2012 BCCA 189 Redfern Resources Ltd_ (Re)

8/10/2019 2012 BCCA 189 Redfern Resources Ltd_ (Re)

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COURT OF APPEAL FOR BRITISH COLUMBIA

Citation: Redfern Resources Ltd. (Re),2012 BCCA 189

Date: 20120502Docket: CA039163

Between:

Alvarez & Marsal Canada Inc., in its capacity as the Court appointedInterim Receiver and Receiver of the assets, undertakings and

properties of Redfern Resources Ltd. and Redcorp Ventures Ltd.

Respondent(Applicant)

AndAbakhan & Associates Inc., the Trustee in Bankruptcy of the

Estates of Redfern Resources Ltd. and Redcorp Ventures Ltd.

Respondent(Respondent)

And

Sandvik Mining and Construction Canada Inc.

Appellant(Respondent)

Before: The Honourable Mr. Justice ChiassonThe Honourable Mr. Justice GrobermanThe Honourable Madam Justice A. MacKenzie

On appeal from: Supreme Court of British Columbia, June 22, 2011(Redfern Resources Ltd. (Re), 2011 BCSC 771, Vancouver Docket S091670)

Counsel for the Appellant: H. Poulus, Q.C. and P. J. Price

Counsel for the Respondent,Alvarez & Marsal Canada Inc.:

B. Meckling and M. B. Gehlen

Counsel for the Respondent,Abakhan & Associates Inc.:

S. H. Stephens


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Redfern Resources Ltd. (Re) Page 2

Place and Date of Hearing: Vancouver, British ColumbiaApril 4, 2012

Place and Date of Judgment: Vancouver, British ColumbiaMay 2, 2012

Written Reasons by:The Honourable Madam Justice MacKenzie

Concurred in by:The Honourable Mr. Justice ChiassonThe Honourable Mr. Justice Groberman


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Reasons for Judgment of the Honourable Madam Justice MacKenzie:

Introduction

[1]

This appeal involves the interpretation of a contract for the sale of goods,specifically mining equipment. The appellant seller, Sandvik Mining and

Construction Canada Inc. (Sandvik), appeals from an order dismissing its

application for a declaration that title to two pieces of mining equipment (the Drill

and Loaderor the Equipment) reverted to Sandvik upon termination of the subject

contract, so that Sandvik owned the Equipment when the buyer, Redfern Resources

Ltd. (Redfern), was granted a stay of proceedings order under the Companies

Creditors Arrangement Act, R.S.C. 1985, c. C-36 (CCAA). All the assets,

undertakings and propertiesof both Redfern, and its parent company, Redcorp

Ventures Ltd. (Redcorp) were protected by this order.

[2]

The chambers judge instead allowed the application of Redferns Receiver,

Alvarez & Marsal Canada Inc. (the Receiver), finding that title to the Equipment

passed to Redfern upon delivery to its agent on December 31, 2008 and remained

with Redfern thereafter. His reasons are indexed at 2011 BCSC 771.

[3]

The central issue is whether title reverted to Sandvik when Redfern

terminated the contract. Resolution of this issue depends on the interaction between

the termination clause, which required Redfern to pay for goods and services

satisfactorily providedto the date of termination, and the inspection clause, which

gave Redfern the right to inspect goods and services at any time and placeand to

reject those goods and services found to be defective. Otherwise stated, this Court

must determine whether the words satisfactorily providedrefer to goods merely

delivered, or whether the use of that term imports a requirement that the goods beinspected and accepted, unless the right to inspection is waived or otherwise lost

due to the buyers failure to inspect within a reasonable time.

[4]

The Receiver and Abakhan & Associates Inc, the Trustee in Bankruptcy for

Redfern and Redcorp (the Trustee), say the chambers judge made no reversible


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error in fact or in law. I agree. Title to the Equipment passed to Redfern upon

delivery to its agent on December 31, 2008 and remained with Redfern thereafter.

Title did not revert to Sandvik when Redfern terminated the contract without having

inspected the Equipment. Therefore, when the CCAAorder was made, Redfern had

title to the Equipment. For the reasons that follow, I would dismiss the appeal.

Background

[5]

Redcorp was a Vancouver-based exploration and development company. Its

main project was the Tulsequah mining property, which was held and operated by

Redfern, a wholly-owned subsidiary of Redcorp. As described by the chambers

judge, Sandvik is part of a high technology engineering group based in Sweden that

manufactures and distributes mining equipment.

[6]

In mid-2007, Redcorp approached Sandvik about purchasing mining

equipment. Later that year, Sandvik issued a quote for the manufacture, sale and

delivery of certain mining equipment, including the Drill and Loader. The quotation

specified Seattle, Washington as the delivery point.

[7]

Redfern issued a purchase order dated February 15, 2008 (the Purchase

Order), which Sandvik accepted on June 19, 2008.

The Purchase Order

[8]

The Purchase Order was substantial. Redfern ordered 15 separate items of

mining equipment having a total value of almost $13 million. The equipment was to

be provided to Redfern in phases, and the Drill and Loader were the first two units

delivered. The written contract of February 15, 2008 was comprised of the Purchase

Order and the attached Standard Purchase Order Terms and Conditions. These

included an entire agreement clause (para.1); a delivery clause (para. 4); an

inspection and rejection clause (para. 5); and a termination clause (para. 13)

allowing Redfern, but not Sandvik, to unilaterally terminate the Purchase Order and

describing the consequences of such termination (para. 13), all as follows:


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Standard Purchase Order Terms and Conditions

1. General

The following terms and conditions, together with such terms as arereferenced in this Purchase Order (the PO), with such plans, specificationsor other documents as are incorporated by reference in the PO, as amended

in any subsequent authorized writing from Buyer, shall constitute the entirecontract between the Buyer and Seller. Other terms and conditions are notbinding upon Buyer, unless accepted in writing.

...

4. Method of shipment or packing

Goods are packaged in a manner which assures that they are protectedagainst deterioration and contamination. All goods are delivered to the pointspecified per INCO2000 terms in the PO. Title and risks remain with Supplieruntil delivery.

5. Inspection and rejection

The goods and services furnished are to be exactly as specified in the PO.They are to be free from all defects in design, workmanship and materials.The goods and services are subject to inspection and test by Buyer at anytime and place. If the goods and services furnished are found to be defective,Buyer may reject them, or require Supplier to correct or replace them withoutcharge. If Supplier is unable or refuses to correct or replace such items withina time deemed reasonable by Buyer, Buyer may terminate this PO in wholeor in part. Supplier reimburses Buyer for all transportation costs, other relatedcosts incurred, and overpayments in respect of the goods and services atissue.

6. Changes

Buyer may make changes to this PO including to drawings and specificationsfor specially manufactured goods, place of delivery, by giving notice toSupplier. If such changes affect the cost of or the time required forperformance of this PO, an equitable adjustment in the price or date ofdelivery or both will be made. No change by Supplier is allowed withoutwritten approval of Buyer. Nothing in this Article excuses Supplier fromdelivering the goods and services described in this PO.

7. Maintenance and Operation

The Supplier supplies to Buyer instructions for installation, operation,maintenance and repair of the goods.

8. WarrantySupplier warrants to Buyer that goods supplied under this PO are free fromdefects in material, workmanship and design, suitable for the purposesintended implied, in compliance with all applicable specifications and freefrom liens or encumbrance on title. All services are performed in accordancewith current, sound and generally accepted industry practices by qualifiedpersonnel trained and experienced in the appropriate fields. Allmanufacturerswarranties shall be passed on by Supplier to Buyer whereappropriate.


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...

10. Insurance

Supplier and any Sub-contractor used by Supplier in connection with this POmust carry Comprehensive General Liability and adequate Comprehensive

Automobile Liability Insurance. At Buyers request, Supplier must provide to

Buyer certificates from Suppliers insurers showing that such coverage is ineffect and agrees to give Buyer thirty (30) days prior notice of cancellation ofthe coverage. Buyer may require minimum liability coverage depending oncircumstances.

...

12. Default

A party is in default of its obligations under this PO if any of the followingevents occur, namely:

a. such party is adjudged bankrupt or insolvent by a court of competentjurisdiction, or otherwise becomes insolvent, as evidenced by its inability to

pay its debts generally as and when they become due; orb. such party is in default of its obligations hereunder and fails to curesuch default within thirty days of written notice from the other party, or if suchdefault cannot be cured within thirty days, within such longer period as maybe reasonable, provided the defaulting party commences promptly anddiligently proceeds with curing the default.

Upon the occurrence of any of the above events, the party not in default may,by written notice to the defaulting party, terminate this PO without prejudice toany other right or remedy available to it at law and without liability for suchtermination. Neither the Supplier nor Buyer shall be liable to the other forindirect damages, for loss of profit or for damages arising from loss of use or

production.13. Termination

This PO may be terminated or suspended by Buyer in whole or in part. Buyerthen delivers to the Supplier a written notice specifying the extent to whichperformance and/or the deliveries of goods and services under this PO isterminated and/or suspended and the date upon which such action shallbecome effective. In the event of such action, Buyer shall pay Supplier for thegoods and services satisfactorily provided to the effective date of terminationor suspension. The termination of this PO shall discharge any furtherobligations of either party.

...

15. Governing Law

This PO shall be governed by the laws of the Province of British Columbia.

[Emphasis added.]


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Shipment of the Equipment

[9] The Drill and Loader were manufactured in Finland, and then shipped to

Tacoma, Washington in November 2008.

[10]

On December 23, 2008, due to financial concerns, Redfern requested that

Sandvik delay production of any units not already manufactured. Redfern did not

ask to delay the delivery of equipment that had already been manufactured.

[11]

On December 31, 2008, the Drill and Loader were delivered to the Seattle

terminal of Redferns agent, Alaska Marine Lines (AML). The same day, AML

loaded the Drill and Loader onto a barge for shipment to Juneau, Alaska in

accordance with standing instructions from Redfern. Juneau was the designatedholding site for Redferns equipment before transport to the mine site, which could

only be undertaken during the period from June to October when the waterway route

was free of ice. The Drill and Loader arrived in Juneau on January 5, 2009.

[12]

The parties agree that title to the Drill and Loader passed to Redfern upon

delivery to AML on December 31, 2008.

[13]

As to the freight of the Drill and Loader from Seattle to Juneau, Redfern:

a) incurred the shipping costs;

b) insured the equipment; and

c) was identified as the consignee on the bills of lading.

[14]

At all material times from January 5, 2009 forward, the Drill and Loader

remained at AMLs yard in Juneau. Redfern incurred the storage costs throughout.

[15] There was evidence before the chambers judge that Redfern intended to

have the Drill and Loader inspected after transport to the mine site, which, as noted

above, could only be undertaken between June and October. Sandvik expected

inspection to occur on site.


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[16]

Redfern never exercised its right to inspect the Drill and Loader. Nor is there

any evidence that either unit was defective.

[17]

On February 12, 2009, Sandvik issued Redfern separate invoices for the Drill

($1,025,684.10) and the Loader ($1,083,370.05). The invoices required payment

within 30 days and confirmed FOB point: Seattle, WA, USA.

[18]

On February 17, 2009, Redcorp and Redfern issued a press release stating

that construction at the Tulsequah mining property was suspended as a result of

financial uncertainty.

[19] On February 23, 2009, Mr. Marcellus (Redcorps Manager, Procurement &

Contracts), telephoned Mr. Onucki (Sandviks Vice President of BusinessDevelopment) and told him that Redfern had cancelled the Purchase Order in its

entirety because it was unable to obtain permits required for the Tulsequah mining

project.

[20]

On February 26, 2009, Mr. Marcellus sent Mr. Onucki an email that said:

Per our recent telephone discussion this e-mail is to serve as Redfernsofficial notification to cancel our P.O. # VPORFR00150 in its entirety. I amalso attaching a copy of the P.O. reflecting the cancellation.

Redfern would like to take this opportunity to thank you for your help in thismatter and we look forward to working with you in the future.

[21] Mr. Marcelluss email attached a file copy of the purchase order with the

comment, This order is cancelled in its entirety per Telecon betw, L. Marcellus &

Bob Onucki Feb. 23/09. Sandvik did not reply to Mr. Marcelluss email of

February 26, 2009.

[22]

On March 2 and 3, 2009, Sandvik and AML corresponded about having theDrill and Loader shipped back to Seattle at Redferns expense. AML took the

position that Redferns authorization was required to do so. On March 4, 2009, just

before the pronouncement of the stay order under the CCAA, Mr. Marcellus advised

AML it could ship the Drill and Loader to Seattle on Redferns account.


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The CCAAOrder of March 4, 2009

[23]

On March 4, 2009, Redcorp and Redfern obtained an order under the CCAA,

the Canada Business Corporations Act, R.S.C. 1985, c. C-44, and the British

Columbia Business Corporations Act, S.B.C. 2002, c. 57. The order protected

Redcorp and Redferns assets, properties and undertakings, and included a

prohibition against any disposition of property.

The Parties Conduct Subsequent to the CCAAOrder

[24]

On March 6, 2009, Mr. Marcellus instructed AML to hold offsending the Drill

and Loader to Seattle. On March 16, 2009, Sandvik issued Redfern credits for the

purchase price of the Drill and Loader, together with an invoice for cancellation fee

for the entire underground equipment mobile fleet 25% of orderin the total amount

of $3,058,547.88.

[25]

On May 29, 2009, the British Columbia Supreme Court lifted the CCAAstay

order to permit the appointment of the Receiver, and on June 29, 2009, the Receiver

assigned Redfern (and Redcorp) into bankruptcy. In February 2010, the Receiver,

the Trustee and Sandvik agreed to allow Sandvik to resell the Drill and Loader on

the provision of security by Sandvik and on agreement that an application would be

brought in the British Columbia Supreme Court to determine whether it was Redfern

(i.e. its Receiver/Trustee) or Sandvik that held title to the Drill and Loader.

The Reasons of the Chambers Judge

(a) Title passed on delivery to Redferns agent

[26] The chambers judge first observed that the Sale of Goods Act, R.S.B.C.

1996, c. 410 (the Act), establishes the rules for the passing of property in goods

and governs unless the parties contract otherwise. He noted that the contract in this

case was for the sale of future goods, defined under s. 1 of theActas goods to be

manufactured...by the seller after the making of the contract of sale.


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Redfern had a right in law to reject the goods as deficient and in fact exercised that

right. Otherwise, the property in the equipment would remain with Redfern.

[31]

The judge observed that the parties could have contracted out of the general

rule so as to make the passing of property conditional on successful inspection and

non-rejection of the goods by the buyer. However, he found that this was not the

effect of para. 5 of the Purchase Order. Observing the language of para. 4, which

provides, Title and risks remain with Supplier until delivery, he concluded that title

passed on delivery, regardless of whether Redfern inspected the Equipment before

or after delivery(at para. 52).

[32]

The chambers judge went on to find that Redfern never did inspect the

goods and never did reject them as deficient, even though ... they did have a

reasonable time to do so(at para. 55). He found that, pursuant to s. 39(c) of the

Act, Redfern must be deemed to have accepted the Drill and Loader as it retained

such equipment from January 5 to March 4, 2009 without intimating toSandvik that

it had rejected the units (at para 57).

[33] Having found Sandvik failed to discharge its onus of proving that the parties

intended to contract out of the general rules governing the passing of property in

goods, specifically with respect to the general rule characterizing the right to inspect

as a condition subsequent to the (defeasible) passing of title, the judge found that

once title to the Drill and Loader had passed, Sandviks only remedy was to seek

payment for the balance owing. Sandvik started this process by providing invoices

to Redfern, as noted above.

(c) The effect of the termination of the Purchase Order

[34]

The chambers judge then turned to consider para. 13 of the Purchase Order,which provided that, upon terminating the Purchase Order, Buyer shall pay Supplier

for the goods and services satisfactorily provided to the effective date of termination

or suspension. The termination of this PO shall discharge any further obligations of

either party.


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[35]

The judge summarized his reasoning on this issue, as well as those issues

previously discussed, as follows:

[74] The cancellation of the Purchase Order by Redfern was effective todischarge Sandvik from manufacturing and shipping the remaining items, but

it was of no force or effectto reverse the passing of property in the Drill andLoader. Any claim of Sandvik is limited to its claim for the price of thoseitems. Paragraph 13 of the Purchaser Order is clear. Redfern was to paySandvik for the goods and services satisfactorily provided to the effectivedate of termination or suspension. The position of Sandvik relies entirely onthe question of whether the Equipment had been satisfactorily providedandon the assumption that, because there had been no inspection and becausethe Equipment had not been put into use, the Equipment had not beensatisfactorily provided.

[75] The submissions of Sandvik fail because I find that the Equipmenthad been satisfactorily provided. First, I have found that title to theEquipment had passed to Redfern. Second, the failure to inspect the

Equipment did not in any way affect the passage of title to Redfern. Third,the only remedy that was available to Sandvik was to look to Redfern for thebalance owing on the Equipment and, in this regard, Sandvik acknowledgedthat when it provided the two Invoices to Redfern on February 12, 2009.Sandvik would hardly have provided the Invoices if it was of the belief thattitle to the Equipment had not passed to Redfern. Fourth, Redfern lost anyability it might have had to return the goods after inspectionwhen it failed toinspect the Equipment in a timely manner.

[36] Thus, the chambers judge dismissed Sandviks application for a declaration

that title to the Drill and Loader were in Sandvik as of the date of the CCAAorder

and subsequent sale, and allowed the Receivers application that title passed to

Redfern on December 31, 2008 and remained with Redfern thereafter.

Issues on appeal

[37]

Sandvik argues the judge erred in failing to hold that:

(a) Redferns unilateral termination of the entire Purchase Order, including

the sale of the Drill and Loader, was the valid exercise of itscontractual right under the termination clause; or

(b) alternatively, Redferns termination of the Purchase Order was

accepted by Sandvik so as to consensually undo the sale; and

in either event, title to the Drill and Loader passed back to Sandvik.


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Sandviks position

Unilateral cancellation

[38]

Sandvik submits Redfern purported to unilaterally cancel the whole of the

Purchase Order, including the sale of the Drill and Loader, and that such action

constituted the valid exercise of its right to cancel the Purchase Order in whole or in

partunder para. 13. It is asserted that, in so acting, Redfern intended to return the

Drill and Loader to Sandvik and to be relieved of the obligation to pay for the units.

Sandvik says it accepted the cancellation, began to arrange for the return of the Drill

and Loader and issued credit notes cancelling the invoices for the same.

[39]

Sandvik submits that, as the Drill and Loader had not yet passed inspection,they were not goods satisfactorily provided to the effective date of termination...

under para. 13. Redfern was therefore under no obligation to pay for the Equipment,

and, by necessary implication, the property passed back to Sandvik.

[40]

In support of its position, Sandvik relies on para. 5 of the Purchase Order,

which provides in part, The goods and services are subject to inspection and test by

Buyer at any time and place. Sandvik submits Redfern had decided to inspect the

Drill and Loader once they reached the mine site, which was only accessible bywater between June and October. Sandvik asserts that there was mutual

understanding between the parties with respect to the chosen timing for inspection.

[41] Redfern cancelled the Purchase Order before the time for inspection had

arrived. Therefore, the Drill and Loader could not be considered satisfactorily

providedunder para. 13. Nor had Redfern failed to inspect in a timely manner so

as to losethe right to unilaterally terminate the sale under para. 13. Sandvik

further asserts that s. 39(c) of theActcannot override the parties agreement.

Section 39(c) provides that a buyer will be deemed to have accepted delivered

goods once a reasonable time has elapsed without intimation to the seller that the

buyer has rejected the goods.


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[42]

Sandvik also submits that the court is entitled to consider the conduct of the

parties in determining the meaning of satisfactorily providedwhich it asserts is

consistent with the interpretation advanced. For its part, Sandvik did not protest that

Redferns unilateral termination was a breach of contract, but instead accepted the

termination, began making arrangements for the return of the Drill and Loader, and

issued credit notes for the invoices.

Formation of a new contract

[43] Sandviks alternative submission is that, regardless of whether Redfern had

the contractual right to unilaterally terminate the sale of the Drill and Loader, the

purported termination and Sandviks subsequent acceptance of the same operated

to consensually undo the sale.

[44]

Sandvik submits that the telephone call of February 23, 2009, between

Mr. Marcellus and Mr. Onucki, and subsequently confirmed by email, considered

together with the conduct of the parties, created a new contract as envisaged by

s. 8(1) of theAct. This section provides that ...a contract of sale may be made ...by

word of mouth, or partly in writing and partly by word of mouth, or may be implied

from the conduct of the parties. It is asserted that, in consideration for Redferns

agreement to return title in the Drill and Loader to Sandvik, Sandvik relinquished its

right to payment.

[45]

To the extent that the chambers judge, based on Rotair Pacific Industries Ltd.

(Receiver of) v. Canada Bread Co., 2002 BCSC 1299, concluded that the original

transaction had proceeded too far for the parties to undoit, Sandvik maintains that

Rotairwas wrongly decided. Sandvik submits that the judge overlooked the

distinction between a unilateral cancellation and a consensual cancellation, arguingthat even if Redfern lost the right to undothe sale unilaterally, nothing impaired the

parties right to do so consensually. As a result, title to the Drill and Loader reverted

to Sandvik upon termination of the Purchase Order and subsequent creation of a

new contract.


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Analysis

Standard of Review

[46]

InAthwal v. Black Top Cabs Ltd., 2012 BCCA 107 at paras. 29-31, Madam

Justice D. Smith for the Court recently discussed the standard of review applicable

to the interpretation of a contract. In a succinct statement of the proper approach to

this issue, she described Mr. Justice Chiassons ruling in 269893 Alberta Ltd. v.

Otter Bay Developments Ltd., 2009 BCCA 37, 266 B.C.A.C. 98, as follows:

... while the meaning of the words of a contract, when viewed objectively andin the context of the factual matrix in which the contract was made, is aquestion of mixed fact and law, the legal effect of the words of a contract is aquestion of law.... (para. 29)

[47] Applying this analysis to the issues on appeal, the first ground, which turns on

the meaning of satisfactorily providedin para. 13 of the Purchase Order, would be

characterized as a question of mixed fact and law. However, the question of

whether the chambers judge correctly applied legal principles of contractual

interpretation in finding that satisfactorily provideddid not import a requirement for

successful inspection pursuant to para. 5, engages an extricable legal issue that

does not require a review of the judges factual findings (see JEL Investments Ltd. v.

Boxer Capital Corporation, 2011 BCCA 142, 18 B.C.L.R. (5th) 75 at paras. 26-27,

where Madam Justice Newbury adopted a similar approach). This issue is therefore

reviewable on a standard of correctness, which is also the applicable standard of

review with respect to the legal effect of the term satisfactorily provided.

[48]

The second ground of appeal, namely whether termination of the Purchase

Order was accepted by Sandvik so as to undo the sale and create a new contract,

raises a question of mixed fact and law as the chambers judge was required to apply

principles of contract law to his factual findings. His determinations with respect to

this issue are therefore entitled to deference on appeal.


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Unilateral Termination

[49]

The relevant provisions of theActare set out in an appendix to these

reasons.

[50]

Having considered the language used in the Purchase Order, I agree with the

conclusion of the chambers judge that the parties did not intend to contract out of the

general rules pertaining to the passing of property in goods and, in particular, the

interaction between the passing of property and the inspection clause. I would first

observe that there is no dispute between the parties with respect to the judges

finding that property in the Equipment passed from Sandvik to Redfern upon delivery

of the Drill and Loader to AML in Seattle.

[51]

I agree with the Receiver that Sandvik isolates the two words satisfactorily

providedin para. 13 of the Purchase Order to essentially argue that the passing of

property remained reversible at Redferns option until it had found the goods to be

satisfactory on inspection. For ease of reference, para. 13 provides as follows:

This PO may be terminated or suspended by Buyer in whole or in part. Buyerthen delivers to the Supplier a written notice specifying the extent to whichperformance and/or the deliveries of goods and services under this PO is

terminated and/or suspended and the date upon which such action shallbecome effective. In the event of such action, Buyer shall pay Supplier forthe goods and services satisfactorily provided to the effective date oftermination or suspension. The termination of this PO shall discharge anyfurther obligations of either party.

[Emphasis added.]

[52] As identified by the Receiver, Sandviks interpretation of this clause is

untenable for reasons that include the following:

(a) The termination clause must be construed in the context of thePurchase Order as a whole. The interpretation advanced by Sandvik

ignores both the inspection clause and the provision in para. 13 that

termination discharges both parties from any further obligationsnot

existing ones.


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(b) Paragraph 13 does not say that if goods have not been satisfactorily

provided at the time of termination, property in such goods revests in

Sandvik, or that Redfern has the option of revesting the property.

Rather, paragraph 13 merely says that in such case, Redfern need not

pay for such goods.

[53]

The language with respect to title in para. 4 of the Purchase Order ( Title and

risks remain with Supplier until delivery) supports the conclusion that, as stated by

the Receiver, The parties intended property to pass, not to pass imperfectly.

[54] As to inspection, para. 5 gives effect to ordinary principles of sale of goods

law, specifically that property passes subject to a condition subsequent that if the

goods on inspection are found to be deficient, title may revest in the seller.

However, as the Receiver contends, until that condition subsequent is fulfilled

through the purchasers exercise of its right to inspect, the availability of lawful

means to reject the goods, and then actual rejection of the goods, the property in the

goods remains with the buyer and the delivered goods are necessarily considered

non-defective and, in this case, satisfactorily providedunder the contract. In these

circumstances, the buyer is obligated to then make payment: Gill & Duffus S.A. v.

Berger & Co. Inc., [1984] 1 A.C. 382 (H.L.) at 395; Colonial Insurance Co. of NewZealand v. Adelaide Marine Insurance Co.(1886), 12 App. Cas. 128 (P.C.) at 139-

140; McDougall v. Aeromarine of Emsworth Ltd., [1958] 1 W.L.R. 1126 (Q.B.) at

1130.

[55]

As the Receiver points out, The fact that the buyer may not, in practice, be

able to inspect the goods until after deliveryi.e., after the passing of propertyis

a commonplace of international sales that adds nothing to the analysis: Berger;

and Scottish & Newcastle International Ltd. v. Othon Ghalanos Ltd., [2008] UKHL 11

at para. 31.

[56] In my view, the phrase satisfactorily provided in para. 13 means delivered

without obvious defect. Goods that meet that criterion must be paid for. This is

independent of the purchasers right to reject goods after inspection under para.5.


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The two sections address different issues. The important right to inspect and reject

in para. 5 is not imported into para. 13 so as to undermine the purchasers obligation

to pay for the goods or somehow to effect a revesting of title. Title revests only if the

purchaser rejects equipment pursuant to para. 5.

[57]

Sandvik relies on the last sentence of para. 13, which provides that on

cancellation the obligations of both parties are discharged. In my view, the sentence

does not assist Sandvik. The purchaser is not obliged to terminate the entire

purchase order. If it does so, essentially it will lose its right to inspect equipment that

has not been inspected because Sandviks obligation to remedy defects or to take

back equipment is at an end. It will remain obliged to pay for equipment that has

been delivered without obvious defect, which is an obligation that had accrued.

[58]

As noted by the Trustee, there were two options available to the parties to

achieve the result sought by Sandvik. First, the parties could have used language

indicating that property was to pass conditionally, as contemplated by s. 23(5) of the

Act. As the judge correctly observed, they could have contracted out of the general

rule to make the passing of property in the Equipmentregardless of delivery

conditional on a satisfactory inspection and non-rejection of the goods by Redfern

(at para. 51). They did not do so.

[59]

Further, Sandvik could have reserved to itself a right of disposalunder s. 24

of theAct. Such a right would have preserved Sandviks proprietary interest in the

Drill and Loader after delivery until conditions such as payment or inspection of the

goods by Redfern had been met.

[60] Given that there was no suggestion here that termination of the Purchase

Order was linked to the right to inspect and reject defective goods, para. 5 cannot be

imported into para. 13. To do so would be contrary to the longstanding principles of

sale of goods law discussed above.

[61]

In light of the lack of connection between the right of inspection and the

termination clause, I agree with the Receivers assertion that the right of inspection


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is a red herringand ultimately irrelevant. It is therefore unnecessary to address

Sandviks submission that the judge erred in finding that Redfern had failed to

inspect the goods within a reasonable time. Any such error would not affect the

result.

[62]

For these reasons, I agree with the Trustee and Receiver that satisfactorily

providedin para. 13 of the Purchase Order captures delivered and uninspected

goods as well as delivered, inspected and accepted goods while also accounting for

the potential fulfillment of the condition subsequent (that is, lawful rejection of

delivered goods after inspection).

[63]

Section 22 of theActprovides that property passes according to the intent of

the parties. In assessing intent, regard must be had to the terms of the contract, the

conduct of the parties and the circumstances of the case (s. 22(2)). As summarized

by the Trustee at para. 42 of its factum, the conduct of the parties both before and

after termination is consistent with the conclusion that title remained with Redfern:

a) Prior to termination:

i) Sandvik issued its invoices on February 12, 2009, subsequent todelivery but prior to any indication that Redfern had inspectedand approved the goods

ii) Redfern did not protest its obligation to pay prior to inspectionand approval.

b) Post-termination:

i) Consistent with Redfern retaining the property in the Drill andLoader, both in its internal emails as well as in its emails with

AML, Sandvik recognized that Redferns authorization wasrequired to transport the Drill and Loader back to Seattle.

ii) Sandvik looked to Redfern to cover the costs of that freight.

iii) At no time prior to the pronouncement of the CCAAinitial orderdid Sandvik take the position that the Drill and Loader were its

property.

[64] For the above reasons, I conclude the judge was correct in his application of

the legal principles of contractual interpretation and sale of goods law. He properly

found the phrase satisfactorily providedas used in the termination clause did not

require the delivered goods to have passed inspection. He was also correct with


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respect to the legal effect of that phrase; the parties intended that title would vest in

Sandvik following delivery to its agent, and title would remain in Sandvik unless and

until the Drill and Loader were inspected, found to be defective and subsequently

rejected.

[65]

I would not accede to this ground of appeal.

Formation of a New Contract

[66] The chambers judge found that Redferns termination of the Purchase Order

discharged Sandvik from its obligations with respect to the delivery of the other 13

items of mining equipment but did not reverse the passing of property in the Drill and

Loader. His conclusion in this regard responds to Sandviks alternative ground of

appeal that Redferns termination of thePurchase Order was accepted by Sandvik

so as to consensually undo the sale. The parties interactions in this regard are said

to have resulted in a new contract that transferred title to the Drill and Loader back to

Sandvik and relieved Redfern of its obligation to provide payment.

[67]

The Receiver submits that theActis largely silent on the effects of

termination, so this issue is governed by ordinary contract law under which a partys

refusal to continue to perform a contract is a repudiation not a rescission that voids

the contract ab initio. As the Court said in Guarantee Co. of North America v.

Gordon Capital Corp., [1999] 3 S.C.R. 423 at para. 40:

If, however, the non-repudiating party accepts the repudiation, the contract isterminated, and the parties are discharged from future obligations. Rightsand obligations that have already matured are not extinguished.

[68] Applying this principle, Redferns repudiation of the contract and Sandviks

subsequent acceptance of the same discharged the parties from their respectiveobligations to provide and pay for the mining equipment not yet delivered. However,

such conduct had no impact on the completed transaction with respect to the Drill

and Loader.


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[69]

In my opinion, the judge committed no reversible error in concluding that

Redferns cancellation of the Purchase Order discharged Sandvik from its obligation

to manufacture and ship the remaining items, but did not reverse the passing of

property in the Drill and Loader. In so finding, he applied the reasoning in Rotair

Pacific Industries Ltd. (Receiver of) v. Canada Bread Co., which dealt with the issue

of whether a purchaser was liable to a newly insolvent distributor for the price of

items already delivered under a partially-completed purchase order, or whether

effect could be given to a new contract entered into between the purchaser and

manufacturer directly.

[70]

The manufacturer argued that because the contract was cancelled before it

was wholly performed, the buyer was still free to rejectthe goods and the

distributor was not yet entitled to payment for them. As Sandvik submits here, the

manufacturer argued that the cancellation was effective to unravel the entire sale

ab initio, leaving the buyer and the manufacturer to their new contract. The court

decided that ss. 34(1) and (2) of theActgoverned; having accepted the goods, the

purchaser was obligated to pay the contract price. The purported cancellation of the

agreement was of no force or effect because title in the delivered goods had already

passed.

[71] I would reject Sandviks argument that this is not a case where repudiation of

a contract was accepted in the classic sense. In argument, Sandvik asserted that

the parties agreed to unscramble the omeletteand to make a new contract.

However, I find that the conduct relied upon in support of this assertion, most

significantly the telephone call between Mr. Marcellus and Mr. Onucki on February

23, 2009 and Mr. Marcelluss follow-up email of February 26, 2009, was insufficient

to create a new contract, even given the broad view of conduct capable of giving rise

to a contract under s. 8(1) of theAct.

[72]

The creation of a contractual relationship is described by G.H.L. Fridman in

The Law of Contract in Canada, 6th ed. (Toronto: Carswell, 2011) at 25 as follows:


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the common law requires a clear manifestation of agreement. Themechanism of that agreement is contained in the notions of offer andacceptance. Without an offer and its acceptance, there is no contract. Ifeither or both is missing, there is no proof that the parties were ever ad idem,that is, had reached a stage in their negotiations in respect of which it couldbe said that they had shown not only an intent to be bound together, but the

nature, extent, and manner of their being bound so as to give rise to a legallyrecognizable and enforceable contract. The parties will not be bound unlessthey intend to be bound, nor will they be bound untilthey intend to be bound.Their intentions in these respects are indicated by the features of offer andacceptance.

[Footnotes omitted; emphasis in original.]

[73]

In my view, no contract was formed in the circumstances of this case as the

parties interactions lacked the requisite elements of intention to be bound, offer and

acceptance, and certainty of terms.

[74]

As the Trustee says, Redferns statement that it was cancelling the purchase

order in its entirelyonly communicated an intention to terminate the existing

Purchase Order. Sandvik accepted the termination. The parties did not evince an

intention to contract for re-sale. Sandviks description of Redferns termination

supports this conclusion: Redfern did not seek permission to terminate the contract;

it did not seek a negotiated end to it. Instead it simply announced, entirely

unilaterally, that the contract was terminated.

[75] Even if Redferns communications could be construed as an offer, there is no

evidence of Sandviks response, if any, to Mr. Marcelluss telephone call of February

23, 2009 or email of February 26, 2009. Furthermore, as the Trustee points out, the

contractthat Sandvik urges does not address shipment of the goods, payment for

shipment, the transfer of risk, or the date of payment or delivery, suggesting that the

alleged contract would be void for uncertainty.

[76]

In my view, the Trustee is also correct that if Redfern extended any offer, it

was rescinded by the CCAAorder of March 4, 2009. There is no evidence of

Sandvik having communicated unequivocal acceptance of any offerbefore then, or

at any point. The CCAAorder required Redfern to remain in possession and control


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of its assets and prohibited it from disposing of its property except as authorized by

the court or with the assent of the monitor.

[77]

For the reasons above, I would not accede to this ground of appeal.

Conclusion

[78]

In summary, I agree with the conclusion of the chambers judge that the

Equipment had been satisfactorily providedto Redfern within the meaning of

para. 13 of the Purchase Order. Title passed to Redfern upon delivery to its agent,

and its failure to inspect the Equipment did not affect the passing of title or cause

title to revert to Sandvik. In these circumstances, Sandviks only remedy was to look

to Redfern for the balance owing on the Drill and Loader, which Sandvik

acknowledged in providing Redfern with the two invoices on February 12, 2009.

Under s. 24(1) of theAct, Sandvik could have reserved a right of disposal of the

goods until certain conditions were fulfilled, but it did not.

[79]

In the result, I would dismiss the appeal with one set of costs to the Trustee

and Receiver as agreed.

The Honourable Madam Justice A.MacKenzie

I agree:

The Honourable Mr. Justice Chiasson

I agree:

The Honourable Mr. Justice Groberman


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APPENDIX

The relevant provisions of the Sale of Goods Act, R.S.B.C. 1996, c. 410, are:

1 In this Act:

* * *

buyermeans a person who buys or agrees to buy goods;

* * *

contract of saleincludes an agreement to sell as well as a sale;

deliverymeans voluntary transfer of possession from one personto another;

document of titleincludes

(a) any bill of lading, dock warrant, warehouse keeperscertificate and warrant or order for the delivery of goods,and

(b) any other document used in the ordinary course ofbusiness as proof of the possession or control of goods,or authorizing or purporting to authorize, either byendorsement or by delivery, the possessor of thedocument to transfer or receive goods represented by it;

* * *

future goodsmeans goods to be manufactured or acquired by theseller after the making of the contract of sale;

goodsincludes

(a) all chattels personal, other than things in action andmoney, and

(b) growing crops, whether or not industrial, and thingsattached to or forming part of the land that are agreed tobe severed before sale or under the contract of sale;

* * *

propertymeans the general property in goods, and not merely aspecial property;

quality of goodsincludes their state or condition;saleincludes a bargain and sale as well as a sale and delivery;

sellermeans a person who sells or agrees to sell goods;

specific goodsmeans goods identified and agreed on at the time acontract of sale is made;

* * *


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8 (1) Subject to this or any other Act, a contract of sale may be made inwriting, either with or without seal, or by word of mouth, or partly inwriting and partly by word of mouth, or may be implied from theconduct of the parties.

(2) Nothing in this section affects the law relating to corporations.

* * *

22(1) If there is a contract for the sale of specific or ascertained goods, theproperty in them is transferred to the buyer at the time the parties tothe contract intend it to be transferred.

(2) For ascertaining the intention of the parties, regard must be had to theterms of the contract, the conduct of the parties and thecircumstances of the case.

23(1) Unless a different intention appears, the intention of the parties as tothe time at which the property in the goods is to pass to the buyer isgoverned by the rules set out in this section.

(2) If there is an unconditional contract for the sale of specific goods in adeliverable state, the property in the goods passes to the buyer whenthe contract is made, and it is immaterial whether the time of paymentor the time of delivery, or both, are postponed.

(3) If there is a contract for the sale of specific goods, and the seller isbound to do something to the goods for the purpose of putting theminto a deliverable state, the property does not pass until that thing isdone and the buyer has notice of it.

(4) If there is a contract for the sale of specific goods in a deliverablestate, but the seller is bound to weigh, measure, test or do some otheract or thing with reference to the goods for the purpose of ascertaining

the price, the property does not pass until that act or thing is done andthe buyer has notice of it.

(5) When goods are delivered to the buyer on approval or on sale orreturn, or other similar terms, the property passes to the buyer asfollows:

(a) when the buyer signifies approval or acceptance to the seller ordoes any other act adopting the transaction;

(b) if the buyer does not signify approval or acceptance to the seller,but retains the goods without giving notice of rejection, then, if atime has been set for returning the goods, at the end of thattime, and, if no time has been set, at the end of a reasonable

time.

(6) For the purposes of subsection (5), what is a reasonable time is aquestion of fact.

(7) If there is a contract for the sale of unascertained or future goods bydescription, the property in the goods passes to the buyer whengoods of that description and in a deliverable state are unconditionallyappropriated to the contract


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(a) by the seller with the assent of the buyer, or

(b) by the buyer with the assent of the seller.

(8) For the purposes of subsection (7), the assent may be express orimplied, and may be given either before or after the appropriation ismade.

(9) If, in pursuance of the contract, the seller delivers the goods to thebuyer or to a carrier or other bailee, whether named by the buyer ornot, for transmission to the buyer, and does not reserve the right ofdisposal, the seller is deemed to have unconditionally appropriatedthe goods to the contract.

24(1) If there is a contract for the sale of specific goods, or if goods aresubsequently appropriated to the contract, the seller may, by theterms of the contract or appropriation, reserve the right of disposal ofthe goods until certain conditions are fulfilled.

(2) In such a case, despite the delivery of the goods to the buyer, or to acarrier or other bailee for transmission to the buyer, the property in thegoods does not pass to the buyer until the conditions imposed by theseller are fulfilled.

(3) If goods are shipped, and by the bill of lading the goods aredeliverable to the order of the seller or the sellers agent, the seller isdeemed, unless there is evidence to the contrary, to reserve the rightof disposal.

(4) If the seller of goods draws on the buyer for the price, and transmitsthe bill of exchange and bill of lading to the buyer together, to secureacceptance or payment of the bill of exchange, the buyer is bound toreturn the bill of lading if the buyer does not honour the bill ofexchange.

(5) If the buyer wrongfully retains the bill of lading, the property in thegoods does not pass to the buyer.

* * *

31 It is the duty of the seller to deliver the goods, and of the buyer toaccept and pay for them, in accordance with the terms of the contractof sale.

* * *

34(1) If the seller delivers to the buyer a quantity of goods less than theseller contracted to sell, the buyer may reject them.

(2) If the buyer accepts the delivered goods, the buyer must pay for themat the contract rate.

(3) If the seller delivers to the buyer a quantity of goods larger than theseller contracted to sell, the buyer may

(a) accept the goods included in the contract and reject the rest, or

(b) reject the whole.


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(4) If the seller delivers to the buyer a quantity of goods larger than theseller contracted to sell and the buyer accepts the whole of the goodsdelivered, the buyer must pay for them at the contract rate.

(5) If the seller delivers to the buyer the goods the seller contracted to sellmixed with the goods of a different description not included in the

contract, the buyer may(a) accept the goods that are in accordance with the contract and

reject the rest, or

(b) reject the whole.

(6) This section is subject to any usage of trade, special agreement orcourse of dealing between the parties.

* * *

36(1) If, in pursuance of a contract of sale, the seller is authorized orrequired to send the goods to the buyer, delivery of the goods to acarrier, whether named by the buyer or not, for transmission to the

buyer is deemed, unless there is evidence to the contrary, to be adelivery of the goods to the buyer.

* * *

38(1) If goods are delivered to the buyer that the buyer has not previouslyexamined, the buyer is not deemed to have accepted them unlessand until the buyer has had a reasonable opportunity of examiningthem for the purpose of ascertaining whether they are in conformitywith the contract.

(2) Unless otherwise agreed, when the seller tenders delivery of goods tothe buyer, the seller is bound, on request, to afford the buyer areasonable opportunity of examining the goods for the purpose of

ascertaining whether they are in conformity with the contract.

39 The buyer is deemed to have accepted the goods when

(a) the buyer intimates to the seller that the buyer has acceptedthem,

(b) the goods have been delivered to the buyer, and the buyer doesany act in relation to them which is inconsistent with theownership of the seller, or

(c) after the lapse of a reasonable time, the buyer retains the goodswithout intimating to the seller that the buyer has rejected them.

2012 BCCA 189 Redfern Resources Ltd_ (Re)

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