Background
York Property Holdings engaged Tomkins as contractor to construct a residential tower at Main Beach, Gold Coast, under a contract incorporating amended AS 4000-1997 general conditions. Tomkins provided two unconditional bank bonds ($3,207,750 each) as security. In September 2024, Tomkins purported to terminate the contract and ceased work, claiming approximately $23.3 million for work performed. York disputed the termination’s validity, affirmed the contract, and issued a notice under clause 39.4 taking the remaining works out of Tomkins’ hands. York subsequently engaged another contractor to complete the work.
In June 2026, as work remained incomplete, the superintendent issued an interim certification for $17.5 million purportedly payable by Tomkins to York under clause 39.6 of the contract. York demanded payment and threatened to call on the securities. Tomkins applied for an interlocutory injunction restraining York from calling on the bonds, arguing the certification was invalid because clause 39.6 only contemplates final certification upon completion of work taken out of the contractor’s hands.
The Court’s Holding
Kelly J granted the interlocutory injunction, finding Tomkins had established a strong prima facie case that York’s claim was misconceived and untenable. The court held that clause 39.6, which begins “when work taken out of the Contractor’s hands has been completed,” does not permit interim certifications before work completion. The language is inconsistent with York’s position that certification could occur while work remains incomplete. The court noted that the contract contains no provision for interim certifications, no mechanism for timing such certifications, and no regime for progressive payments under clause 39.6 (unlike the detailed progressive payment regime elsewhere in the contract).
The court found the commercial purpose of clause 39.6 is to provide a final reconciliation of payments when work is complete, serving as security to the principal if completion costs exceed the amount the contractor would have been paid. An interim certification contradicts this purpose. The court also rejected York’s argument that the validity of Tomkins’ termination was irrelevant, holding it plainly relevant to whether York has accrued rights under clauses 39.4 and 39.6. On the balance of convenience, the court found Tomkins’ strong case significant, and Tomkins’ undertaking not to demand return of the securities pending final determination protected York’s interests.
Key Takeaways
- Clause 39.6 of AS 4000-1997 contracts permits only final certification upon completion of work taken out of contractor’s hands—not interim certifications for incomplete work.
- The opening words “when work taken out of the Contractor’s hands has been completed” are determinative and fatally undermine claims for interim certification.
- Courts will grant interlocutory injunctions restraining calls on bank guarantees where an applicant demonstrates a strong prima facie case that the principal has no genuine, arguable claim to the security.
- The commercial purpose of the take-out and certification regime is to provide a single final reconciliation serving as security, not progressive interim payments.
Why It Matters
This decision clarifies how the take-out and security provisions operate under standard Australian construction contract forms. Contractors faced with claims to bank guarantees now have clear authority that interim certifications under clause 39.6 are not permitted and that courts will intervene to prevent calls on security based on invalid certifications. The judgment reinforces that strict compliance with contractual language governing security is required, and that commercial purpose and context are crucial to interpreting such provisions.
For principals, the decision limits interim recourse to security under clause 39.6 when work remains incomplete, potentially creating cash flow pressure during extended take-out periods. However, the court’s openness to discharging the injunction if circumstances change (such as upon final completion) provides some flexibility. The case underscores the importance of clear contractual drafting regarding the timing and conditions for security calls.