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Calling on a Performance Security: As Good As Cash?

Over the past several decades, performance securities have become a common and critical part of commercial dealings throughout Australia and around the world. While they feature across the panoply of transactions from sale of goods (domestic and international) to commercial leases, and surface in cases concerning the same, perhaps a disproportionate number of judicial decisions have been devoted to performance securities arising from construction contracts and disputes over recourse to them. This paper reflects that balance, in its consideration of: a) reasons for security; b) the essential nature of performance securities; c) types of performance securities; d) examples of contract provisions for security and recourse to it; e) calling on a security; f) injunctions to restrain the calling on a security; and g) recent cases.