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Published 22 May 2019
A fundamental but often overlooked principle of any agreement relating to works is what constitutes “practical completion”. Most standard forms fail to adequately define “practical completion” and it is a point which creates fertile grounds for dispute.
In the Court of Appeal’s first review of practical completion in half a century, the guidance in Mears v Costplan  EWCA Civ 502 is essential for any party considering whether or not practical completion has had been achieved, whilst the case of Warwick University v Balfour Beatty  EWHC 3230 (TCC) serves as a timely reminder that if the concept is defined under the contract, it is important to get it right.
Mears entered into an agreement for lease (“AFL”) with Plymouth (Notte Street) Limited (“PNSL”). PNSL in turn contracted with J.R. Pickstock Limited (“Pickstock”) as building contractor for the carrying out of a student accommodation development. Costplan was the Employer’s Agent.
The development, it transpired, was built with 56 of the rooms being more than 3% smaller than required. This exceeded the permitted contractual tolerance level and it was common ground that this constituted a “material variation” under the AFL. Mears alleged that the failure to meet the required tolerance levels was a material and substantial breach which entitled it to terminate the AFL and prevent Costplan from issuing the practical completion certificate
At first instance, the Court rejected Mears’ argument. This view was upheld by the Court of Appeal. It held that, whilst a “material variation” may be a breach, it did not necessarily constitute a “material breach”. Further, that to permit such an interpretation would lead to the commercially absurd result that practical completion could not be certified, as the breach could no longer be remedied.
The Court of Appeal could have stopped there but, helpfully, it went on to provide an authoritative view on what constitutes practical completion. In summary:
In conclusion, the Court of Appeal confirmed that:
“in the absence of any express contractual definition, practical completion is, at least in the first instance, a question for the certifier”
In this case, the parties’ contract sought to define practical completion by reference to:
“a stage of completeness of the Works or a Section which allows the Property to be occupied or used”.
A dispute arose because “the Property” was defined as “completed Works”.
Balfour Beatty argued that on a proper construction of the Contract, it was not possible to achieve practical completion of one Section of the Works prior to practical completion of the whole of the Works, and as a result, the liquidated damages provisions of the Contract were inoperable
The Court rejected that argument on the basis that the ordinary meaning and objective intention of the Contract in its entirety pointed clearly to the fact that a Section could be certified before the whole of the Works.
These cases provide helpful guidance for anyone considering how to define or ascertain whether or not ‘practical completion’ has been achieved. Whilst many commentators appear to consider that Mears v Costplan suggests a ‘relaxation’ in the approach to what constitutes practical completion, parties should be mindful that it will no longer be possible to rely on the ‘intended use or possession’ of the Works as an overriding factor. If such an approach is intended, it is better to follow the lessons from University of Warwick v Balfour Beatty and draft the contract to avoid ambiguity from the outset.
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