The purpose of a Certificate of Practical Completion is to certify the date on which all building work has been completed in accordance with the construction contract.
The recent decision of H&M Constructions (NSW) Pty Ltd v Golden Rain Development Pty Ltd (No. 4) [2023] NSWSC 925 examines the consequences of when a Superintendent issues a Certificate of Practical Completion when not all contractual requirements have been satisfied.
Facts
Golden Rain Development Pty Ltd (Principal) engaged H&M Constructions (NSW) Pty Ltd (Contractor) under a D&C Contract (Contract) dated 20 October 2015, to construct high rise apartments, terraces and public roads on a site in Erskineville, New South Wales.1
Both parties were aware that the site was contaminated in the soil and groundwater, and all remediation risks were allocated to the Contractor under the Contract.2
By July 2018 the Contractor contended that it had completed the works, despite the site auditor determining there remained inappropriate levels of contamination at the site.3 Regardless, the Superintendent issued a ‘conditional’ Certificate of Practical Completion on 24 September 2018 (Conditional Certificate).4 The Conditional Certificate identified 7 September 2018 as the Date of Practical Completion but specified that it was conditional upon a number of matters being finalised, most of which were requirements of the definition of Practical Completion under the Contract, including obtaining an occupation certificate.5 Once the Conditional Certificate was issued the Contractor ceased claiming extensions of time and delay costs.6
The Principal claimed that the Conditional Certificate failed to comply with the requirements of the Contract because it was neither a Certificate of Practical Completion nor written reasons as to why Practical Completion had not been achieved.7 Therefore, the Principal contended that Practical Completion could only be attained once the matters in the Certificate were finalised.
The Contractor claimed that if the Conditional Certificate was found to have no contractual effect, the Principal would not be entitled to liquidated damages or access to security due to estoppel, alleged unconscionable conduct and the operation of the ‘prevention principle’.8
Issue in Dispute
The seminal issue for the Court to consider was whether the Conditional Certificate demonstrated that practical completion had been achieved on 7 September 2018.
Subsequent issues for the Court to consider included the Principal’s entitlement to the security under the Contract, as well as considerations of whether the Principal:
- induced the Contractor to assume that the date of practical completion was 7 September 2018 and was now estopped from departing from that induced assumption;
- engaged in unconscionable conduct by seeking to call on the security in circumstances where it did not challenge the Conditional Certificate; and
- was prevented from receiving the benefit of the security because the lack of extension of time claims was caused by the Principal’s inducement that the Conditional Certificate fixed a time for determination of entitlement.
Decision
The Supreme Court held that the Conditional Certificate was a document for which there was no authority in the Contract for and therefore it had no contractual effect.9 It was held that even if the Conditional Certificate did have contractual effect, the Date of Practical Completion remained unclear as it was dependent on a number of matters which had not been finalised, and subject to determination by the Court.10
Additionally, the Contractor failed to establish its cases regarding estoppel, unconscionability and the prevention principle because its misunderstanding about the effect of the Conditional Certificate was not induced by the Principal, the Principal merely failed to correct the misunderstanding.11
The Principal was therefore entitled to liquidated damages and access to the security.
Key Takeaways
The Superintendent should be mindful to only issue a Certificate of Practical Completion if it complies with the terms of the Contract to avoid any risks of it being declared legally invalid. Accordingly, efforts should be made to ensure that Contract’s accurately reflect the parties’ intentions as to what should constitute Practical Completion.
Written by Alan Chiang, Partner, Fin Neaves, Associate, and Alice Heath, Law Graduate.
1 [1].
2 [3], [7].
3 [9], [36].
4 [82].
5 [19]-[20].
6 [137].
7 [23].
8 [15].
9 [29].
10 [30].
11 [154], [168], [185].
