Steven Carey looks at one of the first cases to apply the recent Mears vs Costplan ruling on identifying practical completion
The case of Willow Corp Sarl vs MTD Contractors Ltd is one of the first to apply the principles on how to spot when practical completion has been achieved that were outlined in the recent Court of Appeal case of Mears Ltd vs Costplan Services (South East) Ltd. Lindy Patterson wrote about this case in her Building article in May.
The court in Willow rightly referred to practical completion as an “elusive concept”. It certainly turned out that way in this case.
MTD had entered into a contract with Willow to design and build a Nobu hotel in Shoreditch. The intended completion date was 3 February 2017 but the project slipped into delay. The February date came and went, and this led to the parties discussing a phased handover of the hotel. At the same time MTD had raised claims for loss and expense and other cost overruns.
The court in Willow rightly referred to practical completion as an ‘elusive concept’. It certainly turned out that way in this case
Discussions culminated in the parties entering into an agreement in June 2017 (referred to in court as the June agreement), the purpose of which appeared to be to revise the date for practical completion to 28 July 2017 and to close out claims that had arisen up to that point. It also sought to redefine practical completion by postponing the completion of certain elements of the original work scope until after practical completion. However, the June agreement lacked clarity, and this later caused problems.
Unfortunately, the redefined works were not completed by 28 July 2017. This state of affairs led to an adjudication in which MTD was awarded around £1.2m. In coming to his decision, the adjudicator interpreted the June agreement in such a way as to exclude Willow’s entitlement to liquidated damages from 28 July 2017 to 13 October 2017 (when the redefined scope of work was completed), thereby denying Willow’s entitlement to £715,000 for such liquidated damages. The adjudicator had interpreted the June agreement as requiring practical completion to be certified on 28 July 2017 as long as an agreed list of outstanding works was in existence – and such a list was in existence.
It is clear that the proper construction of the June agreement lay at the heart of a significant proportion of the award.
Willow did not pay the adjudication award, instead issuing Part 8 proceedings seeking declarations as to the proper construction of the June agreement. Willow also raised a number of points relating to alleged breaches of natural justice which, without going into detail, the court dismissed. MTD countered by issuing a Part 7 claim to enforce the adjudicator’s award.
The court helpfully set out when it would be appropriate for a party to use Part 8 proceedings, namely where a short and self-contained point has arisen in the adjudication which requires no oral evidence and which on a summary judgment application it would be unconscionable for a court to ignore. The proper construction of the June agreement was such an issue. The court went on to determine that the adjudicator was wrong in his interpretation of the June agreement and that a proper interpretation would have entitled Willow to levy liquidated damages.
In determining this, the court found that the June agreement did not require Willow to accept that practical completion had been achieved simply upon agreement of a list of outstanding works. The court applied the principles set out by Lord Justice Coulson in the Mears case to find that by 28 July 2017 the works had not reached practical completion, even in its redefined state.
Having found that the adjudicator had erred in his construction of the June agreement, the court had to look at whether this meant that the whole award fell away or whether the court could sever that element of the award attributable to the misinterpreted June agreement.
The court felt that it would further the statutory aim of supporting the adjudication process if the Technology and Construction Court were rather more willing to order severance than had perhaps previously been the case. The court went so far as to say that “the proper question is not, however, to focus on whether there was a single dispute or difference but upon whether it is clear that there is anything left that can be safely enforced once one disregards that part of the adjudicator’s reasoning that has been found to be obviously flawed”. This goes further than previous authorities, as it suggests that in circumstances where only one claim is dealt with the decision could possibly still be severed.
In this case, the court was satisfied that the error of law on the issue of the contractual construction was limited to the adjudicator’s dismissal of the claim for liquidated damages and that such error did not infect the balance of the decision. Therefore the good part of the adjudicator’s decision could and should be severed from the bad. The value of the decision, less the liquidated damages was enforced.
As long as Part 8 proceedings do not involve substantial dispute of fact, they may be used to rescue an adjudication decision partly made in error. However, if the contract provides that the final dispute resolution mechanism is arbitration, the court may not have jurisdiction to look at such a short point of interpretation. Ultimately, had the June agreement been more clearly drafted the dispute may have been avoided.
Steven Carey is head of the construction, engineering and projects team at Charles Russell Speechlys