The determination of the date of practical completion under a construction contract has a number of important flow on effects, including the commencement of the defects liability period, the establishment of a reference date for the making of a further or final payment claim by the builder, the partial release of security bonds, the passing of control of the site back to the principal and the corresponding insurance obligations of the controlling party (typically being the principal from the date of practical completion). Uncertainty surrounding the date of practical completion is a recipe for commercial chaos. In the recent decision of Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113 the NSW Court of Appeal upheld a challenge by a contractor faced with a certificate of practical completion which purported to retrospectively back date the date of practical completion, which had the resulting effect of depriving the Builder from making a progress claim.
Background
The Council engaged the Contractor to undertake major road works involving the upgrade of sections of Wetherill Street, Wetherill Park. The terms of the contract (General Conditions of Contract AS 4950-2006, as amended) provided for monthly progress claims plus two progress claims after the date of practical completion of the works (being the relevant “reference dates” under the contract), as the term was defined under the contract. The first of these two post-completion reference dates was the 28th day of the month “immediately after practical completion”.
Upon completion of the works the Contractor wrote to the Council advising that practical completion had been achieved by 16 September 2016, together with a request that the certificate be issued. On 25 November 2016, some 10 weeks later, the Superintendent issued a certificate of practical completion which indicated that practical completion had been achieved on 16 September 2016. On the same day, 25 November, the Contractor sent a payment claim to the Superintendent. The Council subsequently issued a payment schedule indicating that no amount would be paid, as there was no valid reference date which permitted a payment claim to be made in November. In short, the payment claim was not served “immediately after practical completion” as defined by the Superintendent.
The dispute ultimately went to adjudication under Building and Construction Industry Security of Payment Act 1999 (NSW) (“SOP Act“), resulting in the Council being directed to pay the Contractor the sum of $1.3m.
Fairfield City Council v Abergeldie Contractors Pty Ltd [2017] NSWSC 166
The Court at first instance accepted the Council’s position that the date of practical completion was the date identified by the Superintendent (being 16 September 2016) in its certificate of practical completion issued on 25 November 2016, notwithstanding that the effect of that determination precluded the Contractor from making a progress claim on the first of the two post-completion reference dates available under the contract.
As the payment claim was made after the 28th day of the month “immediately after practical completion”, the Court held that the payment claim was invalid.
Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113
The Court of Appeal took a different view, overturning the judgment at first instance. The Court held that:
- practical completion under the contract only occurred when the Superintendent certified that it had occurred;
- the certification could not have retrospective effect; and
- there was no evidence allowing the trial judge to conclude that practical completion had in fact occurred (disregarding the need for certification) on the date alleged by the Council, namely 16 September 2016.
The Court upheld the validity of the payment claim, and the Contractor’s entitlement to act on the claim.
The Court made a number of observations regarding the structure and language of the contract which supported the conclusion that the “conclusive event” for the purposes of determining the date of practical completion was the date of the certificate of practical completion, which depended upon “a contemporaneous opinion of the superintendent.”
The Court observed that the Contractor cannot know whether practical completion has been reached until it receives the certificate, which must be dated, and which will evidence the date of practical completion.
The phrase “arising immediately after practical completion” as set out in clause 44.3 of the contract presupposes that practical completion will be a date “known to the builder” and be such that the Builder can act to make a progress claim “immediately after” it has occurred. This would not be so if the time of practical completion could be a date earlier than that on which a certificate of practical completion is given to the Builder.
The Court observed that the description of practical completion had many elements and consequences under the contract, which weighed upon how one must approach the characterisation of the term practical completion under the contract. Those elements included:
- whether a defect is minor or prevents the works from being reasonably capable of being used;
- whether required tests have been carried out and passed;
- whether copies of necessary approvals, certificates etc. have been provided; and
- whether all relevant legislative requirements have been satisfied.
Importantly, cl 14 of the contract stipulated that the Contractor was responsible for the whole of the work under the contract up to 4pm on the date of practical completion, at which time responsibility passed to the principal. The Court noted that if the Builder was unaware that practical completion had occurred and, from that date (again, unbeknown to the Builder), site responsibility passed to the Council, the consequences could be commercially disastrous for both parties.
[42] … To backdate practical completion might leave a period during which the Contractor’s insurance cover would not apply and the principal might not have obtained insurance cover.
As a practical matter, the Court observed, it is self-evident that both parties must know the date of practical completion for this purpose, both contemporaneously and simultaneously.
The Court held that, having regard to the matrix of considerations flowing from the determination of practical completion under the contract, the object of cl 34.6 was clear. That object is to “produce a degree of certainty between the parties as to the occurrence of practical completion by providing that it is taken to occur when a certificate to that effect is issued by the Superintendent in accordance with cl 34.6.”
Observations
It would seem clear that any contractual regime which purports to empower a principal or a superintendent to effectively backdate a date for practical completion, for whatever reason, will run head long into the characterisation conflicts addressed in this judgment, particularly where, as is nearly always the case, so many other contractual obligations and entitlements are linked to or are otherwise triggered by the date of practical completion.
The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.
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