SECURITY FOR PERFORMANCE
party breaks its promise, and fails without proper excuse to do what it promised to do,
the innocent party is, in law, entitled to a remedy – usually damages.1 e adequacy of
damages as a remedy for a breach of contract will, however, depend to a large extent on
the ability of the innocent party to enforce that remedy against the party in breach. If
the party in breach is impecunious, or if the party is dicult to trace or bring an action
against, an award of damages (if obtainable at all) may prove to be an empty remedy.2
12.02 It is because of this potential inadequacy of damages as a remedy for non-ful-
lment of a promise that a party to a construction or engineering contract will often
require that the other party provides some form of security for the performance of the
latter’s contractual obligations.3 Security over project assets, or the assets of a participant
in a project, may also be taken where a third party is funding a party to the project,
and that third party requires the provision of security as a condition of the provision
of funding. Security may be requested or even required by law (in some jurisdictions)
for the performance of an owner’s or main contractor’s payment obligations.4 Further,
in some developed countries schemes of export credits or export credit risks insurance
are provided by governments or private insurers to encourage or assist trade, especially
with developing nations.5 e forms of security which may be proered and received, or
which may be conferred by operation of law, are multifarious.
1 e topic of damages is discussed in Chapter 13.
2 See generally Jones, “How the Construction Contract Can Protect ose in the Construction Industry from the
Eects of Insolvency” (1992) 8 BCL 246.
3 As a cognate matter, a construction contract may empower the contractor to require the owner to provide evi-
dence to the contractor that the owner has nancial arrangements in place to ensure that the contractor can and
will be paid the contract price in accordance with the contract: see, eg, FIDIC Red Book (2nd edition, 2017)
clause 2.4 (the contractor may terminate the contract if adequate evidence of the owner’s nancial arrangements
is not provided: clause 16.2.1(a), as to which see NH International (Caribbean) Ltd v National Insurance Property
Development Co Ltd  UKPC 37). In the US a similar right may be implied by law by the operation of the
“doctrine of demands for adequate assurance”, as to which see paragraph 9.36.
4 Certain Australian statutes, discussed herein, aord the benet of security for payment to contractors or sub-
contractors who perform building or engineering work. In several North American jurisdictions, “mechanics’ lien”
or “construction lien” legislation operates so as to confer upon an unpaid contractor a lien or charge over the land
upon which it performs work: see, eg, Macklem, “Mechanics’ Lien Legislation in Canada”  ICLR 199.
Agreements for the waiver of lien rights may be rendered inoperative by statute: see Reynolds, “e Common
Law Enforceability of Exculpatory Provisions in Canadian Construction Contracts: e Divination of Intent
– e Primacy of Commercial Reasonability”  ICLR 402 at 405. For the position under German law, see
Schramke and Yazdani, “International Projects Under German Law – Traps for Developers and Investors” 
ICLR 438. See also Speranza, “An evaluation of Australian security of payment and United States lien law” (2011)
27 BCL 169.
5 See, eg, Stolzenberg, “e Law and Practice of Export Credit in West Germany”  ICLR 73; Goudsmit,
“Export Credit Risks Insurance in the Netherlands”  ICLR 81; Rosell, “Non-French Companies and French
Export Buyer Credits”  ICLR 83; Ortner, “Export Risk Guarantees in Austria”  ICLR 91; Perolini,
“Swiss International Contractors, eir Export Risk Guarantee Coverage and Suggestions of Common Interest”
 ICLR 13; Ali, “Export Credit Financing in the United Kingdom”  ICLR 28; Picanol, “Export Cred-
its in Spain”  ICLR 390; Bollinger, “Export Credit Cover for Construction Projects Executed by Subsidiary
and Associated Companies Abroad”  ICLR 213; Vataja, “e Role of the Finnish Export Credit Limited
and the Export Guarantee Board in Project Exports”  ICLR 293; Wiwen-Nilsson, “Ocial Export Credit
Arrangements in Sweden”  ICLR 370; Al Saadoon, “Negotiating Construction Contracts with an Iraqi
Government Entity”  ICLR 114 at 120–121. See also Export Credits Guarantee Department v Universal
Oil Products Co  1 WLR 399, and the web site of the UK’s Export Finance Department: www.gov.uk. e
Multilateral Investment Guarantee Agency – a part of the World Bank Group – provides political risk insurance
guarantees for companies engaging in World Bank projects in developing nations: see www.miga.org.