E-alert: Preventing the enforcement of security in a construction setting

With respect to Portia¹, a party seeking to prevent a call upon security is likely to need to mount an argument which is stronger than an appeal to the quality of mercy or to unspecified and unclear negative stipulations.² The recent Supreme Court of Western Australia decision of CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd³ (CPB v JKC) confirms the difficulties which such a party will face in seeking to restrain a call upon a security.

Background

JKC was the head contractor responsible for the delivery of a substantial oil and gas project in northern Australia. CPB entered into a subcontract with JKC (Subcontract). Article 35.3 of the Subcontract provided:

Contractor [JKC] may have recourse to the Bank Guarantee(s) at any time in order to recover any amounts that are payable by Subcontractor [CPB] to Contractor [JKC] on demand.