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 title.
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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