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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Mears Ltd v Costplan Services (South East) Ltd & Ors [2019] EWCA Civ 502 (29 March 2019) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2019/502.html Cite as: [2019] WLR(D) 193, [2019] 4 WLR 55, 183 Con LR 1, [2019] BLR 289, [2019] EWCA Civ 502 |
[New search] [Printable PDF version] [View ICLR summary: [2019] WLR(D) 193] [Buy ICLR report: [2019] 4 WLR 55] [Help]
ON APPEAL FROM QUEEN'S BENCH DIVISION
TECHNOLOGY & CONSTRUCTION COURT
Mr Justice Waksman
HT-2018-000250
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE NEWEY
and
LORD JUSTICE COULSON
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Mears Limited |
Appellant |
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- and - |
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Costplan Services (South East) Limited |
1st Respondent |
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Plymouth (Notte Street) Limited |
2nd Respondent |
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J.R. Pickstock Limited |
3rd Respondent |
____________________
Mr Andrew Rigney QC & Mr Dermot Woolgar (instructed by Silver Shemmings Ash LLP) for the 2nd Respondent
Written Submissions were received from the 1st Respondent
The 3rd Respondent did not appear and was not represented
Hearing date: Wednesday 13th March 2019
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Crown Copyright ©
Lord Justice Coulson :
1. Introduction
2. The Contracts and the Relevant Events
2.1. The AFL
"5. Carrying out the Landlord's Works
5.1. The Landlord must commence the Landlord's Works as soon as reasonably practicable after the necessary Approvals have been obtained, and must diligently carry them out and complete them in a good and workmanlike manner and with sound materials of their respective kinds, in accordance with the terms of any Approvals, in accordance with the Building Contract, and otherwise in accordance with the provisions of this agreement."
"6 Variation and substitution of materials
6.1. Subject to clause 6.2, if the Landlord is unable, despite having used reasonable endeavours, to obtain any of the materials referred to in the Building Documents within a reasonable and proper time or at a reasonable and proper cost, he may, subject to promptly notifying the Surveyors of his intention to do so, substitute for them alternative materials of equivalent (or better) quality.
6.2. The Landlord shall not make any variations to the Landlord's Works or Building Documents which:
6.2.1. materially affect the size (and a reduction of more than 3% of the size of any distinct area shown upon the Building Documents shall be deemed material), layout or appearance of the Property; or
6.2.2. result in materially increased maintenance costs or increase the frequency of component replacement cycles; or
6.2.3. are substantial or material.
6.3. Subject to clause 6.2, the Landlord may make variations to the Landlord's Works without the Tenant's consent if:
6.3.1. the variations are insubstantial or immaterial and of routine nature; or
6.3.2. the variations are required by the terms of any Approval.
Subject to clause 6.2, any other variation to the Landlord's Works can be made by the Landlord with the consent of the Tenant (such consent not to be unreasonably withheld or delayed)…"
"14 Practical Completion
14.1. The Landlord shall use reasonable endeavours to procure that the Employer's Agent does not issue a Certificate of Practical Completion without previously giving to the Surveyors not less than 5 working days' notice that he proposes to carry out an inspection on a date specified in the notice with a view to issuing the Certificate of Practical Completion.
…
14.4. The Surveyors may attend every inspection, and the Landlord shall use reasonable endeavours to procure that the Employer's Agent has due regard to any written representations made by them within 3 working days after the notice referred to in clause 14.3. The issue or non-issue of the Certificate of Practical Completion is to be in the sole professional discretion of the Employer's Agent but no Certificate of Practical Completion shall be issued until the Landlord has complied with the obligations to supply information and documentation and achieve the qualitative requirements listed in Part A of the list annexed to this agreement as Annex D."
"A certificate issued by the Employer's Agent to the effect that practical completion of the Landlord's Works has been achieved in accordance with the Building Contract."
"15 Defects Liability
15.1. As soon as practicable after the Date of the Practical Completion the Landlord must carry out and complete, in accordance with the provisions of this agreement, any Landlord's Works that the Employer's Agent on issuing the Certificate of Practical Completion specifies in writing as being still outstanding.
…
15.7. Except as provided in this clause 15 (and in the Lease), with effect from the Date of Practical Completion, the Landlord is not to be liable to the Tenant under this agreement for any failure by the Landlord for any reason to comply with his obligations under clauses 4, 5, 6, 7, 8, 9, 10, 11, 12, 14 and 15."
2.2 The Building Contract
"…shall design, carry out and complete the construction of the Works in conformity of the Employer's Obligations under the Third Party Agreements including, without limitation, those relating to provision of information and the giving of notice and permitting inspections before the Practical Completion Statement…may be issued."
2.3 The Relevant Events
3. Issue 1: Declaration 4/The Proper Construction of Clause 6.2.1.
3.1. The Declaration
"That, on a true construction of the AFL, any failure to construct one or more of the rooms of the Property such that they are not more than 3% smaller than the sizes specified in the Jefferson Sheard drawings contained in the Building Documents (unless amended by one of the Elements drawings contained in the Building Documents) or (contrary to Mears' primary case) such alternative room sizes otherwise agreed to by Mears is a material and substantial breach of Clause 6.2. of the AFL [and/or] constitutes a material and substantial defect in the works."
3.2. The Judgment
"30. The deeming provision in Clause 6.2.1 is not surprising. It avoids, in one important area of the works, a dispute as to what deviation should be regarded as "material". And it ties the areas down to those shown in the Building Documents. Materiality, therefore, whether deemed by Clause 6.2.1 or otherwise, goes to the extent of the variation which has occurred. Unless material "or substantial" any such variation does not amount to a breach. But if it does, the fact that there has been a material variation says nothing about the extent or importance of that breach to the Property or works as a whole.
31. Accordingly, the fact that there is a material variation for the purposes of Clause 6.2.1 does not mean without more that the resulting breach is itself material or substantial. In contending that it does, it seems to me that Mears is eliding these two quite different concepts: (a) the scale of the variation and (b) the scale of any resultant breach.
…
34. I further recognise that Clause 6.2 trumps, as it were, Clause 6.3 which allows for certain variations either without Mears, consent or as to which it should reasonably consent. But I cannot see how one has to interpret this term as meaning that any breach is itself so important that it has the consequence (through the particular mechanism provided for in the AFL) that one way or the other Mears is entitled to terminate. It would mean that one material deviation in respect of one room (for example a bin store) would have that effect. That result seems to me to be so commercially absurd that it cannot be right. That, of course, does not mean that the existence of such a breach will not entitle Mears to a remedy in damages and I deal with that below. Nor can the outcome proposed by Mears be made more palatable by the introduction of a limiting factor such as "de minimis", so that any breach must at least surpass that modest threshold. That is because if the provision was really a condition of the AFL it is hard to see why such a threshold would work here. Nor may it always be easy, in fact, to say what is "de minimis" or not. Even with that threshold, I still do not see how without more Clause 6.2 can be regarded as a condition of the AFL.
35. For the avoidance of doubt, I do not consider that any breach of Clause 6.2.1, if more than "de minimis", would then count as material or substantial. There is much ground in between. There could easily be a minor, though actionable, breach that is still not material or substantial.
36. Moreover, the very concept of a material breach here begs the question - material to what? To the entire Property or to its purpose or usefulness? Or in terms of (here) the number of rooms affected or the scale of the actual as opposed to possible breaches? Materiality, once one assumes the correct context, must by its very nature be a question of fact and degree. It is usually indicative of a threshold degree of relevance, as with, for example, materiality in the International Standards on Accounting, or for the purpose of disclosure to a prudent underwriter or indeed to a court making a "without notice" order. The use of the concept of materiality in Clause 6.2 itself is thus explicable - but less so when it comes to describing a breach of contract. To say that a breach is material is not of any real assistance in saying what the legal result of that breach should be. A material breach does not necessarily amount to a repudiatory breach. So one returns to the fact that in reality, Mears' contention is that as a matter of construction, Clause 6.2.1 is such that any breach thereof prevents practical completion. But for the reasons already given, I do not accept that.
37. Another argument put forward by Mears is that if the breach of Clause 6.2.1 is irremediable, then it must follow that the only outcome is to prevent practical completion. That, in my view, simply does not follow. There may in theory be a breach of Clause 6.2 which, while not "de minimis" can be put right. A room which is too small might be capable of being put right in some cases and in any event Clause 6.2 concerns material variations other than simply with regard to room size. For a start, Clause 6.2.1 itself deals with variations to layout and appearance. And Clause 6.2.2 and 6.2.3 deal with variations that are not or not only, concerned with size, layout or appearance."
"40. I do not agree. First, the fact that practical completion might be certified despite a breach of Clause 6.2.1 does not mean that Mears would have no remedy. For the reasons set out below I consider that there would be various other remedies open to Mears.
41. Second, all one is dealing with here is Mears' argument that any breach of Clause 6.2.1 (because it is without more material and substantial) prevents practical completion. That must be distinguished from a separate argument, which Mears sought to introduce as an alternative, which is that on any view these breaches were material and substantial on the facts. But for the reasons given below, I do not think it open to Mears to advance that contention as part of this trial.
42. So it does not follow that a breach or breaches of Clause 6.2.1 can never have an impact on practical completion. It all depends on the circumstances. Nor do I see how a proper construction of Clause 6.2.1 entails the results sought by Mears. The words to give effect to it are simply not there."
3.3 The Parties' Contentions on Appeal
3.4 Analysis
3.5 Conclusion on Issue 1
4. Issue 2: Declarations 1 – 3/Practical Completion
4.1 Declarations 1-3
"(1) That, on a true construction of the AFL, or by virtue of a term implied therein, the Employer's Agent cannot validly certify Practical Completion whilst there are known material or substantial defects ("Declaration 1")
(2) That, on a true construction of the AFL, or by virtue of a term implied therein, the Employer's Agent cannot validly certify Practical Completion whilst there are material and substantial subsisting breaches of the AFL relating to the performance of the Works ("Declaration 2")
(3) Further or alternatively, the Employer's Agent, properly exercising his discretion under the AFL and its duties under the Costplan Warranty, could not validly certify Practical Completion whilst there are material and substantial breaches of the AFL and/or material and substantial defects in the works ("Declaration 3")."
4.2 The Judgment
"77. Beyond those statements of principle, however, I would add some further observations. First, the notion of practical completion might be thought to connote no more than the apparent finishing of all the work that has to be done. Thus the failure yet to construct a part the building, as required by the contract would prevent practical completion. In a very trivial case, practical completion might still be certified with an additional requirement to provide the missing element for example a gate at the side of a newly built house or, even more minor, the requisite lock for the gate. However it is plain that practical completion is not merely about the extent of the work done but also, at least in some respects, its quality. Work that has either not been done at all when it should have been, or which has been done but done badly, could both equally be described as "defective". Thus to supply and purportedly finish the construction of a central heating system but which in a real sense fails to work could prevent the issue of practical completion see, for example, the decision of the Court of Appeal in Bolton v Mahdeva [1971] 2 WLR 1009, referred to at paragraph 4-019 of Keating. If it were otherwise, it would make no sense to say that if there are patent defects, this could prevent practical completion.
78. There is a gloss on this, however, which is that the works need not be in every respect in complete conformity with the contract in order to merit practical completion, provided that any non-conformity is insignificant, a matter which will usually be left to the professional judgment of the certifying entity.(This is made clear in the AFL because Costplan can provide in the certificate for the completion of outstanding works and rectification of snagging as indeed it has done in the draft certificate).
79. Put another way, there will be practical completion if to all intents and purposes the building is complete. So the intent and the purpose of the building is key. When the building is intended to house people, that has led to an emphasis on it being fit for occupation by such people.
80. That said, what amounts to being sufficiently ready for occupation is highly fact-sensitive. So, for example, if a building was to be ready for occupation by a family, but one or more of the bedrooms had been constructed in such a way that a member of the family would find it uncomfortable or inconvenient to occupy it then this may mean that the building was not ready for occupation and so there could not be practical completion. Context, therefore, is everything. So although I am not asked to determine this issue (see above) the mere fact that the Property could strictly now take students into each of its 348 bedrooms does not necessarily mean without more that the works are practically complete if in fact there would on any objective basis be a real problem in some of the students not being able to use these rooms or use them as intended."
"It might be a moot point as to whether one describes a reduction in room size as a matter going to the work requiring to be finished or going to the quality of the work done, although in either event a breach of contract, but I do not think this matters. Put another way, it seems to me that any (other than "de minimis") breach of a building contract by the contractor, of whatever kind, could potentially stop practical completion depending on the nature and extent of it and the intended purpose of the building."
"84. For those reasons, I fail to see why an irremediable breach should necessarily entail that it can never prevent practical completion. If, on the facts, it is sufficient to prevent practical completion the fact that it cannot be remedied does not alter the status of the building for the purpose of practical completion. If it were otherwise then, as Mears has pointed out, the contract-breaker gains by the nature of the breach. The only argument raised against that point is that in such an event, practical completion could be postponed indefinitely, with an indefinite obligation on the part of the contractor to pay liquidated damages for delay. That, in my view, is unrealistic. In the event of a case where the contract can simply now not be completed (at least not without starting again) the building owner is surely more likely to accept that situation and terminate the contract claiming damages from the contractor (for the defects not for the delay covered by liquidated damages) and decide what to do with the building. It would be no different from the contractor who has completed 75% of the works and then walked off site never to return.
85. Accordingly, the fact that the breach alleged here is not capable of remedy on any sensible basis does not mean that it cannot prevent practical completion. But on the other hand nor does it mean that it will always prevent practical completion."
4.3 The Parties' Contentions on Appeal
4.4 The Law
"The obligation upon the contractors under clause 21 to complete the works by the date fixed for completion must, in my view be an obligation to complete the works in the sense in which the words "practically completed " and " practical completion " are used in clauses 15 and 16 of the contract. I take these words to mean completion for all practical purposes, that is to say, for the purpose of allowing the employers to take possession of the works and use them as intended. If completion in clause 21 meant completion down to the last detail, however trivial and unimportant, then clause 22 would be a penalty clause and as such unenforceable."
"The main contract not only states the date for completion of the contract works. It also provides by clause 15 (1) that when in the opinion of the architect the works are practically completed he shall issue a certificate to that effect and "practical completion of the works shall be deemed for all the purposes of this contract to have taken place on the day named in" the certificate. The contract does not define what is meant by "practically completed." One would normally say that a task was practically completed when it was almost but not entirely finished, but " practical completion " suggests that that is not the intended meaning and that what is meant is the completion of all the construction work that has to be done."
A little later, dealing with latent defects, he said:
"It follows that a practical completion certificate can be issued when owing to latent defects, the works do not fulfil the contract requirements and that under the contract works can be completed despite the presence of such defects. Completion under the contract is not postponed until defects which became apparent only after the work had been finished have been remedied."
i) In H.W. Nevill (Sunblest) Limited v William Press & Son Limited (1981) 20 BLR 78, the judge rejected the argument that, for the works to be practically complete, there had to be no apparent defects. He said at page 87:
"…I think that the word "practically" in Clause 15(1), gave the architect a discretion to certify that William Press had fulfilled its obligation under Clause 21(1), where very minor de minimis work had not been carried out, but that if there were any patent defects in what William Press had done the architect could not have given a certificate of practical completion."
ii) In Emson Eastern Limited (in receivership) v E.M.E. Developments Limited (1991) 55 BLR 114, Judge Newey distinguished between construction contracts and contracts for the manufacture or sale of goods. He said:
"…The size of the project, site conditions, use of many materials and employment of various types of operatives make it virtually impossible to achieve the same degree of perfection as can a manufacturer. It must be a rare new building in which every screw and every brush of paint is absolutely correct."
a) 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.
b) The existence of latent defects cannot prevent practical completion (Jarvis). 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 which requires to be remedied. Snagging lists can and will usually identify both types of item without distinction[1].
d) Although one interpretation of Viscount Dilhorne in Jarvis and Lord Diplock in Kaye suggests that the very existence of patent defect prevents practical completion, that was emphatically not the view of Salmon LJ in Jarvis, and the practical approach developed by Judge Newey in William Press and Emson has been adopted in all the subsequent cases. As noted in Mariner, that 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" (see Salmon LJ in Jarvis). However, this should not be elevated into the proposition that if, say, 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. Mariner is a good example of why such an approach is wrong. In consequence, I do not consider that paragraph [187] of the judgment in Bovis Lend Lease, with its emphasis on the employer's ability to take possession, should be regarded (without more) as an accurate statement of the law on practical completion.
f) Other than Ruxley, 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. But on any view, Ruxley does not support the proposition that the mere fact that the defect was irremediable meant that the works were not practically complete.
4.5 Analysis
4.6 Conclusion
5. Summary
Lord Justice Newey :
Lord Justice Lewison :
Note 1 As was the case here, where the Preliminaries referred to the list sent out with the certificate of practical completion containing “snagging/outstanding works” (paragraph 19 above). [Back]