The Court of Appeal has reviewed the meaning of practical completion in construction contracts and provided a judgment that legal practitioners and those with certification responsibilities alike will find useful. Those reading this and hoping for a one-size-fits-all definition of practical completion will, however, be disappointed: every project is different. Diverse factors on each project will dictate when it is practically complete. Certifiers will still need to use their professional judgment in each case when certifying. Prudent parties to construction contracts will therefore give the certifier some flexibility to exercise that judgment and continue to leave the term undefined (as most standard form contracts do already).
In Mears Ltd v. Costplan Services (South East) Ltd and others  EWCA Civ 502, the appellant, (Mears), a provider of managed student accommodation, had contracted to enter into a long lease of a block of student accommodation with the second respondent, Plymouth (Notte Street) Limited (Plymouth) under an agreement for lease (AfL). In turn, Plymouth had engaged the third respondent, J.R. Pickstock Limited (Pickstock) to design and build that accommodation using a contract based on the JCT Design and Build Contract Form, 2011 (with amendments).
The AfL contained a term prohibiting Plymouth from making any variations to the building works which materially affected the size of the rooms. In the event, in breach of this term, 56 of the rooms were built 3 per cent smaller than the size set out in the contract drawings – a fact agreed by the parties. Mears alleged that any failure to meet this 3 per cent tolerance was a material and substantial defect which:
- automatically entitled Mears to determine the AfL; and
- meant that the employer's agent, the first respondent (Costplan), could not certify practical completion.
Court of Appeal guidance on practical completion
Mears' arguments failed at both first instance and on appeal. In the Court of Appeal, a key issue was whether practical completion could ever occur if the outstanding matters could not be economically remedied. Coulson LJ reviewed the precedents dealing with the issue and set out the law on practical completion (see paragraph 74 of the judgment), which we summarise here:
- The question of whether the breach of the 3 per cent tolerance amounted to a material breach was a question of fact and degree. Contracting parties can agree in advance that a specified breach of a contract will be a material or substantial breach. In this case, the parties did not. In the absence of such express wording, Coulson LJ considered it would be: "commercially unworkable if every departure from the contract drawings, regardless of the reason for, and the nature and extent of, the non-compliance, had to be regarded as a breach of contract". The parties would have had to use very clear words that a breach of the 3 per cent tolerance term would allow Mears to walk away from the AfL: they did not.
- The 56 separate failures to achieve the 3 per cent tolerance amounted to 56 separate breaches of contract. Whether or not those breaches, taken together or separately, were material or substantial such as to justify ending the contract is a matter of fact and degree, and not a matter of the construction of the AfL.
- "Practical completion is easier to recognise than define (see Keating on Construction Contracts, 10th Edition, paragraph 20 – 169) ... There are no hard and fast rules: see Bailey paragraph 5.117, footnote 349."
- "The existence of latent defects cannot prevent practical completion." Of course, as the judge noted, if nobody knows about those defects because they are hidden, they cannot prevent the certifier from certifying practical completion!
- "In relation to patent defects, the cases show that there is no difference between an item of work that has yet to be completed (i.e. an outstanding item) and an item of defective work which requires to be remedied. Snagging lists can and will usually identify both types of item without distinction."
- There is some discrepancy in the precedents about whether the very existence of a patent defect prevents practical completion. The courts have developed a practical approach over time to the effect that practical completion is effectively "a state of affairs in which the works have been completed free from patent defects, other than ones to be ignored as trifling". (See H.W. Nevill (Sunblest) Limited v. William Press & Son Limited (1981) 20 BLR 78 and Emson Eastern Limited (in receivership) v. E.M.E. Developments Limited (1991) 55 BLR 114.)
- "Whether or not an item is trifling is a matter of fact and degree." The question boils down to: can the employer still take possession of the works and use them as intended despite the existence of the item/defect? In each case, "regard must be had to the nature and extent of the items of work which remain to be completed/remedied".
- The decision in Ruxley Electronics & Construction Limited v. Forsyth  1 AC 344 is the only authority that addresses the interplay between the concept of completion and the irremediable nature of any outstanding item of work. Ruxley was the case where a swimming pool was built to a depth of 6' instead of 7' 6''. The client refused to pay for it but did not intend to use any damages recovered to rebuild it. The first instance judge noted that the pool was quite capable of being used, and dived into, without difficulty despite the defect – and found that the works were substantially complete notwithstanding the existence of the irremediable defect. In Mears, Coulson LJ found that Ruxley was of limited use because this issue went no further than a first instance decision. However, Ruxley is of practical use in that it supports the proposition that practical completion can still take place even where an irremediable defect exists.
Coulson LJ was clear that parties to a construction contract can guide and control a certifier in the exercise of his discretion in relation to practical completion. However, the parties had not done that here – nor, indeed, do any standard forms of building contract seek to provide such guidance or control. Without such express contractual definition, practical completion is, at least in the first instance, a question for the certifier.
It seems the employer's agent in Mears, Costplan, conceded that it would have certified practical completion notwithstanding the existence of the 56 defects, presumably because it regarded the breach of the 3 per cent tolerance as trifling – but that was not an issue for this appeal.
Mears does not set out a tidy definition of practical completion and that is just as well. Certifying is something of an art: most certifiers can recognise practical completion when they see it but might have more trouble exercising their skills if restrained contractually.
Practical completion was also the focus of the court in University of Warwick v. Balfour Beatty Group Ltd  EWHC 3230 (TCC). Here the parties had amended the standard JCT Design and Build form by including a 450-word definition of practical completion. Unfortunately, the definition did not sit comfortably with other terms of the contract providing for sectional completion. The subsequent dispute about its meaning led to adjudication and then litigation. University of Warwick supports the proposition that it is better (in most cases) for the drafters to leave the term undefined and minimise the risk of time-consuming and expensive dispute resolution.