Practical completion: are we any closer to agreeing what it is?
Mears Limited v Costplan Services (South East) Ltd & Others [29.03.19]
Despite being of significant commercial and contractual importance, there is no precise legal definition of ‘practical completion’, and most standard form contracts do not define it. It is accepted by academics and practitioners alike that practical completion is easier to recognise than to define, but it is generally understood to mean the point at which a building project is complete, save for minor defects, which can be rectified without undue disturbance to an occupier.
The case of Mears is the first time practical completion has been considered in the Court of Appeal for 50 years, with the Court helpfully shedding some light on how to navigate the pitfalls of what constitutes practical completion.
When a project is confirmed ‘practically complete’, a variety of specific legal and practical consequences are triggered, including a partial release of the retention, ending of the contractor's liability for liquidated damages, the beginning of the defects liability period, and the transfer of the risk of loss or damage to the works to the employer. Against this background, it is unsurprising that the meaning of ‘practical completion’ often becomes contentious.
This case concerned a dispute in connection with student accommodation flats, which were built more than 3% smaller than contractually specified. It was accepted by the parties that this failure to achieve the required room size was a breach of contract; however the parties could not agree as to the consequences of such a breach, including whether the works could be certified practically complete.
Court of Appeal guidance on practical completion
While the appeal was decided on a different question of interpretation, the case is significant due to the Court of Appeal’s consideration of the meaning of practical completion. While the meaning of practical completion was also considered in the first instance decision (where the judge adopted the definition given in Keating on Construction Contracts (ninth edition 2012)), Coulson LJ (with whom Newey and Lewison LJJ agreed) went further, providing a helpful review of existing case law.
Coulson LJ described the key principles of the law regarding practical completion at paragraph 74 of his judgment, which can be summarised as follows:
- “Practical completion is easier to recognise than define... There are no hard and fast rules.”
- Practical completion cannot be prevented by the existence of latent defects. If a defect is latent, nobody knows about it and so it cannot prevent certification that practical completion has been achieved.
- Regarding patent defects, case law demonstrates that there is no difference between an item of work that is outstanding and an item of work requiring rectification. Snagging lists can and usually will identify both types of defect without distinction.
- The practical approach that was developed by Judge Newey in H.W. Nevill (Sunblest) Limited v William Press & Son Limited  and Emson Eastern Limited (in receivership) v E.M.E. Developments Limited  and which has been adapted in all subsequent cases can be summarised as 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 use them as intended.” However, this does not mean that just because, for example, a house is capable of being inhabited, it must automatically be regarded as being practically complete. Account should be taken of the nature and extent of the items of work which remain to be completed/remedied.
- Other than Ruxley Electronics & Construction Limited 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.” In any event, Ruxley does not support the view that simply because a defect is irremediable, practical completion cannot be certified.
Importantly, Coulson LJ also added that “in the absence of any express contractual definition or control, practical completion is, at least in the first instance, a question for the certifier”. As Costplan would have certified practical completion notwithstanding the fact that 56 of the rooms were outside the 3% tolerance, the breach could be considered trifling.
There is a degree of subjectivity in deciding whether the works are practically complete, which places importance on the contract administrator whose view might suit the contractor or the employer more depending on the decision. It is certain that, given its importance to the parties, the difficulty in providing a precise definition and its imprecise nature, the issue of practical completion will continue to be a contentious one.