The UK Court of Appeal ("EWCA") in Mears Limited v Costplan Services (South East) Limited, Plymouth (Notte Street) Limited, J.R. Pickstock Limited  EWCA Civ 502 considered the meaning of practical completion and when a breach of contract can prevent practical completion.
Pursuant to an Agreement for Lease ("AFL") dated 20 May 2016, Mears, which was in the business of providing managed student accommodation, contracted with Plymouth ("Developer") to take a long lease of 2 blocks of student accommodation constructed by Pickstock after certification of practical completion. Under the JCT building contract, Pickstock was required to complete the construction of the works in conformity with the Developer's obligations under the AFL. In this regard, the AFL did not contain a contractual definition of "Practical Completion" and Clause 6 of the AFL provided that the Developer shall not make any material variations to the size, layout or appearance, and a reduction of the size of any distinct area by more than 3% shall be deemed material. As it turned out, 56 of the rooms were more than 3% smaller than planned in the drawings. Mears thus sought, inter alia, a declaration that practical completion could not be achieved as there were known defects which were "material or substantial". On 22 August 2018, Mears was granted an interlocutory injunction restraining the certification.
The UK High Court ("EWHC") subsequently declined the declaration and adopted a more flexible approach: defects which were not "de minimis" (i.e. trifling) may or may not prevent practical completion "depending on the nature and extent of [them] and the intended purpose of the building". Mears then appealed to the EWCA.
The EWCA upheld the decision at first instance and dismissed the appeal. In the judgment, the Court summarized the law on practical completion as follows:
- Practical completion is easier to recognise than define: Keating, 10th ed 20-169; There are no hard and fast rules with regards to practical completion: Bailey para 5.117 footnote 349.
- The existence of a latent defect cannot prevent practical completion: Jarvis & Sons Ltd v Westminster Corporation.
- In relation to patent defects, there is no difference between an item of work not yet completed and one that has been completed but is defective and requires remedy.
- The existence of patent defects will be sufficient to prevent practical completion, save where they are trifling in nature.
- 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, such an ability does not necessarily mean that the works are practically complete.
- The mere fact that a defect is irremediable does not mean the works are not practically complete.
The Court held that while the failure to stay within the tolerance of 3% was a breach of contract, whether any particular departure from a contractual drawing was trifling was a matter of fact and degree. On the facts, as the contract did not define practical completion, it was left as a discretion for the certifier. Whether the certifier would be correct in certifying completion was not a question before the Court. Nonetheless, the mere fact that the property is habitable as student accommodation also does not, by itself, mean that the property is practically complete.
This case is useful in that it clarifies what amounts to practical completion. The EWCA however noted that there is no authority on the interplay between practical completion and irremediable nature of outstanding work items. What is clear is that trifling defects that are irremediable does not prevent practical completion.
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