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30 May 2019

Practical Completion – Matter of Fact or what the Contract says?

Introduction

Practical completion has a number of important consequences under construction contracts.  It signifies the end of a contractor’s exposure to liquidated damages, passes the risk of the works from the contractor to the employer and generally means that the works have been completed to a sufficient level / standard to allow the employer to take possession of the site.

Despite its importance practical completion is a concept easier to recognise than define.  Standard form construction contracts often do not contain adequate definitions as to what will (or will not) constitute practical completion and the parties are therefore left to rely on the discretion of the party responsible for certifying practical completion as to whether as a matter of fact practical completion has taken place.

The recent case of Mears Limited v Costplan Services (South East) Limited, Plymouth (Notte Street) Limited, J.R. Pickstock Limited involved just such considerations.

Facts

J.R. Pickstock Limited (“Pickstock”) entered into a building contract with Plymouth (Notte Street) Limited (“PNSL”) to design and build two blocks of student accommodation in Plymouth. Mears Limited (“Mears”), entered into an Agreement for Lease (“AFL”), with PSNL to take a 21 year lease of the property following practical completion. Under clause 6.2.1 of the AFL, PNSL was prohibited from making any variations to the building works which materially affected the size of the rooms, with any reduction in size of 3% deemed to be ‘material’.

As the works advanced toward completion Mears alleged that there were a number of outstanding deficiencies, a key deficiency being that a number of the rooms were not of sufficient size. Mears subsequently obtained an injunction, preventing issuance of a certificate of practical completion until the issue could be decided at court.

The original decision of the Court found that one or more of the rooms were more than 3% smaller than the sizes shown on the relevant drawings and granted a Declaration to that effect, though he was not required to decide whether practical completion had occurred on the facts of the case. However, the Court also determined that such a breach of the AFL would not prevent the Employer’s Agent, from certifying practical completion and rejected Mears claim’s for Declarations to that effect.

Appeal

On appeal the Court of Appeal upheld the first instance decision and found that, despite the rooms exceeding the tolerance levels, such a breach did not amount to a material or substantial breach, enabling Mears to terminate the contract.  

Coulson LJ made the point that it would be commercially unworkable if every departure from the contract drawings enabled a party to terminate the contract. Accordingly, the parties had set out in clause 6.2.1 the circumstances in which departure from the room size specified on the contract drawings could amount to a breach of contract.  However, Coulson LJ noted that under clause 6.2.1:

…the parties were not saying that the resulting breach of contract was itself “material”… There is nothing in clause 6.2.1 which addresses the character or quality of the breach. The clause simply provides a mechanism by which a breach of contract can be indisputably identified... if the parties were to be taken to have agreed that any failure to meet the 3% tolerance no matter how trivial, amounted to a material breach of contract, it would lead to a very uncommercial result.”

Coulson LJ highlighted that none of the standard forms of building contract provide any guidance or control as to what may or may not amount to practical completion but noted that there was nothing to stop parties in a construction contract agreeing particular parameters to guide and control a certifier in the exercise of his discretion regarding the certification of practical completion.

Though the appeal was dismissed Coulson LJ went on to confirm a number of principles regarding the current law on practical completion:

  • Practical completion is easier to recognise than define and there are no hard and fast rules as to when it would be deemed to have occurred.
  • The existence of latent defects cannot prevent practical completion.
  • In relation to patent defects, there is no difference between an item of work which is yet to be completed and an item of work which requires remedying.
  • The existence of patent defects will not prevent practical completion if such can be deemed to be trifling.
  • Whether an item is trifling is a matter of fact and degree and to an extent may be measured against the purpose and intended use of the property.
  • The inability to remedy a defect does not prevent practical completion from being achieved. 

Comment

Though any decision on practical completion will always be highly dependent on the particular circumstances of a project, parties should carefully consider the intended purpose and functionality of the building and whether particular aspects are certainly required prior to practical completion and identified as such so as to provide granularity to guide and control a certifier in the exercise of his discretion as to whether practical completion has been achieved.  If the parties intend for any specific consequences to be attached to a failure to achieve a particular aspect of practical completion, those consequences should be clearly specified.


This article was written by Ben Wilkins. For more information, please contact Ben on ben.wilkins@crsblaw.com  or +44 (0)20 7438 2216.

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