The case concerns a dispute that arose from the development of two blocks of student accommodation at Notte Street in Plymouth ("the Development").
The Parties
On 20 May 2016, Mears Limited ("Mears") entered into an Agreement for Lease with Plymouth (Notte Street) Limited ("PNS"), the proprietor of the Development site, and J.R. Pickstock Limited ("Pickstock") which provided for Mears to take a 21 year lease of the Development within 5 working days of practical completion ("the AFL"). PNS accordingly engaged Pickstock to design and construct the Development under a JCT Design and Build Contract dated 27 May 2016. PNS appointed Costplan Services (South East) Limited ("Costplan") to act as its agent in respect of the Development's construction on 25 November 2016.
The Dispute
By mid-2018 Mears had raised a number of issues regarding both work that had not been completed and the quality of the completed works at the Development. One of the issues identified by Mears was that the rooms within the Development had been built smaller than contractually permitted under the AFL. Under clause 6.2.1 of the AFL, PNS was prevented from making any variations to the building works which materially affected the size of the rooms and a reduction in size of more than 3% from that stipulated in the relevant contractual drawings was deemed to be material.
On 4 May 2018, Mears served a defects notice under the AFL alleging that 40 of the rooms had been constructed more than 3% smaller than required. Costplan disagreed with Mears' assessment and, notwithstanding the defects notice, on 16 August 2018 Costplan served notice that they intended to conduct a pre-completion inspection with a view to issuing the certificate of practical completion. To prevent this, Mears made an application for an interlocutory injunction preventing certification and an expedited trial of the issues was ordered.
Mears alleged that the failure of the rooms to meet the 3% tolerance range specified in the AFL was a material and substantial breach of the AFL and that, as the breach could not be remedied (the size of the rooms could not be increased), Costplan could not validly certify practical completion. Mears contended that, without practical completion, they were discharged from their obligation under the AFL to execute the Lease and sought a declaration preventing the certification of practical completion.
The Decision at First Instance
In a judgment dated 7 December 2018, whilst finding that 56 rooms had been constructed in breach of the 3% tolerance range for room size in the AFL, Waksman J rejected Mears' claims for declarations to the effect that the failure to meet the 3% tolerance was a material and substantial breach of the AFL enabling Mears to determine the AFL and that Costplan could not validly certify practical completion. Waksman J held that Mears' argument was wrong as a matter of construction and whether practical completion could be certified depended on the facts. Mears appealed to the Court of Appeal.
Court of Appeal Decision
The Court of Appeal upheld the decision at first instance and dismissed the appeal. In the leading judgment, Coulson LJ rejected the contention that any failure to meet the 3% tolerance with regards to room size, no matter where or why it occurred or how trivial the departure was, automatically amounted to a material breach of contract. The failure to stay within the 3% tolerances was a breach of contract but whether any particular departure from a contractual drawing was trifling or otherwise was a matter of fact and degree. Coulson LJ stated that without any express contractual definition or control, practical completion was a question for the certifier. As Costplan would have certified practical completion notwithstanding the existence of the rooms outside tolerance the assumption was that they considered the departures from the 3% tolerance to be trifling. Coulson LJ held that a patent defect that is properly regarded as trifling cannot prevent the certification of practical completion, however, if the defect is considered to be more than trifling it will prevent practical completion, whether or not it is capable of remedy.
Comment
The Court of Appeal last considered practical completion in 1969, in the case of Jarvis & Sons Ltd v Westminster Corporation. In that decision, Salmon LJ had suggested that practical completion meant "… completion for all practical purposes, that is to say, for the purpose of allowing the employers to take possession of the works and use them as intended."
In this judgment, Coulson LJ provided a review of some of the key principles derived from the authorities decided subsequent to Jarvis, from both England and Wales and the Commonwealth with regards to practical completion, which can be summarised as follows:
- There are no hard and fast rules with regards to practical completion; it is easier to recognise than it is to define.
- Absent any contractual definition, practical completion is a matter for the certifier.
- The existence of latent defects cannot prevent practical completion. If the defect is latent, it is not known at the time and it cannot prevent the certifier from concluding that practical completion has been achieved.
- With regards to patent defects, there is no difference between an item of work that has yet to be completed and an item of defective work which requires to be remedied.
- The existence of a patent defect which may properly be considered trifling, does not necessarily prevent practical completion.
- The existent of a patent defect that is considered to be more than trifling will 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 employer to take possession and use the works as intended. However, the fact that a house is capable of being inhabited does not always mean that the works shall be regarded as practically complete.
- The fact that a defect cannot be remedied does not mean that practical completion cannot be achieved.
Whilst the above provides a helpful summary of the key principles, the question of whether or not practical completion has been achieved will continue to be assessed on a case by case basis and as such it is likely to continue to be a potential area for construction disputes, and indeed for claims to be advanced against the professional acting as certifier under any construction contract.
Contact
For more information please contact Louise Walker, Senior Associate
Professional Indemnity +44 20 7220 5210 Louise.Walker2@dwf.law
