Non Issuance of CPC

Non-Issuance of CPC

1. Brief Position of Law on CPC

ØWorks are practically complete when in the opinion of the SO, the Employer can have full use of the works for their intended purpose, notwithstanding that there may be works and defects of a minor nature still to be executed and the Contractor has given to the SO a written undertaking to make good and to complete such works and defects within a reasonable time specified by the Architect; and other requirements expressly stated in the Contract Documents as a pre-requisite for the issuance of the certificate of practical Completion have been complied with.

ØKeating presents that the following characterises are to be implied in the meaning of Practical Completion:

1. The Works can be Practically Complete notwithstanding that there are latent defects;

2. A Certificate of Practical Completion may not be issued if there are patent defects. The Defects Liability Period is provided in order to enable defects not apparent at the date of Practical Completion to be remedied;

3. Practical Completion means the completion of all the construction work that has to be done;

4. However, the Architect is given discretion under the Contract to certify Practical Completion where there are very minor items of work left incomplete, on ‘de minimus’ principles.”

ØHudson

Usually it will mean bona fide completion free of known or patent defects so as to enable the owner to enter into occupation. The words ‘practical’ or ‘substantial’ in the standard forms probably do no more than indicate that trivial defects not affecting beneficial occupancy will not prevent completion (the more so, of course, if the contract provides for a maintenance or defects liability period).

ØLion Engineering Sdn Bhd v Pauchuan Development Sdn Bhd [1998] 3 CLJ Supp 450 has laid down the principle that the Certificate of Practical Completion alone is not conclusive to show that the Works have been completed without the calling of the person responsible for its issuance.

2. Brief Analysis of the Case

ØWhether the H has completed the works according to the agreement?

· 12.3.2018 –H requested for certificate of completion and informed EMPLOYER that H has successfully completed the works and requested for joint inspection for CPC.

· 15.3.2018 – H submitted the final set of As-Built drawings to EMPLOYER.

· 15.8.2018 – EMPLOYER replied by saying that the works was completed only in July 2018 and the letter requesting for CPC was sent via email (attached with the letter), also stating that the Certificate of Payment No. 12 which accounted for RM …………… was not a finalised yet as the Contractor had not submitted documents for Final Claim and relevant documents for the preparation of Final Account.

· 16.8.2018 – EMPLOYER informed that CPC inspection will be scheduled on 17.8.2020 at 330pm at the Site to verify completion of works. EMPLOYER also requested H to submit the final claim together with supporting documents and preparation of Final Account without further delay.

· 17.10.2018 – EMPLOYER informed that inspection was carried out on 17.8.2020 without the presence of H and further comments given:

- rectify damaged boom gate;

- clearing of site office area;

- to clean the road side drain; and

- to reinstate the tree.

(rectification needs to be done by 31.10.2018)

To also submit all relevant documents for the preparation of final account.

· 25.10.2018 – H replied:

- CPC inspection has been delayed for a long time;

- Reinstate the trees is not part of the scope of work under contract;

- H had moved out from the Site and third party had been continuously using the Site hence, H is not responsible for the rectification of boom gate and clearing of the road side drain;

- all documents, As-built drawings have been submitted.

Ø Coming back to the central issue of completion; it is evident from both the terms of the Principal Agreement and the EMPLOYER’s conduct that the parties themselves do not require total or full completion before CPC may be issued. There is no need for literally the whole of the Works to be completed. All that is required is a substantial or practical completion of works.

Ø The test of completion is of substantiality or practicality; and although the percentage of completion is helpful, it is by no means conclusive. It is however, a good start. Whether practical or substantial completion has been achieved in any given set of facts depends on the true construction of the Agreement.

Ø Hoenig v Isaac [1952] 2 All ER 176 the English Court of Appeal discussed the same question couched in these terms:

But when a man fully performs his contract in the sense that he supplies all that he agreed to supply but what he supplies is subject to defects of so minor a character that he can be said to have substantially performed his promise, it is, in my judgment, far more equitable to apply the H. Dakin & Co Ltd v Lee principle than to deprive him wholly of his contractual rights and relegate him to such remedy (if any) as he may have on a quantum meruit, nor, in my judgment, are we compelled to a contrary view (having regard to the nature and terms of the agreement and the official referee’s finding) by any of the cases in the books…

Ø In Bolton v Mahadeva [1972] 1 WLR 1009, Lord Justice Cairns of the Court of Appeal said:

In considering whether there was substantial performance I am of the opinion that it is relevant to taken into account both the nature of the defects and the proportion between the cost of rectifying them and the contract price. It would be wrong to say that the contractor is only entitled to payment if the defects are so trifling as to be covered by the de minimis rule.

Ø Therefore, the question to be asked is whether the Plaintiff’s performance or completion of Works so different from that which it had contracted or promised to perform or complete. If the answer is in the negative; then the works must be said to have been substantially or practically completed. Where the answer is in the affirmative, but it is found that that which the Plaintiff has not performed or completed is so minor a character such that the use of the completed works is not impeded or impeded in any material respect; then, the Plaintiff must nevertheless be found to have substantially or practically completed the Works.

Ø Westminster Corp v Jarvis & Sons Co Ltd [1969] 3 All ER 1025, CA; rvsd [1970] 1 All ER 943, HL held that:

The obligation on the contractors under cl 21 to complete the works by the date fixed for completion must, in my view, be an obligation to complete the works in the sense in which the words “practically completed” and “practical completion” are used in c 15 and cl 16 of the contract. I take these words to mean completion for all practical purposes, i.e., for the purpose of allowing the council to take possession of the works and use them as intended. If completion in cl 21 meant completion down to the last detail, however trivial and unimportant, then cl 22 would be a penalty clause and as such unenforceable.

Probably the most important background fact which I should keep in mind is that building construction is not like the manufacture of goods in a factory. The size of the project, site conditions, use of many materials and employment of various types of operatives make it virtually impossible to achieve the same degree of perfection as can a manufacturer. It must be a rare new building in which every screw and every brush of paint is absolutely correct.

...The effect of practical completion is to start the defects liability period running for the period stated in the appendix or, if none stated, for six months from practical completion. During that period the contractor would not be carrying out works, but it could be required to remedy any defects in them. The employer can then go into occupation of the building without having to make arrangements under cl 18.

I have described what I think to be the overall scheme of the contract. In my opinion there is no room for ‘completion’ as distinct from ‘practical completion’. Because a building can seldom if ever be built precisely as required by drawings and specification, the contract realistically refers to ‘practical completion’, and not ‘completion’ but they mean the same. If, contrary to my view, completion is something which occurs only after all defects, shrinkages and other faults have been remedied in accordance with cll 17.2 and 17.3 and a certificate to that effect has been given under cl 17.4, it would make the liquidated damages provision in cl 24 unworkable and in practice would require the defects liability period to be added to the time initially negotiated by the parties for the carrying out of the works. The construction industry recognizes a difference between the carrying out of new works and ‘snagging’, that is to say dealing with minor defects in them.

Inspection Notice

Ø In our case, there was an apparent delay by EMPLOYER to conduct CPC Inspection from 12.3.2018 until 17.8.2018 – a delay of 5 months 4 days.

Ø EMPLOYER’s letter issued to H informing the scheduled inspection at such short notice (less than a day notification) also shows that EMPLOYER failed to give proper notification to H, EMPLOYER’s conduct falls short of a qualified consultant and very unprofessional.

Ø Such short notice together with the delay of 5 months shows that the issuance of CPC inspection notice was done in bad faith.

Completion of Works

Ø Subject to the conditions of contract and the evidence in respect of work done, based on the letter requesting for CPC by H on 12.3.2018, EMPLOYER’s letter which states that works was completed in July 2018 and EMPLOYER’s comments on joint inspection on 17.8.2018, it appears that the detail progress of works achieved by H represent substantial completion, satisfactory.

Ø In fact, this can also be inferred from the EMPLOYER’s own conduct. Although EMPLOYER’s letter of 17.10.2018 had a list of outstanding matters, H had duly replied EMPLOYER on 25.10.2018 explaining the matters.

Ø Also, it is clear that the list of outstanding works in the EMPLOYER’s letters are not conclusive of the status of the completion of work; that in fact the H has achieved the levels of completion that it claims.

Ø H has indeed achieved substantial completion of Works to merit the issue of CPC and the consequential release of --% of the performance bond. That being the case, the EMPLOYER was in breach of the Principal Agreement by failing to issue the CPC. Consequently, the EMPLOYER had no right to impose any LAD for any delay after 12.3.2018.

De minis Rule

Ø H W Neville (Sunblest) Ltd v William Press & Son Ltd (1981) 20 BLR 78, in which I had to consider the same clauses as those involved in the Jarvis case and I said (at 87):

In my judgment, since Clause 21(1), and the appendix requires William Press to complete the works by 18th February, 1974 or within such extension of time as was granted by the architect, that was the date by which they had to be completed. I think that the word “practically” in Clause 15(1), gave the architect a discretion to certify that William Press had fulfilled its obligation under Clause 21(1), where very minor de minimis work had not been carried out, but that if there were any patent defects in what William Press had done the architect could not have given a certificate of practical completion.

Ø Therefore, in reliance on the de minimis rule, if the list of outstanding works as commented by EMPLOYER in its letter were very minor works and not of any patent defects, EMPLOYER is in breach of contract for the non-issuance of CPC.

Final Claim / Final Account

Ø EMPLOYER’s reason for the non-issuance of CPC due to H’s failure to submit relevant documents for final claim and for the preparation of final account is a non-starter and without basis.

Ø Based on the Principal Agreement, these documents have no bearing to the requirements for issuance of CPC.

Ø This is because CoC states plainly that within 3 months after the issuance of Certificate of Practical Completion, the contractor must submit full particulars including claims to enable the Final Account to be prepared by S.O. If contractor fails to submit within the stipulated period, then the S.O will make the assessment based on the available documents submitted by the contractor for the purpose of Final Account.

Ø And so, this further shows that EMPLOYER has intentionally delayed the issuance of CPC.

Ø There could be other reasons that led to the non-issuance of the CPC by the EMPLOYER, and EMPLOYER had not disclosed the reason for the withholding of the CPC or whether any effort had been made to secure its issuance.

Claim No. 12

Ø EMPLOYER in its letter dated 15.8.2018 stated that this Payment has not been finalised yet, therefore, H is entitled to further payment via submission of further payment claim.

Subsequent to the CPC inspection, the S.O. has via a letter dated 17.10.2018 confirmed that for the purpose of the issuance of CPC, we have to rectification works by 31.10.2018 and also submit documents for preparation of final account. In response to the S.O., we have on 25.10.2018 informed the S.O that the rectification works commented by the S.O. were not part of the job scope under the Contract, the CPC inspection has taken a long time to take place and hence, the boom gate and clearing of the road side drain were not our responsibility as the damage and / or any foreign object in the road side drain (if any) were caused by third party contractor using the road and the Project Site after we vacated the Site on ………………

14. It is evident that the Project has achieve practical completion of works (evidence) …

Entire costs of the Adjudication and Claimant’s costs to be borne by Respondent pursuant to 18(1) of CIPAA 2012.

Respondent shall bear full costs of the Adjudicator’s fees and AIAC’s fees and expenses.

Costs for the Respondent RM30,000.00.

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