Mears Ltd v Costplan Services (South East) Ltd & Ors [2019] EWCA Civ 502
By Jeremy Glover
Here, the developer and contractor, Pickstock was engaged by PNSL to design and build two blocks of student accommodation. Under an Agreement for Lease (“AFL”) Mears contracted with PNSL to take a long lease of the property following completion. Clause 6.2.1 of the AFL prohibited PNSL from making any variations to the building works which materially affected the size of the rooms. A reduction in size of more than 3% was deemed to be material. At the hearing at first instance, Waksman J found that some of the rooms were more than 3% smaller than the sizes shown on the relevant drawings. Mears said that any failure to meet the 3% tolerance was, without more, “a material and substantial breach” which automatically meant both that Mears was entitled to determine the AFL and that the Employer’s Agent could not validly certify practical completion. Waksman J disagreed, and Mears appealed. The AFL defined the Certificate of Practical Completion as: “A certificate issued by the Employer’s Agent to the effect that practical completion of the Landlord’s Works has been achieved in accordance with the Building Contract.” The building contract incorporated, with amendments, the JCT Design and Build Contract Form, 2011. Clause 2.2.7 set out the provisions relating to practical completion. Paragraph 714 of the Preliminaries section of the Employer’s Requirements contained detailed provisions about the information that had to be handed over before the grant of practical completion. This included a “PC Certificate with snagging/outstanding works list appended”. The contract said that the “Third Party Agreements” included the AFL. Pursuant to clause 2.17B.2, Pickstock were to: “design, carry out and complete the construction of the Works in conformity of the Employer’s Obligations under the Third-Party Agreements including, without limitation, those relating to provision of information and the giving of notice and permitting inspections before the Practical Completion Statement … may be issued.”
On 4 May 2018, Mears served a defects notice alleging that 40 rooms were more than 3% smaller than required by the AFL.
Mears said that pursuant to the AFL, a failure to meet the 3% tolerance was not a question of fact and degree, but instead fell the wrong side of a contractual red line. PNSL accepted that any failure to comply with the 3% tolerance was a breach of contract, but argued that clause 6.2.1 did not address the character or nature of that breach. What was deemed to be material was the reduction in the size of the room, not the resulting breach of contract. LJ Coulson agreed. As a matter of construction, the deemed materiality identified in clause 6.2.1 related to the reduction in room size, not the consequent breach of contract. The Judge said that: