With the increase in offsite construction it is not unusual for parties to make payment for materials prior to their delivery to site.
In these circumstances employers will require that title in materials has passed to or been "vested" in them. This is often done by way of a "vesting certificate".
The recent case of VB M&E Group Limited & VVB Engineering UK Limited (VB) v Optilan (UK) Limited (Optilan) demonstrates that it is important for such certificates to have clear unambiguous drafting otherwise the courts will be left to interpret the meaning and it may differ from what one party intended.
As part of a larger Crossrail project, Optilan was appointed by Value Realisations Limited (VRL) under a sub-subcontract to provide camera surveillance services. Optilan's role was to upgrade systems at various stations, allowing these stations to feed into the wider Crossrail system. With a view to securing payment under the sub-subcontract, the agreement between VRL and Optilan allowed goods and materials to vest in VRL before delivery to the relevant location had taken place.
In accordance with the agreement, Optilan issued two vesting certificates relating to the materials it intended to include in its next application for payment. The vesting certificates stated vesting did not occur until "receipt of the interim payment referred to above".
Optilan then made an application for payment, which included the materials that were the subject of the vesting certificates. In accordance with the usual interim application procedure, VRL then issued a payment certificate. The payment certificate included a different value for the materials, and deductions, which resulted in a nil payment being due to Optilan. VRL later issued a pay less notice, which corrected the valuation of the materials but still resulted in a nil payment being due to Optilan.
Not long after the issuing of the pay less notice, VRL went into administration. VRL's business and assets were acquired by VB.
The dispute here focused on ownership of the goods and materials. Optilan argued that vesting had not occurred because the conditions of the vesting certificate had not been met. Specifically, neither the payment certificate nor the less notice issued by VRL fell under the term "receipt" as it was intended to be understood in the vesting certificate.
Conversely, VB argued that the requirement for "receipt" had been complied with by issuing the pay less notice, which determined that no payment was due for the goods and materials. Therefore, vesting took place at the time of service of that notice.
The Court considered that one had to consider the context in which the Vesting Certificate had been issued – not as a freestanding contractual document but instead as subject (so far as the stated values within them were concerned) to the interim payment certification process provided for within the sub-subcontract.
Therefore, no actual payment required to be made to Optilan in order for the materials to vest in VRL – it was sufficient that the materials were included within an interim payment certificate (or, as here, included within the certification calculation under the pay less notice). To hold otherwise would detract from the usual interim payment procedure.
The Court did also comment upon the ambiguous wording of the certificate, i.e. that some provisions indicated that vesting was immediate (as the property had been set aside and marked as being "vested" in VRL) whilst others referred to future vesting. Due to this conflict the Court said it required to test both positions put forward by the parties against the other provisions within the vesting certificate and the commercial consequences; ultimately, it considered that VB's argument made more "business common sense".
While this case is very fact specific, it does highlight that parties need to be careful when drafting such certificates to ensure that the wording is clear and that it is consistent throughout. and with the underlying contract. Otherwise, the courts will be prepared to step in and interpret the ambiguous drafting considered in the wider commercial context.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.