Trifling defects and practical completion

One of the biggest areas of debate in construction projects is the question: has practical completion happened?

The recent Court of Appeal decision in Mears Limited v Costplan Services (South East) Limited (1) Plymouth (Notte Street) Limited (2) and J.R. Pickstock Limited (3): [2018] EWHC 3363 (TCC) has brought some clarification to this area.

The facts

The case related to a student accommodation project. PNS engaged Pickstock as contractor. PNS entered into an Agreement for Lease with Mears which upon grant of the practical completion certificate by Costplan (the Employer's Agent), would require Mears to enter into a 21 year lease for the property.

After entering into the lease, Mears discovered that the room sizes had been constructed over 3% smaller than provided for in the drawings appended to the agreement for lease. The Agreement for Lease included a specific clause stating that this would be a material reduction – but, critically, not a material breach. Mears objected to the issue of the practical completion certificate.

The Court of Appeal

Mears said the certifier did not have a completely free hand when certifying practical completion. The certifier was bound by the Agreement for Lease – any failure to meet the 3% tolerance amounted to a breach of contract.

Not only that, such a failure was a material breach which automatically prevented any such breach being characterised as trifling or de minimis. In the alternative, Mears claimed such breaches were irremediable (as the building could not be reconstructed to negate the 3% shortfall) and this also prevented practical completion as a matter of law.

PNS on the contrary, argued that practical completion was a matter of fact and degree, and so it was a matter for the certifier as to whether or not the failure to achieve the 3% tolerance prevented practical completion. Whether or not the defects were remediable did not matter.

What mattered was whether the outstanding works could be regarded as trifling. If they were not trifling, practical completion could not be certified; if they were trifling then it could, irrespective of whether the outstanding items could economically be remedied.

What is practical completion?

Declining to grant the declarations sought by Mears, Lord Justice Coulson summarised the law as he saw it:

• Practical completion is easier to recognise than define.
• The existence of latent defects cannot prevent practical completion.
• 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, just because the building is for, example, capable of being inhabited or opened for business, this does not mean 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.
• Other than Ruxley v Forsyth, there is no authority which addresses the interplay between the concept of completion and the irremediable nature of any outstanding item of work. However, Ruxley does not support the proposition that the mere fact that the defect was irremediable meant that the works were not practically complete.

Failure to meet the 3% tolerance did not automatically amount to a material breach of contract. The relevant clause did not actually say the breach was material – only that reduction in room sizes would be material if over 3%.

Parties to a construction contract can agree particular parameters to guide a certifier in the exercise of his discretion in relation to practical completion – but that did not happen here.

In the absence of any express contractual definition, Coulson LJ made it clear that practical completion is, at least in the first instance, a question for the certifier.

Conclusion

The case reiterates that in the absence of clear contractual parameters, the question of whether or not practical completion has occurred is one for the certifier as a matter of fact and degree.

It is advisable if procuring a building, that employers ensure the requirements for practical completion are made explicitly clear so that arguments as to what is required/not for required for practical completion are minimised.

However, if you are a contractor, you may prefer to keep the requirements for practical completion a little looser so that there is more room to argue remaining work is "trifling".