Vesting certificates in construction contracts

A recent case highlights the role that vesting clauses and vesting certificates can play when it comes to ownership of materials. The court considered the terms of ambiguously worded vesting certificates to determine whether there had been a transfer of ownership of goods and materials.

What is a vesting clause or a vesting certificate?

A vesting clause is a contractual term which deals with the transfer of ownership of goods and materials and a vesting certificate is a document evidencing that transfer of ownership of those goods or materials.

Background

The case of VVB M & E Group v Optilan Ltd [2020] EWHC 4 concerned a dispute between VVB, the sub-contractor, and its sub-sub-contractor, Optilan, on the Crossrail project. Optilan was responsible for the providing specialist telecommunications systems materials for the project.

The contract required vesting of the goods in VVB prior to delivery to site. This was to be achieved by the issue of a vesting certificate by Optilan. The particular wording of the Vesting Certificate provided that "property in the materials shall unconditionally vest … upon receipt of the interim payment referred to above". Optilan's application for payment no 39 sought what would be the next interim payment referred to in the Vesting Certificate and so was "the interim payment referred to above".

When Optilan claimed interim payment no 39, VVB issued a payment notice and subsequent payless notice which both certified net payment to Optilan of "nil". In the payless notice, WWB used the gross valuations of the materials largely similar to Optilan's application for payment, but then took into account various claims, which meant that the amount due to Optilan was nil.

When did the materials vest?

VVB argued that title to the goods had transferred to them on the issue of the payless notice because they had included the "stated values" of the materials within the gross certification. Optilan submitted that neither the payment certificate nor the payless notice could constitute receipt of "payment" and that vesting had not taken place. To complicate matters VVB became insolvent.

The court found in favour of VVB concluding that no actual payment needed to be made to Optilan in order for the materials to vest in VVB.

Although the language of the vesting certificates was ambiguous as it referred to immediate vesting on a future event, the court concluded that the vesting certificate formed part of the payment process. This meant that the parties had agreed that the materials would become the property of VVB, provided that VVB included agreed values against the vested materials within the gross certification.

In other words, the promise by VVB was not to make a payment of the value for the materials but to include the relevant sum in the next interim payment certificate and then address this alongside other certified items and against payments previously made.

Optilan's interpretation would mean that the amount to be paid for the materials was somehow "quarantined" or "secured" from other matters which would override the assessment by VVB as to the amount due for payment which could not be correct.

Summary

Although fact specific, of general interest is the approach taken by the court to the interpretation of the ambiguous wording on vesting certificates in the context of the payment process in construction contracts. Where vesting of materials relates to the payment process, it's likely that the interim payment process will enable the paying party to make deduction against the sum applied for, taking into account matters outside of the value of the materials.