Australia: How to determine the date of practical completion, in light of Abergeldie v Fairfield City Council

IN BRIEF - PRACTICAL COMPLETION CANNOT BE BACKDATED ON A CERTIFICATION OF PRACTICAL COMPLETION.

Practical completion (PC) occurs on the date a certificate of PC is issued by the Superintendent, even if the certificate states that PC occurred on an earlier date, the contractor claims that PC was achieved earlier, and the Superintendent agrees that PC was achieved earlier. This was the (perhaps surprising) conclusion of the Court of Appeal in Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113.

The case concerned Australian Standard contract terms that are relevantly similar to those used on most construction projects in Australia. The date of PC is a contractual trigger point that has consequences for liquidated damages entitlements, extension of time and delay damages claims, early completion bonuses, defects liability periods, final payment claims, warranties, security, care of the works, insurance and payment claims under the Building and Construction Industry Security of Payment Act 1999 (SOP Act). It is fair to say that this case could have a wide industry impact.

ADJUDICATION DETERMINATION CHALLENGED BY FAIRFIELD CITY COUNCIL UNDER SECURITY OF PAYMENT ACT

Fairfield City Council engaged a contractor to perform road works pursuant to modified AS4000 terms.

On 16 September 2016, the contractor claimed that PC had been achieved and asked the Superintendent to issue a certificate of PC. On 25 November 2016, the Superintendent issued the certificate, and stated in the certificate that PC had been achieved on 16 September 2016.

The contractor had made payment claims on 28 October and 25 November. It took the 25 November claim to adjudication and was awarded approximately $1.3 million.

HOW DO YOU CALCULATE THE DATE FOR PRACTICAL COMPLETION?

An issue arose because the contract contained a relatively common amendment that prevented more than one payment claim being made between the date of PC and the end of the defects liability period.

At first instance in Fairfield City Council v Abergeldie Contractors Pty Ltd [2017] NSWSC 166, the Council obtained an order from the NSW Supreme Court quashing the adjudication on the basis that PC was achieved on 16 September as certified, so the 25 November claim (which went to adjudication) was the second payment claim following PC and therefore invalid.

The contractor successfully appealed to the Court of Appeal arguing that PC was achieved on 25 November, the date that the certificate was issued, and not on 16 September, the date that the Superintendent had certified PC to have been achieved as stated on the face of the certificate. So, the November claim was the first claim following PC and therefore valid.

PRACTICAL COMPLETION CLAUSE 34.6

The decision turned on the construction of the following standard form clause.

"34.6 PRACTICAL COMPLETION

The Contractor shall give the Superintendent at least 14 days written notice of the date upon which the Contractor anticipates that practical completion will be reached.
When the Contractor is of the opinion that practical completion has been reached, the Contractor shall in writing request the Superintendent to issue a certificate of practical completion. Within 14 days after receiving the request, the Superintendent shall give the Contractor and the Principal either a certificate of practical completion evidencing the date of practical completion or written reasons for not doing so.
If the Superintendent is of the opinion that practical completion has been reached, the Superintendent may issue a certificate of practical completion even though no request has been made."

PRACTICAL COMPLETION DEPENDS UPON THE STATE OF THE WORKS, SUPREME COURT FINDS

At first instance, PC was held to be achieved when the works reached the required state of completion, irrespective of whether or when a certificate of PC was issued. This reflects common industry practice and is explained in the following passage:

(at [33] NSWSC 166)

The term "practical completion", consistently with the way in which it is commonly understood in the construction industry, is defined in a way that depends largely on objective facts concerning the completion of the work the subject of the contract. It is true that some of the matters depend on formation of an opinion by the Superintendent. But that opinion is in relation to matters that can be assessed objectively – such as whether the contractor has reasonable grounds for not rectifying a minor defect and whether certain documentation is essential for the use, operation and maintenance of the Works. Although, in the normal case, it might be expected that the Superintendent will form those opinions at the time the Superintendent is asked to issue a certificate, there is no reason why they could not be formed independently. Moreover, the failure of the Superintendent to form an opinion will not necessarily be fatal to the achievement of practical completion. Under cl 20 of the contract, the Council is required to ensure that at all times the Superintendent "fulfils all aspects of the role and functions reasonably and in good faith". Consequently, practical completion may be achieved even if the Superintendent does not form the relevant opinions if his failure to do so is unreasonable or lacks good faith.

Ball J drew a distinction (at [32] NSWSC 166) between the date PC actually occurs (or occurred) and the date on which a certificate of practical completion is issued:

The contract draws a distinction between practical completion and the date on which that occurs, on the one hand, and the mechanism by which proof of those matters is facilitated, on the other. The former depends on satisfaction of the various conditions set out in the definition of "practical completion". The latter depends on the issuing of a certificate by the Superintendent.

COURT OF APPEAL FINDS THAT PRACTICAL COMPLETION DEPENDS UPON THE DATE THE CERTIFICATE OF PRACTICAL COMPLETION IS ISSUED

The Court of Appeal reached the opposite conclusion and found that PC could not be reached until the Superintendent held an opinion that PC had been achieved and issued a certificate of PC (at [40] NSWCA 113):

...the conclusive event is the issuing of a certificate of practical completion, which must depend upon a contemporaneous opinion of the superintendent.

One key reason was that clause 34.6 (like most Australian Standard construction contracts) did not provide that the certificate could state the date of PC, but only that it could "evidence" it. Another was that the clause (and parts of the definition of "practical completion") referred to the Superintendent's "opinion" that PC had been reached.

The Court of Appeal appeared to be concerned that if PC only depends upon the state of the works, then it could be achieved at a point in time when a party is not aware that it has been achieved. This might make it less certain when care of the work transfers, when temporary work and construction plant need to be removed and when the defects liability period commences, since all of these events are triggered by the date of PC. It might also undermine the operation of the SOP Act because it might make it less clear when post PC payment claims need to be made.

WHAT HAPPENS IF THE COURT IS ASKED TO DETERMINE THE DATE OF PRACTICAL COMPLETION?

The contract provided (as most Australian Standard construction contracts do) that the "date of practical completion" will not be the date evidenced in a certificate of PC where another date is determined in any arbitration or litigation as the date upon which PC was reached.

The Court of Appeal stated that nothing turned on this point. However, given their decision, it is not clear in what circumstances a court would determine that PC did not occur on the date the certificate of practical completion was issued. Likely situations are if a certificate of PC is never issued, if it is delayed for arbitrary, capricious or manifestly unreasonable reasons, or if it is issued at a time when PC has clearly not occurred.

CONSEQUENCES FOR LIQUIDATED DAMAGES ENTITLEMENTS, EXTENSION OF TIME AND DELAY DAMAGES CLAIMS, EARLY COMPLETION BONUSES, DEFECTS LIABILITY PERIODS, FINAL PAYMENT CLAIMS, WARRANTIES, SECURITY, CARE OF THE WORKS AND PAYMENT CLAIMS

The new focus on when the Superintendent forms an opinion that PC has been achieved (and issues a certificate of PC) has a number of other consequences.

Firstly, PC might be achieved later than might previously have been considered to be the case. This is so because the Superintendent, on current drafting of the standard clause, will have at least 14 days to form a view that PC has been achieved (once it is notified by the contractor that PC was achieved) and cannot backdate the certified date of PC. The delay to PC may be longer depending upon how the usual contract terms are amended, and whether the Superintendent complies with the timeframes.

Secondly, liquidated damages for delay may be increased and bonuses for early completion may be reduced. Where the Superintendent unreasonably delays certification, there may be disputes over the validity of liquidated damages clauses and the operation of the prevention principal, as well as potential extension of time and delay damages claims.

Thirdly, the care of the works is likely to shift away from the Contractor later (which will have insurance implications for both parties), defects liability periods will be longer, security will not be released as quickly, and final payment claims will occur later (all relative to the start of the project).

Fourthly, contractors may be able to make (and principals may have to deal with) additional claims, particularly (but not only) claims under the SOP Act and claims relating to actual or perceived delays in PC certification.

CONTRACTUAL AND COMMERCIAL WORKAROUNDS EXIST FOR PRINCIPALS, CONTRACTORS, SUBCONTRACTORS, CONSULTANTS AND SUPERINTENDENTS

The operation of Abergeldie may be minimised or avoided:

(in the case of new projects)

  • by ensuring that your contract clearly provides that a certificate of PC can specify a date of PC which is earlier than the certificate is issued. Preconditions for PC that require the Superintendent to hold an opinion (e.g. about the state of works) may also need to be drafted so that it is clear PC can be achieved before the Superintendent actually forms that opinion. In the case of most Australian Standard construction contracts, this will require clear amendments
  • by ensuring that there is a sufficient agreed and clearly disclosed allowance in any contract program (and date for PC) for the time that the Superintendent is likely to take to issue the certificate of practical completion
  • (in the case of existing projects)

  • by managing the process to ensure that the Superintendent actually issues the certification of PC on the same date that the contractual requirements for PC have been achieved. If the parties anticipate this might not be practicable, they could agree to amendments to the existing contract similar to those in the bullet point above
  • (in the case of completed projects)

  • by the parties contractually agreeing that PC was achieved on a specified date. There may also be scope for a Superintendent to use existing contractual mechanisms (such as unilateral extension of time grants) to reduce the consequences of an unreasonably delayed certification

Principals, contractors, subcontractors, consultants and Superintendents should obtain advice on the competing considerations and if necessary implement appropriate contractual and commercial protections.

Greg Begaud Julian Mellick
Construction and engineering
Colin Biggers & Paisley

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Julian Mellick
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions