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Thursday, 6 February 2020

VVB M&E Group Ltd v Optilan Ltd LG Ltd

[2020] EWHC 4 (TCC) 

The question of when title to goods vests or transfers from a contractor to an employer can be of some importance especially if one of the parties is (or is likely to become) insolvent. A vesting clause is a contractual term in a construction contract dealing expressly with the passing of ownership of goods and materials between the parties. Title to goods often transfers when goods are delivered to the (employer’s) site. However, the position can be more complex when, as in the case here, the issue in question relates to goods that have been manufactured off site. Something which happens with increasing regularity and importance on many projects.  

Here the scheme of the contract was for the vesting of ownership in  goods in VVB before they were delivered to site. Optilan was required to issue vesting certificates to confirm the transfer of ownership. However, in fact Optilan added a condition in the certificates by stating “… that property in the materials shall unconditionally vest in [the transferee] upon receipt of the interim payment referred to above”. Optilan duly made a claim for the goods which was met by VVB issuing a payless notice in respect of Optilan’s claim for payment. The notice took into account gross valuations for the materials which were largely similar to the values stated in Optilan’s application for payment. VVB considered that even though, as set out in the payless notice, no net amount was due to and no actual payment had been made to Optilan, title to the goods had transferred.

VVB became insolvent. The issue for HHJ Russen QC was whether the materials had vested in VVB? Was an actual “payment” of some monies to Optilan (rather than the “nil payment” provided for by both the payment certificate and payless notice) required to trigger the unconditional vesting of the materials? The Vesting Certificates provided for an unconditional vesting “upon receipt of the interim payment”. VVB said that it was sufficient to trigger the vesting of the materials for the value of the materials to be included within the gross certification (by the payless notice) for the next interim payment. The vesting took place upon the provision of the payless notice determining that no payment was due. Optilan said that neither the payment certificate nor the subsequent payless notice could constitute a “receipt” by Optilan of any “payment” upon which vesting might occur.

HHJ Russen QC noted that the drafting of the vesting certificates was “confusing” and “ambiguous”. The language of an unconditional vesting upon a future event (receipt of the next interim payment) conflicted with other provisions which were couched in language consistent with an immediate vesting. The Judge noted that when faced with ambiguity the court is entitled to prefer the interpretation which is consistent with business common sense and to reject any other meaning. On this basis he found in favour of VVB.  

The concern of the Judge was that Optilan appeared to be saying that the express language of the vesting certificates somehow “quarantined” the sums payable in respect of the to-be-vested materials from other matters that might serve to undermine sufficient credit being obtained for their value if a full operation of the interim payment process was allowed to follow its normal course. The Judge understood that the insolvency of VVB provided a real incentive to Optilan to argue that the payless notice was of no effect but, given the content and appropriate timing of that notice, such an argument involved “an unwarranted focus upon form over substance”.

The promise by VVB was not to make a payment of those values but to “include [the relevant sum] in the next interim payment”. Optilan’s belief of an entitlement to be paid a sum  by reference to those included values did not and could not override the assessment by VVB of what in their opinion was due for the purpose of responding with the interim payment certificate. The language of the vesting certificates therefore confirmed that the inclusion of the relevant sum was only the first step in working though the interim application, certification and payment process. The Judge agreed that what the vesting certificates recorded was an agreement by VVB to include the identified values within the “Gross Certification” column of the payment certificate which would then be addressed alongside other certified items and against payments previously made.

Applying the payment process, the interim payment due to Optilan was “nil”. The provision of the payless notice was sufficient to trigger the vesting of the goods in VVB. No actual receipt of payment by Optilan was required.

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