What is the definition of practical completion?

Our construction team are in the process of challenging a Certificate of Practical Completion which we contend, on behalf of our client contractor, was issued late. The consequences are that it increased the Liquidated Damages claim of the employer and extends the defects period.

We say that occupation of the property was much earlier and is a major consideration. We have over the years, given many talks and dealt with many contracts and claims on this issue. Most contracts do not define the meaning of ‘practical completion’ but it is generally accepted that a building project is complete when it is capable of occupation and use, with only minor/snagging defects required to be put right. Deemed practical completion is left to the professional judgement of the architect or contract administrator.

Up until recently, the construction industry relied on Akenhead J in Walter Lilly v Mackay. He summarised the position as:

“Practical completion means completion for all practical purposes and what that completion entails must depend upon the nature, scope and contractual definitions of the Works, as they may have developed by way of variation or architect’s instructions.”

In Mears v. Costplan (2019)), the Court of Appeal provided welcome clarity as to how the courts should interpret the widely used but seldom defined term.

The dispute related to an agreement for lease between Mears (the Tenant), PNSL (the Landlord) and Pickstock (the Developer). Mears agreed to take a 21 year lease from PNSL of two blocks of student flats in Plymouth for an annual rental of £1,666,667 following the completion of their construction.

The Agreement contained the following terms:

• Clause 13.7.2: if a certificate of practical completion had not been issued by 11 September 2018 (the longstop date), Mears or PNSL could give notice of termination
• Clause 14.4: the issue or non-issue of a certificate of practical completion was to be in the “sole professional discretion” of the employer’s agent
• Clause 6.2.1: PNSL was prohibited from making any variations to the works which materially affected the size of the rooms. It stated that a reduction in size of more than 3% from the sizes shown in the contract drawings was deemed to be material.

The works, which started in the middle of 2016, were delayed. In late summer 2018, Mears alleged that some of the rooms in the flats were more than 3% smaller than specified. By then however, the works were complete, the rooms had been built and the longstop date was less than a month away.

Despite the rooms being 3% smaller than designed the employer’s agent indicated that it intended to issue a certificate of practical completion. Mears obtained an injunction restraining the employer’s agent from issuing the certificate until trial. Such an application for an injunction is not common, although we have advised on similar injunctions in the past.

Mears sought a declaration that on the proper interpretation of the AFL, a reduction in the room size exceeding 3% was itself a material variation and therefore a material breach of contract, preventing practical completion being certified.

The judge at first instance found that 56 rooms had indeed been built more than 3% smaller than specified. But he refused to grant the declaration Mears had sought. He held that Mears’ argument was wrong as a matter of construction, and “commercially absurd”.

The Court of Appeal was in complete agreement with Waksman J in that 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 preventing practical completion.

In deeming a reduction in size of more than 3% as “material”, the parties were simply identifying what counted as a prohibited variation and, therefore, a breach of contract.

The court went on to provide a helpful review to the authorities on practical completion as follows:-

1. Practical completion is easier to recognise than define
2. The existence of latent defects cannot prevent practical completion. Quite obviously they are not known.
3. In relation to patent defects, there is no difference between an item of work which has to be completed and an item of defective work which requires to be remedied. Snagging lists can, and will usually, identify both
4. The fact that a defect is irremediable may not prevent practical completion
5. That practical completion was a state of affairs in which the works have been completed “free from patent defects, other than ones to be ignored as trifling”
6. Whether or not a defect 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 a house can be 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 that remain to be completed or remedied.

The latter is interesting as we have advised on, for example, surgeries and operating rooms which can be used but have had issues with decorating, additionally we advised on issues with works at a hospital where the landscape gardening had not been finished.

It is unlikely to curb the number of disputes on whether practical completion has been achieved. If parties think practical completion is likely to be contentious at the outset, or if it’s particularly important to one party, they should consider including an express definition in the contract – provided such a definition is carefully thought through and worded, to avoid yet further disputes.

We deal with court litigation (High Court, County Court & TCC), including injunctive relief and applications relating to arbitral proceedings and the enforcement of Bonds.

We have extensive experience advising across a broad cross section of construction matters including issues relating to damages; defective works; drafting & advising on Contracts including JCT Collateral Warranties; extensions of time; payment provisions under the Housing Grants, Construction Regeneration Act and suspension of works.

New appointment for R&N Director

We are delighted to announce the appointment of Rogers & Norton Director Peter Hastings, as a non-executive director at Canham Consulting.

Peter is well-respected and experienced, with a wealth of knowledge in the construction and engineering sector, dealing with a wide variety of projects and providing salient and pragmatic advice.

The opportunity to work more closely with such a well-respected, established and successful independent construction consultancy is of huge appeal to Peter and one that was too good a chance to miss. We are excited to be able to continue to build a stronger relationship between the two companies.

Peter continues to run regular construction seminars at The Assembly House, to give pointers and updates to those involved in the construction industry, with the next one scheduled for Thursday 26^th September.

Dementia Charity Ride for Admiral Nurses in Norfolk

Having had the privilege of riding the Prudential Ride London in 2018, I was disappointed to not get a place in the 2019 ballot. This has allowed me, however, to accompany my son Jordan on his first sportive and to ride the Prudential Ride London 46 on 4th August 2019.

I’m delighted to be joined by Jordan this year, who whilst 18, will hopefully add some company and support, but not out sprint me to the finish on The Mall.

This year we are riding to help raise funds for a specialist Admiral Dementia Nurse in Norfolk. This is a local charity which Rogers & Norton are supporting and in my role as a court appointed deputy I have seen first-hand the excellent work they do for those living with dementia and their carers.

Every penny we raise will help us support sustaining the Admiral Nursing services in Norfolk and equally would benefit a considerable number of people affected by Dementia in the county.

Your support would be greatly appreciated by Jordan and I.

https://www.justgiving.com/crowdfunding/rogersandnorton-solicitors-2

Cannabis Confusion – the legalities of CBD in the UK

18th Jul 2019

In just a few years, cannabidiol (CBD) has become immensely popular around the world – it’s stocked in many High Street shops including national chain Holland & Barrett.

After initially being discovered as an effective self-medication for Dravet syndrome in children, CBD is now sold and used to treat a wide range of medical conditions and lifestyle diseases.

CBD is essentially a concentrated solvent extract made from cannabis flowers or leaves that is dissolved in an edible oil such as sunflower, hemp, or olive oil. Solvents used can vary from relatively innocuous organic solvents (ethanol, isopropyl alcohol) to more harmful ones (petroleum-ether, naphtha), or even supercritical fluids (butane, CO₂).

The importation of all drugs into the UK is regulated by the Medical Regulatory Health authority (MRHA). Any medicine purchased outside the regulated supply chain cannot be guaranteed to meet standards of quality, safety and effectiveness. This means they can present a real risk to public health.

A recent study highlighted multiple issues with CBD products obtained from a variety of sources. In many cases the analysed cannabinoid content strongly differed from the claimed content on the label, while in 7 samples no cannabinoids (CBD or THC) were found at all.

It cannot legally claim to have health benefits, but the fact is many people (particularly those with chronic conditions) are routinely turning to CBD oil based products to help relieve their symptoms.

While empirical data on the efficacy of CBD is scarce, the anecdotal claims cannot be ignored, and more and more businesses in the health, and even the food, sectors are choosing to stock products containing the naturally derived ingredient in response to consumer demand.

When you buy from most normal health shops it is not always clear what is being bought because it’s not always stated clearly on the packet.

There is still considerable confusion regarding the legality of CBD’s, so as well as availability on the British High Street many people resort to importing unlicensed goods, of unspecified quality and provenance, over the internet from abroad.

This has led HMRC Border Force to take a stern line with stoppages, detentions and seizures at all ports of entry into the UK. The goods may be perfectly legal and present no risk, but without the necessary paper work and proof they could seize perfectly innocent goods.

Rogers & Norton’s talented and knowledgeable litigation team specialise in handling HMRC Border Force claims relating to the detention and seizure of a wide variety restricted goods. We are challenging seizures made by UK Border Force of such goods and seeking restoration.

The team deals with the worldwide importation of goods to the UK, including the huge market from China. We work with clients who want goods restored at all major ports of entry, such as Felixstowe and London Gateway, together with Stansted, Gatwick & Heathrow.

We have a strong understanding of Border Force systems and can act quickly and decisively to support our clients in getting their goods restored.

Does a retention of title clause help?

15th Jul 2019

Given the ever-increasing rate of construction company failures, we have seen a rise in the volume of instructions from clients who have not been paid and fear that the industry is heading for recession. They ask about any protection that suppliers to the construction industry can obtain, through the use of retention of title clauses. In fact today, we had instructions to recover the sum of £90,000 relating to the supply materials.

The last twelve months have been a torrid time for the construction sector, with the collapse of an estimated 943 construction companies in Q3 2018 alone according to Creditsafe; an increase of nearly 80% compared to the same period in 2017. The failure of some of the major players within the industry, such as Carillion and Dawnus, has left SME supply chains in crisis, causing the insolvency of many and leaving millions of pounds of bad debt for others.

All too often, goods are sold to construction companies on the buyer’s standard payment terms, with the goods being delivered before payment is made. In the event of non-payment and the insolvency of the buyer, the seller will rank as an unsecured creditor of the buyer with limited prospect of obtaining payment; irrespective of the status of the goods at the time.

An example of one method by which the seller may seek to protect itself against the risk of non-payment and buyer insolvency at the time the contract of sale, is the retention of title clause.

A retention of title clause can be incorporated into a contract for the sale of goods to give the seller priority over both the secured and unsecured creditors of the buyer should the buyer fail to pay for the goods and becomes insolvent.

The clause can take a variety of different forms, but the basic clause states that beneficial and legal title to the goods is retained by the seller until they have received full payment. For the clause to be effective in practical terms, it’s important to incorporate supplemental clauses that, for example, entitle the seller to enter the buyer’s premises in order to take possession of the goods in the event of non-payment. Additional clauses will be required if the goods are likely to be used in a manufacturing process, or resold.

Although retention of title clauses has the potential to substantially improve the position of a seller in the event of buyer insolvency, there can be limits to their effectiveness.

A buyer’s standard terms may provide that title to the goods will pass to the buyer upon delivery, as opposed to on payment. A retention of title clause will not necessarily take priority over the buyer’s standard terms so any terms which purport to pass title to the buyer prior to payment should be expressly rejected by the seller.

In addition, it is important to ensure that the retention of title clause is properly incorporated into the contract of sale in order to be enforceable as a contract term. The sensible and careful seller should seek legal advice on the incorporation of the retention of title clause at the time of contracting to ensure its validity, rather than waiting until the buyer defaults on payment to take advice.

Our specialist construction team regularly receives instructions to advise on contract terms including JCT contracts, together with representing clients involved recovering their goods and debts.

How a CVA can affect a payment adjudication

As more construction companies face struggles to recover payments and cash flow is king, more companies in the sector and on the High Street face insolvency, the case of Indigo Projects London Limited (IPL) is worth considering.

IPL entered a Company Voluntary Arrangement (CVA) on 28 February 2019 after benefitting from an adjudication award for the sum of £177,662.72 in January 2019.

IPL applied for summary judgment to enforce the Award.

IPL had obtained the award for payment of the sum stated in an interim payment application, where no pay less notice had been served in time (something we have advised on many occasions). The Defendant stated that any enforcement of the award would undermine the proper operation of the CVA.

The CVA specifically stated that only the balance of cross-claims between the Claimant and any of its creditors could be claimed by the Claimant or a creditor under the CVA. This accounting exercise was due to be undertaken by the CVA supervisors.

Indigo said that as the adjudication award pre-dated the CVA, the award should be enforced first, with the accounting exercise under the netting-off provisions to follow. Alternatively, the award could be enforced in part, as an initial step under the accounting exercise, to the extent that Defendants had not been able to reduce the sum due by reference to quantified alleged counterclaims.

The Defendants argued that enforcement would interfere with that accounting exercise, in circumstances where it was their position that the sum awarded by the adjudicator did not represent the true value of the work done and that they also had counterclaims for defective work and delay.

The key issue for the Judge was that the effect of the adjudicator’s decision, a debt was created that arose before the CVA was entered into and if it was paid prior to the CVA, would have to be taken into account as part of the netting-off exercise. Under the rules of the CVA, this was quite different from the effect of a payment of that sum to Indigo after the CVA had been entered into.

The latter would go into the general fund for the benefit of the creditors as a whole, rather than being taken into account as part of the exercise of drawing up the balance of the dealings between the parties involved.

The court dismissed Indigo’s application on the basis that the Adjudicator’s decision was not definitive in deciding the value of any particular claim. It also made no account of the Defendant’s cross-claims for set-off, so even if the award had been before Indigo entered into the CVA, it would have amounted to a payment on account.

Had the Award been enforced, the monies would not have been applied for sole benefit of the Defendants but rather for the body of creditors generally. This would be a distortion of the process of accounting under the CVA, which expressly required the supervisors to take account of sums claimed and counterclaimed between IPL and each of its creditors. To have enforced the award would have been to the detriment of the Defendants.

Our skilled and experienced Litigation team have a wide depth of knowledge relating to the construction industry – both non-contentious and contentious on projects of all sizes. If you are experiencing issues with enforcing a contract and a claim for monies, require a review of your contracts or wish to defend a claim, or you can contact us at ph@rogers-norton.co.uk.