GB Building Solutions Ltd v SFS Fire Services Ltd (t/a Central Fire Protection) [2017] EWHC 1289 (TCC)

Case No B50MA097

[2017] EWHC 1289 (TCC)

IN THE HIGH COURT OF JUSTICE

QUEEN’S BENCH DIVISION

MANCHESTER DISTRICT REGISTRY

TECHNOLOGY AND CONSTRUCTION COURT

Venue Manchester Civil Justice Centre,, 1 Bridge Street West, Manchester M60 9DJ

Date 25 May 2017

Before

HIS HONOUR JUDGE STEPHEN DAVIES

SITTING AS A JUDGE OF THE HIGH COURT

Between

GB BUILDING SOLUTIONS LIMITEDClaimant

SFS FIRE SERVICES LIMITEDDefendant

Lucy Colter (instructed by DAC Beachcroft LLP, Leeds) for Claimant

Timothy Killen (instructed by Kennedys Law LLP, London) for Defendant

Hearing Hearing dates: 27, 28 March 2017

Supplemental closing submissions: 3, 5, 7 April 2017

Draft judgment disseminated 2 May 2017

JUDGMENT

His Honour Judge Stephen Davies:

Introduction

[1]This case involves a flood which occurred in the basement of an office building under construction in Manchester city centre in late December 2009. The claimant was the design and build main contractor who was responsible for undertaking the main contract works to provide the office building. The defendant was the design and build subcontractor who was responsible for the provision of the sprinkler system in the office building. The claimant contends that the defendant was responsible for the flood. The claimant contends that it has suffered losses resulting from the flood in excess of £600,000.

[2]The court has to decide as a preliminary issue whether the flood occurred before or after the “terminal date”, which as relevant is defined simply as the date of practical completion of the subcontract works.

[3]If the flood occurred before the terminal date, it is common ground that the claimant is unable to maintain a claim against the defendant for its losses. If, however, the flood occurred after the terminal date, it is common ground that the claimant is entitled in principle to advance its claim, which would then have to be determined on its merits. That is because it is common ground that under clause 6 of the subcontract conditions the damage which occurred here was a Specified Peril to which clause 6.6.1 applied. Clause 6.6.1 provides as follows:

“The Contractor shall, prior to the commencement of the Sub-Contract Works, ensure that the Joint Names Policy under whichever of Insurance Options A, B or C applies to the Main Contract is issued and/or endorsed in terms that, in respect of loss or damage by the Specified Perils to the Main Contract Works or relevant Section, work executed and Site Materials insured thereunder, either the Sub-Contractor is recognised as an Insured under that Policy or the insurers waive any right of subrogation which they may have against the Sub-Contractor; and that this recognition or waiver shall continue in respect of the Sub-Contract Works or such work in the Section up to and including the Terminal Date.”

[4]There are two issues which the court has, or may have, to determine in order to answer the preliminary issue. The first is whether or not the date of practical completion of the subcontract works is defined, by way of agreed modification to the standard form of subcontract used in this case, as “the issue of the certificate of practical completion pursuant to the main contract”. If so, then since it is common ground that the certificate of practical completion pursuant to the main contract was issued after the date of the flood the claimant would not be able to maintain the claim.

[5]If not, then it is common ground that clause 2.20.1 applies. Clause 2.20 is headed “Date of practical completion” and clause 2.20.1 provides that:

“The Sub-Contractor shall notify the Contractor in writing of the date when in his opinion the Sub-Contract Works as a whole or such works in a Section are practically complete and he has complied sufficiently with clauses 2.24 and 3.20.4 in respect of that completed work. If the Contractor does not dissent in writing, giving reasons, within 14 days of receipt of the Sub-Contractor’s notice, practical completion of such work shall be deemed for all the purposes of this Sub-Contract to have taken place on the date so notified.”

[6]If clause 2.20.1 applies the second issue which the court would have to determine is whether or not the defendant did give a valid and effective notification under that clause. If it did, since it is common ground that the claimant did not dissent from any such notice as was given, practical completion would be deemed to have taken place on the date stated in such notification.

[7]On the defendant’s case, the court cannot determine that second issue without also considering whether or not the subcontract works had been practically completed by the date of notification, as to which there is a dispute between the parties. Insofar as the court was to conclude that the second issue cannot be determined without reference to the actual position, that is a dispute which the court must resolve.

[8]On the claimant’s case, on a proper construction of clause 2.20.1 the actual status of the subcontract works is completely irrelevant. The question is simply whether or not, as it says, the defendant gave a notice in accordance with that clause with which it did not dissent. If so, then the date stated in the notice is the date of deemed practical completion and anything else is irrelevant. If, however, I do not agree with that construction, as I have said the claimant invites me to find that practical completion had been achieved prior to the date of the flood in any event.

[9]I heard oral evidence from three witnesses. The first was Anita McFarlane. She was the regional commercial manager for the claimant’s northwest section from 2008 until 2015, when it went into administration. She was an honest and reliable witness, but had no first-hand knowledge of the detail of the subcontract or its performance, thus could say little beyond what the contemporaneous documents themselves said. The second was Richard Gordon. He was a mechanical design engineer at the engineering consultancy instructed by the claimant, known as TACE. He was also an honest and reliable witness. He was present at a demonstration of the subcontract works which took place on 9 December 2009, and I accept his evidence, which albeit given the passage of time was only in general terms, as consistent in my view with the contemporaneous documentation. The third was Scott Ayling, the project engineer employed by the defendant on this subcontract. He was also an honest and reliable witness, who is no longer employed by the defendant. He was not involved in the formation of the subcontract, but took over the job once the subcontract had been awarded to the defendant.

[10]I am extremely grateful to both counsel for their careful, comprehensive and thought-provoking submissions. In summary, my decision is as follows:(1) The definition of Practical Completion in the schedule of modifications does not apply to section 6. Instead clause 2.20 applies for the purposes of ascertaining the Terminal Date in clause 6.1.

(2) The defendant gave a valid notice under clause 2.20.1 of the date of practical completion as being either 26 October 2009 or, if not, 1 December 2009 and, since the claimant did not dissent in writing within the specified period, practical completion was deemed to have taken place on that date.

(3) Even if, which I do not accept, it is relevant to consider whether or not practical completion in fact had occurred by either date, I am satisfied that it had occurred by 9 December 2009.

(4) It follows that the answer to the preliminary issue is that the flood occurred after the Terminal Date. My reasons follow.

The first issue

[11]The first issue is a question of construction of the subcontract. Although both parties appeared to suggest at various times that the conduct or beliefs of the parties during the course of performance of the subcontract was, or might be, relevant to the construction of the subcontract, I do not accept that this is so, at least in the absence of a pleaded or developed case of rectification or estoppel by convention or similar. In any event and even if, contrary to my view, such conduct or beliefs were in principle relevant, I do not consider that the evidence in these respects assists me either way on the facts of this case.

The approach to construction

[12]The law in relation to contractual interpretation has been the subject of consideration in many cases, recently and authoritatively by the Supreme Court in Rainy Sky SA v Kookmin Bank

[2011] 1 WLR 2900

and again in Arnold v Britton

[2015] AC 1619

. In a yet more recent case, Wood v Capital Insurance Services

[2017] UKSC 24

, it was submitted to the Supreme Court that in Arnold it had “rowed back” from the guidance on contractual interpretation which the court gave in Rainy Sky, and that this had caused the Court of Appeal in that case to place too much emphasis on the words of the contract in question and to give insufficient weight to the factual matrix.

[13]The Supreme Court did not allow counsel for the appellant opportunity to develop this argument, stating that it did not accept the proposition that Arnold had altered the guidance given in Rainy Sky. Instead it invited him to present his case without having to refer to what were referred to as “the well-known authorities on contractual interpretation, with which it was and is familiar”: see [8] of the judgment given by Lord Hodge, with whom Lords Neuberger, Mance, Clarke and Sumption agreed.

[14]Lord Hodge said this about the correct approach to contractual interpretation:

“10. The court’s task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. In Prenn v Simmonds [1971] 1 WLR 1381 (1383H-1385D) and in Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 (997), Lord Wilberforce affirmed the potential relevance to the task of interpreting the parties’ contract of the factual background known to the parties at or before the date of the contract, excluding evidence of the prior negotiations. When in his celebrated judgment in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Lord Hoffmann (pp 912-913) reformulated the principles of contractual interpretation, some saw his second principle, which allowed consideration of the whole relevant factual background available to the parties at the time of the contract, as signalling a break with the past. But Lord Bingham in an extra-judicial writing, A new thing under the sun? The interpretation of contracts and the ICS decision Edin LR Vol 12, 374-390, persuasively demonstrated that the idea of the court putting itself in the shoes of the contracting parties had a long pedigree. 11. Lord Clarke elegantly summarised the approach to construction in Rainy Sky at para 21f. In Arnold all of the judgments confirmed the approach in Rainy Sky (Lord Neuberger paras 13-14; Lord Hodge para 76; and Lord Carnwath para 108). Interpretation is, as Lord Clarke stated in Rainy Sky (para 21), a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense. But, in striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause (Rainy Sky para 26, citing Mance LJ in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] 2 All ER (Comm) 299 paras 13 and 16); and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest: Arnold (paras 20 and 77). Similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms. 12. This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated: Arnold para 77 citing In re Sigma Finance Corpn [2010] 1 All ER 571, para 10 per Lord Mance. To my mind once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each. 13. Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professionally drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type. The iterative process, of which Lord Mance spoke in Sigma Finance Corpn (above), assists the lawyer or judge to ascertain the objective meaning of disputed provisions. 14. On the approach to contractual interpretation, Rainy Sky and Arnold were saying the same thing.”

[15]I direct myself in accordance with that authoritative analysis of the authorities and turn to the subcontract.

The subcontract

[16]The subcontract was made on the basis of a modified version of the standard form JCT 2005 design and build subcontract. As relevant to this case, the subcontract documents comprise the articles of agreement, the schedule to the articles of agreement, and eight numbered documents. The design and build subcontract conditions applied as modified by numbered document one, being the schedule of modifications.

[17]Numbered document 4 is entitled “scope”, and includes four separate numbered sub-documents. The specification is in numbered document 4.1 and the subcontract meeting minutes forms numbered document 4.3.

[18]Numbered document 4 itself describes the specific scope of work as comprising the “design, supply, install, test and commission complete sprinkler system in accordance with LPC rules …”. The LPC rules, to which Mr Ayling made considerable reference in his evidence, are rules promulgated by the Loss Prevention Council, which is a certification body in the field of security and fire protection and which promulgates various rules and issues certificates to products, services or companies which meet those standards.

[19]The specification includes, as would be expected, detailed provisions for the sprinkler system. It is only necessary to refer briefly to certain provisions of relevance to this case.(1) Clauses 1.34 – 1.38 made provision for testing to be carried out in the presence of the contract engineer and for test certificates to be prepared and recorded.

(2) Clause 1.40 made provision for maintenance and operating instructions for the installations to be prepared prior to the issue of the certificate of practical completion and handover.

(3) Clause 2.3 provided more detail as to the scope of the works, which included “the testing, setting to work and commissioning of the completed installations” and the “production for comment of the operating and maintenance manuals (“OMMs” for short) and as fitted drawings in draft form a minimum of 2 weeks prior to practical completion.

(4) Clause 2.4 provided more detail as to the extent of the works, explaining in summary how sprinkler protection was to be provided to specified areas of the building, and how a pumped water supply to the sprinkler heads was to be provided from a water storage tank in the basement, which would include an overflow. It also explained that the pipework was to be pressure-tested to 15.0 bar for a minimum 2 hour period, and made further reference to the record drawings and OMMs.

[20]The meeting minutes extended over 24 pages and again it is only necessary to refer briefly to certain provisions of relevance to this case.(1) Item 7.1.15 made reference to the OMMs to be provided in draft 4 weeks prior to practical completion of the subcontract works with 2 further sets to be issued 2 months prior to completion of the main contract.

(2) Item 10 was entitled “handover” and provided as follows: “The Sub-Contractor shall give 7 days notice of the day the Sub-Contract works are considered to be complete and ready for handover to [the main contractor]. The site manager will then inspect the works and decide whether or not they are, in his opinion, complete. When the works are accepted, the site manager will certify, in writing, to that effect, and from that date, responsibility for the protection of the listed works will transfer to [the main contractor].” (One of the issues which arises in this case as to how, if at all, this provision for handover fits in with the contract provisions for practical completion.)

[21]Numbered document 5 was entitled “programme and key dates”. It required the subcontractor to work “in accordance with the main contractor’s directions and/or any programme of work that may be issued to enable the co-ordination of the subcontract works and works of other subcontractors”. It also provided for an anticipated commencement date of 28 July 2008 and an on-site duration of 31 working weeks. By reference to the schedule to the articles of agreement the date for possession under the main contract was 6 November 2007 and the date for completion 21 August 2009. It follows, as Ms Colter submitted, that the anticipated completion date of the subcontract works was 27 April 2009, some 4 months prior to the anticipated completion date of the main contract works.

[22]Clause 1.3 of the subcontract conditions as inserted by the schedule of modifications required the subcontract to be “read as a whole” but, in the case of conflict, the order of precedence was stated to be:(i) the schedule of modifications;

(ii) the articles;

(iii) the numbered documents (with numbered document 4 having precedence over the others);

(iv) the subcontract conditions; and

(v) the main contract conditions, which was stated in the articles to be a contract document.

[23]The subcontract price was £177,960, broken down as per the subcontract analysis comprising numbered document 8.

The specific terms in relation to practical completion

[24]The subcontract conditions include at section 1 a list of definitions. The schedule of modifications included a number of further definitions to be inserted into section 1, including the following definition of “Practical Completion”: “The issue of the Certificate of Practical Completion pursuant to the Main Contract”.

[25]In the standard subcontract conditions there is no definition of practical completion, although there is a definition of “Terminal Date” which states, simply, “see clause 6.1”, which provides as follows:

“Terminal Date: (a) The date of practical completion of the Sub-Contract Works or, in respect of a Section, of such works in the Section, as determined in accordance with clause 2.20; or (b) The date of termination of the Sub-Contractor’s employment under this Sub-Contract, however arising; Whichever first occurs.”

Whichever first occurs.”

[26]I have already referred to clause2.20.1 above (at paragraph 5). Clause

2.20.2 continues as follows:

“If the Contractor so dissents, then as soon as he is satisfied that such work is complete and that there has been such compliance, he shall as soon as practicable notify the Sub-Contractor in writing and practical completion of such work shall be deemed for all the purposes of the Sub-Contract to have taken place on the date notified by the Contractor or on such other date as is either agreed or determined in accordance with the dispute resolution procedures of this Sub-Contract. Such date shall in any event be no later than the date of practical completion of the Main Contract Works or relevant Section or part under the Main Contract. Any agreed date shall be confirmed by the Contractor to the Sub-Contractor in writing.”

The competing arguments

[27]The essential question in relation to issue 1 is whether the definition of “Practical Completion” inserted by the schedule of modifications governs clause 6.1 or not. If it does, then the procedure for determining the date of practical completion provided for by clause 2.20 is irrelevant, whereas if it does not then it is clause 2.20 which will apply in order to determine the date of practical completion.

[28]The claimant’s fundamental argument is that there is no reason to treat the definition of “Practical Completion”, as a capitalised phrase, as applying to clause 6.1, under which the definition of “Terminal Date” – which is itself another defined phrase – is defined as the date of practical completion (a non-capitalised phrase) of the subcontract as determined in accordance with clause 2.20.

[29]The defendant’s fundamental argument is that since the parties have chosen to insert, via the schedule of modifications - which has contractual precedence - a specified definition of practical completion (whether capitalised or not is irrelevant, it says) there can be no justification for not using that definition in every part of the contract where that phrase appears.

Discussion and decision

[30]In my view this is a case where the rival interpretations are both at least plausible, so that the court has to undertake the “unitary exercise” and conduct the “iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated”: see paragraph 12 of the Wood case referred to at paragraph 14 above.

[31]Practical completion is of relevance under the subcontract in 4 main respects. In no particular order, these are as follows:(a) First, it is relevant to the apportionment of responsibility for injury and damage and for the respective insuring obligations pursuant to clause 6, which is of course what this case is about.

(b) Second, it is relevant to the apportionment of responsibility for delay.

(d) Fourth, it is relevant to the commencement of the defects liability period. It may also be relevant in other respects, for example the right of termination for subcontractor default under clause 7.4.1, but not in a way which is of any particular relevance so far as this case is concerned.

Clause 6

[32]As regards clause 6, the basic structure is that under clauses 6.2 and 6.3 the subcontractor is liable for and must indemnify the main contractor against personal injury and property damage due to its default, however by clause 6.4 this does not apply to damage to the main contract works by specified perils up to the terminal date, even where due to its breach. Under clause 6.5 the subcontractor is required to take out insurance to cover its liability under clauses 6.2 and 6.3, whereas under clause 6.6 the main contractor is required to ensure that the subcontractor is a co-insured under the insurance policy which it is required to take out in relation to damage to the main contract works by specified perils up to the terminal date. Under clause 6.7 the subcontractor is responsible for the cost of remedying damage to the subcontract works prior to the terminal date, other than where caused by the specified perils, but is not responsible for any such damage after the terminal date, unless due to his breach.

[33]The claimant argues that it makes no sense for the terminal date to be the date of the certificate of practical completion under the main contract works, since that would impose on the subcontractor an ongoing liability for works even after the subcontract works had been practically completed and he had left site.

[34]The defendant argues that it makes perfect sense for the terminal date to be the date of the certificate of practical completion under the main contract works, since insofar as there was a risk of damage to the subcontract works due to specified perils at any time up to practical completion of the main contract works, even though the individual subcontractor may already have left site, it made perfect sense for the policy which the main contractor was required to provide to cover the subcontractor until the date of practical completion of the main contract works as a whole.

[35]Considering these competing arguments, in my view neither suggested construction can be said to be completely irreconcilable with the structure of clause 6. In particular, I can see that where both parties have to take out insurance cover against their responsibilities under clause 6, it may not matter very much whether the subcontractor’s obligations end at the date of practical completion of the main contract works even where the subcontract works have been practically completed in fact before that date. However it does seem to me that the claimant’s suggested construction fits better with clause 6.7, because it would appear odd for the subcontractor to be responsible for damage to the subcontract works even after they were factually practically complete and he had left site and even where the damage was not due to his default. Furthermore, referring back to the provision for handover in the meeting minutes, the claimant’s suggested construction appears to me to be more consistent with the provision in item 10 that factual practical completion of the subcontract works triggers the transfer of responsibility for protection of the works to the main contractor.

Delay

[36]The contractual provisions for delay are found in clause 2 of the subcontract conditions but subject to quite extensive modification by the schedule of modifications.

[37]Clause 2.3 requires the subcontractor to carry out and complete the subcontract works in accordance with the programme details and, by modification, in accordance with the main contractor’s reasonable instructions and in any event so as to ensure practical completion of the main contract works as required by the main contract. This however is expressly made subject to clauses 2.17 and 2.18, which make provision for delays to be notified and extensions to be granted if the causes of delay are relevant events falling within clause 2.19. It is at this point that clause 2.20 comes in, and is followed by clause 2.21 by which the subcontractor is made responsible for any direct loss and/or expense suffered by the main contractor as a result of the subcontractor’s failure to complete the subcontract works within the relevant period for completion.

[38]The claimant submits that if the date of practical completion under clause 2.20 is the date of practical completion of the main contract works, which on the defendant’s case it must be, then that would lead to the bizarre outcome that the defendant would still be liable under clause 2.21 even if it had complied with its obligation under numbered document 5 as regards the time for completion of the subcontract works. Although the defendant’s position was that this was irrelevant since its sprinkler works would always be programmed to be completed at the very end of the overall works, I do not accept that this is a sufficient answer since, as Ms Colter submitted, on an objective analysis that was never intended to be the case here as is demonstrated by reference to the dates for completion in the main contract and the subcontract referred to in paragraph 21 above. The same submission also answers Mr Killen’s other point that in reality there was never any risk of a delay in the sprinkler works delaying practical completion of the main contract works as a whole, so that the potential liability of the subcontractor under clause 2.21 was never liable to arise in practice. In my judgment, given the fact that the contract documents themselves demonstrate that the intention and expectation at the time of contracting was that there should be a 4 month cushion between completion of the subcontract works and completion of the main contract works, it is not open to the defendant to answer that point by saying that this would never be a problem in practice, because it would always have planned to and achieved practical completion at the time of completion of the whole works.

[39]It follows in my view that there is an inconsistency between the delay and liability for delay provisions of the subcontract and the defendant’s case on construction. However I accept that this point is not by itself by any means conclusive of the issue.

Payment

[40]The schedule made provision for the main contractor to be entitled to deduct 3% retention in accordance with clauses 4.10.1 and 4.15 of the subcontract conditions. The un-amended conditions provided for one half of the retention to be payable upon practical completion. However by the schedule of modifications clause 4.15.1.2 was deleted and replaced so that it read: “One-half of the amount of retention deducted and retained by the Contractor pursuant to clause 4.15.1.1 shall be released to the Sub-Contractor following Practical Completion”.

[41]It is common ground that the phrase Practical Completion as used here means practical completion as certified under the main contract in accordance with the definition inserted by the schedule of modifications. The claimant’s case is that this is because it is being used as a capitalised term. The claimant also points to the meeting minutes item 5.2.4 which says: “release of retention: a) 1st portion: 38 days from Practical Completion of the Main Contract”, which it says again is again specific confirmation that it is practical completion of the main contract which is being referred to here. The defendant’s case is that this supports its case that practical completion should bear the same meaning throughout the subcontract, whether capitalised or not, since otherwise there would be uncertainty and inconsistency between different parts of the subcontract, so that this points to practical completion being given the same meaning in clause 6.20.

[42]In my view both arguments have their attractions. It is clearly the case that the wording of this part of the subcontract makes it clear beyond doubt that practical completion means the certificate of practical completion under the main contract, and that the phrase is capitalised so that there can be no room for argument, whereas that same clarity is not present in relation to clause 6.20, but I also accept that the defendant’s case that the contract should, where possible, be interpreted to avoid internal inconsistency has merit.

[43]Otherwise the payment provisions of the subcontract are of no particular significance in the present context, since although by clause 4.9 of the subcontract conditions interim payments are payable until “practical completion of the Sub-Contract Works as a whole”, they are also payable after that as well when further amounts are ascertained as due and payable, so that it would not appear to matter very much which construction is adopted. The same would appear to be the case as regards the setting of the timetable for the calculation of the final subcontract sum in accordance with clause 4.6.1.

Defects liability period

[44]Unlike many, if not most, standard forms there is no specific time limited defects liability period to be found in the articles, the schedule or the subcontract conditions. Clause 2.22 of the subcontract conditions requires the subcontractor to make good defects, but does not state in terms either that this applies only to defects appearing after practical completion nor does it impose any time limit on the obligation. However, there is also a general obligation, imposed by clause 2.5, to perform the main contractor’s obligations under the main contract as they apply to the subcontract works. Moreover the schedule specifies that the “rectification period” under the main contract is 12 months. This is consistent with the meeting minutes item 4.8 which states, under the heading “Rectification (Defects Liability) Period: This will be 12 months after completion of the Main contract”. In my view neither party is assisted in any material way by these provisions.

Handover

[45]I have already referred (paragraph 20(2) above) to the reference in the meeting minutes to handover. In my view handover is clearly intended to occur at around the time of factual practical completion of the subcontract works, rather than around the time of the certificate of practical completion of the main contract works, insofar as different. The same point appears from clause 1.40 of the specification (see paragraph 19(2) above). The claimant says that this is a powerful indication that practical completion is intended to mean practical completion of the subcontract works. The defendant says that there is no connection between the two. In my view the claimant gains some support from the reference to handover, because otherwise it is difficult to see what the reference to protection of the listed works in the handover section means if it is not equated with the subcontractor’s responsibility for the subcontract works under clause 6.7 of the subcontract conditions.

The arguments

[46]The defendant contends that the express definition of practical completion in the schedule of modifications ought to apply generally throughout the subcontract, in order for the subcontract to be consistent, and ought to have precedence over the un-amended subcontract conditions. It contends that it should apply to clause 6.1 as much to any other clause, since there is no compelling reason for not applying that definition to that clause. It contends that there is nothing in the rest of the subcontract which makes clause 6 inoperable if the terminal date is the date of the certificate of practical completion under the main contract.

[47]The defendant also contends that the reference to clause 2.20 in clause 6.1 only applies to sectional completion (which is not applicable in this case), so that here the only relevant reference in clause 6.1 is to “the date of practical completion of the Sub-Contract Works” which therefore clearly brings in the definition of Practical Completion in the schedule of modifications.

[48]The claimant submits that the definition of Practical Completion has no more contractual significance than the definition of Terminal Date since, even though the latter is in the un-amended definition clause, it cannot sensibly be argued that the contractual order of precedence clause should lead to a definition inserted by the schedule of modifications having any greater weight than one already there, particularly in the context that the inserted clause 1.3.1 expressly requires the subcontract to be read as a whole, save in a case of conflict, and there is no conflict between the two definitions.

[49]The claimant also notes that the opening words of clause 1.1 provide that the words and phrases defined shall only have the meanings stated “where they appear in capitalised form” in the subcontract agreement or in the contract conditions, and shall apply “unless the context otherwise requires” and not where “this subcontract specifically provides otherwise”. In this case the claimant contends that the phrase “practical completion” as it appears in the definition of the “Terminal Date” in clause 6.1 is not capitalised and, hence, there is no basis for reading in the definition of “Practical Completion” into that clause. It points to the fact that in clause 4.15.1.2 (see paragraph 40 above) the phrase is capitalised, thus making it clear that the definition applies there. The claimant does not accept the defendant’s construction of clause 6.20.

[50]Both parties contended that the other’s construction offended against commercial common sense. In my view neither side gains any support from this appeal to commercial common sense.

[51]Thus, whilst the claimant argues that it would offend commercial common sense for practical completion under the subcontract to be the same as the certificate of practical completion under the main contract, the defendant can and does argue with force in my view that:(a) the argument about this interpretation offending commercial common sense should not be entertained unless it is very plain and very obvious that such an interpretation would do so, bearing in mind that this is a detailed contract made on the basis of a detailed series of amendments to a standard form contract where there may well be a number of competing interests in play which have led to this definition being adopted;

(b) as Mr Ayling said in evidence, and as I have no reason to doubt, it made perfect sense to him for the date of practical completion under the subcontract to be the same as the date of practical completion under the main contract since the installation of the sprinkler system would, in his experience, always be one of the last jobs to be done. Whilst the claimant responds by submitting that it would make no sense from its perspective for that to be the case, since if the defendant was entitled to work to the date of practical completion under the main contract there would be the problem of co-ordination and the further problem of what would happen if there was an unexpected delay to the subcontract works on the very day of intended practical completion under the main contract, that is looking at things from the claimant’s perspective alone, which cannot be determinative of the question. In my view it cannot be said that it would offend commercial common sense for the parties to decide that in this particular subcontract practical completion of the subcontract should be aligned with the certificate of practical completion under the main contract, if that is what they plainly intended to achieve.

[52]However in my view it is equally the case that it would not offend commercial common sense for practical completion under the subcontract to be different to that of practical completion under the main contract. Again, the simple fact is that there are different considerations in play which point in different directions depending on the viewpoint of the claimant or of the defendant, so that Mr Ayling’s evidence is simply his view as to what would suit a subcontractor in the defendant’s position, and how he would work in practice, and carries no particular weight by itself. Indeed, on balance and insofar as relevant, I would accept the claimant’s submission that the more usual starting point looking at it from an objective viewpoint would surely be to assume that the parties to a subcontract would intend the date of practical completion to be the date of completion of the subcontract works in fact. However, as I say, I do not regard that as any more than a starting point.

Decision

[53]In my view the claimant’s arguments are to be preferred.

[54]In terms of the words used, the definition of Terminal Date directs one to clause 6.1, which then defines Terminal Date as “the date of practical completion of the subcontract works”. That is not as a matter of language the same thing as “Practical Completion”. Accordingly, although the two phrases are of course closely linked, they are not the same and as a matter of contractual interpretation it is not therefore a defined phrase which must be governed by the contractual definition of “Practical Completion”. Although the schedule of modifications made some amendments to clause 6, there was no amendment to clause 6.1, and in that respect I accept the claimant’s submission that it would have been perfectly easy to have amended clause 6.1 so that it defined the Terminal Date as “the date of Practical Completion”, if that had been intended, although I also accept that such a consideration is by itself of little weight, since one should focus on the words actually used rather than the words which might have been used by a different drafter.

[55]The proper construction of clause 6.1 in my view is that the definition of practical completion of the subcontract works is to be determined in accordance with clause 2.20, whether practical completion of the whole of the works or only a section of the works. A plain and grammatical reading of clause 6.1 leads me to this conclusion, and I am satisfied that a reading which limited the concluding phrase “as determined in accordance with clause 2.20” only to cases of sectional completion would be absurd. Even if, however, I was wrong about that, there is still no reason why the definition of “practical completion” as a non-capitalised term should not be read by reference to clause 2.20, which is where it appears, rather than by reference to the definition of “Practical Completion”.

[56]I agree with Ms Colter that there is no compelling reason to afford the definition of “Practical Completion” precedence over the definition of “Terminal Date”, since both are simply definitions, no more and no less, and both are subject to the qualifications in clause 1.1. I agree with Mr Killen’s submission that the correct approach to contractual interpretation where, as here, there is an order of precedence clause which governs in case of inconsistency is to be found in the judgment of Hamblen LJ in Alexander v. West Bromwich Mortgage Co

[2016] EWCA Civ 496

. In summary, the task for the court is to ascertain whether or not there is an inconsistency (meaning a contradiction or conflict, whether a case of literal inconsistency or a case where two clauses cannot fairly or sensibly be read together) without adopting any predisposition for or against inconsistency being present. If there is an inconsistency then the order of precedence clause provides the answer. However, that does not mean that in this case the definition of “Practical Completion” must “trump” the definition of Terminal Date simply because it might be said that there is some inconsistency between the date of practical completion in different parts of the subcontract if they are given different meanings. If, as in my view is the case here, one clause simply applies in different circumstances from the circumstances in which the other clause applies, then there is no inconsistency.

[57]As a matter of the literal words used, it is not plain and obvious that the definition of “Practical Completion” as a capitalised term should dictate the date of practical completion of the subcontract works, in contrast to the position as regards retention, where it is plain and obvious from the literal words used in clause 4.15.1.2 as inserted by the schedule of modifications that it should dictate the date for release of half of the retention. The sensible conclusion is that the definition of “Practical Completion” was intended to apply to the subcontract for some, but not all, purposes. The presence or the absence of capitalisation is important in my view, given the opening words of clause 1.1.

[58]I do not accept the defendant’s submission that it cannot have been intended that clause 4.15.1.2 should be the only place in which the definition of Practical Completion should apply, because otherwise there would have been no need to provide a definition at all other than in clause 4.15.1.2 itself. In my judgment that is a consideration in the defendant’s favour, but one of little weight, since the parties were perfectly able to choose to which clauses that capitalised definition should apply simply by using it as a capitalised expression. If the definition was only applied to one such clause, that does not render the definition otiose; it means no more than that the drafting objective could have been secured by a different route.

[59]I do not accept the defendant’s submission that it cannot have been intended that the provisions about retention and about the defects liability period should be governed by a different definition of practical completion than the provisions about insurance, defects, delay or payment applications. For the reasons given above such an inconsistency does not seem to me to offend against commercial common sense. The contract is perfectly workable so long as one can see clearly where the contractual definition of Practical Completion is to apply and where it is not, and how practical completion should be ascertained under the contract where it is not to apply. Here, the contract is perfectly workable and, indeed, explicable on that basis.

[60]It follows in my view that this is not an inconsistency case. Nor is it a case where to prefer the existing contractual definition of Terminal Date without modification is to prefer the standard term over the special agreed term. It is simply a question of ascertaining the width of application of the special agreed term. Given the way in which the definition of Practical Completion has been introduced without making specific amendments to the definition of Terminal Date or to clauses 6.1 or 2.20, there is no compelling reason in my view to approach this case with a predisposition to interpreting the contract so as to ensure that Practical Completion or practical completion must mean the same thing in every part of the subcontract.

[61]Moreover, as I have said I accept that applying the definition of Practical Completion to clauses 6.1 and 2.20 would be inconsistent with the general structure of sections 2 and 6, and with clauses 2.21 and 6.7 in particular. It would also be inconsistent with the reference to handover in the meeting minutes. It would also, as Ms Colter said, render clause 2.20 completely redundant. Although Mr Killen submitted that it would not render clause 2.20.1 completely otiose, since there would still be an advantage in the subcontractor following the notification procedure, that would only make any sense in my judgment where the notification was that of the subcontractor’s opinion of the date of factual practical completion of the subcontract works, since it would make no sense if it represented the subcontractor’s opinion of the date of the certificate of practical completion under the main contract.

[62]Mr Killen accepted, as he had to, that the procedure in clause 2.20.2 whereby, if the main contractor disagreed with the subcontractor’s notified date, the date of practical completion could be determined either by agreement or by the dispute resolution procedure, but in any event should be no later than date of practical completion of the main contract works, was inconsistent with the definition of “Practical Completion”. In my view that supports the claimant’s argument that it makes far more sense, in the context of the subcontract provisions for completion and delay, that clause 2.20 remains unaffected by the definition of Practical Completion. In my view it is obvious, by virtue of the fact that clause 2 as a whole was heavily amended, whereas clause 2.20 was neither amended nor deleted, that clause 2 was intended to work together as a whole, rather than clause 2.20 effectively rendered completely otiose.

Conclusion on issue 1

[63]For all of those reasons in my judgment the definition of Practical Completion in the schedule of modifications does not apply to section 6, and, instead clause 2.20 applies for the purposes of ascertaining the Terminal Date in clause 6.1.

The second issue

[64]It is clear from the wording of clause 2.20.1 that if the subcontractor notifies the main contractor of the date when in his opinion the subcontract works as a whole are practically complete and if the main contractor does not dissent in writing, giving reasons, within 14 days of that notice, then practical completion is deemed to have taken place on the date so notified.

[65]It follows, in my view, that it is completely irrelevant whether or not in fact the subcontract works were practically complete on that date. The purpose of this clause is plainly to achieve contractual certainty by this deeming process; if the main contractor wants to dispute the date notified it must take steps to do so within a specified time or lose its right to do so later.

[66]I accept that there is the potential problem that there is no provision for the main contractor to take the initiative by serving an equivalent notice should the subcontractor fail to do so. However, since in reality it must always be in the subcontractor’s interests to obtain practical completion, in order to obtain the release of half the retention, to be freed from the risk of facing direct loss and expense for delay, to be able to present his final account, and to be no longer be responsible for damage to the works, no doubt it was felt by those drafting the standard form that this was a theoretical problem rather than a problem in practice.

[67]If it was open to either party to dispute the date of practical completion even after the subcontractor had served a notice in respect of which the main contractor had failed to notify his dissent in time, then for example a subcontractor who had served a notice which the main contractor had not disputed could subsequently seek to change his mind and argue that in fact practical completion had not taken place on the notified date and a main contractor who had failed to notify his dissent in time would nonetheless be able to argue at a subsequent date that practical completion had not taken place on that date. Both consequences would in my view drive a coach and horses through the clear words of, and the clear intention behind, clause 2.20.

[68]I accept that there might in theory be cases where it could be said that if the subcontractor’s notification was ambiguous, and if it could be shown that at the same time the parties were in correspondence in terms which made it clear that one or other or both was making it clear that practical completion had not taken place, that evidence might be relevant in order to construe the notice. However, I do not think that this is the case here, for reasons which I shall explain.

[69]For the same reasons, it is also the case that it is irrelevant, in a case where a notice has been served and not dissented from, whether or not the subcontractor has sufficiently complied with clause 2.24 (the obligation to provide as built drawings before practical completion) and/or clause 3.20.4 (the obligation to provide such information in respect of the subcontract works as is reasonably necessary to enable the main contractor to comply with the obligations in clause 3.18.5 of the main contract conditions as regards the health and safety file).

[70]As regards clause 2.24, the obligation is to provide as-built drawings showing or describing the designed works as built. (In this case since the defendant was required to design all of the subcontract works the obligation extended to all of the subcontract works.) It is also clear that the obligation is to be complied with before practical completion and that clause 2.3 of the specification required drafts to be provided 2 weeks before practical completion (see paragraph 19 above).

[71]It is common ground that there is a similar obligation in relation to the provision of the OMMs, which are defined by the schedule of modifications as being more specifically set out in the Scope document. As I have said, the OMMs are referred to in numbered document 4.1 and also in item 7.1.15 of the meeting minutes, which requires draft OMMS to be provided 4 weeks pre completion of the subcontract works.

[72]It is thus clear in my view that there is an obligation to provide draft as built drawings and draft OMMs before practical completion of the subcontract works. It is clear that the key obligation for the purpose of practical completion is the provision of drawings and OMMs in draft, rather than the production of bound versions before practical completion of the main contract works, as is also required by item 7.1.15 of the meeting minutes. This makes perfect sense; after all it would be highly undesirable for practical completion to be delayed whilst the finalised version of the OMMs, including the as built drawings, is assembled. Since the main contractor has the right to dispute the subcontractor’s clause2.20.1 notice, then if on receipt of the notice it considered that the subcontractor had either failed to provide any draft OMMs or as built drawings at all, or that the drafts which had been provided were inadequate, then it could simply exercise its right to dissent in writing, with the result that the default determination provisions of clause

2.20.2 should apply.

[73]There is an issue between the parties as to what is required in terms of the form and content of a notification under clause 2.20.1. The claimant submits that it is sufficient if the subcontractor clearly conveys his opinion that the subcontract works are complete, so that there is no need for him to state in terms that this is intended to be a reference to clause 2.20.1 or expressly to state that the works are complete in his opinion or expressly to state that in his opinion he has also sufficiently complied with his obligations under clauses 2.24 and/or 3.20.4. The defendant submits that there must be a formal notice by which the subcontractor makes clear that the notification is intended to be a notice under clause 2.20.1 and that in his opinion he has practically completed the subcontract works, including his obligations under clauses 2.24 and 3.20.4, on the date so specified.

[74]Whilst ultimately it is a matter of considering the specific notice relied upon by the claimant in the context of the contract as a whole, in broad terms I prefer and accept the claimant’s submission. In my view it is sufficient if the notice conveys a clear statement that the subcontractor believes that it has done all that is required of it to achieve practical completion on the date so notified. However it is nonetheless important in my view that the notification must clearly state the date on which the subcontractor believes that the subcontract works are practically complete. It cannot simply be assumed that the date of the notification itself is also the date which the subcontractor is saying is the date of practical completion. In order to work there must be no room for legitimate doubt that the subcontractor is identifying a specific date on which it considers it has achieved practical completion of the subcontract works including the specific obligations as regards as built drawings and the OMMs.

[75]As I have observed, the handover procedure as provided for in the meeting minutes differs from clause 2.20.1 in that it requires 7 days’ notice to be given, followed by an inspection and a written certification. In my view there is no inconsistency of any significance between the two provisions. That is because there is a difference between:(1) obtaining practical completion, which due to the deeming words of clause 2.20.1 the subcontractor can achieve without reference to the main contractor; and

(2) obtaining handover, which can only be achieved with the concurrence of the main contractor. Thus a notice by the subcontractor which complies with clause 2.20.1 will have effect in accordance with that clause. It may also operate as a notice under the handover procedure, which triggers the process of inspection and certification. Even if there is no inspection and no certification however, the default procedure in clause 2.20.1 will still apply, so that practical completion can occur even without a written certificate.

The facts of this case

[76]As at 13 October 2009, although the subcontract works were nearing completion and the claimant was asking the defendant to confirm its commissioning sequence, there were still outstanding works to be done, as referred to in Mr Ayling’s email of that date, before the defendant could proceed to final testing, commissioning and handover.

[77]On 14 October Mr Ayling was able to produce and send a draft OMM. He was asked about it in cross-examination and, although it clearly needed to be completed in terms of the insertion of the as installed drawings, the completion certificates, the equipment tech data and other items, it was clearly intended to serve as, and was accepted as, a draft OMM as was required by the subcontract.

[78]On 16 October Mr Ayling wrote explaining the delays which had occurred and which were still occurring, in particular by reference to the 4th floor where the defendant was awaiting works by the claimant or its other subcontractors to be completed. He accepted in cross-examination that the outstanding work as at 16 October, including the commissioning, had been done by 26 October. Later in cross-examination he qualified that a little and referred to what I think was the final commissioning stage which he would have undertaken at the time the system went live, to satisfy himself that the defendant had fully performed all of its obligations, including its obligation to comply with the LPC rules. However, I am satisfied that this was not a contractual requirement as opposed to something which the defendant wanted to do, quite properly, to comply with its own quality assurance procedures.

[79]This explains why on 26 October the defendant issued a series of pressure test certificates confirming that the required pressures had been achieved as required by the contract in relation to each area of the sprinkler installation. They were countersigned by the claimant’s site manager the same day.

[80]On the same day the claimant issued what was described as an Installation Test Certificate, which stated as follows:

“Contract No: 20098 We hereby certify that work on the fire protection system for GB Building Solutions Ltd, installation number type and location: 150mm wet installation control valve, protecting all levels at Peel Court Work has been completed. Was left fully operational when our operatives left site. Valve turned off at tank. On 26 October 2009. Signed for Central Fire Protection 26 October 2009 Chris Follows Fitter Signed by client 3 November 2009 S Morrison Site Manager.”

Signed for Central Fire Protection 26 October 2009 Chris Follows Fitter Signed by client 3 November 2009 S Morrison Site Manager.”

Signed for Central Fire Protection 26 October 2009 Chris Follows Fitter

[81]The words “work has been completed” were the first of 10 pre-printed options to be kept or, as the form specified, “delete[d] as necessary”. Here, the first option “work has been completed” had not been deleted, whereas option (b) “inspected and tested” had been deleted, as had option (c) “made operational”. The 4th to 8th covered specific types of remedial works, all of which were deleted, and the final two options were either “(i) has been left inoperative with client’s agreement” or “(j) was left fully operational when our operatives left site”. In this case option (i) was deleted and option (j) was selected, but to that had been added in handwriting “Valve turned off at tank”. This handwritten addition had been counter-signed by the claimant’s site manager, who had also counter-signed the form as a whole on 3 November, below the signature of the defendant’s fitter.

[82]Although I have not heard evidence from Mr Follows or from Mr Morrison, it is plain from the face of the completion certificate that it was produced, dated and signed by the former on 26 October 2009 and handed to the latter who counter-signed it on 3 November 2009, and no-one has suggested or adduced evidence to the contrary. There is no evidence as to whether the counter-signed version was signed in the presence of a representative from the defendant or indeed whether there were two copies of the counter-signed version were produced with each party retaining one copy. As will be seen a month later, on 1 December, a copy was sent by the defendant to the claimant.

[83]The defendant contended that the completion certificate did not state on its face that it related to all of the subcontract works (by which I mean the physical works, rather than the production of the as built drawings or the OMMs). However there was no evidential basis in my view for suggesting that the completion certificate was not intended to signify that all work had been completed. The reference to the “control valve” does not in any way limit the scope of the test certificate; I am quite satisfied that this was simply a shorthand description of the physical subcontract works as a whole. It was suggested to Ms McFarlane in cross-examination that there was no express reference to the electrical installation or to the control panel or to the alarm. However, in my view there is no obvious reason to think that any reasonable reader would consider it qualified in any way other than by reference to the specific handwritten amendment. It was not, for example, in any way equivalent to a qualified practical completion certificate as is sometimes seen, where the standard form of certificate is expressly amended to identify specific works not as yet completed. In cross-examination Mr Ayling was asked whether it applied to the whole sprinkler installation and he answered yes. He was asked whether or not the defendant would ever issue any further certificate. He said that the only further certificates which would be issued were a certificate of conformity with the LPC requirements and a certificate of completion of the necessary training. Moreover, although option (b) “inspected and tested” had been deleted, as I have said on the same day the pressure test certificates were all produced and signed by both representatives. It is however also right to record, as Mr Killen submitted, that there was no express reference either to the as built drawings or the OMMs.

[84]On the same day Mr Ayling also issued a valuation which recorded the system as 100% complete save for the 4th floor second fix, which was stated to be 80% complete, although the value of the outstanding work was only in the region of £500. A month later he issued a valuation which recorded the system as 100% complete.

[85]On 3 November Mr Ayling emailed Mr Thomson the defendant’s project manager asking to confirm with the client a date when a “handover demonstration / training can be carried out for the sprinkler system”. He referred in the email to two specific outstanding matters. First, he said that the alarm gong had been sited internally rather than externally, because of where a valve-set had been located. Second, he said that he had a query as to whether or not the sprinkler alarm monitoring panel should be linked to the main alarm panel. This was a reference to the fact that the design of the sprinkler system was that individual sprinklers would activate automatically if the temperature in that area rose above a certain level, and that if this happened this would result both in the sprinkler alarm monitoring panel activating and an audible gong sounding. The panel could also be linked to the main alarm panel in the building, which might then activate an alarm which would sound through the building and which might also send a notification to the fire brigade. He accepted in cross-examination that the sprinkler system would work perfectly well without this being done. He did not suggest that it was a contractual requirement which was imposed on the defendant under the subcontract. Indeed, he accepted that the connection was something to be undertaken by the fire alarm company. As he said on a number of occasions in relation to what he described as outstanding work, it was something which the defendant regarded itself as obliged to ensure had been completed and was operational in order to comply with its “duty of care” by reference to the LPC rules.

[86]It was clear to me that Mr Ayling perceived that the defendant’s obligation to comply with the LPC rules and to satisfy himself that it had done so was something which applied regardless of whether or not that was also an obligation under the subcontract. Whilst numbered document 4 identified the specific scope of work as comprising the “design, supply, install, test and commission complete sprinkler system in accordance with LPC rules”, it did not require the defendant to comply with all obligations imposed by the LPC going beyond testing and commissioning.

[87]Thus Mr Ayling explained in his email of 5 November that once a building maintenance team had been organised by the employer under the main contract training as to how to use the system could be arranged, following which the system could be left live on the basis that there was a regime in place for someone trained in the system to be able to operate it and test it as and when needed. As Mr Ayling explained in evidence, his view was that this process of handover, demonstration and training to a building maintenance team was required in order for the defendant to comply with the LPC rules.

[88]However, there was no specific express requirement for handover, demonstration or training to take place before practical completion could take place. The question as to whether or not the sprinkler system could be left live was separate and distinct from the question as to whether or not the sprinkler system had been commissioned and tested as required under the contract, and I am satisfied that both those activities had already taken place by 26 October.

[89]Mr Ayling’s evidence was that he anticipated that on the day of handover there would be approximately a half day’s worth of work to be done to finish off some minor items of work. What he said was that from the defendant’s perspective it would be more time and cost efficient for him to attend again on just one occasion to undertake these minor activities at the same time as the handover, demonstration and test process, rather than having to attend on two separate occasions. In particular, he identified the following outstanding matters:(1) Two interface units and monitoring valves needed to have the status changed from normally open to normally closed. His evidence was that this was part of the process for connecting the sprinkler alarm monitoring panel to the main alarm panel. His evidence as I understood it was that this would have been done by him once the system had been connected to the main alarm system and thus would have been done when the system was made live at handover. His evidence was that because handover did not happen prior to the flood, for reasons I explain later, he did not complete this work until after the New Year. He explained that this was a simple job for an electrician to do.

(2) Two locks on the alarm panel needed replacing. He explained that locks had previously been fitted but had been broken by some unidentified person, so that the defendant had agreed to replace them free of charge as a goodwill gesture. He could not recall when this was done. In my judgment on the balance of probabilities it was something which must have been done on or by the 9 December visit, in circumstances where it was being chased by the claimant on 27 November and there was no subsequent reference to it being an outstanding item.

(3) The completion of the discharge pipes from the tank once the bund had been constructed. What this meant was that since the water supply tank was located in the basement there was a risk that if it overflowed water would flood the basement. The plan was therefore for the claimant to undertake, as builders work, the construction of a bund (essentially, a low wall) so that any water overflow would be directed into the area protected by the bund and not flood the whole of the basement. As Mr Ayling accepted in evidence, the contract required the claimant to provide the drainage facilities, so that it was simply a question of the discharge pipes being laid within these drainage gullies. The bund had not been constructed by the claimant and, until that was done, the pipes could not be run to this overflow location. That did not render the sprinkler system inoperational since, as Mr Gordon said in re-examination, the bund was designed to operate as a failsafe rather than as an essential part of the system. It did however mean that if the sprinkler system was operated and if – in particular – it was fully tested with the water supply fully operational - there was a risk that water would overflow onto the basement floor. There is no evidence that this bund was ever installed prior to the flood and Mr Ayling explained in evidence, after the flood there was a redesign of the basement area including a different bund.

[90]The planned handover and demonstration meeting took place on 16 November. Mr Gordon attended. However, the sprinkler system could not be witnessed, according to Mr Ayling in his email sent the next day because a building maintenance company not been appointed, so that the sprinkler system was left offline pending a return date. It should be emphasised that this was not the claimant’s fault or responsibility, since it was the employer who was responsible for appointing a building maintenance company. Mr Ayling also accepted that it would have been sufficient for the equivalent training to be provided to an engineer responsible for maintaining the system, or even to a concierge or someone in a similar role. If, for example, Mr Gordon’s firm TACE had been prepared to accept that responsibility he would have been quite happy to hand over to them but, as he said, that was not their role and they were not prepared to do so, hence the reason why handover did not take place on that date. Mr Ayling explained in cross-examination that he was becoming frustrated at this point, because the system was ready for handover but he was unable to do so because there was no-one present to hand over to.

[91]On 1 December Mr Ayling emailed Mr Thomson saying: “As discussed please find attached test and completion certificates. Please confirm by return 9th December for sprinkler system handover to building management / maintenance company”.

[92]Mr Thomson did not give evidence and Mr Ayling did not deal in his witness statement with, and was not specifically asked, about the discussion which preceded this email. It is clear however that what Mr Thomson had asked for and what was provided were the test and completion certificates which had been produced on 26 October 2009 and counter-signed by the representatives from both parties.

[93]An issue has arisen as regards the as built drawings. At trial it was common ground that the defendant had produced as built drawings. In evidence were two such drawings, a plan and a schematic, both dated “Nov 09” and both described as record drawings which, as Mr Ayling confirmed, were the as-built drawings. It is known that there were other drawings in the series, although there is no evidence as to how many other such drawings were re-issued as record drawings. Mr Ayling said that he thought that there were as many as 20 drawings in total produced by the defendant for this project, although he was not in my view of his evidence saying that all these necessarily had to be, or even were, re-issued as record drawings.

[94]Although there is a surprising absence of hard evidence about this and, in particular, no letter or email attaching a copy of the record drawings, I am quite satisfied that those that were required were indeed produced in November 2009 and provided to the claimant by the defendant in November 2009, prior to the arranged handover meeting which took place on 16 November. As Mr Ayling said in cross-examination, if these drawings were available in November the defendant would probably have sent them at that time, and they were intended to be provided at handover.

[95]In her evidence, Ms McFarlane explained that the claimant did have an electronic document management system and that the defendant would have been able to upload documents such as as-built drawings onto it. Since the claimant has been in administration since 2015, since Ms McFarlane was unable to say if the server in which the system would have been stored is still available or, if so, whether it had been searched for the purposes of this litigation she was unable to say any more. Mr Killen complained with some justification that there had been no prior reference by Ms McFarlane to this system in her evidence nor any evidence of any search for or disclosure of what was on that system. Nonetheless I see no reason to disbelieve Ms McFarlane’s evidence about this. I also note that the defendant, who produced these drawings, has failed to provide any evidence as to what was produced and sent in May 2010 when it says practical completion was achieved, so as to demonstrate that these drawings were not even in existence let alone sent in November 2009. On balance, I accept in the context of the overall evidence that once these record drawings were produced, as they would have been with the others in November 2009, they were indeed sent by one means or another to the claimant, not least in circumstances where the defendant was naturally keen to achieve handover and finish the job.

[96]In his email of 7 December Mr Ayling asked for confirmation that the bund had been constructed and also that louvres had been installed in the diesel pump-room doors. The latter was also an LPC requirement, to ensure that exhaust gases could safely disperse, and again it was work which it was for the claimant rather than the defendant to undertake.

[97]In his email of 8 December Mr Gordon asked for the OMMs to be on site or in the office on 9 December to review.

[98]On 9 December Mr Ayling attended site for demonstration, as did Mr Gordon and others. It appears however that the employer had still not appointed a building maintenance company so that again the defendant was unable to undertake a formal handover of the sprinkler system.

[99]On 11 December Mr Gordon confirmed that all items other than two specified items – which did not include the sprinkler system - had been witnessed. On 22 December Mr Gordon reported back and confirmed that “On the 9.12.09 TACE and Tuckers attended site to witness the final systems. We witnessed the auto change over / generator in operation, the sprinkler system and the ground floor ventilation and heating/cooling”.

[100]In his oral evidence Mr Gordon was clear that his role in witnessing involved checking that the main aspects of the system had been correctly installed in accordance with the contract requirements and was ready to be used, and that on the 9 December the system had been demonstrated to show this. He was clear that he had been able to be satisfy himself that the sprinkler system was ready to respond to a fire. He said that the absence of a maintenance company in place at the time did not affect the ability to demonstrate the performance of the system. I see no reason not to accept this evidence, which is consistent in my view with the contemporaneous documents.

[101]Mr Ayling said that he had not been prepared to leave the sprinkler system live on 9 December, but he accepted that he had demonstrated that the system could be ready if it needed to be. He said that apart from the fact that water could not be discharged onto the pump room floor he had demonstrated that the system would do everything that it had to do.

[102]The flood occurred sometime between 23 December 2009, when the claimant left site for the Christmas shutdown, and 29 December 2009, when the flood was discovered.

[103]On 22 December 2009 Mr Ayling had written to Mr Gordon referring to discussions concerning the possible risks associated with the temperature in the basement falling below freezing point. He explained, as was the case, that the specification submitted with the quotation and which had become a contract document made it clear that it was for the claimant to ensure that the temperatures within the building was kept above freezing point. He said that he would be “surprised” if the temperature in the basement did fall below freezing point, but he suggested that it might be sensible to survey the basement to confirm and he recommended some options to address that risk. It is quite clear in my view that what was Mr Ayling was doing, as he accepted in evidence, was indicating to Mr Gordon the defendant’s willingness to assist which might, depending on what the claimant decided to do, lead to an instruction being placed for these works to be undertaken as a variation to the subcontract.

[104]It is common ground, however, that no response was provided to that letter until after the flood. It is also common ground that eventually an instruction was issued for works to be done to alleviate this risk, and that they were undertaken and paid for.

When if at all did the defendant give a valid notice under clause 2.20.1?

[105]The claimant’s primary case is that the submission of the completion and test certificates on 26 October 2009 constituted notice of practical completion as on that date. The claimant’s fallback case is that the re-submission of the completion and test certificates coupled with the request for a handover meeting to be arranged on 1 December 2009 constituted notice of practical completion on that date.

[106]In my view the claimant has made out its primary case and also – and if I am wrong on that - its fallback case as well.

[107]In my view the question is one of the proper interpretation of the completion certificate in its factual context. It was clearly intended to be a formal document. It was in the form of a “certificate” of the completion of installation. It specified the date when the work under the contract was certified as being completed. It made clear that the system had been left fully operational, save for the valve being turned off at the tank. It was signed on behalf of the defendant. It made provision for counter-signature by the claimant. In those circumstances, it seems very difficult to me to argue that it did not comply with the requirements of clause 2.20.1.

[108]The defendant places reliance on the reference to “installation” as indicating no more than that the installation was complete, and that neither inspection nor testing was also complete. The defendant also places reliance on the limited description of the works. The defendant also places reliance on the absence of any reference to the as built drawings or the OMMs.

[109]The contractual obligation to achieve practical completion of the subcontract works was to achieve practical completion of the obligations as regards the design, supply, installation, testing and commissioning of the complete sprinkler system and also, by reference to clauses 2.24 and 3.20.4 as properly construed by reference to the documents comprising numbered document 4, to provide as built drawings and OMMs but only in draft prior to practical completion.

[110]Although the certificate was entitled “installation completion certificate” (emphasis added), I do not accept that any reasonable reader of this certificate would have thought that this was intended to signify something other than a completion certificate in relation to all of the works which were the subject of the subcontract. It referred to the contract, it referred to the “work on the fire protection system” having been completed. I do not accept that the reference to the “wet installation control valve” could reasonably have been read as signifying that this was intended to refer only to a part of the subcontract works; apart from Mr Ayling’s evidence to the contrary it is difficult to see what any reasonable reader might have thought was the point of such a certificate – as I have said it was plainly not intended to be a partial or qualified certificate. It referred to the work having been left fully operational. Whilst I accept that the “inspected and tested” option had been deleted, it is not realistically possible to read this as a statement that although the work had been completed and left fully operational nonetheless the testing and commissioning obligations had not been completed. Given that on the same day the test certificates had been produced, that would be an impossible contention but, even if they had not, the reasonable reader would assume in my view that this was simply a way of saying that handover with testing in the presence of the client had not yet taken place. There were no pre-prepared options saying “draft as built drawings provided” or “draft OMMs provided” or similar, for retention or deletion as appropriate. Again, the reasonable reader would see the absence of any qualification in that regard. It did not refer to any further outstanding subcontract works to follow or any further subcontract certificate to follow.

[111]It is irrelevant in my view that as at late October or early November handover had not taken place. It is also irrelevant that the contemporaneous application for payment recorded a small amount of work still outstanding. At that stage, the clear statement which was being conveyed by the production of the completion and test certificates and the request in the email of 3 November for a handover, demonstration and training meeting to be arranged was that in the defendant’s view the subcontract works as a whole were practically complete. Handover, demonstration and training were not contractual requirements, nor did Mr Ayling suggest in the email that they were. There was no need to make specific reference to the as built drawings or the OMMs. The OMMs had already been produced in draft and I am satisfied that the as built drawings were sent in early November. Even if in fact the as built drawings had not in fact been produced by this time that would be irrelevant, because it was for the claimant to decide whether or not to accept the notification or to dissent from it within 14 days. Looking at the matter in the round, by 3 November, when the claimant’s representative counter-signed the completion certificate, there was nothing which would have alerted a reasonable person in his position to the possibility that the defendant was not stating that in its opinion practical completion had been achieved on 26 October.

[112]If I am wrong about this, I am satisfied that the email of 1 December 2009, attaching the signed completion and test certificates, with a further request to confirm the handover date, constituted a sufficient notice under clause 2.20.1. By this stage the as built drawings had, as I have found, been sent and the application for payment on the basis of 100% completion had been sent.

[113]I have considered whether or not this email provided the necessary level of formality. However, it did enclose the completion certificate, which as I have said clearly was intended to be read as a formal document. Matters had moved on, as I have already explained. The absence of any reference to anything more being sent either before or after the proposed handover meeting is telling, especially since the contract differentiated, as I have said, between practical completion and handover. I therefore conclude that it did. In that respect, I have considered whether or not it was a statement to the effect that practical completion had occurred on 1 December 2009, i.e. the date of the email itself, or on 26 October 2009 being the date stated on the completion certificate. I am satisfied that it was a statement to the latter effect. By producing and sending the completion certificate in unqualified terms in my view the subcontractor was putting it forward as the clause 2.20.1 notice. There is no reason why a clause 2.20.1 notice should not state a date which has already passed. Again it would always be open to a main contractor to object if it thought it right to do so. No doubt a main contractor such as the claimant in a case such as the present could, if he thought it sufficiently important, have responded to say that whilst it accepted practical completion had taken place it was of the view that it had not taken place until 1 December or whichever date it thought appropriate. But even if I am wrong on all this it would on such analysis plainly have taken effect as a notice with effect from 1 December. The defendant has not pleaded or advanced a positive case to the effect that there was any ambiguity as to the date of practical completion conveyed by this email.

[114]In the circumstances I am satisfied that since the claimant did not dissent from such notices, practical completion was deemed to have occurred on either 26 October 2009 or on 1 December 2009, in either case before the flood.

When if at all was practical completion in fact achieved?

[115]There is no dispute as to the relevant law. Ms Colter referred me to:(1) The decision in Jarvis and Sons v Westminster Corp

[1970] 1 WLR 637

, to the effect that practical completion means completion of all the construction work that has to be done.

(2) HW Nevill v William Press

(1981) 20 BLR 78

: practical completion can be certified where there are very minor, “de minimis” items of work left incomplete. Mr Killen referred me to the judgment of the Court of Final Appeal of the Hong Kong Special Administrative Region in Mariner International Hotels v Atlas Limited FACV No 3 of 2006, at paras [13] – [14] to the effect that: “practical completion” is to be considered a “legal term of art” which means that “the works have been completed free from patent defects other than ones to be ignored as trifling”.

[116]I also found extremely helpful the observations of Akenhead J in Walter Lilly v Mackay

[2012] EWHC 1773 (TCC)

at [372] to the effect that:(a) Practical completion means completion for all practical purposes, and what that completion entails must depend upon the nature, scope and contractual definitions of the Works, as they may have developed by way of variation or architect’s instructions.

(b) De minimis snagging should not be a bar to practical completion unless there is so much of it that the building in question cannot be used for its intended purposes.

[117]If it was necessary for me to decide this issue I would have expressed myself satisfied by reference to the findings made above that practical completion was in fact achieved by 9 December 2009 at the latest, by which time all of the works required to be done under the main contract had been done, save perhaps for the most minor works – insofar as they had not already been done on this or the previous planned handover dates - and by which time the draft OMMs, the relevant certificates and the as built drawings has been produced.

[118]In particular, I am satisfied that the remaining work which Mr Ayling referred to was either work which was not within the scope of the subcontract works or, insofar as the drainage from the water tank was concerned, did not prevent the sprinkler system from being fully operational in the event of fire and where it had effectively been agreed by the time of that handover meeting that it could simply be left over until the bund was completed so that the defendant’s works were nonetheless to be regarded as practically completed by that date.

[119]The defendant also raised the issue of the further works which, as I have noted above, were the subject of reference in Mr Ayling’s letter of 22 December 2009 and which were subsequently ordered. As I have said it is apparent from his letter that this was no more than a proposal at that stage and, on any view, did not have the status of an ordered variation which had been accepted and which therefore formed part of the scope of works as varied which the defendant was obliged to undertake before the works could be said to be practically complete. It could have had no effect as regards the issue as to whether or not the works had already been practically completed by that point.

[120]In that regard I should briefly mention another argument raised by Mr Killen (with reference to the decision in TFW Printers v Interserve Project Services

[2006] EWCA Civ 875

) to the effect that the instruction of those works and the instruction of the remedial works under the ambit of this subcontract, itself demonstrates that practical completion had not taken place, because otherwise it would not have been possible to instruct variations post practical completion. However as Ms Colter submitted this argument cannot prevail for two reasons:(1) What happened after the date of the flood cannot be relevant to the question whether or not the subcontract works were practically completed as at the date of the flood.

(2) It is perfectly possible for parties to a building contract to proceed on the basis that additional works are to be undertaken as variations even though practical completion has already taken place. So long as they agree the contract can be varied accordingly, on a formal or an informal basis, but that does not have any retrospective effect as regards practical completion if it has already taken place unless the parties agree that it should, and there is no evidence whatsoever that they did in this case.

Conclusion

[121]For all of those reasons I am satisfied that the flood occurred after the terminal date, and I answer the preliminary issue accordingly.

Cited in 1 later judgment

Corrine Peal Durber v PPB Entertainment Limited 2025