Bank guarantees not to be used for unliquidated demands, e.g. Damages

Earlier this year, Martin J, in the case of Beyfield Pty Ltd v Northbuild Construction Sunshine Coast Pty Ltd [2014] QSC 12 held that the builder could not call on bank guarantees for its claims for damages against sub contractor for alleged trespass, breach of sub contract, negligent or intentional damage, despite a widely drafted clause allowing it to do so.

Clause 5(e)(ii) of the sub contract allowed the builder, upon written notice, to convert a bank guarantee in respect of any claim to payment (liquidated or otherwise) the builder may have against the sub contractor under the sub contract or otherwise.

Section 67J of the Queensland Building and Construction Commission Act 1991 (the “Act”) that recourse to security was allowable if the security holder had a right to the amount owed and had given notice to the other party of its proposed use of the security and the amount owed. Amount owed was defined as a “debt due”.

Martin J held at paragraph [41] that clause 5(e)(ii) was inconsistent with section 67J of the Act, because it allowed access to security for the purposes of satisfying claims which were not for “amounts owed” and could not be used for its unliquidated claims.

This case reiterates the principle that unliquidated claims not debts.

If you are confronted with this issue of converting securities, as the security holder or the security provider, please contact us on (07) 3220 0299.

Categories: News & Publications