How complete does a building have to be before practical completion is certified? The answer is usually found in the terms of the relevant building contract, although the parties may hotly dispute the completion criteria to be applied. This was the issue in the recent Laing O'Rourke Construction Ltd v Healthcare Support (Newcastle) Limited and Newcastle upon Tyne Hospitals NHS Foundation Trust case, decided by the Technology & Construction Court on 28 July, in which Herbert Smith Freehills represented the First Defendant project company, albeit maintaining the same position as the Claimant contractor. This case concerned the completion criteria to be applied by a certifier (the Independent Tester) under a private finance initiative scheme to build a hospital.
The parties entered into their agreements in 2005, which included a construction contract between the Claimant Contractor and the First Defendant project company, and a project agreement between the First Defendant and the NHS Trust. Both agreements included obligations to design and build the relevant facilities for the Trust, and provided for an independent professional to act as an Independent Tester. The Independent Tester had various obligations to inspect and certify the construction works.
The Project was to be carried out in nine phases. The first seven phases related to the clinical hospital facilities. Phase 8 comprised of clinical office blocks and Phase 9 the decant of hospital staff into the clinical office blocks and subsequent demolition works. The Claimant contended that Phase 8 was completed in mid-2012, however, the Independent Tester had refused to issue a Phase Certificate of Practical Completion as the Trust argued that under the project agreement any breach as to the quality or conformity of the works prevented the Independent Tester from issuing the certificate.
The Independent Tester identified five areas of complaint by the Trust preventing the issue of the completion certificate. For example, the Trust contended that, in breach of relevant British Standards, some areas of the buildings received insufficient daylight.
The Claimant and the First Defendant argued that the obligations of the Independent Tester when certifying Practical Completion of a Phase were confined to addressing the specific defined Completion Criteria set out in the agreements which were linked to the Trust's general enjoyment of the buildings rather than ensuring compliance with every single element in the full contractual description of the Works. The Claimant therefore sought a declaration as to the obligations of the Independent Tester when issuing a Phase Certificate of Practical Completion.
The Court found in favour of the Contractor. If the Independent Tester reasonably considered that a particular departure from the contractual requirements had not had or would not have any material adverse impact on the Trust's ability to enjoy and use the building for the purpose anticipated by the contract, then he might conclude that the contractual Completion Criteria had been met. The agreement did not provide that any breach of the specification, however technical or minor, would prevent the certificate from being issued. Indeed, the Court stated that no reasonable body in the position of the Trust would object to a non-conformity that makes no difference to the people using the building. However, the Judge noted that people and corporate bodies do not always behave reasonably, and may seize on a non-conformity as a commercial lever to delay completion and improve their position in negotiations. There was a suggestion that this is what may have happened here.
Importantly, the certificate would not prejudice the Trust's entitlement to claim damages for defective work (even if minor) and therefore its rights in this respect were protected.
The Court also held that the Independent Tester should not be influenced by any dispute between the project company and the Trust regarding the state of completion of the Works. This was for the Independent Tester to decide for himself.
Whilst the Judgment is a decision on the facts of the individual case and the terms of the particular contracts, it reinforces the usual interpretation of practical completion provisions in building contracts where the term "practical completion" is rarely defined. It is usually taken to mean that Works must be completed so as to permit beneficial occupation but that minor defects will not impede a certificate of practical completion being granted. Only express provision would displace this general approach.