Practical Completion Revisited

09.04.19

The English Court of Appeal has recently reviewed the law relating to when building works can be regarded as practically complete. This is fertile ground for disputes, particularly in the absence of clearly defined requirements under the relevant building contract. To that end, this recent case provides welcome guidance and is broadly consistent with existing Scottish rules on the subject.  


In Mears Ltd v. Costplan Services (South East) Ltd & Others [2019] EWCA Civ 502, a dispute arose in connection with the room sizes for new build student accommodation. It was accepted by both parties that the failure by the contractor to achieve the required room size was a breach of contract and a defect in the work. However, they could not agree upon the consequences, including whether the new build works should still be the subject of a certificate of practical completion notwithstanding the presence of the defects. While the appeal was ultimately decided on a related, but different, question of interpretation, the Court of Appeal did set out the proper approach to the question of practical completion. 

The Court summarised matters in the following way:

a) Practical completion is easier to recognise than define. There are no hard and fast rules.
b) The existence of latent defects cannot prevent practical completion. In many ways that is self-evident: if the defect is latent, nobody knows about it and it cannot therefore prevent the certifier from concluding that practical completion has been achieved. 
c) 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. 
d) Although it has been suggested that the very existence of patent defect prevents practical completion, that was emphatically not the view of Salmon LJ in Jarvis & Sons Limited v Westminster Corporation & Another [1969] 1 WLR 1448, and the practical approach developed by Judge Newey in H.W. Nevill (Sunblest) Limited v William Press & Sons Limited (1981) 20 BLR 78 and Emson Eastern Limited (in receivership) v E.M.E Developments Limited (1991) 55 BLR 114 has been adopted in subsequent cases. The current law 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. 
e) 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 to use them as intended". However, this should not be elevated into the proposition that if, for example, a house is capable of being inhabited, or a hotel opened for business, the works must be regarded as practically complete, regardless of the nature and extent of the items of work which remain to be completed/remedied. 
f) Other than Ruxley Electronics & Construction Limited v Forsyth [119] 1 AC 344, there is no authority which addresses the interplay between the concept of completion and the irremediable nature of any outstanding item of work. And even Ruxley is of limited use because that issue did not go beyond the first instance decision. In any case, Ruxley does not support the proposition that the mere fact that the defect was irremediable meant that the works were not practically complete. 

So what of the position in Scotland? In Borders Regional Council v  J. Smart & Co (Contractors) Ltd 1983 S.L.T. 164, the Second Division of the Inner House considered the interaction between defects and practical completion in the context of subcontractor insolvency, where parties contracted under a Standard Form of Building Contract (1963 Ed. With Scottish Supplement, July 1971).  


Lord Wheatley said: “Section 15 (1) provides that such a certificate is to be issued when in the opinion of the architect the works are practically completed. I take that as meaning that the works have been completed for all practical purposes, and the employers could take them over and use them for their intended purpose, as in fact occurred. In my opinion, the works under bill no. 9 had been completed albeit in some respects the workmanship had been unsatisfactory and had resulted in defects. It is nowhere suggested that the defects would call for the re-laying of the floors, and I consider that there are no grounds here for holding that the certificate which was issued was not an effective one…I recognise that there may be an element of degree in that situation. If the defect was so gross that the premises could not be used for their intended purpose, the same considerations would not apply….”.


It follows that it has long been understood in Scotland, that the mere presence of patent defects, provided they do not disable an employer from using the works for their intended purpose, should not prevent the works reaching a state of practical completion.   


Nevertheless, in both jurisdictions, there will remain questions of fact and degree over the nature and extent of any defect(s) to be regarded as serious enough to prevent the employer taking use of the works for their intended purpose and practical completion in that situation.