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Date of Practical Completion: Update from the NSW Court of Appeal

Case Note: Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113

In April, we wrote about the NSW Supreme Court’s decision regarding the date of practical completion in the matter of Fairfield City Council v Abergeldie Contractors Pty Ltd [2017] NSWSC 166.  You can read the full case note here: http://kreisson.com.au/practical-completion-reached/

In that case, the Supreme Court held that, in circumstances where a contract required the superintendent to issue a certificate evidencing practical completion, the date of practical completion was to be determined objectively by the court rather than by considering the date upon which the superintendent ultimately issued the certificate. 

In Abergeldie v Fairfield, the NSW Court of Appeal overturned the decision of the Supreme Court and held that the date of practical completion is the date upon which the superintendent issues the certificate of practical completion.

 

Background

Fairfield Council engaged Abergeldie to perform road works pursuant to a modified AS4000 Contract.

Clause 37.1 specified that, for the purposes of the Security of Payment Act 1999 (SOPA), the reference date for Payment Claims was the 28th day of each month.

Clause 44 of the contract provided that once Practical Completion Practical Completion had been achieved, Abergeldie would only be entitled to have the benefit of two further reference dates for the purposes of SOPA:

  • one after the date on PC was achieved; and
  • one after the conclusion of the defects liability period.

 

WHAT DID THE CONTRACT SAY?

The contract defined “practical completion” in the usual way – works completed except for minor defects, necessary tests carried out and passed and certified, relevant documents and certificates for use of equipment provided by contractor to principal, rubbish removed from site, relevant legislative requirements satisfied by contractor.

The contract also required the Superintendent to issue, upon request from the contractor, a certificate confirming that PC had in fact been achieved and “evidencing the date of practical completion”.

In particular, clause 34.6 states:

“When the Contractor is of the opinion that practical completion has been reached, the Contractor shall in writing request the Superintendent to issue a certificate of practical completion. Within 14 days after receiving the request, the Superintendent shall give the Contractor and the Principal either a certificate of practical completion evidencing the date of practical completion or written reasons for not doing so.”

 

Key Issue

On 25 November 2016, the Superintendent issued a certificate under clause 34.6 nominating the date of 16 September 2016 as the date of practical completion.

The key issue in dispute was whether practical completion had been achieved on 16 September 2016 or whether practical completion had been achieved on the date when the certificate was actually issued by the superintendent.

Decision of Supreme Court

The Supreme Court (per Ball J) held that PC had in fact in been achieved on 16 September 2016 when the works reached the required state of completion even though no certificate of PC was issued.

At [33] of the decision, The Court said:

The term “practical completion”, consistently with the way in which it is commonly understood in the construction industry, is defined in a way that depends largely on objective facts concerning the completion of the work the subject of the contract. It is true that some of the matters depend on formation of an opinion by the Superintendent. But that opinion is in relation to matters that can be assessed objectively…”

 the failure of the Superintendent to form an opinion will not necessarily be fatal to the achievement of practical completion…practical completion may be achieved even if the Superintendent does not form the relevant opinions if his failure to do so is unreasonable or lacks good faith.

Abergeldie appealed the decision to the Court of Appeal.

 

 The Court of Appeal Decision

The Court of Appeal took the opposite view to the Supreme Court and held practical completion was achieved on the date upon which the superintendent issued the certificate (that is, 25 November 2016).

In reaching its decision, the Court of Appeal focused on clause 34.6 of the Contract and in particular the requirement for the superintendent to issue “a certificate of practical completion evidencing the date of practical completion”.

The Court of Appeal focused on the language of the contract and held that it is necessary for the superintendent to form an opinion as to whether or not practical completion has been achieved and, if in the superintendent’s opinion it has been achieved, the superintendent is to issue a certificate.

The Court held that the date of practical completion is the date upon which the superintendent issues a certificate under clause 34.6.

At [40] and [41] the Court of Appeal said:

“…cl 34.6 envisages that both the contractor and the superintendent will form an opinion as to whether practical completion has been reached. The superintendent cannot be understood to have a power to issue a certificate of practical completion unless of the opinion that it has been reached.

 The structure and language of the contract is entirely consistent with the proposition that the conclusive event is the issuing of a certificate of practical completion, which must depend upon a contemporaneous opinion of the superintendent…Once that point is reached it is apparent that the contractor cannot know whether practical completion has been reached until it receives the certificate of practical completion. That certificate must, by implication, be dated and the date of the certificate will evidence the date of practical completion.”

The appeal was upheld and the judgment of the Supreme Court was set aside.

 

WHAT TO TAKE AWAY

The decision has a number of implications:

  1. Practical Completion may be delayed and will depend on when the superintendent forms an opinion that Practical Completion has been achieved.

 

  1. Delays by a superintendent in certifying Practical Completion may increase the risk for liquidated damages and also increase potential for extension of time and delay damages claims and disputes.

 

  1. Up until a Practical Completion Certificate is issued by a Superintendent, a claimant may subject to s13(4) of the Act have additional reference dates even well after the works have reached the required state of completion under the contract.

 

The decision has increased and introduced new consequences and risks for principals, contractors, subcontractors and superintendents and appropriate advice should be obtained to manage those risks, particularly at the time the contract is negotiated and as contract works are completed.

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