided to the defendant on 11 June 2020.[21] Relevantly, the approved form provides:[22]
… ('the Financial Institution') … unconditionally undertakes to pay on demand any sum or sums which may from time to time be demanded by the Principal to a maximum aggregate sum of [Bond Amount].
…
Should the Financial Institution be notified in writing, purporting to be signed by the managing Director for and on behalf of the Principal that the Principal desires payment to be made of the whole or any part or parts of the Sum, it is unconditionally agreed that the Financial Institution will make the payment or payments to the Principal forthwith without reference to the Contractor and notwithstanding any notice given by the Contractor not to pay same.
[21] Foot Affidavit DWF‑4; DWF‑5.
[22] Foot Affidavit DWF‑1 Part B (Approved form of unconditional undertaking).
Clause 5.1 of the Contract provides:
5.1Provision
Security shall be provided in accordance with Item 14 as security for the Contractor to fulfil all obligations under the Contract. All delivered security, other than cash or retention moneys, shall be transferred in escrow.
The Principal may direct the Contractor to provide additional security if the contract sum is increased pursuant to the Contract by an amount equal to or greater than ten percent (10%), whether the change in the contract sum increases at one time or cumulatively.
The additional security shall:
(a)be for the same percentage of the increase in the contract sum as the amount or percentage referred to in Item 14 of Annexure A bears to the contract sum as at the Date of the Contract; and
(b)otherwise comply with the requirements of clause 5.1.
Item 14(a) of the Contract provides that the form for the purposes of cl 5.1 is the approved form at Part B of the Contract, to which I have referred above.
In support of its construction of cl 5.2(b), the defendant relied upon the case of CPB. In CPB, the Court of Appeal was required to determine the proper construction of GC 35.3 which provided as follows:
(a)Contractor may have recourse to the Bank Guarantee(s) at any time in order to recover any amounts that are payable by the Subcontractor to the Contractor on demand.
(b)Subcontractor waives any right that it may have to obtain an injunction or any other remedy or right against any party in respect of Contractor having recourse to the Bank Guarantee.
In CPB, the subcontractor contended that, upon the proper construction of GC 35.3(a), the contractor could only have recourse to the bank guarantee in respect of an amount that had been admitted by the subcontractor or adjudicated by an arbitrator to be payable by the subcontractor to the contractor.
The Court of Appeal did not accept that contention, instead finding that:[23]
In our view, on a proper construction, [GC 35.3(a)] entitles the contractor to have recourse to the bank guarantees, if at any time, the contractor has an honest claim, i.e. a bona fide claim, in the events that have happened to immediate payment under the subcontract.
[23] CPB [82].
The Court of Appeal in CPB was of the view that GC 35.3(b), properly construed, had a significant bearing on the proper construction of GC 35.3(a).[24] Putting aside the issue of whether it amounted to an ouster of the court's jurisdiction, the Court of Appeal considered that the language of GC 35.3(b), and its context within GC 35.3, was reflective of the objective intention of GC 35.3. That intention was to provide a risk allocation device as to who was out of pocket pending the resolution of any dispute between the parties. The Court of Appeal observed that that GC 35.3(b) reinforced its finding as to the proper construction of GC 35.3(a) by providing that the subcontractor waives any right to prevent the contractor exercising its right under par (a) to have recourse to the bank guarantees, and that waiver advanced the risk allocation purpose.[25]
[24] CPB [69].
[25] CPB [91].
The plaintiff submits that the reasoning in CPB cannot be adopted in this case because cl 5.2 does not contain a subparagraph that is equivalent to GC 35.3(b). Therefore, the words 'honestly believes' cannot be read into cl 5.2(b) of the Contract.
Further, the plaintiff submits that recourse to the Security is not 'unconditional' because the chapeau to cl 5.2 (b) does not contain the words 'at any time' (in contrast to GC 35.3(a) in CPB). The plaintiff submits that recourse can only be had to the Security if one of the four criteria in the subclauses of cl 5.2 of the Contract is satisfied, not at 'any time'.
The defendant says the Security is unconditional as it may be called upon on demand without reference to the plaintiff as provided for in the approved form of bond. The defendant says the unconditional nature of the Security indicates that one of its commercial purposes is to allocate risk pending dispute resolution. The construction of cl 5.2(b) therefore, the defendant says, must be considered in the context that an object of the Security is to allocate risk.
Turning first to consider the submissions in relation to the relevance of a clause similar to GC 35.3(b), specifically in this case the relevance of the omission of such a clause. While in CPB, GC 35.3(b) did reinforce the fact that GC 35.3(a) was intended to allocate risk pending the determination of a dispute, it does not follow that the absence of a subclause in cl 5.2 in similar terms to GC 35.3(b) means that cl 5.2(b) does not serve to allocate any risk. Clause 5.2(b) must be considered in its context, having regard to its text, the terms of the approved form of Security, the whole of cl 5.2 and other clauses in the Contract. While the constructional choice in CPB may be of assistance, that assistance is limited because it is important to construe the particular clause and contract in question.
Turning next to the unconditional nature or otherwise of the Security. The terms of the Security require the 'Financial Institution' to pay on demand any sum which may from time to time be demanded by the defendant without reference to the plaintiff. In my view, these terms support the finding that the Security is equivalent to cash and that one of the objects of the Security is to permit the defendant to call upon it before any dispute is determined and therefore, to 'allocate risk'.
However, while the terms of the Security are one indicator of the object of the Security, they are not determinative of the purpose of cl 5.2(b). The task of construing cl 5.2(b) is not undertaken on the assumption that there is a complete risk allocation. I must consider how recourse to the Security is provided for in other clauses of the Contract - this may assist in the construction of cl 5.2(b) of the Contract.

Recourse to the Security

The plaintiff says that recourse to the Security is subject to the limitations expressly provided for in cl 5.2 of the Contract. In order to assist in the construction of cl 5.2(b), it is necessary to consider the heading and chapeau of cl 5.2 and cl 5.2(a), cl 5.2(c) and cl 5.2(d).

Clause 5.2 heading and chapeau

Clause 5.2 is headed 'Recourse'. The chapeau of cl 5.2 provides that the 'Security shall be subject to recourse' in each of the circumstances in cl 5.2(a), cl 5.2(b), cl 5.2(c) and cl 5.2(d). The use of the word 'recourse' is important in construing each of the subclauses which follow. The ordinary meaning of the word 'recourse' in this context is the legal right to demand payment. The use of the word 'recourse' in the heading of and chapeau to cl 5.2 is consistent with a purpose of the Security being to permit the defendant to have recourse to the Security on the terms provided for in the Security, those being on demand and without notice to the plaintiff.

Clause 5.2(a)

Clause 5.2(a) provides:
5.2Recourse
Security shall be subject to recourse by the Principal where:
…
(a)there is an amount payable by the Contractor to the Principal and the due date for payment of that amount has passed.
At the hearing of the application, the parties agreed that the defendant was entitled to have recourse to the Security for the Rectification Claim as that amount had been certified by the Principal's Representative. Neither party therefore addressed the proper construction of cl 5.2(a). Upon reflection I formed the view that the construction of cl 5.2(a) may provide insight into the proper construction of cl 5.2(b). At the court's request, the parties filed supplementary submissions as to the proper construction of cl 5.2(a).
The parties agree that where an amount is certified by the Principal's Representative, pursuant to cl 29.3 as 'moneys due' from the plaintiff to defendant and cl 35 as 'moneys due and payable' to the defendant, that certified amount is an 'amount payable' by the plaintiff to the defendant for the purposes of cl 5.2(a). It follows that an amount certified by the Principal's Representative pursuant to cl 13, cl 27, cl 29.6 or cl 35.10 would also be an 'amount payable' by the plaintiff to the defendant for the purposes of cl 5.2(a). In each of these circumstances, the defendant is entitled to have recourse to the Security even if there is a dispute about the plaintiff's underlying liability for the 'amount payable'.
Where the parties differ as to the proper construction of cl 5.2(a) is that:
(1)the plaintiff contends that the defendant can only have recourse to the Security under cl 5.2(a) where an amount has been certified as moneys due by the Principal's Representative; and
(2)the defendant contends that conditions which activate the operation of cl 5.2(a), being that there is an amount that is 'payable' to the defendant by the plaintiff and the due date for paying that amount has passed, are not limited to circumstances where the due date for payment of an 'amount certified by the Principal's Representative' has passed.
There is no question that cl 5.2(a) requires that the following two conditions must be satisfied for the defendant to have recourse to the Security:
(1)there is an amount payable by the plaintiff to the defendant under the Contract; and
(2)the due date for payment of that amount has passed.

The plaintiff says that the first condition is only satisfied where an 'amount' is objectively due and payable, that is where a third party has determined that the amount is payable. The plaintiff says that the fact that the 'amount' must be payable by a 'due date' renders irrelevant the analysis of the Court of Appeal in CPB of the meaning of the words 'due and payable'.[26] The plaintiff says that for an amount to be 'payable', it must be for a certain sum payable by a fixed date. The plaintiff says that it is not open to construe cl 5.2(a) as encompassing an honest or reasonable claim to an unliquidated or uncertain amount which may or not be payable and for which there is no fixed date for payment.
[26] CPB [122].
The plaintiff refers to the following clauses in the Contract which provide that if the plaintiff fails to comply with an obligation or cover the cost of certain work, the defendant may have that obligation or work performed by another party and if the Principal's Representative certifies the costs incurred by the defendant then they are payable and due by the plaintiff to the defendant:
(1)Clause 12: protection of people and property;
(2)Clause 13: urgent protection;
(3)Clause 19.2: failure to produce proof of insurance;
(4)Clause 27: cleaning up;
(5)Clause 29.3: defective work;
(6)Clause 29.6(j): use of materials or accommodation supplied by the defendant;
(7)Clause 34.10: milestone liquidated damages;
(8)Clause 35: reasonable and direct costs incurred during the defects liability period;
(9)Clause 37.4: final payment claim and certificate; and
(10)Clause 39.6: adjustment on completion of work taken out.
The plaintiff submits that, on the proper construction of cl 5.2(a), recourse is permitted to the Security pursuant to each of these clauses in the Contract, provided the Principal's Representative has certified an amount of money as being payable by the plaintiff to the defendant and the plaintiff has not paid that amount by the due date. The plaintiff says it is each of these clauses, combined with cl 5.2(a), which operate to allocate risk to the plaintiff pending dispute resolution, but only in circumstances in which the parties have provided in the Contract for that amount to be independently certified by the Principal's Representative.
The defendant says that the clauses referred to by the plaintiff are not the only clauses in the Contract which provide that an amount is payable by the plaintiff to the defendant. The defendant refers to the following clauses in the Contract which provide that an amount will be payable by the plaintiff to the defendant without a requirement that they are certified by the Principal's Representative:
(1)Clause 5.7, last paragraph: the outstanding amount of an 'Advance Payment' which has not been repaid prior to the last Date of Milestone Completion;
(2)Clause 19.10(f): the amount of insurance premiums paid by the defendant, which ought to have been paid by the plaintiff (the defendant says recourse may be had to the Security either pursuant to cl 5.2(a) or cl 5.2(d));
(3)Clause 37.5: interest on overdue payments; and
(4)Clause 37.6: rights of payment which arise by way of damages, debt, restitution or otherwise in relation to the Contract (the defendant says may have recourse to the Security either pursuant to cl 5.2(a) or cl 5.2(d)).
The defendant says that these clauses are:
(1)consistent with the ordinary meaning of the word 'payable'; and
(2)not limited in their application to only independently certified amounts.
The defendant says that, on its proper construction, cl 5.2(a) is not limited to only those amounts that are certified as payable by the Principal's Representative, and that the defendant may have recourse to the Security where it has an honest claim to payment from the plaintiff under the Contract and the due date for that payment has passed.
In my view, the plaintiff's construction of cl 5.2(a) is too limited and is not consistent with the text of cl 5.2(a) itself, the ordinary meaning of the word 'payable' or with other clauses of the Contract that provide that an amount is payable with no requirement that it be certified by the Principal's Representative.
The text of cl 5.2(a) does not say that an amount must be certified as payable by the Principal's Representative. The text only requires that an amount is payable and that due date for payment has passed.
As to the ordinary meaning of 'payable', the Court of Appeal in CPB said:[27]
The word 'due' in a legal context is sometimes used in the sense of 'payable', but prima facie means any sum that a person is legally liable to pay, irrespective of whether the time for payment has arrived, i.e, irrespective of whether it is then 'payable'. A debt may be said to be 'payable' if it is not only due (in the sense of owing), but is presently payable in the sense that the time for payment has arrived, and an action could be maintained in respect of it … In ordinary parlance, a debt may be said to be 'payable' prior to any admission that it is payable, or any legal adjudication in respect of it.
(citations omitted)
[27] CPB [122].
The ordinary meaning of 'payable' is also consistent with other clauses in the Contract which provide that an amount is payable in circumstances where certification by the Principal's Representative is not required.
Clause 5.7 of the Contract, by its last paragraph, is one such example. Clause 5.7 provides that the plaintiff may request the defendant to make an advance payment of the contract sum and that the defendant may, in its absolute discretion and subject to conditions, agree to make an advance payment to the plaintiff as an interest‑free loan. The last paragraph of cl 5.7 provides:
If the Advance Payment has not been repaid prior to the last Date of Milestone Completion, or prior to termination of the Contract, the whole of the balance then outstanding shall immediately become due and payable by the [plaintiff] to the [defendant].
By reason of cl 5.7, the defendant may have recourse to the Security under cl 5.2(a) for the unpaid amount of the advance payment as it is an amount payable and, if not paid immediately, the due date for payment of that amount has passed. There is no requirement for the Principal's Representative to certify the amount of the advance payment as payable as a precondition to the defendant having recourse to the Security under cl 5.2(a).
I accept the plaintiff's submission that cl 5.2(a) does not permit recourse to the Security for an unliquidated or uncertain amount which may or may not be payable and for which there is no fixed date for payment. But there is a middle ground between an amount being certified by the Principal's Representative and there being no fixed amount with no fixed date for payment - that being where the defendant has an honest belief that a liquidated amount is payable and the date for that payment has passed.
In my view, the construction of cl 5.2(a) contended for by the defendant is consistent with the finding of the Court of Appeal in CPB that 'amounts payable' could extend to amounts which a person has an honest claim to immediate payment in the circumstances.[28] Recourse to the Security under cl 5.2(a) is not limited to only those amounts which are certified as payable by the Principal's Representative. On a proper construction of cl 5.2(a), the defendant may have recourse to the Security where it has an honest claim to payment of a liquidated amount from the plaintiff under the Contract and the due date for that payment has passed.
[28] CPB [123].
On its proper construction, one of the objects of cl 5.2(a) is to allocate risk to the plaintiff, that is to put the defendant 'in the money' pending resolution of a dispute.
Clause 5.2(a) involves a similar constructional choice to that in cl 5.2(b), that being whether recourse to the Security is only permitted where there is an independent determination of the matters referred to therein. The fact that a purpose of cl 5.2(a) is to allocate risk to the plaintiff and put the defendant 'in the money' pending the resolution of a dispute is of assistance in construing cl 5.2(b).

Clause 5.2(c)

Clause 5.2(c) provides:
5.2Recourse
Security shall be subject to recourse by the Principal where:
…
(c)The Principal is entitled to terminate the Contract or take work out of the hands of the Contractor.
There are two limbs to cl 5.2(c). Firstly, where the defendant is entitled to terminate the Contract and secondly, where the defendant is entitled to take work out of the hands of the plaintiff.
The plaintiff submits that the words of cl 5.2(c) are clear - there must be an objectively determined entitlement to either terminate the Contract or take work out of the hands of the Contractor, not merely an honest belief on the part of the defendant that there is such an entitlement. The plaintiff says that the text of cl 5.2(c), specifically the words 'is entitled', supports this construction. The plaintiff submits that cl 5.2(c) is akin to cl 5.2(a), in that the Principal's Representative must, pursuant to cl 35.6, assess the reasonable costs incurred as a result of work taken out of the hands of the plaintiff and certify that amount as due and payable in order for the defendant to have recourse to the Security under cl 5.2(c). The plaintiff says that there is no loss that the defendant can claim prior to that certification.

The defendant says that the word 'entitlement' requires an assessment by the defendant as to whether it has an entitlement and it does not require the defendant to actually terminate the Contract or actually take work out of the hands of the plaintiff. I understand this submission to be that, on the proper construction of cl 5.2(c), the defendant may have recourse to the Security under cl 5.2(c) where it honestly believes that it is entitled to terminate the Contract or take work out of the hands of the plaintiff. The defendant says that, on its proper construction, cl 5.2(c) indicates that one of the purposes of the Security is to put the defendant 'in the money' where it honestly believes that it is entitled to terminate the Contract or take work out of the hands of plaintiff.
In my view, the same constructional choice arises in cl 5.2(c) as that which arises in cl 5.2(b) (and cl 5.2(a) for that matter) - the competing constructions advanced by the parties are essentially the same as those advanced in relation to cl 5.2(b). Therefore, if the constructional choice is clear in relation to cl 5.2(c), that will assist in construing cl 5.2(b).
In order to construe cl 5.2(c), the court must look to cl 39 of the Contract which provides for the circumstances in which the defendant may terminate the Contract or take work out of the hands of the plaintiff.
Clause 39 of the Contract relevantly provides:
39.Default or insolvency
39.1Preservation of other rights
If a party breaches (including repudiates) the Contract, nothing in this clause shall prejudice the right of the other party to recover damages or exercise any other right or remedy.
39.2Contractor's default
If the Contractor commits a substantial breach of the Contract, the Principal may, give the Contractor a written notice to show cause. Substantial breaches include but are not limited to:
(a)failing to:
(i)perform properly the Contractor's design obligations;
(ii)provide security;
(iii)provide evidence of insurance;
(iv)comply with a direction of the Principal's Representative pursuant to subclause 29.3; or
(v)use the materials or standards of work required by the Contract;
(b)wrongful suspension of work;
(c)substantial departure from a program without reasonable cause or the Principal's Representative's approval;
(d)where there is no program, failing to proceed with due expedition and without delay; and
(e)in respect of clause 38, knowingly providing documentary evidence containing an untrue statement.
39.3Principal's notice to show cause
A notice under subclause 39.2 shall state:
(a)that it is a notice under clause 39 of these General Conditions;
(b)the alleged substantial breach;
(c)that the Contractor is required to show cause in writing why the Principal should not exercise a right referred to in subclause 39.4;
(d)the date and time by which the Contractor must show cause (which shall not be less than 7 clear days after the notice is received by the Contractor); and
(e)the place at which cause must be shown.
39.4Principal's rights
If the Contractor fails to show reasonable cause by the stated date and time, the Principal may by written notice to the Contractor:
(a)take out of the Contractor's hands the whole or part of the work remaining to be completed and suspend payment until it becomes due and payable pursuant to subclause 39.6; or
(b)terminate the Contract.
39.5Take out
The Principal shall complete work taken out of the Contractor's hands and may:
(a)use materials, equipment and other things intended for WUC; and
(b)without payment of compensation to the Contractor:
(i)take possession of, and use, such of the construction plant and other things on or in the vicinity of the site as were used by the Contractor;
(ii)contract with such of the consultants and subcontractors; and
(iii)take possession of, and use, such of the design documents,
as are reasonably required by the Principal to facilitate completion of WUC taken out.
If the Principal takes possession of construction plant, design documents or other things, the Principal shall maintain them and, subject to subclause 39.6, on completion of the work taken out, shall return such of them as are surplus.
The Principal's Representative shall keep records of the cost of completing the work taken out.
Once the work has been completed, the Principal's Representative shall assess the reasonable and direct costs thereby incurred, and certify as moneys due and payable accordingly, the difference between that cost and the amount which would otherwise have been paid to the Contractor.
39.6Adjustment on completion of work taken out
When work taken out of the Contractor's hands has been completed the Principal's Representative shall assess the reasonable and direct cost thereby incurred and shall certify as moneys due and payable accordingly the difference between that cost (showing the calculations therefor) and the amount which would otherwise have been paid to the Contractor if the work had been completed by the Contractor.
If the Contractor is indebted to the Principal, the Principal may retain construction plant or other things taken under subclause 39.5 until the debt is satisfied. If after reasonable notice, the Contractor fails to pay the debt, the Principal may sell the construction plant or other things and apply the proceeds to the satisfaction of the debt and the costs of sale. Any excess shall be paid to the Contractor.
39.7Take out
The Principal shall complete work taken out of the Contractor's hands and may:
(a)use materials, equipment and other things intended for WUC; and
(b)without payment of compensation to the Contractor:
(i)take possession of, and use, such of the construction plant and other things on or in the vicinity of the site as were used by the Contractor;
(ii)contract with such of the consultants and subcontractors; and
(iii)take possession of, and use, such of the design documents,
as are reasonably required by the Principal to facilitate completion of WUC taken out.
If the Principal takes possession of construction plant, design documents or other things, the Principal shall maintain them and, subject to subclause 39.6, on completion of the work taken out, shall return such of them as are surplus.
The Principal's Representative shall keep records of the cost of completing the work taken out.
39.8Adjustment on completion of work taken out
When work taken out of the Contractor's hands has been completed, the Principal's Representative shall assess the reasonable and direct cost thereby incurred and shall certify as moneys due and payable accordingly the difference between that cost (showing the calculations therefor) and the amount which would otherwise have been paid to the Contractor if the work had been completed by the Contractor.
If the Contractor is indebted to the Principal, the Principal may retain construction plant or other things taken under subclause 39.5 until the debt is satisfied. If after reasonable notice, the Contractor fails to pay the debt, the Principal may sell the construction plant or other things and apply the proceeds to the satisfaction of the debt and the costs of sale. Any excess shall be paid to the Contractor.
I make the following observations in relation to cl 39 which assist with the construction of cl 5.2(c).
Firstly, I do not accept the plaintiff's contention that cl 39.6 determines when the defendant may have recourse to the Security under cl 5.2(c) for work taken out of the hands of the plaintiff. Clause 5.2(c) provides that the Security shall be subject to recourse by the defendant where the defendant is entitled to terminate the Contract or take work out of the hands of plaintiff (my emphasis). The process provided for in cl 39.6 is premised upon the work taken out of the plaintiff's hands having been completed. Work can only have been completed after the defendant has purported to exercise its right, pursuant to cl 39.4, to take work out of the hands of the plaintiff. Clause 39.6 is therefore of no assistance in construing cl 5.2(c).
Secondly, cl 39.2 provides that substantial breaches include, but are not limited to, certain things. Those substantial breaches by the defendant include such things as a failure to perform properly the defendant's design obligations (cl 39.2(a)(i)); the defendant's substantial departure from a program without reasonable cause (cl 39.2(c)); where there is no program, failing to proceed with due expedition and without delay (cl 39.2(d)); and, in respect of cl 38, knowingly providing documentary evidence containing an untrue statement (my emphasis). The words upon which I have placed emphasis indicate that whether the defendant is in substantial breach of the Contract is a matter which is likely to be highly contestable.
In order to construe cl 5.2(c) of the Contract as contended by the plaintiff, that is that there must be an objectively determined, or agreed, entitlement for the defendant to terminate the Contract, the following must also be true:
(1)the plaintiff has committed a substantial breach of the Contract (cl 39.2);
(2)there must be no dispute that the plaintiff has committed a substantial breach - for if there was such a dispute, there could be no objective determination that the defendant was entitled to terminate the Contract until that dispute had been objectively determined or agreed;
(3)once it has been objectively determined or agreed that the plaintiff has committed a substantial breach, the defendant must give written notice to the plaintiff to show cause (cl 39.2); and
(4)the written notice must state certain things including the alleged substantial breach (cl 39.3(b)).
The plaintiff's construction of cl 39.2 is internally inconsistent and does not make commercial sense. The requirement to give a notice to show cause and that the notice must state the alleged breach does not sit comfortably with a notion that the plaintiff has committed a substantial breach under cl 39.2. Rather, that requirement to give notice supports a construction consistent with the fact that the defendant may, pursuant to cl 39.4, terminate the Contract or take work out of the hands of the plaintiff in highly contestable situations where the plaintiff is likely to dispute that it has committed a substantial breach.

In construing cl 5.2(c) in the contractual framework of cl 39.2, cl 39.3 and cl 39.4, it makes commercial sense for the defendant to have recourse to the Security at the same time that it gives notice to terminate the Contract or take work out of the hands of the plaintiff pursuant to cl 39.4. Importantly, at that time, there is highly likely to be a dispute about whether the plaintiff has committed a substantial breach of the Contract. Notwithstanding such a dispute, the defendant may actually terminate the Contract or take work out of the hands of the plaintiff under cl 39.4. It follows that, also at the time the Contract is terminated or work is taken out of the hands of the plaintiff, there will be a dispute as to whether the defendant is objectively entitled to terminate the Contract under cl 5.2(c). Notwithstanding that dispute, the defendant may have recourse to the Security at the time it terminates the Contract or takes work out of the hands of the plaintiff.
In my view, on its proper construction, cl 5.2(c) permits the defendant to have recourse to the Security where the defendant honestly believes that it is entitled to terminate the Contract or honestly believes that it is entitled to take work out of the hands of the plaintiff. To attribute the meaning to cl 5.2(c) contended for by the plaintiff would mean that, at the time that the defendant terminates the Contract or takes work out of the hands of the plaintiff under cl 39.4, it would need to obtain an arbitral award or curial determination that it is entitled to do either of those things before it can have recourse to the Security. That does not make commercial sense.
Further, a construction of cl 5.2(c) that permits the defendant to have recourse to the Security at the time that it terminates the Contract or takes work out of the hands of the plaintiff under cl 39.4, would allow the defendant to have access to funds to complete the work that the plaintiff has not. This makes commercial sense. It is an indication that a purpose of having recourse to the Security in cl 5.2(c) is to put the defendant 'in the money' pending the resolution of a dispute as to whether the plaintiff has actually committed a substantial breach of the Contract.
Given the constructional choices in cl 5.2(c) are the same as contended for in cl 5.2(b), this construction of cl 5.2(c) assists me in construing cl 5.2(b).

Clause 5.2(d)

Clause 5.2(d) provides:
5.2Recourse
Security shall be subject to recourse by the Principal where:
…
(d)the Principal become entitled to exercise a right under the Contract in respect to the security or is otherwise entitled at law to have recourse to such security.
Senior counsel for the defendant submitted that cl 5.2(d) was the 'hook' to cl 37.6 of the Contract.[29] I agree with that submission.
[29] ts 36.
Clause 37.6 of the Contract provides:
37.6Set Offs by the Principal
Without limiting the Principal's rights under any other provision in the Contract, and despite the provisions of or the issue of a certificate by the Principal's Representative under clause 37.2, the Principal may deduct from any moneys due and payable to the Contractor any sum which is payable by the Contractor to the Principal (or which the Principal claims bona fide to be payable) whether or not the Principal's right to payment arises by way of damages, debt, restitution or otherwise in relation to this Contract. (emphasis added)
If the moneys payable by the Contractor are insufficient to discharge the liability of the Contractor to pay such sum to the Principal, the Principal may have recourse to any retention moneys, and if they are insufficient, to security provided under clause 5.1 of the Contract. Nothing in this clause shall affect the right of the Principal to recover from the Contractor the whole of such moneys or any balance that remains owing.
The effect of this clause, the defendant says, is that if the defendant has a bona fide claim to unliquidated damages, it can set that amount off against amounts it owes to the plaintiff and if the set‑off is more than the amount owed to the plaintiff, the defendant can have recourse to the Security. The important constructional point to note here, the defendant says, is that recourse to the Security may be had in circumstances where the defendant has a 'bona fide' claim.
In response, senior counsel for the plaintiff made the following submissions:
(1)Clause 37.6 deals with two different scenarios - the first paragraph deals with a right of set‑off and that is what the reference to a bona fide claim is limited to - it may set‑off not only an amount that is payable, but also a bona fide claim. In this paragraph, there is no recourse to Security that is foreshadowed. The second paragraph of cl 37.6 is dealing with a situation where the defendant is not 'staying in the money' it already holds, and it does not refer to a bona fide claim. It only refers to 'liability' and the proper construction of that word is that there must be an actual liability to engage the second paragraph of cl 37.6 and therefore permit recourse to the Security; and
(2)the fact that the Contract contains the words 'bona fide claim' in cl 37.6 is telling - where the parties intended a claim to encompass a bona fide claim to payment they have expressly said so. The words 'bona fide claim' do not appear in cl 5.2(b).
Clause 5.2(d) is linked to the rights provided for in cl 37.6 of the Contract. The risk allocation proviso in cl 37.6, and by association cl 5.2(d), is the existence of a 'bona fide claim'. In my view, the 'bona fide claim' proviso is not limited to only the scenario dealt with in the first paragraph of cl 37.6 - the second paragraph refers to 'such sum' which is clearly a reference to the sum contemplated in the first paragraph. In my view, it would be commercially inconsistent for the defendant to be permitted to have recourse to the Security based on a bona fide claim to damages where there was a running account between the parties, but not to have recourse to the Security under cl 5.2(d) where the defendant has a bona fide claim, ie an honest belief, that the plaintiff was in breach of a material obligation under the Contract.
There is some merit to the plaintiff's proposition that, if the parties intended cl 5.2(b) to allow recourse to the Security where the defendant honestly believed that the plaintiff was in breach of a material obligation under the Contract, then cl 5.2(b) would include those words, given the words 'bona fide claim' appear in cl 37.6. However, that ignores, in my view, the significance of the fact that the words 'or which the Principal claims bona fide to be payable' are in parentheses.
In Corestaff NT Pty Ltd v Insurance Australia Limited,[30] the Supreme Court of Queensland considered the proper construction of a clause in a policy of insurance which contained words in parentheses. In Corestaff, the applicant contended that certain contraventions of the Australian Consumer Law (ACL) were covered by the policy of insurance. The respondent contended that the ACL claims were excluded by cl 7.9(c) of the policy. Clause 7.9(c) set out matters excluded from cover under the policy and was in the following terms:
(a)arising out of or in respect of actual or alleged unlawful discrimination (or other unlawful act, error or omission) by any Insured against any Employee or employment application.
[30] Corestaff NT Pty Ltd v Insurance Australia Limited [2021] QSC 195 (Corestaff).
In construing cl 7.9(c), Williams J noted that there were competing considerations in construing the words in the parentheses - on the one hand, that the use of parentheses tended to support a construction that the words therein aid or assist only, or on the other hand, that the use of the words 'or other' tend to support a construction that the words in parentheses are to operate to add additional scope to the words that preceded it. Williams J, in finding that the preferred construction was that the words in parentheses aided or assisted only, said:[31]
The construction of the clause which best accords with the text, context and the purpose of the clause is that the exclusion only extends to conduct which involves or concerns unlawful discrimination.

To construe the clause to exclude any conduct which is unlawful would be contrary to the clear structure of the clause and would render the words 'unlawful discrimination' largely superfluous. I would in effect 'flip' the order of the clause such that unlawful discrimination merely becomes an example. If that is what the parties had intended they could have drafted a clause that provided for that. They did not do so.
A construction which gives operational work to the words 'unlawful discrimination' and its position in the structure of the clause and also gives some work to the words in parentheses is the preferable construction.
The words in parentheses in this approach do the work of clarifying that the liability for unlawful discrimination arises whether that occurred by way of a positive act or omission.
… the claim under the ACL … is a claim for loss and damaged under s 236 of the ACL for pre‑employment misleading and deceptive conduct in contravention of … the ACL …
While it could be argued that the claim does arise out of or in respect of what could be described as 'an unlawful act, error or omissions' in a general sense, it does not arise out of or in respect of unlawful discrimination. Accordingly, the exclusion in clause 7.9(c) does not apply.
[31] Corestaff [101] ‑ [107].

In my view, the analysis undertaken by Williams J in Corestaff is applicable to the words in parentheses in cl 37.6, as similar competing constructions arise.
The construction of cl 37.6 which best accords with its text, context and its purpose (being to allocate risk to the plaintiff pending resolution of a dispute) is that any sum which is payable by the plaintiff to the defendant includes those sums which the defendant claims bona fide to be payable. This construction gives operational work to the words 'any sum which is payable by the [plaintiff] to the [defendant]' (my emphasis) and also gives some work to the words in parentheses. The words in parentheses do the work of clarifying the circumstances in which any sum is payable by the plaintiff to the defendant - they do not set out an alternative set of circumstances in which a sum will be payable. I have emphasised the word 'any' for this reason - 'any' sum is very wide. The use of the word 'any' supports the construction that the words in parentheses are intended to clarify the circumstances in which any sum is payable, rather than to provide for an alternative set of circumstances in which a sum will be payable.
I find that the reference to (or which the [defendant] claims bona fide to be payable) in cl 37.6 is intended to clarify the circumstances in which any sum is payable, not to provide additional scope to the words that precede it.
This construction of cl 37.6 assists in the construction of cl 5.2(d). Clause 37.6 provides for circumstances in which the defendant is entitled to exercise a right under the Contract in respect to the Security. If the defendant is entitled to have recourse to the Security under cl 37.6 where it claims bona fide a sum to be payable, then cl 5.2(d) only makes commercial sense if it is construed with the same assistance that the words in parentheses give to cl 37.6. That means that cl 5.2(d), on its proper construction, permits the defendant to have recourse to the Security where the defendant honestly believes (or has a bona fide claim that) it is entitled to exercise a right under the Contract in respect to the Security. I have used parentheses in the last sentence to illustrate how parentheses are used in cl 37.6 in that the words 'or bona fide claim' aid or assist in clarifying an honest belief, as opposed to providing additional scope to the words that precede it.
I turn now to consider how the words in parentheses in cl 37.6 assist, if at all, in properly construing the words 'is in breach of any material obligation' in cl 5.2(b).
Upon the proper construction of cl 37.6 and cl 5.2(d), the defendant may have recourse to the Security where it has a bona fide claim, even though the words 'bona fide claim' do not appear in cl 5.2(d).
The fact that the parties have clarified, in cl 37.6, that any sum payable includes a bona fide claim to such a sum, supports a construction of cl 5.2(b) that the defendant is entitled to have recourse to the Security where it honestly believes (or has a bona fide claim that) the plaintiff is in breach of any material obligation under the Contract even though the words honestly believes do not appear in cl 5.2(b). It would not make commercial sense for the defendant to be permitted to have recourse to the Security under cl 5.2(a), cl 5.2(c) and cl 5.2(d) where it had an honest belief, but not under cl 5.2(b).

Expiration of the Security

Clause 5.4 of the Security provides:
5.4Reduction and release
Upon:
(a)Milestone Completion for 'Mechanical Completion of the WCP', the Principal's entitlement to security shall be reduced by the percentage or amount in Item 14(f);
(b)Milestone Completion for 'Mechanical Completion of the MSP', the Principal's entitlement to security shall be reduced by the percentage or amount in Item 14(g), and the applicable reduction shall be released and returned within 14 days to the Contractor.
When the last defects liability period expires for each Milestone, the Principal's entitlement to security) shall be reduced by the percentage or amount in Item 14(h), and the reduction shall be released and returned within 14 days to the Contractor.
The Principal's entitlement otherwise to security shall cease 14 days after the final certificate.
Upon a party's entitlement to security ceasing, that party shall release and return forthwith the security to the other party.
Despite any other provision of the Contract, the Principal may continue to hold security where the Contract may otherwise require it to be released, or after termination of the Contract for any reasons, to the extent the Principal determines any amount may become payable by the Principal under or in connection with the Contract (whether liquidate or otherwise).
In CPB, one of the contractual indicia considered to be inconsistent with CPB's contention that bank guarantees were provided for the sole purpose of providing security to JKC against the risk of CBP's insolvency was the duration of the bank guarantees. There was a real risk in that case that the bank guarantees would expire before a dispute about liquidated damages was resolved. The Court of Appeal found that the duration of the bank guarantees was consistent with a purpose of GC 35.3 being to put JKC in the money to the extent of the bank guarantees pending resolution of any dispute.[32]
[32] CPB [106] ‑ [133].
The plaintiff submits that the last paragraph of cl 5.4 is a strong indication that the parties intended that the remedy available to the defendant for amounts that 'may become claimable' is that the defendant may continue to hold the Security, as opposed to having recourse to the Security. The effect of the last paragraph of cl 5.4, the plaintiff says, is that where there is a dispute about a claim, the defendant may hold onto the Security and may have recourse to the Security only after the dispute has been determined. The plaintiff says that is exactly the scenario that is currently before the court - there is a dispute about whether the plaintiff is in breach of cl 2.7 and there is an amount that may become claimable in respect of this dispute, but it is yet to be determined. The plaintiff says cl 5.4 of the Contract provides that the defendant may hold onto the Security until that dispute is resolved. This submission relies on the purpose of cl 5.2(b) being only to protect against the risk of insolvency.
The defendant submits that, while the duration of the Security is not limited, the last paragraph of cl 5.4 is directed towards amounts that 'may become claimable' - not amounts that have been claimed under cl 5.2(b) (amounts for which the defendant says it is already entitled to have recourse to the Security).
In my view, cl 5.4 does not support either construction advanced. On the one hand, the Security is not limited in the way that the guarantee was limited in CPB. The absence of such limitation supports the plaintiff's construction of cl 5.2(b). However, the words 'may become claimable', even accepting the plaintiff's construction that those words encompass claims pursuant to cl 5.2(b), are of wider application. Amounts that 'may become claimable' include amounts that are not yet even claimed, let alone agreed or independently determined. Given the width of that term, in my view cl 5.4 is neutral indicia in determining the construction of cl 5.2(b). It does not assist me either way.

Proper construction of cl 5.2(b)

Each of the other subclauses of cl 5.2 ((a), (c) and (d)) involve the same constructional choice as cl 5.2(b), that being whether:
(1)the defendant is entitled to have recourse to the Security where the plaintiff agrees that it is so entitled or where an independent third party has determined that it is so entitled; or
(2)the defendant is entitled to have recourse to the Security where it honestly believes that it is so entitled.
The text of each of the subclauses to cl 5.2 does not include the words 'honestly believes' (or 'bona fide claim'). However, properly construed I am of the view that is what the parties intended. One of the purposes of the Security, as indicated by the unconditional terms of the approved form, was to allocate risk so as to put the defendant 'in the money' pending resolution of any dispute between the parties. Several clauses of the Contract provide for circumstances in which the defendant is entitled to have recourse to the Security under cl 5.2(a) - in some instances where an amount has been certified by the Principal's Representative and in some instances where it has not. The common factor in each of those instances is that the defendant is 'in the money' before the underlying dispute between the parties is resolved. One of the purposes of cl 5.2(a) is to allocate risk pending resolution of a dispute.
If I were to adopt the plaintiff's construction of cl 5.2(b) and cl 5.2(c), each of those subclauses would have no work to do at all in allocating risk. On the plaintiff's construction, the defendant could only have recourse to the Security under cl 5.2(b) or cl 5.2(c) if the plaintiff agreed that it was entitled to do so or if there had been an arbitral award or curial determination of that entitlement.
Further, on the proper construction of cl 5.2(c) by reference to cl 39.2, cl 39.3, cl 39.4 and cl 37.6, the defendant is entitled to have recourse to the Security where a dispute is contemplated between the parties. Clause 5.2(b) would not fit comfortably in cl 5.2 if it was construed in the narrow way contended for by the plaintiff. It would be the only subclause of cl 5.2 that had as its sole purpose guarding against the risk of insolvency.
In summary, having regard to the entirety of cl 5.2, other clauses in the Contract to which I have referred, the terms of the Security and the purpose of cl 5.2, I do not accept the plaintiff's construction of cl 5.2(b).
The defendant seeks a declaration that, on the proper construction of cl 5.2(b) of the Contract, the defendant may have recourse to the Security only if the defendant 'honestly believes' that the plaintiff is in breach of a material obligation under the Contract. In seeking such a declaration, the defendant also seeks to limit the circumstances in which recourse to the Security can be had under cl 5.2(b).
It makes commercial sense for there to be some limitation on the circumstances in which the defendant may have recourse to the Security under cl 5.2(b). It would not be enough for the defendant to simply say the plaintiff was in breach of a material obligation if the defendant did not honestly believe that it was. The power to have recourse to the Security must be exercised honestly and for proper purposes.[33] Such a construction is consistent with the words of cl 5.2(b).

Orders

[33] CPB [82], [100] - noting that the Court of Appeal in CPB used the terms 'honest claim' and 'bona fide claim' interchangeably.

I therefore dismiss the plaintiff's application and make the following orders in accordance with the defendant’s minute of proposed orders:
1.The court declares that, on the proper construction of Contract No. CP01-DC01-G-CON-001_A, 'Formal instrument of agreement for engineering, procurement and construction of process plant facilities and associated infrastructure: Coburn Mineral Sands Project' dated 4 May 2021, as varied by Deed of Variation, Settlement and Release dated 27 February 2023, (the Contract), cl 5.2(b) of the Contract permits the defendant to have recourse to the security granted by the plaintiff pursuant to the Contract only if the defendant honestly believes that the plaintiff is in breach of a 'material obligation' under the Contract.
2.The plaintiff's application dated 17 December 2024 (Application) be dismissed.
3.The proceedings be dismissed.
4. The plaintiff pay the defendant's costs of the Application and the proceedings to be taxed if not agreed subject to Order 5 below.
5. Further in respect of costs:
(a)by 14 March 2025, the defendant is to file any submissions and affidavit evidence in support of an order pursuant to s 143(3) of the Legal Profession Uniform Law Application Act 2022 (WA) that the defendant’s costs of the Application be assessed without regard to any of the limits in Item 10 of Table B of the Legal Profession (Supreme and District Courts) (Contentious Business) Determination 2024 (WA) (Special Costs Order);
(b)by 28 March 2025, the plaintiff is to file any submissions and affidavit evidence in opposition to the Special Costs Order; and
(c)the court will thereafter determine whether to make the Special Costs Order on the papers.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
RP
Associate to the Honourable Justice Whitby
7 MARCH 2025