Tara Moffatt  has analysed the recent WA Supreme Court decision of Duro Felguera Australia Pty Ltd v Samsung C & T Corporation [2016] WASC 119.  She has concluded that it demonstrates that in circumstances where there are security provisions in the contract which allocate risk pending final determination of the dispute, the commercial purpose of the contractual provision will be defeated by the grant of an injunction. Therefore, the court will require a very strong case in order to demonstrate that the balance of convenience favours depriving a contractor of its right to security.

Duro Felguera Australia Pty Ltd v Samsung C & T Corporation [2016] WASC 119

Significance

An adjudication determination under the Construction Contracts Act 2004 (WA) does not prevent a party from relying on its contractual entitlement to claim on performance bonds as security for amounts that party claims to be due under the contract.

Facts

The defendant, Samsung C & T Corporation (principal) engaged Duro Felguera Australia Pty Ltd (contractor) to perform works in relation to the Roy Hill mining and port project. Under the contract for works:

  • the contractor was required to provide security for its performance in the form of bonds valued in excess of $76,000,000; and
  • the principal was entitled to have recourse to this security where it considered that it was, or would be, entitled to recover the amount from the contractor under the contract.

On 18 February 2016 the principal gave notice of its intention to demand the monies under the security bonds on the basis that the contractor had failed to rectify defective works.

Prior to this notice being issued the contractor had obtained three separate determinations with respect to payment claims under the Construction Contracts Act 2004 (WA) (Act) and was in the process of applying to the court to enforce these determinations. The contractor therefore sought an interlocutory injunction to restrain the principal from converting the security bonds on the basis that to do so would disregard the binding determinations.

Decision

The court dismissed the contractor's application for injunction.

In doing so, Le Miere J held that determinations made under the Act are an interim adjudication, and do not preclude recourse to security. This finding is consistent with earlier decisions regarding determinations under the New South Wales and Queensland equivalents of the Act.

His Honour noted that the Act should not be interpreted as altering the terms of a construction contract, and that a determination under the Act should not therefore alter the allocation of risk agreed between the parties under the security provisions of the contract.

In dismissing the contractor's application, Le Miere J noted that the purpose of an injunction was to maintain the status quo pending final determination of the rights between the parties. In seeking an injunction to prevent the principal from exercising its contractual right to security, the contractor, his Honour held, was essentially seeking to alter the status quo pending final determination of the dispute.