The recent decision of the Supreme Court of Tasmania (Full Court) in Hansen Yuncken Pty Ltd v Parliament Square Hobart Landowner Pty Ltd [2021] TASFC 11 considered the question of whether a Principal was entitled to have recourse to the Builder’s security bond, defined in the contract as a ‘Defects Bond’, under the terms of the contract.

MolinoCahill prepared an update regarding Brett J’s first instance decision in the Supreme Court of Tasmania, in which his Honour held that the Principal was entitled to have recourse to the Defects Bond, which is available here.

Following the first instance decision, the Builder sought leave to appeal on several proposed grounds, including that his Honour erroneously determined that the Principal could have recourse to the Defects Bond without proper consideration of the risk allocation under the contract, and where the contract did not entitle the Principal to seek recourse to the Defects Bond in the event of a bona fide dispute.

The Builder asserted (amongst other things) that the Court ought to approach the question of whether the Principal had a contractual right to have recourse to the Defects Bonds by:

•   identifying whether the contractual recourse right existed;
•   determining whether the Principal has complied with the necessary preconditions to ‘trigger’ that right; and
•   if not, whether the contract contained any other terms (negative stipulations) which operated to qualify such a right.

The Court dismissed the appeal on all grounds. Martin AJ, with whom the other judges agreed, held (amongst other things) that the correct approach to determining recourse rights to unconditional security, such as the Defects Bond, is to consider the terms of the unconditional security itself, and then identify whether any other contractual terms existed to qualify the Principal’s recourse rights.  The Court agreed with Brett J that no such qualifications existed in the contract in question.  The Court also upheld Brett J’s finding that the Defects Bond was intended to fulfil a risk allocation function under the contract which entitled the Principal to seek recourse where it possessed a “bona fide Claim”.

The full decision can be found here.