International Construction Law Review
SECURITY FOR PAYMENT
Nicholas Downing
Michael Mendelblat*
INTRODUCTION
Security for payment is a vital issue for all participants in the construction process. An employer may wish to have protection to secure payment of the contractor’s liabilities. A contractor may seek protection for payments from an employer and sub-contractors may seek to ensure that payments made for their benefit from the employer to the contractor will not form part of the contractor’s assets on insolvency.
A number of practical legal problems arise when security issues are being considered. Privity of contract, trust mechanisms, the effect of intervention by statutory provisions and the law of guarantees, amongst others, all have a role to play.
We consider in this article the approach taken both legally and within the market as to security for payment provisions at the various levels of the contractual chain. We have approached this issue by reference to six broad topics:
- • Bonds and guarantees;
- • Retention bonds;
- • Advance payment bonds;
- • Direct payment from employers to sub-contractors;
- • Project bank accounts; and
- • Prompt payment codes.
The jurisdictions we have surveyed have been selected to provide a mix of common and civil law countries. The countries considered are the UK (although generally only English and Welsh law is considered) the UAE, Australia and France. The approach taken by each jurisdiction is considered in turn on each of the above issues. In producing this article, the authors have drawn on assistance from members of the Herbert Smith Freehills network whose names are listed below.1
* Partner and Professional Support Lawyer at Herbert Smith Freehills, London.
1 We obtained assistance in writing this article from Craig Shepherd and Sean Whitham in the UAE, Christophe Lefort and Mathias Dantin in France, Dan Dragovic, Stewart McWilliam and Lauren Claxon in Australia.
Pt 3] Security for Payment
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