NSW Supreme Court finds common payment security clause is void

What you need to know

• Contract terms requiring security to be provided as a precondition to payment for work could be void under security of payment legislation.
• In Alstef Australia Pty Ltd v Brisbane Airport Corporation [2026] NSWSC 764, the Court granted an interim injunction restraining a principal from calling on bank guarantees that had been provided as security against payments to be made in respect of unfixed goods or materials.
• The contract provided, among other things, that goods or materials will not be included in the value of work in a payment statement unless "additional Approved Security equal to the payment claimed for the unfixed goods and materials" has been provided. The Court was satisfied on a prima facie basis that this provision was arguably void under s 200 of the Building Industry Fairness (Security of Payment) Act 2017 (Qld) (BIF Act) as an impermissible exclusion of the contractor’s statutory entitlement to progress payments.
• As the decision is interlocutory, the Court’s observations are preliminary and the issues in dispute between the parties remain to be finally determined at trial. However, the Court's comments could have significant ramifications for similar provisions included in other contracts (including in a number of government standard form contracts and the new AS 4000:2025 – General Conditions of Contract).

What you need to do

• Review existing construction contracts for clauses conditioning progress payments for unfixed goods and materials on provision of additional securities, as these may be vulnerable to challenge under security of payment legislation.
• Principals or main contractors holding bonds procured under clauses that may be void should consider their exposure to claims that retention is unconscionable, particularly where title to the relevant goods has passed. Contractors who have provided securities under similar contractual mechanisms could seek legal advice on whether they have a basis to seek their return.
• If the Victorian security of payment legislation applies, parties will need to follow the new statutory process for claiming for the release of or having recourse to performance security.

Security, Payment and Injunctions: What the Court decided

In Alstef Australia Pty Ltd v Brisbane Airport Corporation [2026] NSWSC 764, the Supreme Court of New South Wales considered an interlocutory application by a contractor for interim injunctions restraining the principal from having recourse to unconditional bank guarantees provided under a construction contract.

Alstef Australia Pty Ltd (Alstef, contractor) and Brisbane Airport Corporation (BAC, principal) were parties to a design and construct contract for a baggage handling system at Brisbane Airport's domestic terminal. The contract was terminated, with both parties disputing which validly terminated it.

Under the contract, Alstef had provided two categories of unconditional bank guarantees:

1. two bank guarantees (the "performance bonds"), each being to the value of 2.5% of the contract price ($1,721,588.53), provided under clause 4.1 of the contract as security for completion of the work; and
2. three further bank guarantees (the "payment security bonds") totalling $10 million collectively, procured under clause 12.7(a)(ii) of the contract to secure the inclusion of amounts in progress payments for unfixed goods or materials stored off-site, to be released once incorporated into the works.

Alstef sought interim injunctions restraining BAC from calling on all five bonds pending final resolution of the termination dispute. The Court refused to grant an interim injunction over the performance bonds but did grant an interim injunction over the payment security bonds.

While the outcome on the performance bonds is consistent with previous case law, the outcome on the payment security bonds is novel and a telling reminder of the broad reach of security of payment legislation.

Performance bonds: interim injunction refused

Consistent with previous case law,¹ Williams J considered it strongly arguable that, in the absence of express terms to the contrary, the performance bonds operated as unconditional “risk allocation devices”, i.e. “pay now, argue later” mechanisms. Accordingly, the contract did not preclude the principal from having recourse to the performance bonds prior to the final determination of its claims.

Alstef argued that irrespective of whether the performance bonds were risk allocation devices, the balance of convenience weighed in favour of granting the interim injunction because Alstef and other companies within the Alstef Group would suffer financial and reputational damage if the bonds were called on pending final determination of the claims. The Court did not accept these arguments.

The judgment reveals that Alstef had put on detailed evidence as to its financial position and financing arrangements. This serves as a reminder to contractors considering applying for an injunction that they will likely need to put on detailed evidence as to their finances, and this evidence may become public. However, this evidence may still prove to be insufficient if it does not go beyond demonstrating only a speculative risk of financial harm if the call on bonds proceeds.

Payment security bonds: interim injunction granted

Clause 12.7(a)(ii) of the contract dealt with payment and title for unfixed goods and materials. It provided, among other things, that goods or materials will not be included in the value of work in a payment statement unless "additional Approved Security equal to the payment claimed for the unfixed goods and materials" has been provided. This is not an unusual requirement, and is similar to clauses in various government precedent contracts and clause 37.4 in the new AS 4000:2025 – General Conditions of Contract.

Alstef argued that clause 12.7(a)(ii) of the contract was void under s 200 of the BIF Act, which renders ineffective any contract provision that "excludes, limits or changes" the operation of the Act. Security of payment legislation in other States and Territories includes similar prohibitions on contracting out. The Court considered it strongly arguable that clause 12.7(a)(ii) had the practical effect of negating the statutory entitlement to progress payments because, in relation to payment for unfixed goods and materials, the payment was immediately re-secured dollar-for-dollar by a bank guarantee.²

The Court was also satisfied, on a prima facie basis, that retention of the bonds would be unconscionable under s 21 of the Australian Consumer Law, given that title to the goods had already passed to BAC and there was no evidence of loss or damage.³ 

New statutory process in Victoria: Impact of security of payment reforms

Following reforms to the Building and Construction Industry Security of Payment Act 2002 (Vic) commencing 15 April 2026, there is now a statutory regime in Victoria covering performance securities in the form of a performance bond or retention money.

Under the new regime, a party is required to provide at least five business days' notice before it can have recourse to a performance security and that notice must describe the circumstances that the party says entitle it to have recourse to the performance security. While the new regime does not purport to limit the basis on which a bond can be called, if an interim injunction is sought, a Court would likely have regard to the circumstances described in the notice when weighing up the balance of convenience.

The regime also includes a new statutory entitlement to the partial or whole release of performance securities, which largely mirrors the current statutory progress payment claim process. In broad terms, the party seeking the release of a performance security must serve on the other party a "performance security claim". This can be served no earlier than 20 business days after the expiry of the defects liability period or the occurrence of any other event specified in the contract. The other party must then respond with a "performance security schedule" identifying the amount of the security that is proposed to be released (if any).

If the amount proposed to be released is less than the amount claimed for release, the performance security claim can be sent to adjudication or the claimant can apply to a court for orders for the claimed release. Subject to the notice requirements mentioned above, the legislation does not expressly prohibit a party from having recourse to performance security while the performance security claim process and any adjudication or court procedure is in progress. However, in practice, we expect that a call on performance security in those circumstances will be more susceptible to an interim injunction (at least until the claim/adjudication/court process has completed). 

How we can help

The Global Construction Disputes Group at Ashurst Perkins Coie has extensive experience advising clients in relation to the security of payment regimes in Australia and across the world, and acting for clients applying for or defending interim injunctions.

Please reach out to your Global Construction Disputes Group contact if you would like to discuss the implications of this decision on your contracts.

Want to know more?

• A copy of the case can be accessed here: Alstef Australia Pty Ltd v Brisbane Airport Corporation [2026] NSWSC 764 (1 July 2026)
• For further information on the Victorian security of payment reforms, see our previous article: Significant amendments to Victoria’s Security of Payment Act are now in effect

Other authors: James MacDonald, Senior Associate and William Hettrick, Lawyer