Conditional certificates of practical completion are unlikely to be valid

A recent New South Wales Supreme Court decision has found that a practical completion certificate had no contractual effect for failing to comply with the contractual requirements governing the form of that certificate.  

Importantly, the decision held that a practical completion certificate that is conditional will not be a valid certificate.

The decision in H&M Constructions (NSW) Pty Ltd v Golden Rain Development Pty Ltd (No 4) [2023] NSWSC reflects the importance of compliance with the precise terms governing the issue of a practical completion certificate under a construction contract.

Background

H&M Constructions (NSW) Pty Ltd (H&M) entered into a contract with Golden Rain Development Pty Ltd (Golden Rain) to build 109 high-rise apartments known as the Sugarcube Apartments, eight terraces known as the Honeycomb Terraces and various public roads in Erskineville in Sydney's inner south-west.

By July 2018, H&M contended that it had completed the whole of the work required under the contract.

H&M requested the Superintendent to issue a certificate of practical completion for the work completed. That certificate was issued on 24 September 2018 by the Superintendent.

The parties have since taken legal action against each other over the calling on a bank guarantee relating to the project.

During proceedings, Golden Rain sought liquidated damages and to draw upon two bank guarantees as a consequence of H&M's alleged failure to achieve practical completion. These claims depended partially on a finding of whether the certificate issued by the Superintendent had any contractual effect to determine that H&M had in fact achieved practical completion.

In the context of the Court's decision, there were two aspects of the certificate which were relevant:

1. the first was that the certificate stated that practical completion had been achieved subject to the future completion of certain issues identified within the certificate.  A number of these issues were requirements of 'Practical Completion' as defined under the contract; and  
2. the second was that a retrospective date (being 7 September 2018) was stated in the certificate to be the date that practical completion would be taken to have been achieved if H&M completed the outstanding issues.

Decision

The contract (an AS 4902 Design and Construct Contract) obliged the Superintendent, on request from H&M, to give to H&M and Golden Rain "either a Certificate of Practical Completion evidencing the Date of Practical Completion or written reasons as to why Practical Completion has not been achieved".

Explicitly, this requirement was interpreted by the Court to require the Superintendent to either:

1. issue a "Certificate of Practical Completion evidencing the Date of Practical Completion;" or
2. give "written reasons as to why Practical Completion has not been achieved."

The certificate issued by the Superintendent was interpreted by the Court to be closer in nature to the first option.

Ultimately, the Court determined that the certificate was of no contractual effect, because:

1. the contract required the Superintendent to provide a certificate evidencing the date of practical completion, and not to place any qualifications upon that completion. By contrast, the Court held that the Superintendent provided a retrospective date for the completion of the issues noted in the certificate; and
2. even if the contract allowed for such qualifications, the date of completion was uncertain on the basis that one of the outstanding issues, relating to the issue of an occupation certificate in relation to the construction of terraces, had not been completed at the time of judgment.

In simple terms, the Court held that the certificate "would have had to specify what, as at the date of its issue, was the actual date of practical completion; not what date would be the date of practical completion if all of the specified "issues" were completed".

An order has yet to be made pending further submissions from the parties.

Conclusion

When issuing a certificate of practical completion, it is essential that industry stakeholders ensure that the certificate complies precisely with the terms of the contract.

Certain contracts might require a 'conditional' practical completion certificate to be issued, whilst others will only require the mere provision of a date of completion.  It is therefore important that industry stakeholders are aware of the potential pitfall of issuing a 'conditional' practical completion certificate when the contract simply requires the certificate issued to evidence the date of practical completion, and no further.

It is also important that contracts are drafted carefully to reflect the intentions of the parties to a contract in relation to practical completion of a project, as even a small derivation from the requirements for the certificate of practical completion can mean the legal invalidity of the certificate as a whole.

Authors

Andrew Kelly | Partner | +61 73338 7550 | akelly@tglaw.com.au

Thomas McKillop | Special Counsel | +61 7 3338 7530 | tmckillop@tglaw.com.au

Chris Skehan | Law Graduate