September 6, 2019

What does ‘Practical Completion’ actually mean?

Mears Limited v Costplan Services (South East) Limited and Others [2019]

In the TCC case of Mears v Costplan, Coulson LJ considered the meaning of 'practical completion' and provided a useful precis of the law on this intangible concept.

It was held that practical completion may be certified where, although the particulars of a building contract are not specifically and completely fulfilled, to prevent it would be commercially illogical.  In each case consideration has to be given to the fact and degree to which variations or breaches may preclude the issue of a Certificate of Practical Completion.  Whilst stopping short of actually defining 'practical completion', Coulson LJ considered the relevant authorities in English law and provided an overview of its key elements: 

  • practical completion is easier to recognise than define;
  • the existence of latent defects cannot prevent practical completion, since nobody knows about them;
  • in relation to patent defects, there is no difference between an item of work which has to be completed, i.e. an outstanding item, and an item of defective work which requires to be remedied – snagging lists will usually identify both;
  • the existence of "trifling" patent defects will not preclude practical completion;
  • whether or not a defect is trifling is a matter of fact and degree measured against "the purpose of allowing employers to take possession of the works and to use them as intended"; and
  • an irremediable defect will not in itself prevent practical completion.

The case concerned an appeal by Mears against a first instance decision to refuse to prevent proper certification of practical completion of two blocks of student accommodation, in respect of which Mears had an agreement for lease ("AFL"). Plymouth (Notte Street) Limited ("PNSL") engaged J.R. Pickstock to design and build the student accommodation and Mears was to take a long lease of the flats from PNSL following completion. Under the terms of the AFL, Mears was entitled to terminate it if practical completion did not occur by an agreed longstop date. The AFL also prohibited PNSL from making any variations that would "materially affect the size" of the rooms, and it is on this prohibition that the case turned.

Prior to the longstop date, Mears issued a defects notice alleging that 40 rooms had been constructed more than 3% smaller than required. Notwithstanding the notice, Costplan, the Employer's Agent, intended to carry out a pre-completion inspection and issue a Certificate of Practical Completion. Mears, having successfully applied for an interlocutory injunction preventing certification, alleged that, as at least one of the rooms was more than 3% smaller than the size shown in the contract documents, there was a breach of the AFL which prevented the certification of practical completion and consequently entitled it to terminate the AFL.

At first instance, it was found that 56 rooms were more than 3% smaller than the sizes shown on the relevant site drawings. Mears therefore claimed that any failure to meet the 3% tolerance was a "material and substantial" breach of the AFL, and as result Costplan could not validly certify practical completion. Despite the injunction, Waksman J rejected Mears' claims, holding that it would not make commercial sense to allow Mears to terminate the AFL for any breach no matter how minor.

Waksman J's decision was upheld on appeal.  Coulson LJ held that to prevent practical completion for any failure to meet the 3% tolerance would be "commercially absurd". Mears' absolute construction of the 3% tolerance was not an accurate interpretation of the provision in question, which introduced materiality in relation to the room size, not in relation to the ensuing breach. Reference was made to Ruxley Electronics & Construction Limited v Forsyth [1996], which concerned the construction of a swimming pool with a diving area shallower than the proposed depth in the contract. Notwithstanding the owner's claim that payment was not due as the contract was never completed, the House of Lords held that the appropriate remedy was not the cost of reinstatement but the value of the diminution due to the reduced depth. The same logic was applied to Mears' claim against the validity of the practical completion certificate.