Judicial interpretation of the term 'practical completion' has settled its academic meaning but how it should apply in practice is far from certain. The contractor carrying out the work might also feel aggrieved if it is of the opinion that the certifier did not act impartially. To avoid disputes, it is important that the parties clearly define 'practical completion' in their contract. The recent English High Court decision in Laing O'Rourke v Healthcare Support (Newcastle) Ltd & Ors [2014] EWHC 2595 (TCC) illustrates the importance of a clear definition.

Laing O'Rourke v Healthcare Support

The case concerned the construction of hospital facilities under a project agreement (between the first and second defendants for design, construction and finance of the facilities) and a construction contract (between the claimant and the first defendant for design and construction of the facilities).

The project agreement provided for the engagement of an independent tester who would certify practical completion of the claimant's works in accordance with the completion criteria specified in the project agreement. The construction contract contained an almost identical provision with the same completion criteria.

The claimant contended completion of Phase 8 comprising clinical office blocks but the independent tester refused to certify for practical completion due to the second defendant's complaints about the quality and conformity of certain aspects of the claimant's works (toilet area size, daylight levels, window restrictors, link bridge steelwork and room temperature). The claimant argued that these issues fell outside the completion criteria and sought a declaration that the independent tester should reference the completion criteria only. The second defendant on the other hand contended that practical completion should be assessed against its own construction requirements and other terms of the construction contract, as well as the completion criteria.

The key issue for the court was whether any breach of contract relating to the quality or conformity of the works was grounds for withholding the completion certificate, or whether compliance with the completion criteria was sufficient – which in the end the court concluded it was.

In reaching this conclusion, the court acknowledged that a material departure from the second defendant's construction requirements might potentially have an adverse effect on the amenity and functional utility of the clinical offices. If, however, the independent tester reasonably considered that the departure did not have and would not have a materially adverse effect on the enjoyment and use of the buildings in the manner contemplated by the agreements, he could then conclude that the completion criteria had been met. The court further held that there was no justification to imply a term in the agreement that any breach of the contractual requirements, however technical or minor, would prevent certification of practical completion.

The position in Hong Kong

The leading authority in Hong Kong on the meaning of practical completion is Mariner International Hotels Limited v Atlas Limited(2007) 10 HKCFAR 246. The Court of Final Appeal defined practical completion as a state of affairs in which the work concerned had been completed free from any patent defects other than ones to be ignored as trifling. This definition applies where 'practical completion' is not expressly defined in the contract. It arguably sets a higher threshold than the definition decided upon by the Court of Appeal in the same case which emphasised on the building being capable of opening for business.

The English court in the Laing O'Rourke case referring to practical completion as the stage of there being no 'materially adverse effect on the enjoyment and use of the buildings' would appear more in-line with the Hong Kong Court of Appeal's ruling than that of the Court of Final Appeal. The Laing O'Rourke case therefore appears somewhat inconsistent with the Court of Final Appeal's definition in Mariner.

The Mariner definition of practical completion has its own shortcoming. In practice, whether a particular defect is trifling is often not a straightforward question and there is considerable scope for dispute. It is therefore not uncommon for parties to expressly agree a more detailed definition of practical completion in their contract than that from Mariner, or agree to not adopt at all the Marinerdefinition.

The Laing O'Rourke case serves as a reminder of the importance of properly defining practical completion. Clause 22.5 of the construction contract required the claimant's work to be completed in accordance with (amongst other things) the second defendant's construction requirements. The second defendant relied on such clause to argue that practical completion had to be assessed against these construction requirements as well as the completion criteria. The second defendant also argued that the completion criteria were only provisionally binding as the agreements further contemplated the development of a final commissioning programme in consultation with the second defendant which would eventually subsume the completion criteria, although no programme of such kind was developed for the claimant's Phase 8 works. Although these challenges were ultimately unsuccessful, they could have been easily avoided in the first place if the contract clearly stated that practical completion should be assessed by reference to only the completion criteria.

An unclear definition of practical completion also comes with a risk of an unintended meaning being conferred by the court. This is well illustrated in the Hong Kong High Court's decision in Vigour Limited v Hyundai Engineering and Construction Company Limited[2008] HKEC 1425. The case concerned a contract to build a hotel which expressly defined practical completion as when the works were 'fully available for possession and use, subject only to minor works'. The minor works were defined to exclude works which would otherwise 'inconvenience or unreasonably disturb occupants'. A dispute arose over the meaning of the term 'occupants' as this term was not defined in the contract. The employer contended that the 'occupants' were hotel guests and staff who had a lower level of tolerance for the minor works. The court disagreed and held that the 'occupants' were those with a higher level of tolerance. As a result of the court's ruling, practical completion was to be certified notwithstanding that some outstanding works could disturb hotel guests and staff.

Conclusion

Practical completion is often easier to recognise than to define. A definition that fits the exact meaning intended by the parties is often not possible. This should not however be the reason for the parties leaving it undefined. Although the Mariner definition will apply in the absence of an express contractual definition, how it would apply in practice to the particular circumstances could be far from certain. Parties seeking more certainty in the meaning of practical completion should therefore attempt to define it as clearly as possible.