University of Warwick v Balfour Beatty Group [2018] EWHC 3230 (TCC)

Background

The Claimant, Warwick University, employed Balfour, the Defendant, to design and build a National Automotive Innovation centre on its campus site under a JCT 2011 Design and Build contract.

Under the contract, the works were divided into four sections and provision was made for liquidated damages in the event that the completion was not attained by the relevant completion date.

The key issue in the present case concerned the construction of the contract in relation to the definition of Practical Completion.

Clause 1.1 defined Practical Completion as:

“…a stage of completeness of the Works or a Section which allows the Property to be occupied or used…”

Property was: “comprised of the completed Works.”

Clause 2.27.1:

“When Practical Completion of the Works or a Section is achieved and the Contractor has sufficiently complied with clause 2.37 and 3.16.5, then:

1. in the case of the Works, the Employer shall forthwith issue a statement to that effect (‘the Practical Completion Statement’) and the Employer shall from such date be entitled to enter and take possession of the completed Works with effect from such date;
2. in the case of a Section, he shall forthwith issue a statement of Practical Completion of that Section (a ‘Section Completion Statement’);

and Practical Completion of the Works of the Section shall be deemed for all the purposes of this Contract to have taken place on the date stated in that statement.”

It was the Defendant’s case that the liquidated damages provision relating to each section were inoperable because it was not possible to separately achieve Practical Completion of a section prior to Practical Completion of the whole of the Works.

The adjudicator agreed with the Defendant’s construction. He stated, “…the words used in the definition of Practical Completion…stipulates that an individual section only achieves practical completion at a stage of completeness which allows the completed works to be occupied and used…”

“The words used in the definition of Practical Completion therefore stipulates that an individual Section only achieves Practical Completion at a stage of completeness which allows the completed Works to be occupied and used. By referring to the completed Works I consider this indicates that all Sections must achieve Practical Completion for any Section to meet the definition of Practical Completion included in the Contract.”

The thrust of the adjudicator’s argument is that reading Clause 1.1 in tandem with Clause 2.27.1 establishes that Practical Completion required the employer to be entitled to occupy the works. But such entitlement under Clause 2.27.1 occurs only if there is completion of the entirety of the Works. It must be the entirety and not a particular section because the definition of Property in Clause 1.1 implies that what must be occupied is the whole of the works rather than a particular section.

Decision

HHJ McKenna, sitting in the TCC, disagreed and allowed the Claimant’s declarations. He held that the defendant’s construction of Practical Completion did not accord with the ordinary meaning of the words used in the contract. In particular, he stated that the construction focused too much on the meaning of one word, ‘Property’ without regard to what the parties plainly meant in the wider context of the contract.

This was evident from the fact that the terms and structure of the contract clearly showed that the parties permitted the completion of the sections prior to the overall completion of the works. For instance, the provisions for liquidated damages provided different rates for each of the four sections.

As HHJ McKenna states, “It goes without saying that of course there would be no purpose in treating the Sections separately if Practical Completion of each could only be achieved when Works as a whole were complete.”

It followed that under a proper construction, it must have been possible for there to be Practical Completion of a section prior to Practical Completion of the Works as a whole. Completion of the section being attained when it reached a stage where it would permit or allow the use and occupation of the Property as a whole.

Use of the word ‘allow’ meant that it was not necessary for the Property to be complete or ready for occupation. It was sufficient that the sectional work was at a stage where it permitted or enabled the final stage of completion to be achieved in due course.

Comment

The result was unsurprising. As was stressed in the TCC’s decision, business common sense supported a construction that made sense of the regime for sectional completion. Although it was the Defendant’s case that the liquidated damages provision were inoperable, the construction would also have rendered other parts of the contract senseless as there were additional provisions dealing with the requirements for sectional completion and partial possession.

However, HHJ McKenna was also keen to stress that this was not a case where he was giving effect to an apparent intention of the parties notwithstanding the actual words used in the contract. Rather, this was a case where the actual words of the parties in the wider context of the contract trumped a construction that relied on the definition of ‘Property’ in Clause 1.1 to the exclusion of other provisions in the contract.