Australia: New Guidance On The Date Of 'Practical Completion' And Its Broader Implications

In our earlier update concerning the Supreme Court of NSW decision in Fairfield City Council v Abergeldie Contractors Pty Ltd¹ (Abergeldie)  ( see here) we set out the reasoning of Justice Ball in relation to determining whether 'practical completion' has occurred. His Honour's view was that practical completion was to be interpreted as a matter of 'objective fact' and not by reference to the certification mechanisms contained in the contract to facilitate proof of practical completion (i.e. not the date the superintendent issued the certificate of practical completion).

The counter-argument that this 'objective' interpretation would, in the context of delay or failure by the superintendent to certify practical completion, result in uncertainty as to the occurrence of reference dates failed. Ball J reasoned that the contractor could readily overcome such uncertainty by ensuring that the payment claim submitted following completion of the work covered all remaining work.

To re-cap, the key AS4000 contractual provisions relevant to the reference date argument in Abergeldie were:

• clause 37.1, providing that a progress claim may be made on the 28th of each month for "Works under the Contract" done to the 28th day of that month; and
• clause 44 providing that for the purpose of section 8(2)² of the Building and Construction Industry Security of Payment Act 1999 (Act), only one payment claim could be made immediately after practical completion on "the first date for a progress claim arising immediately after practical completion (as determined under subclause 37.1)" ³.

The Court of Appeal has in Abergeldie Contractors Pty Ltd v Fairfield City Council⁴ unanimously overturned Ball J's decision, finding that the 'date of the certificate' trumps the date that the works objectively reached practical completion. The Court of Appeal undertook an analysis of the terms of the AS4000 General Conditions concerning practical completion and found that they support the following propositions: 

1. the achievement of practical completion depends upon the superintendent being satisfied the conditions for practical completion have been met;
2. that state of satisfaction is effective when communicated by the issue of a certificate of practical completion;
3. "issue" includes provision of the certificate to the contractor; and
4. the date of practical completion evidenced by the certificate is the date of the certificate.

The result was that the date of practical completion in this case was 25 November 2016 (not the earlier date in September 2016 found by Ball J). Accordingly clause 44 operated to make 28 November 2016 a reference date for the purpose of the Act. The Court of Appeal went on to hold that pursuant to clause 37.1, the payment claim under challenge was deemed to have been made on 28 November, the result being that it had been validly issued in respect of an available reference date⁵.

The Court of Appeal's interpretation of the processes concerning practical completion under the widely used AS4000 contract terms is also applicable to many of the other forms of construction contracts based on the Australian Standard suite, which adopt similar, if not the same terms. Further, the Court's conclusion that practical completion is only achieved when certified has broad implications extending well beyond the context of calculating and generating reference dates for payment claims under the Act.

These include programming and timing impacts with the potential for EOT claims and exposure to delay damages. It will also have a bearing on determining the date upon which risk in and control over the site is returned to the Principal and operates to push out the end dates for defects liability periods and the date for release of security. All of which have their accompanying considerations and costs.

Footnotes

^{1 [2017] NSWSC 166}

^{2 Which permits the parties to agree the reference dates through the relevant construction contract}

^{3 Clause 44 also permitted a payment claim on issue of a final certificate.}

^{4 Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113}

^{5 Clause 37.1 of AS4000 General Conditions relevantly provides that 'An early progress claim shall be deemed to have been made on the date for making that claim'. This conclusion may be the subject of further comment having regard to the Supreme Court decision just days earlier in Regal Consulting Services Pty Ltd v All Seasons Air Pty Ltd [2017] NSWSC613 in which Justice McDougall found that the 'deeming' under clause 37.1 did not have any effect on the operation of the Act.}