Building contract – Breach of contract – Practical completion – Appellant seeking declaration that respondents in material and substantial breach of agreement for lease – Judge dismissing claim – Whether appellant entitled to determine agreement – Whether irremediable nature of breaches relevant to issue of practical completion – Whether first respondent validly certifying practical completion – Appeal dismissed
The third respondent was both a developer and a building contractor. By a building contract dated 27 May 2016, it was engaged by the second respondent to design and build two blocks of student accommodation at Notte Street, in Plymouth. Pursuant to an agreement for lease dated 20 May 2016, the appellant, a company in the business of providing managed student accommodation, contracted with the second respondent to take a long lease of the property following completion.
Amongst other things, the agreement for lease prohibited the second respondent from making any variations to the building works which materially affected the size of the rooms (clause 6.2.1). The clause stipulated that a reduction in size of more than 3% was deemed to be material. The judge found that 56 of the rooms were more than 3% smaller than the sizes shown on the relevant drawings.
The appellant sought declarations to the effect that, pursuant to the agreement for lease, any failure to meet the 3% tolerance was, without more, a material and substantial breach of the agreement, the existence of which automatically meant that it was entitled to determine the agreement and that the first respondent, as the third respondent employer’s agent, could not validly certify practical completion. The judge granted a declaration that the student residences had been built in breach of clause 6.2.1. However, he refused to grant declarations to the effect that any breach of clause 6.2.1 enabled the appellant to terminate the agreement, or that the breaches were defects that precluded the certification of practical completion: [2018] EWHC 3363 (TCC). The appellant appealed.
Held: The appeal was dismissed.
(1) Parties to contracts of this sort were entitled to agree, in advance, that a breach of particular clause amounted to a material or substantial breach of contract. As a matter of construction, the deemed materiality identified in clause 6.2.1 related to the reduction in room size, not the consequent breach of contract. It would be commercially unworkable if every departure from the contract drawings, regardless of the reason for, and the nature and extent of, non-compliance, had to be regarded as a breach of contract. In the present case, clause 6.2.1 addressed that problem directly. It identified the circumstances in which a departure from the room size specified on the contract drawings would amount to a breach of contract. The benchmark would be if the size of the room was “materially affected” by the departure; that it would be a breach of contract if the effect on the room size was “material”. However, materiality was introduced only in relation to room size and not in relation to the resulting breach. There was nothing in clause 6.2.1 which addressed the character or quality of the breach. The clause simply provided a mechanism by which a breach of contract could be indisputably identified. If the parties were to be taken to have agreed that any failure to meet the 3% tolerance no matter how trivial, amounted to a material breach of contract, it would lead to an uncommercial result. As a matter of construction, clause 6.2.1 could not be read as deeming any breach of contract to be material such as to allow the appellant to treat itself as discharged from its obligations under the agreement.
(2) The existence of latent defects could not prevent practical completion. If the defect was latent, nobody knew about it and it could not therefore prevent the certifier from concluding that practical completion had been achieved. In relation to patent defects, the cases showed that there was no difference between an item of work that had yet to be completed and an item of defective work which required to be remedied. Snagging lists would usually identify both types of item without distinction. Practical completion could be summarised as a state of affairs in which the works had been completed free from patent defects, other than ones to be ignored as trifling. Whether or not an item was trifling was 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. The mere fact that the defect was irremediable did not mean that the works were not practically complete. There was no doubt that the parties to a construction contract could agree particular parameters to guide and control a certifier in the exercise of his discretion in relation to practical completion. However, that did not happen here: the failure to stay within the 3% tolerance was a breach of contract, but whether any particular departure from the drawings was trifling or otherwise was a matter of fact and degree. Furthermore, none of the standard forms of building contract sought to provide any guidance or control. Thus, in the absence of any express contractual definition or control, practical completion was, at least in the first instance, a question for the certifier. The mere fact that the property was habitable as student accommodation did not, by itself, mean that the property was practically complete. Whether that view was correct was not a matter for the instant court. The question of the irremediable nature of the breaches was irrelevant to the issue of practical completion. The issue of whether or not it was capable of economic repair was a matter that went to the proper measure of loss, not to practical completion: Jarvis & Sons Ltd v Westminster Corporation and another [1969] 1 WLR 1448, HW Nevill (Sunblest) Ltd v William Press & Son Ltd (1981) 20 BLR 78 and Emson Eastern Ltd (in receivership) v EME Developments Ltd (1991) 55 BLR 114 followed. Kaye v Hosier & Dickinson [1972] 1 WLR 146 and Bovis Lend Lease Ltd v Saillard Fuller & Partners (2001) 77 Con LR 134 considered.
Stephen Dennison QC and Camille Slow (instructed by Mischon de Reya LLP) appeared for the appellant; Andrew Rigney QC and Dermot Woolgar (instructed by Silver Shemmings Ash LLP) appeared for the second respondent; the first respondent made written submission; the third respondent did not appear and was not represented.
Eileen O’Grady, barrister
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