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“Practical completion” considered

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The Court of Appeal has recently considered the meaning of “practical completion” in a construction contract, and the circumstances under which practical completion may be prevented: Mears Limited v Costplan Services (South East) Limited, Plymouth (Notte Street) Limited, J.R. Pickstock Limited [2019] EWCA Civ 502.

Background

Pickstock was employed by Plymouth (Notte Street) Limited (“PNSL”) to design and build two blocks of student accommodation. PNSL entered into an Agreement for Lease (“AFL”) of the accommodation blocks with Mears, managers of student accommodation, who had agreed to take a long lease of the new accommodation following completion. Pickstock was also a party to the AFL. Costplan was employed as PNSL’s agent in respect of the construction project.

The project encountered delays. The AFL contained a long stop date of 18 September 2018 (as varied) after which PNSL or Mears could terminate the AFL if practical completion under the construction contract had not been achieved. Assuming practical completion was achieved, then the lease was to be executed within five working days thereafter.

Over spring/summer 2018, Mears served several defects notices on PNSL which, amongst other things, alleged that around 56 rooms had been constructed more than 3% smaller than was required by the AFL. It did so on the basis that under clause 6.2.1 of the AFL, PNSL was prevented from making any variations to the works that “materially affect the size (and a reduction of more than 3% of the size of any distinct area shown upon the Building Documents shall be deemed material), layout or appearance of the Property”.

On 16 August 2018, Costplan indicated that it intended to conduct a pre-completion inspection, with the intention of issuing a certificate of practical completion. Four days later, given Mears’ concerns over the financial impact that the smaller rooms might have on its future income from letting the accommodation, Mears obtained an injunction restraining the issuance of the practical completion certificate. An expedited trial of certain issues was also ordered at this time.

As part of these expedited proceedings, Mears sought five declarations from the court. The first three declarations related to whether Costplan was permitted to certify practical completion whilst there were known material or substantial defects and/or material and substantial breaches of the AFL.

Declaration 4 was the main focus of judicial attention and was worded as follows:

“(4) That, on a true construction of the AFL, any failure to construct one or more of the rooms of the Property such that they are not more than 3% smaller than the sizes specified in the … drawings contained in the Building Documents … or (contrary to Mears’ primary case) such alternative room sizes otherwise agreed to by Mears is a material and substantial breach of Clause 6.2 of the AFL [and/or] constitutes a material and substantial defect in the works.”

Declaration 5 sought a finding that one or more of the rooms had, in fact, been constructed more than 3% smaller than the size(s) specified in the AFL or such alternative room sizes otherwise agreed to by Mears.

Court at first instance

At first instance, the High Court held that Mears was entitled to declaration 5, but declined to make declarations 1-4.

It concluded that although there was a breach of clause 6.2.1 in relation to the size of the rooms, which the clause specified to be “material”, this did not necessarily mean that there was a material breach of the AFL, which would in turn prevent a certificate of practical completion being issued. Waksman J commented that this elided two separate concepts, namely “(a) the scale of the variation and (b) the scale of any resultant breach”.

The court was also not persuaded that if the breach of clause 6.2.1 was irremediable, then it must necessarily follow that practical completion could not occur; other remedies would be, and were, available for such a breach.

Mears appealed against the decision not to allow declarations 1-4.

Court of Appeal

The Court of Appeal agreed with the judge at first instance. It concluded that, in relation to clause 6.2.1:

“… the parties were not saying that the resulting breach of contract was itself “material”. The words of clause 6.2.1 do not say that. Materiality is introduced only in relation to room size (“materially affect the size”), and not in relation to the resulting breach. 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.”

The court went on to say that if the parties were taken to have agreed that any failure to meet the 3% tolerance, however trivial, was a material breach of contract, the result would be “very uncommercial” and that “clear words would be necessary for such a draconian result.” The Court of Appeal was of the view that no such wording existed in the AFL.

Summary of case law in relation to practical completion

As part of the judgment, Lord Justice Coulson reviewed the case law in relation to the meaning of “practical completion” and distilled the following principles:

  • There are no definitive rules as to the meaning of practical completion;
  •  ­Latent defects will not prevent practical completion;
  •  ­With regard to patent defects, there is no difference between outstanding work and defective work requiring remedial action;
  •  ­Practical completion can be achieved when “the works have been completed free from patent defects, other than ones to be ignored as trifling”;
  •  ­Whether or not an item is trifling is a matter of fact and degree, to be measured against “the purpose of allowing the employers to take possession of the works and to use them as intended” (Jarvis & Sons Limited v Westminster Corporation & Another [1969] 1 WLR 1448);
  •  ­There is no judicial support for the proposition that an irremediable defect prevents practical completion.

Conclusion

This case provides some helpful guidance as to the reality of when “practical completion” can be said to have occurred, as well as a useful summary of the law on this point. It is worth keeping in mind, however, that this case turned solely on the construction of clause 6.2.1 of the AFL. The courts were, therefore, not entitled to consider whether, as a matter of fact, the breaches complained of were sufficient to justify rescission of the AFL or render the certificate of practical completion invalid, nor what an appropriate remedy would be for the breaches; that is the subject of further litigation and we will keep you informed of any relevant updates in due course.

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