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Sat April 04 2020

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Deciphering ambiguous documents

23 Jan Lawyer George Mills from Irwin Mitchell’s construction team, reports on the decision in VVB M&E Group Limited & Anor v Optilan (UK) Limited.

The dispute related to the supply of services to the Crossrail project
The dispute related to the supply of services to the Crossrail project

In January 2020 the Technology & Construction Court was called on to decide the true meaning of documents which, on the face of it, were ambiguous.

In VVB M&E Group Limited & Anor v Optilan (UK) Limited [2020] EWHC 4 (TCC), the court considered the wording of two vesting certificates to determine whether ownership of materials had vested in the transferee.

Background

Back in 2015, Value Realisations Limited (VRL) entered into a sub-subcontract with Optilan (UK) Limited to provide telecommunications services relating to part of a high-value Crossrail project. The agreement provided for goods and materials to be vested in VRL prior to delivery to the relevant location, with the aim of securing payment under the sub-subcontract.

In 2018, Optilan issued two vesting certificates relating to the materials that it had intended to include in its application for payment (no. 39) which stated: “… that property in the materials shall unconditionally vest in [the transferee] upon receipt of the interim payment referred to above.”

Optilan then submitted its application for payment, which included the materials valued at over £1m.   VRL responded with a payment certificate and a pay less notice, which both certified the net payment due to Optilan at nil.  They included gross valuations for the materials in largely the same as the values stated in Optilan’s application for payment.

A short time after this, VRL fell into administration and was acquired by VVB M&E Group Limited.

Dispute & arguments

The dispute was as to whether the materials had vested in VRL.  VVB argued that it was sufficient to prompt vesting of the materials for the value of the materials to be included within the gross certification for the next interim payment. Therefore, vesting had taken place upon the provision of the pay less notice determining that no payment was due.

Optilan’s argument was that vesting had not occurred because neither the payment certificate nor the pay less notice constituted receipt of any payment as intended by the wording of the vesting certificates.

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Decision

Following the principles of contractual interpretation set out in recent case law, the court held in favour of VVB and rejected Optilan’s argument. The court found the vesting certificates to be unclear because they contained terms consistent with both unconditional vesting upon a future event and terms consistent with immediate vesting and that Optilan’s interpretation accorded better with business common sense.

Analysis

The case is of interest because it illustrates the approach the courts now take to interpretation.  Judge Russen QC explained that where the language of a document provides more than one meaning, each must be tested against other provisions in the document along with its commercial consequences.

Faced with ambiguity the court is entitled to prefer the interpretation which is consistent with business common sense and to reject any other meanings. The exercise of interpreting the document involves consideration of its language against all the background knowledge reasonably available to the parties at the time they contracted with each other.

A balance is therefore needed between a literal analysis of the words used and the context in which they have been used.

To avoid the uncertain outcome this approach to interpretation may produce, those who draft contracts and related documents should take great care to avoid ambiguity.

 

 

 

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