Certificates of practical completion and reference dates: Lessons from Hutchinson v Transcend

In the recent case of J Hutchinson Pty Ltd v Transcend Plumbing and Gasfitting Pty Ltd [2023] VSC 39, construction company J Hutchinson Pty Ltd (Hutchinson) sought judicial review in the Supreme Court of Victoria in relation to a decision made under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act). 

The review was in relation to whether valid ‘reference dates’ existed for two payment claims made by Hutchinson’s subcontractor, Transcend Plumbing and Gasfitting Pty Ltd (Transcend), and whether emails sent by contract superintendents constituted certificates of practical completion. The decision provides confirmation to construction industry players of the importance of clarity:

• in the contractual drafting used to establish reference dates around the time of practical completion
• for superintendents when certifying the achievement of practical completion.

Background

Hutchinson was the Head Contractor engaged by the Victorian School Building Authority (VSBA) to construct certain school buildings in Victoria. Transcend was engaged by Hutchinson under an amended AS-4902 design and construct contract to provide plumbing and hydraulic services on two of those projects (Subcontract).

In April 2022, Transcend submitted two adjudication applications under the SOP Act for works carried out on the projects. A key issue was whether Transcend possessed valid reference dates under the SOP Act. Transcend’s position was that its payment claims on both projects were supported by reference dates which accrued on a monthly basis prior to practical completion being achieved. Hutchinson’s position was that practical completion had been achieved, that thereafter only one further reference date arose on each project, and that those final reference dates had already been used by earlier payment claims. 

The adjudicator made his decision in favour of Transcend in June 2022, determining that:

• practical completion of the works “had occurred as evidenced by the release of Practical Completion retentions in respect of the Project”
• however, certificates of practical completion had not been issued
• in the absence of those certificates, standard monthly reference dates continued to accrue under item 37(a)(a) of the Subcontract
• therefore, the payment claims were supported by valid reference dates.

Justice Stynes considered Hutchinson’s application on the basis that the central issue was whether the payment claims were made “prior to practical completion”. This led to three key issues for determination:

1. what was the meaning of the phrase “prior to practical completion” in the Subcontract
2. had certificates of practical completion been issued by the superintendents of the two projects
3. was Transcend precluded from denying that practical completion had occurred given the conduct between the parties, based on the doctrines of estoppel, election or waiver?

Issue 1: Meaning of “prior to practical completion”

Hutchinson sought to draw a distinction between the ‘stage’ of practical completion and a ‘certificate’ of practical completion, arguing that the ‘stage’ could be achieved even though a ‘certificate’ may not have been issued.

It argued that because the ‘stage’ of practical completion had been reached (with works said to be completed and retentions released), practical completion within the meaning of the Subcontract had been achieved. As such, the monthly reference dates “prior to practical completion” no longer accrued. With the one-off practical completion reference dates already exhausted by prior payment claims, there were no valid reference dates to support Transcend’s payment claims – the subject of the dispute.

Transcend argued that “prior to practical completion” meant the date of practical completion as evidenced in a certificate of practical completion. Based on its factual argument that no certificates of practical completion had been issued for either project, reference dates continued to accrue monthly and its payment claims were properly made. 

The Court found in favour of Transcend, concluding that:

• the Subcontract was to be construed objectively, by reference to its text, context and purpose
• the meaning of “prior to practical completion” in item 37(a)(a) meant prior to the “date of practical completion”, which is “the date evidenced in a certificate of practical completion” as defined by the Subcontract
• the meaning of “prior to practical completion” in item 37(a)(a) therefore meant “prior to the date of practical completion as evidenced in the certificate of practical completion”. 

The NSW Court of Appeal decision in Abergeldie Contractors Pty Ltd v Fairfield City Council (2018) 34 BCL 39 (Abergeldie) dealt with similar issues and substantially similarly worded clauses to those in this case. Both parties made submissions about the decision. Ultimately, while Justice Stynes found the Abergeldie decision to be “relevant and of assistance”, Her Honour’s decision was not based on it but instead, on the text and purpose of the Subcontract.

Issue 2: What constitutes a certificate of practical completion?

The next issue was whether a certificate of practical completion had in fact been issued.

Informal emails had been sent to Transcend by the superintendents for the two projects, which referred to a purported date of practical completion.

Hutchinson submitted that the emails provided by the superintendents constituted certificates of practical completion. 

The Court made the following observations about the emails:

• they did not expressly identify themselves as ‘certificates’
• they adopted informal language and each formed part of a longer, separate email chain
• they did not specifically identify which separable portions had achieved practical completion
• they lacked certainty as to whether the dates given related to practical completion under the head contract between Hutchinson and VSBA, or under the Subcontract between Hutchinson and Transcend.

However, the Court also found:

• the emails were sent after a representative of Transcend asked the superintendent to “please provide practical completion date of project”, in the context of discussing document handover and the defects liability period
• a representative of Transcend had earlier sought release of half the retentions on the basis that the works were “finished”
• half of the retentions had already been released to Transcend (albeit Her Honour was satisfied that there had been negotiations for the early release of half the retentions).

The Court stated “it is necessary to consider whether, in the circumstances in which they were provided, each email was understood, viewing the matter objectively, to be certifying practical completion” and noted that practical completion is an important event and thus the certification should be clear and unambiguous. 

The Court ruled in favour of Transcend, finding that the emails provided by the superintendents were not sufficiently clear and unambiguous and did not amount to a “document of formality intended to attest in an authoritative manner or otherwise assure the Subcontractor with certainty of the date of practical completion”.

Issue 3: Estoppel, election and waiver

Hutchinson argued that in describing the works as “finished”, obtaining release of the retentions and referring to document handover and the defects liability period, Transcend was either estopped from denying that practical completion had occurred, or had irrevocably elected to treat it as having occurred.

Regarding estoppel, the Court found, on the limited evidence before it, that the conduct between the parties did not amount to a common assumption between them, or induce an assumption in Hutchinson that practical completion had occurred.

Regarding election, following the recent High Court decision in Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 [2022] HCA 38 (Allianz), Justice Stynes found that Transcend’s conduct did not amount to an unequivocal communication of a choice between alternative and inconsistent rights, nor did it amount to a waiver of the requirement for a certificate to be issued. Transcend’s request for release of the retentions was explicable by reference to its attempt to negotiate for early release of the retentions, and in requesting confirmation of the date of practical completion and communicating about its maintenance obligations, it was complying with the contractual regime. 

Wrapping up

The decision is important but not controversial. It affirmed the primacy and importance of issuing a certificate of practical completion under a construction contract and did so based on established principles of contractual interpretation and consistently with the similar decision in Abergeldie. In addition, it affirmed the clarity of communication required in a certificate of practical completion, and applied the High Court’s very recent decision in Allianz with respect to the doctrine of election.

How can we help?

We acted for Transcend in this case. If you have any questions about this decision or require legal assistance with your construction contracts, please get in touch with a member of our Construction, Infrastructure & Projects team below.

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Lachlan Ingram

Susan Guo

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