Practical completion is said to be easier to recognise than define.1 In practice, whether the works are practically complete or not is an important – and often contentious – issue, because the achievement of practical completion signifies a change in the parties’ roles and responsibilities. For example, the risk of loss or damage to the works passes from the contractor to the employer, the contractor is no longer liable for liquidated damages, the defects liability period begins to run, and retained funds are released. It is generally accepted that practical completion does not mean that every aspect of the works must be complete and defectfree and that minor outstanding works or defects can be completed or remedied after practical completion. But where should the line be drawn as to those matters which prevent practical completion until they are completed, and those which do not and can be completed later? And what happens if defects exist which are irremediable; does this mean practical completion can never be achieved?
Mears v Costplan – Guidance recently provided by the Court of Appeal
Those questions were recently considered by the English Court of Appeal in Mears v Costplan.2 The case concerned an agreement for lease in relation to two blocks of student accommodation. Clause 6.2.1 of that agreement prohibited certain variations to the works and provided as follows:
||The Landlord shall not make any variations to the Landlord’s Works or Building Documents which:
|| 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”
In the event, 56 of the rooms were built more than 3% smaller than specified.3 It was common ground that this was a breach of contract, which was, for practical purposes, irremediable (i.e. it was not realistic to demolish and rebuild the accommodation blocks). The question before the court was whether a reduction in room size exceeding 3% was, of itself and without more, a material breach of contract, that prevented practical completion from being certified.
The Court held that Clause 6.2.1 provided a mechanism by which to identify breaches of the contract – the deemed materiality allowed the parties to identify whether a reduction in room size constituted a prohibited variation and therefore a breach of contract. Clause 6.2.1 did not provide that any prohibited variation constituted a material breach of contract; that remained a question of fact and degree.4 The Court also said that the fact that the breach could not be economically remedied was not a matter going to whether or not practical completion had been achieved.
What is helpful to employers and contractors is that, in the Judgment, Coulson LJ reviewed English and Commonwealth authorities on practical completion and summarised the law as follows:
- Practical completion is easier to recognise than define. There are no hard and fast rules.5
- The existence of latent defects cannot prevent practical completion (this is self-evident as the certifier does not know about them).
- In relation 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.
- Whilst judicial views have differed, a practical approach has been developed and adopted: practical completion is a state of affairs in which 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.” 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 mere fact that an outstanding item of work or defect is irremediable does not mean that the works are not practically complete. What matters is whether the defect is trifling or not.
Whilst many standard form construction contracts provide no guidance as to when the works are practically complete, others seek to reflect, to some extent, the state of the law.
The JCT Major Works Form states that practical completion takes place when: the project is complete for all practical purposes; the relevant statutory requirements have been complied with and any necessary consents or approvals obtained; neither the existence nor execution of minor outstanding works would affect its use; any stipulations identified by the requirements as essential to practical completion have been satisfied; and the health and safety file and all “as built” and operating and maintenance information required has been delivered.
By way of further example, FIDIC Red Book (1999 Edition) does not use the term practical completion but, in relation to the Employer’s taking over, refers to Works completed in accordance with the Contract, except for any minor outstanding work and defects which will not substantially affect the use of the Works for their intended purpose (either until or whilst the work is completed and these defects are remedied).
However, if there is a certain element of the works which is important to the employer, particularly if it is something that is not necessarily required to use the works for their intended purpose, it is worth considering including further provisions in the contract to reflect this as part of the definition and test for practical completion. In any event, these provisions should be carefully drafted to set out clearly what is required for practical completion and/or those matters which will prevent the certification of practical completion. Certainty on this issue is not only important given the consequences which follow practical completion, as addressed above, but also to avoid the scope for disputes.
Client Alert 2019-094
- Keating on Construction Contracts, 10 Edition, paragraph 20-169.
- Mears Limited v (1) Costplan Services (South East) Limited; (2) Plymouth (Notte Street) Limited; (3) J.R. Pickstock Limited  EWCA Civ 502.
- Waksman J’s finding at first instance: Mears Limited v (1) Costplan Services (South East) Limited; (2) Plymouth (Notte Street) Limited; (3) J.R. Pickstock Limited  EWHC 3363 (TCC).
- Mears v Costplan concerned an application by Mears for specific declaratory relief – whether or not the reduction in room sizes was a material breach of contract was not before the Court.
- See above at i and Bailey, paragraphs 5.117 footnote 349.