In the recent ruling in the Court of Appeal in Mears Ltd v Costplan Services (South East) Ltd & Others  EWCA Civ 502 the Court has provided authoritative guidance as to when Practical Completion can be said to have occurred. The details of the case are as follows:
Mears Ltd a property management company had entered into an Agreement For Lease (AFL) with a developer Plymouth (Notte Street) Ltd (2PNSL) take a 21 year lease of two student blocks which PNSL had employed J.R. Pickstock to design and build under a JCT Design and Build contract. Costplan had been employed to act as Employers Agent.
The dispute arose once the buildings had been completed. There was a number of defects with the finished blocks alongside which Mears claims that 56 of the rooms were more than 3% smaller than specified in the AFR which they claimed was a material breach of the contract which prohibited any variations to the building works which materially affected the size of the rooms by more than 3%.
Mears claimed that inlight of this material breach in contract Costplan could not issue a valid certificate of Practical Completion.
The Technology and Construction Court (TCC) dismissed Mears interpretation and said defects which were not de minimis in nature may or may not prevent practical completion depending on the nature and extent of them and the intended purpose of the building.
Mears appealed this ruling.
The Court of appeal upheld the TCC’s commentary dismissing Mears absolute approach it definition of a material breach of contract. Coulson LJ, stated that Mears approach would be “commercially absurd” stating “it would be commercially unworkable if every departure from the contract drawings, regardless of the reason for, and the nature and extent of, the non-compliance, had to be regarded as a breach of contract”. He went on to say that if this “absolutist argument” was followed “a failure to meet the 3% tolerance in relation to the bin store on the ground floor, even if that failure was trivial, would be said to be a material breach of contract”.
This ruling by Coulson LJ thereby rejected the claim by Mears that the Costplan were bound under the terms of the contract to recognise the failure to meet the 3% tolerance as Coulson had already stated that for the reasons stated above the construction of the contract had already been rejected. Coulson LJ also noted that the it was irrelevant that the defect was irremediable when he stated:
“If there is a patent defect which is properly regarded as trifling then it cannot prevent the certification of practical completion, whether the defect is capable of economic remedy or not. If on the other hand the defect is properly considered to be more than trifling, then it will prevent practical completion, again regardless of whether or not it is capable of remedy. In this way, the issue as to whether or not it is capable of economic repair is a matter that does to the proper measure of loss, not to practical completion.”
Coulson LJ then went on to provide a summary of the definition of practical completion, namely:
- Practical completion is easier to recognise than define. There are no hard and fast rules.
- The existence of latent defects cannot prevent practical completion. If the defect is latent, no one knows about it and it cannot prevent the certifier from concluding that practical completion has been achieved
- In relation to patent defects, the cases showed that there is no difference between an item or work that has yet to be completed and an item of defective work which requires to be remedied. Both items will usually be identified in snagging lists without distinction
- The existence of patent defects which may be considered trifling do not necessarily prevent practical completion
- 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 use them as intended, however this should not be elevated into the proposition that if, say, a house is capable of being inhabited, or a hotel opened for business, the works must be regarded as practically complete, regardless of the nature and extent of the items of work which remain to be completed/remedied.
- The fact that a defect cannot be remedied does not mean that practical completion cannot be achieved
Therefore, unless there is a defined description of practical completion within the contract the responsibility for deciding whether practical completion has occurred remains with the certifier applying the above rules. Where a definition of practical completion does exist in the contract the parties should ensure that the it is properly described to avoid disputes such as University of Warwick v Balfour Beatty Group Ltd.
This article contains information of general interest about current legal issues and does not provide legal advice. It is prepared for the general information purposes only. This article should not be relied upon in any specific situation without appropriate legal advice.