Calling on a performance security – When a bona fide belief is just not enough

Two recent NSW decisions suggest that principals may face more restrictions in future when seeking to access performance securities, where access is conditional upon the principal having some form of claim against the contractor. Contrary to earlier authority, it appears that a mere bona fide belief in a claim against a contractor may no longer be sufficient for a principal to make a demand on a security.

This article considers the implications of Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283 and FMT Aircraft Gate Support Systems AB v Sydney Ports Corporation [2010] NSWSC 1108 on the right of principals to make demands on performance securities under construction contracts, which may be relevant to assessing risk and pricing a contract.