Swansea Stadium Management Company Ltd v City & County of Swansea & Interserve Construction Ltd [2019]

In a recent judgment concerning the Liberty Stadium, the TCC has clarified the consequences of issuing a notice of completion of making good defects, particularly in respect of claims arising later for defects evident prior to the issue of the notice. There are two key messages from this judgment: (i) a notice of completion of making good defects is conclusive evidence that any known defects were appropriately remedied prior to the issue of the notice; but (ii) the notice is not conclusive evidence that the works conformed to the building contract, and will not prevent an employer from pursuing claims against the contractor to this effect. The decision provides important certainty for parties to a building contract that the notice of completion of making good defects means exactly that, irrespective of whether patent defects still persist.

Interserve was employed by Swansea City Council as the main contractor to design and build the Liberty Stadium. Following practical completion, the stadium was leased by the Council to Swansea Stadium Management Company ("SSMC") for a term of 50 years. As it was not a party to the building contract, SSMC relied on a collateral warranty from Interserve to take proceedings against Interserve and the Council for flooring and paintwork defects at the stadium. SSMC initially tried to bring a number of construction claims on the basis that the building works were in breach of the contractual specifications. These were struck out as they were brought four days after the expiry of the limitation period (being 12 years from practical completion). Consequently, the TCC considered the following secondary claims:

SSMC alleged that Interserve was in breach of its obligations under the building contract to identify and make good the flooring and paintwork defects during the Defects Liability Period (i.e. after practical completion); and SSMC alleged that the Council was in breach of its obligations under the collateral warranty to take all reasonable steps to enforce its own rights under the building contract in respect of the flooring and paintwork defects.

Pepperall J dismissed SSMC's claims against both Interserve and the Council. Notwithstanding that Interserve had in fact failed to make good the defective flooring and paintwork during the defects liability period, the issue of the Notice of Completion of Making Good Defects had the effect of deeming that the identified defects had been made good. SSMC's ability to claim for that defect was therefore nullified. However, the Notice was not conclusive evidence that the works were in accordance with the building contract and, ordinarily, SSMC would not have been prevented from seeking to recover from Interserve for such a breach. Unfortunately for SSMC, it was prevented from doing so in this case as the limitation period had expired.

SSMC's claim against the Council also failed, as it was found that the Council had taken reasonable steps in respect of the defects; it had reached a reasonable settlement with Interserve in respect of the flooring claims and it had complied with SSMC's requests to pursue the paintwork claims through correspondence and not litigation – SSMC having made it clear they would prefer this approach.

Pepperall J's decision is a pertinent reminder of both the 'deeming' effect of notices of completion of making good defects and the resulting implications on a contractor's liability, and the importance of keeping on top on time limits.