VVB M&E Group Ltd & Anor v Optilan (UK) Ltd

Contractual documents must be construed as a whole, considering their language, context and commercial consequences. Where vesting certificates provide for ownership to pass upon receipt of a future interim payment, that wording cannot simply be ignored in favour of immediate vesting. The certificates must, however, be read with the contractual interim-payment machinery where they were issued under that contract and for the purpose of securing payment.

An obligation to include specified values in the next interim payment does not guarantee payment of those values or require a net payment to be made. A valid pay less notice may be considered in determining compliance, even where an earlier payment certificate certified that nothing was due. An implied condition requiring payment of an earlier certificate will not be added where the certificates address only the next interim payment.

VVB sought delivery up of materials held by Optilan. The materials had been procured for works under a construction sub-subcontract involving an insolvent intermediary, and were covered by two vesting certificates. Each certificate recorded an agreement to include a specified value in the next interim payment and stated that ownership would vest upon receipt of that payment.

The relevant interim payment certificate certified nil payment, but a subsequent pay less notice included the relevant gross values for the materials. Optilan argued that the payment certificate was decisive, that an actual payment was required, and that ownership was conditional upon full and timely payment of an earlier certificate. The central issues concerned the construction and effect of the vesting certificates.

1. Disposition. The application and claim succeeded. Final relief was granted in favour of VVB. Optilan was required to make the materials available for collection at its Coventry premises and to retain them there pending collection.
2. Construction. The vesting certificates were ambiguous because their provision for future vesting upon receipt of an interim payment conflicted with other wording suggestive of immediate vesting. Applying the approach summarised in [2011] 1 WLR 2900 and [2017] AC 1173, the court preferred the construction consistent with the documents, their contractual context and business common sense.
3. The certificates did not provide for an immediate transfer of ownership. The words expressly postponing vesting could not be struck out. They were nevertheless issued under the vesting provisions of the sub-subcontract and had to be read with the interim-payment regime.
4. The relevant obligation was to include the stated values within the gross certification for the next interim payment. The certificates did not guarantee payment of those values, require a net payment to be made, or operate as bills of sale at a specified price. Other contractual adjustments could therefore reduce the net sum due to nil.
5. The pay less notice was contractually available and formed part of the interim-payment process. It could not be disregarded merely because the preceding payment certificate had certified nil payment. The court treated substance as more important than the notice’s label and accepted the pay less notice as the operative calculation for the materials.
6. There was no implied condition requiring full and timely payment under the earlier payment certificate. The certificates were forward-looking and concerned the next interim payment only. The proposed term would have provided belated security for an earlier payment, without contractual or commercial justification.
7. The contractual right to make deductions was not excluded. Following Connaught Restaurants Ltd v Indoor Leisure Ltd, [1994] 1 WLR 501, the exercise of that right could amount to payment and receipt for the purposes of the certificates. Any dispute about valuation or deductions remained a matter for adjudication or other contractual proceedings.