Introduction

Security in the form of unconditional undertakings remains a fundamental risk management tool in construction and infrastructure contracts. For government entities, principals and head contractors, security provides important protection in a market affected by escalating costs, cashflow pressure, contractor and supply chain distress.

Unconditional undertakings are intended to operate as “pay now, argue later” security. Their commercial value lies in being “as good as cash”, allowing the beneficiary to obtain immediate recourse at the point of project pressure rather than being forced to wait until the underlying dispute is finally resolved.

Recent decisions are a timely reminder that this protection is not absolute. Courts continue to recognise the commercial function of unconditional undertakings. However, a beneficiary may still be restrained from calling on security if the contractual right to recourse has not been properly enlivened, or if the security regime is vulnerable to challenge under applicable legislation.

Both decisions discussed below were interlocutory. They did not finally determine the parties’ substantive entitlements. Their significance lies in the Courts’ assessment that there was a prima facie case sufficient to restrain recourse to security pending final determination. Even if the beneficiary is ultimately vindicated, an interlocutory injunction can delay or prevent access to the very protection the security was intended to provide.

Viewed together, Alstef and York illustrate two pressure points for security regimes. Alstef shows how statutory protections may affect payment-linked security. York shows how broad recourse wording may be constrained by the contractual machinery said to support the call. The decisions warrant a fresh review of security clauses in their full contractual and statutory context, to confirm that they will operate as intended when a call is made.

The autonomy principle and negative stipulations

Under the autonomy principle, an unconditional undertaking is generally independent of the underlying construction contract. The issuer must pay in accordance with the undertaking, notwithstanding disputes between the principal and contractor.

Autonomy, however, does not itself establish the beneficiary’s entitlement to call on the security. That entitlement may depend on the proper construction of the contract, including any words of limitation, conditions precedent or other negative stipulations affecting recourse, and on the applicable statutory framework.

The cases below sit at that intersection. They were not concerned with whether the issuer should honour a call on security, but whether the beneficiary could be restrained from making one. Alstef turns on the statutory context. York turns on the contractual machinery.

Alstef Australia Pty Ltd v Brisbane Airport Corporation [2026] NSWSC 764

Brisbane Airport Corporation (BAC) contracted with Alstef Australia Pty Ltd (Alstef) to design and construct a baggage handling system for Brisbane Airport’s domestic terminal.

Alstef provided five unconditional undertakings:

• three undertakings totalling $10 million, required as security in connection with progress payments for unfixed goods and materials (payment-linked bonds); and
• two further undertakings of approximately $1.72 million each, representing 2.5% of the Contract Price (other bonds).

After a structural steel defect was discovered, the parties exchanged competing termination notices. Although they disputed who had validly terminated, it was common ground that the contract had been terminated.

Alstef sought interim injunctions restraining BAC from calling on both categories of security. The Court reached different decisions for the two categories of security.

Payment-linked bonds: Injunction granted

The Court restrained BAC from calling on the payment-linked bonds.

Alstef had a strong prima facie case that the clause requiring the payment-linked bonds was of no effect under section 200 of the Building Industry Fairness (Security of Payment) Act 2017 (Qld). The clause made Alstef’s entitlement to progress payments for unfixed goods and materials conditional on providing additional security equal to the value of the relevant payment claim. That was arguably a provision which excluded, modified or limited Alstef’s statutory payment entitlements.

Williams J considered BAC’s submission to be weak because it failed to grapple with “the commercial reality that a progress payment made conditionally upon the provision of security for the same amount does not augment the contractor’s funds, and the object of the legislation”: at [99]. The Court also considered it strongly arguable that, if the clauses requiring security were unenforceable as a result of the security of payment legislation, requiring Alstef to maintain the payment-linked bonds was not reasonably necessary for the protection of BAC’s legitimate interests. Retention was therefore “unconscionable” for the purposes of the Australian Consumer Law.

The unconscionability argument was significant because it provided an additional basis for restraint, beyond construction of the contract and the security of payment legislation. The Court’s reasoning suggests that where the commercial justification for retaining security has fallen away, particularly where title has passed and there is no evidence of loss or damage, continued retention or recourse may be vulnerable to challenge. Relevantly, title to the unfixed goods and materials had passed to BAC and there was no evidence beyond speculation of loss, damage or destruction.

Other bonds: Injunction refused

The result was different for the other bonds, which were not payment preconditions.

In relation to the other bonds, Williams J held it was strongly arguable that they established a “‘pay now argue later’ regime”, enabling BAC to obtain prompt payment of claims notwithstanding disputes raised by Alstef, and allocating to Alstef rather than BAC the risk of being out of pocket pending final determination.

The Court refused to restrain the call on the other bonds. BAC was permitted to have recourse to them before final determination of the underlying dispute, subject to the usual constraints of fraud, bad faith or unconscionability.

Security for unfixed goods and materials needs careful structuring

Alstef does not finally determine whether payment-linked security for unfixed goods and materials is valid. However, the commercial impact was immediate: BAC was restrained from calling on the payment security when it sought to do so.

For principals and head contractors, particular care is needed where security is linked to payment. If the security provision can be characterised as conditioning or limiting a contractor’s statutory payment rights, it may be vulnerable under security of payment legislation. Alstef concerned Queensland legislation, however, similar anti-avoidance provisions exist in security of payment legislation in other Australian jurisdictions.

One possible approach, depending on the applicable legislation, may be to avoid relying only on a payment precondition and instead consider whether a security obligation can be structured in a way that does not condition or limit the contractor’s statutory payment entitlement.

For example, the contract may include a separate obligation requiring the contractor to provide security for the value of unfixed plant or materials within a specified period after making the relevant payment claim, if the payment precondition is unenforceable. Any such drafting would need careful review against the applicable legislation.

The lesson from Alstef is that security linked to payment must be tested against the applicable security of payment legislation, particularly where the security operates in substance as a condition to receiving a progress payment.

York Property Holdings Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd [2026] QSC 156

The second decision illustrates a different risk: the recourse clause must align with the contract’s certification and termination machinery.

York Property Holdings (York) engaged Tomkins Commercial & Industrial Builders (Tomkins) under an amended AS 4000-1997 contract for a residential tower project on the Gold Coast. Tomkins provided two unconditional undertakings, each payable on demand for up to approximately $3.2 million.

Tomkins purported to terminate and left the site. York disputed the termination, affirmed the contract and issued a notice taking the remaining works out of Tomkins’ hands. A replacement contractor was engaged, but the work taken out remained incomplete.

While that work was still incomplete, the superintendent issued a certificate under clause 39.6, certifying approximately $17.5 million as payable by Tomkins to York. York relied on that certificate to call on the unconditional undertakings.

Clause 39.6 allowed the superintendent to assess and certify the cost of completing the work taken out of the contractor’s hands once that work had been completed. The Court restrained the call, finding that Tomkins had a strong prima facie case that the certificate was premature because the work had not yet been completed.

The broader recourse clause did not cure the problem. Although the contract permitted recourse to security in respect of a “claim”, this implicitly required a genuine and arguable claim under the contract. York’s claim based only on a premature certificate was not enough.

Kelly J was satisfied that Tomkins would establish that “York’s claim in debt based upon an interim certification purported to be made under cl 39.6 is misconceived, untenable and not properly regarded as a claim to payment made under the Contract”: at [19].

Broad recourse rights are not enough

York is a reminder that a broad right of recourse is only as useful as the machinery supporting it.

If the right to call on security depends on a certificate, the timing and validity of that certificate may determine whether the call can be made at all. If a clause only permits certification after completion of taken-out work, a call made before that point may be vulnerable, even if the principal expects to incur substantial completion costs.

If the commercial intention is that the principal may have recourse to security for estimated completion costs before the taken-out work is complete, the contract could say so expressly. If the clause instead links recovery to a post-completion assessment or certificate, a premature certificate may not provide a sufficient basis for recourse.

The lesson from York is that a broad recourse clause is not self-executing. The contractual machinery supporting the claim must have been engaged when the call is made.

Although the cases arose in different factual and statutory contexts, they point to the same practical issue: the value of security depends on whether the broader contractual and statutory framework supports recourse when the call is made.

Practical Implications for principals and head contractors

For principals and head contractors, the practical task is to review security as part of the contract’s overall risk allocation. The recourse clause, payment provisions, certification machinery, termination regime, take-out rights, title and risk provisions, and applicable legislation should be read together to confirm the parties’ intended allocation of risk.

Reviewing the security regime

The security regime should be tested against its commercial purpose, wider contractual machinery, and any applicable legislation, including security of payment and consumer law. It is also worth stress-testing the drafting against realistic project scenarios. For example:

• if the contractor leaves site, can the principal call on security immediately?
• if replacement contractor costs are not yet final, can security be called for estimated costs?
• if the claim depends on a certificate, when can that certificate validly be issued?
• if security is linked to payment for unfixed goods and materials, does the clause risk offending security of payment legislation or consumer law provisions?

Before making a call on security

Before making a call, the beneficiary should confirm that the contractual trigger for recourse has arisen, any required certificate or notice is valid, the amount claimed is within scope, and there is a presently arguable contractual claim supported by contemporaneous records.

Those checks are most valuable before the project is in distress, and again before any call is made. Once a call is challenged, the practical value of security may be delayed even if the beneficiary is ultimately vindicated.

Conclusion

Recent decisions confirm that unconditional undertakings remain powerful project security. However, their practical value depends on more than the unconditional terms of the instrument itself. Alstef demonstrates the potential vulnerability of security linked to statutory payment entitlements. York demonstrates the importance of ensuring that a call on security is supported by the contract’s certification and termination machinery.

In both cases, the challenge was not to the existence of security, but to the beneficiary’s entitlement to call on it. For principals and head contractors, these decisions warrant a fresh review of whether the security regime, read with the broader contract and applicable legislation, will withstand challenge when recourse is needed most.

We regularly assist government entities, principals and head contractors with project security regimes, payment mechanisms and recourse rights in major construction and infrastructure projects.

For front-end contract structuring, drafting and negotiation, please contact Angela Armstrong. For disputes or litigation concerning calls on security, please contact Brian Rom.

This article was written by Angela Armstrong, Partner, Brian Rom, Partner, and Daniel Read, Graduate.