In Primero Group Limited v Coburn Resources Pty Ltd [2025] WASC 69, the Supreme Court of Western Australia considered whether a principal had an unconditional right to call on security in circumstances where it honestly believed a contractor was in breach of contract.

Primero Group Limited entered into an EPC contract with Coburn Resources Pty Ltd to design and construct process plant facilities. Following completion of the project, Coburn issued a consolidated defect notice regarding various alleged defects in the works. In fear of Coburn calling on its security, Primero sought an injunction to restrain Coburn’s recourse, and a declaration regarding the proper interpretation of clause 5.2(b) of the contract which governed Coburn’s entitlement to call on that security. Clause 5.2(b) relevantly provided that:

Security shall be subject to recourse by the Principal where the Contractor is in breach of any material obligation under the Contract.

Primero submitted that, on its proper construction, clause 5.2(b) permitted Coburn to have recourse to the security only if either Primero agreed that it was in breach of a material obligation under the contract or if, pursuant to the contractual dispute resolution process, Primero was found to have been in breach. Coburn rejected this submission, asserting that the clause entitled it to have recourse to the security if it “honestly believed” that Primero was in breach of a material obligation.

In agreeing with Coburn, the Court dismissed Primero’s application. Whitby J noted that unlike other interlocutory applications, an injunction to prevent a party having recourse to security does not require the courts to consider either whether there is a serious question to be tried regarding ultimate entitlement to damages or what the balance of convenience might favour; rather the Court must determine the proper construction of the contract and in doing so, what a reasonable business person would have understood the clause to mean in the context. Her Honour noted that there are two primary purposes for providing security in a construction contract:

1. To provide security in the event of insolvency of the contractor; and
2. Allocate the risk between the parties so as to provide who will be out of pocket pending final resolution of a dispute.

Her Honour held that in determining the intended purpose of a security clause, the court should not adopt, as a starting point, the position that the parties were seeking to allocate risk pending determination of a dispute. Rather this is a matter of construction and identifying the object of the contract.

Following a lengthy analysis of various terms of the contract, Whitby J held that:

• The security clause did allocate risk between the parties.
• The terms of the security were unconditional and permitted Coburn “to call upon it” before a dispute was resolved.
• It did not make “commercial sense” to require Coburn to obtain an objective “determination” of its entitlements before it could have recourse to the security.
• Each of the surrounding subparagraphs (a), (c) and (d) in clause 5.2 permitted Coburn to have recourse where it had an honest belief (or bona fide claim) that the trigger events occurred.
• Commercial sense required construing 5.2(b) in the same manner, meaning Coburn was entitled to have recourse to the security where it “honestly believed” that Primero was in “breach of a material obligation of the contract”.
• While the text of clause 5.2(b) did not include the words “honestly believes”, the Court concluded that this was what the parties intended.

This decision is consistent with the previous authorities that accept the unconditional nature of recourse to security clauses, but reiterates how the entitlement to call on the security will be determined by reference to the specific terms of the contract.

The judgment can be found here.