This decision involves the interpretation of a
contract for the sale of mining equipment, and general principles
of sale of goods law related to inspecting goods and passing of
Redfern Resources Ltd. (Redfern), a Vancouver-based exploration
and development company, owned and operated the Tulsequah Chief
mining project in northwestern British Columbia. In 2007, Redfern
approached Sandvik Mining (Sandvik) about purchasing mining
equipment. The next year, Redfern issued a purchase order for
nearly $13 million in equipment, which was accepted by Sandvik. The
equipment was to be provided in phases, beginning with a drill and
loader. Seattle was specified as the delivery point.
The drill and loader were delivered to Seattle on December 31,
2008, and the parties agreed that upon delivery title to the
equipment passed to Redfern. That same day, the equipment was
loaded onto a barge for shipment to Juneau, Alaska, which was the
designated holding site for Redfern's equipment before
transport to the mine site. Equipment could only be transported to
the mine between June and October, when the waterway route was free
of ice. Redfern did not inspect the drill and loader upon delivery
to Seattle, or to Juneau, and there was no evidence that either
unit was defective.
On February 12, 2009, Sandvik issued invoices for the drill and
loader requiring payment by Redfern within 30 days. Five days
later, Redfern issued a press release stating that construction at
the mine was suspended due to financial uncertainty. Shortly after
that, Redfern terminated the purchase order and, on March 4, 2009,
Redfern obtained an order under the Companies' Creditors
Arrangement Act (CCAA) protecting Redfern's assets and
prohibiting the disposition of property. Sandvik sought to have the
equipment returned to it.
The central issue for the British Columbia Court of Appeal
(BCCA) was whether, when Redfern terminated the agreement, title to
the drill and loader reverted to Sandvik or whether title remained
with Redfern, such that the equipment was protected by the order
made under the CCAA. This required the BCCA to consider the
interaction between a termination clause in the purchase order,
which required Redfern to pay for goods and services
"satisfactorily provided" to the date of termination, and
an inspection clause which gave Redfern the right to inspect goods
"at any time and place" and to reject those goods found
as defective. Sandvik's primary position was that because the
drill and loader had not been inspected, they had not been
"satisfactorily provided." As a result, Sandvik argued,
Redfern was not obligated to pay for the equipment and title passed
back to Sandvik.
The BCCA disagreed, finding that the phrase "satisfactorily
provided" in the termination clause was independent of a
buyer's right to reject goods after inspection. For the
purposes of the termination clause, good were satisfactorily
provided if they were delivered and uninspected or delivered,
inspected and accepted. The inspection clause in the purchase order
merely gave effect to the ordinary principle of sale of goods law
that title to property passes subject to a condition subsequent
that title may revest in the seller if the goods are found to be
deficient upon inspection. As noted by the BCCA, unless and until
that condition subsequent is fulfilled by the buyer exercising its
right of inspection, title remains with the buyer, and the buyer is
obligated to make payment.
In this case, the drill and loader were satisfactorily provided
to Redfern when they were delivered to Seattle and because Redfern
had not exercised its right of inspection and rejection, title
remained vested in Redfern. In the circumstances, Sandvik's
only remedy was to look to Redfern for payment of the balance owing
on the invoices.
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