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COURT OF APPEAL FOR BRITISH COLUMBIA

Redfern Resources Ltd. (Re),


2012 BCCA 189

Citation:

Date: 20120502
Docket: CA039163
Between:
Alvarez & Marsal Canada Inc., in its capacity as the Court appointed
Interim Receiver and Receiver of the assets, undertakings and
properties of Redfern Resources Ltd. and Redcorp Ventures Ltd.
Respondent
(Applicant)
And
Abakhan & 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 Chiasson


The Honourable Mr. Justice Groberman
The 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:
Counsel for the Respondent,
Alvarez & Marsal Canada Inc.:
Counsel for the Respondent,
Abakhan & Associates Inc.:

H. Poulus, Q.C. and P. J. Price


B. Meckling and M. B. Gehlen
S. H. Stephens

Redfern Resources Ltd. (Re)

Page 2

Place and Date of Hearing:

Vancouver, British Columbia


April 4, 2012

Place and Date of Judgment:

Vancouver, British Columbia


May 2, 2012

Written Reasons by:


The Honourable Madam Justice MacKenzie
Concurred in by:
The Honourable Mr. Justice Chiasson
The Honourable Mr. Justice Groberman

Redfern Resources Ltd. (Re)

Page 3

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 Loader or 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 properties of 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 provided to the date of termination, and the inspection clause, which
gave Redfern the right to inspect goods and services at any time and place and to
reject those goods and services found to be defective. Otherwise stated, this Court
must determine whether the words satisfactorily provided refer to goods merely
delivered, or whether the use of that term imports a requirement that the goods be
inspected 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

Redfern Resources Ltd. (Re)

Page 4

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 CCAA order 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:

Redfern Resources Ltd. (Re)

Page 5

Standard Purchase Order Terms and Conditions


1. General
The following terms and conditions, together with such terms as are
referenced in this Purchase Order (the PO), with such plans, specifications
or other documents as are incorporated by reference in the PO, as amended
in any subsequent authorized writing from Buyer, shall constitute the entire
contract between the Buyer and Seller. Other terms and conditions are not
binding upon Buyer, unless accepted in writing.
...
4. Method of shipment or packing
Goods are packaged in a manner which assures that they are protected
against deterioration and contamination. All goods are delivered to the point
specified per INCO2000 terms in the PO. Title and risks remain with Supplier
until 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 any
time 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 without
charge. If Supplier is unable or refuses to correct or replace such items within
a time deemed reasonable by Buyer, Buyer may terminate this PO in whole
or in part. Supplier reimburses Buyer for all transportation costs, other related
costs incurred, and overpayments in respect of the goods and services at
issue.
6. Changes
Buyer may make changes to this PO including to drawings and specifications
for specially manufactured goods, place of delivery, by giving notice to
Supplier. If such changes affect the cost of or the time required for
performance of this PO, an equitable adjustment in the price or date of
delivery or both will be made. No change by Supplier is allowed without
written approval of Buyer. Nothing in this Article excuses Supplier from
delivering 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. Warranty
Supplier warrants to Buyer that goods supplied under this PO are free from
defects in material, workmanship and design, suitable for the purposes
intended implied, in compliance with all applicable specifications and free
from liens or encumbrance on title. All services are performed in accordance
with current, sound and generally accepted industry practices by qualified
personnel trained and experienced in the appropriate fields. All
manufacturers warranties shall be passed on by Supplier to Buyer where
appropriate.

Redfern Resources Ltd. (Re)

Page 6

...
10. Insurance
Supplier and any Sub-contractor used by Supplier in connection with this PO
must 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 in
effect and agrees to give Buyer thirty (30) days prior notice of cancellation of
the coverage. Buyer may require minimum liability coverage depending on
circumstances.
...
12. Default
A party is in default of its obligations under this PO if any of the following
events occur, namely:
a. such party is adjudged bankrupt or insolvent by a court of competent
jurisdiction, or otherwise becomes insolvent, as evidenced by its inability to
pay its debts generally as and when they become due; or
b. such party is in default of its obligations hereunder and fails to cure
such default within thirty days of written notice from the other party, or if such
default cannot be cured within thirty days, within such longer period as may
be reasonable, provided the defaulting party commences promptly and
diligently 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 to
any other right or remedy available to it at law and without liability for such
termination. Neither the Supplier nor Buyer shall be liable to the other for
indirect 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. Buyer
then delivers to the Supplier a written notice specifying the extent to which
performance and/or the deliveries of goods and services under this PO is
terminated and/or suspended and the date upon which such action shall
become effective. In the event of such action, 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.
...
15. Governing Law
This PO shall be governed by the laws of the Province of British Columbia.
[Emphasis added.]

Redfern Resources Ltd. (Re)

Page 7

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 designated
holding 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]

[14]

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.

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.

Redfern Resources Ltd. (Re)


[16]

Page 8

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 Business


Development) 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 Redferns
official notification to cancel our P.O. # VPORFR00150 in its entirety. I am
also attaching a copy of the P.O. reflecting the cancellation.
Redfern would like to take this opportunity to thank you for your help in this
matter 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 the

Drill 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.

Redfern Resources Ltd. (Re)

Page 9

The CCAA Order 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 CCAA Order
[24]

On March 6, 2009, Mr. Marcellus instructed AML to hold off sending 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 order in the total amount
of $3,058,547.88.
[25]

On May 29, 2009, the British Columbia Supreme Court lifted the CCAA stay

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)
[26]

Title passed on delivery to Redferns agent

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 the Act as goods to be
manufactured...by the seller after the making of the contract of sale.

Redfern Resources Ltd. (Re)


[27]

Page 10

At para. 37 of his reasons, the judge summarized the general principles

governing the passing of property in future goods as established by ss. 22 and 23 of


the Act:

[28]

(a)

Property in future goods passes from seller to buyer when the goods
are in a deliverable state and have been unconditionally appropriated
to the particular contract. ... [s. 23(7) and (8)].

(b)

The delivery of the goods by the seller to the buyer or to the carrier of
the buyer is deemed to be the requisite unconditional appropriation. ...
[ss. 23(9) and 36(1)].

(c)

All of these provisions are subject to the contrary intention of the seller
and buyer as evidenced by the terms of their contract, the conduct of
the parties and the circumstances. ... [ss. 22 and 23].

The judge found, as Sandvik now concedes, that title to the Equipment

passed to Redfern when the Equipment was delivered to AML on December 31,
2008.
(b)
[29]

Redferns failure to inspect

In response to Sandviks submission that any equipment purchased by

Redfern would require inspection before being used in order to confirm whether it
had been satisfactorily provided in accordance with para. 5 of the Purchase Order,
the judge said that [a] buyers contractual right to inspect the goods and to reject
them if deficient does not, in itself and without being validly exercised, defeat the
passing of property in the goods on delivery. He described the typical role of
inspection in the passing of goods as follows: The general rule is that when property
passes by delivery to the point of destination under an FOB contract, it passes
defeasibly and is therefore subject to the buyers option to reject the goods if
permitted to do so by law or by the contract (at para. 48).
[30]

The judge reviewed the law and concluded, The property in the Equipment

passed subject to a condition subsequent that, if the goods on inspection were found
to be deficient, then the goods might revest in Sandvik (at para. 49). However, title
could only revert to Sandvik if the necessary preconditions were present, that is, if

Redfern Resources Ltd. (Re)

Page 11

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 to Sandvik 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)
[34]

The effect of the termination of the Purchase Order

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.

Redfern Resources Ltd. (Re)


[35]

Page 12

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 to
discharge Sandvik from manufacturing and shipping the remaining items, but
it was of no force or effect to reverse the passing of property in the Drill and
Loader. Any claim of Sandvik is limited to its claim for the price of those
items. Paragraph 13 of the Purchaser Order is clear. Redfern was to pay
Sandvik for the goods and services satisfactorily provided to the effective
date of termination or suspension. The position of Sandvik relies entirely on
the question of whether the Equipment had been satisfactorily provided and
on the assumption that, because there had been no inspection and because
the Equipment had not been put into use, the Equipment had not been
satisfactorily provided.
[75]
The submissions of Sandvik fail because I find that the Equipment
had been satisfactorily provided. First, I have found that title to the
Equipment 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 the
balance owing on the Equipment and, in this regard, Sandvik acknowledged
that 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 that
title to the Equipment had not passed to Redfern. Fourth, Redfern lost any
ability it might have had to return the goods after inspection when it failed to
inspect 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 CCAA order
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 its
contractual 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.

Redfern Resources Ltd. (Re)

Page 13

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
part under 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 by
water 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
provided under para. 13. Nor had Redfern failed to inspect in a timely manner so
as to lose the right to unilaterally terminate the sale under para. 13. Sandvik
further asserts that s. 39(c) of the Act cannot 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.

Redfern Resources Ltd. (Re)


[42]

Page 14

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

parties in determining the meaning of satisfactorily provided which 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 the Act. 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 undo it, Sandvik maintains that
Rotair was wrongly decided. Sandvik submits that the judge overlooked the
distinction between a unilateral cancellation and a consensual cancellation, arguing
that even if Redfern lost the right to undo the 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.

Redfern Resources Ltd. (Re)

Page 15

Analysis
Standard of Review
[46]

In Athwal 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 and
in the context of the factual matrix in which the contract was made, is a
question of mixed fact and law, the legal effect of the words of a contract is a
question of law.... (para. 29)

[47]

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

the meaning of satisfactorily provided in 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 provided did 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.

Redfern Resources Ltd. (Re)

Page 16

Unilateral Termination
[49]

The relevant provisions of the Act are 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

provided in 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. Buyer
then delivers to the Supplier a written notice specifying the extent to which
performance and/or the deliveries of goods and services under this PO is
terminated and/or suspended and the date upon which such action shall
become effective. In the event of such action, 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.
[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 the


Purchase 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 obligations not
existing ones.

Redfern Resources Ltd. (Re)


(b)

Page 17

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 provided under 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 New
Zealand v. Adelaide Marine Insurance Co. (1886), 12 App. Cas. 128 (P.C.) at 139140; 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 delivery i.e., after the passing of property is
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.

Redfern Resources Ltd. (Re)

Page 18

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 Equipment regardless 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 disposal under s. 24

of the Act. 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

Redfern Resources Ltd. (Re)

Page 19

is a red herring and 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

provided in 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 the Act provides 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)

b)

[64]

Prior to termination:
i)

Sandvik issued its invoices on February 12, 2009, subsequent to


delivery but prior to any indication that Redfern had inspected
and approved the goods

ii)

Redfern did not protest its obligation to pay prior to inspection


and approval.

Post-termination:
i)

Consistent with Redfern retaining the property in the Drill and


Loader, both in its internal emails as well as in its emails with
AML, Sandvik recognized that Redferns authorization was
required 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 CCAA initial order


did Sandvik take the position that the Drill and Loader were its
property.

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 provided as used in the termination clause did not
require the delivered goods to have passed inspection. He was also correct with

Redfern Resources Ltd. (Re)

Page 20

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 the Purchase 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 the Act is 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 is
terminated, and the parties are discharged from future obligations. Rights
and 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 respective
obligations 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.

Redfern Resources Ltd. (Re)


[69]

Page 21

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 reject the 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 the Act governed; 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 omelette and 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 the Act.
[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:

Redfern Resources Ltd. (Re)

Page 22

the common law requires a clear manifestation of agreement. The


mechanism of that agreement is contained in the notions of offer and
acceptance. Without an offer and its acceptance, there is no contract. If
either 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 could
be 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 legally
recognizable and enforceable contract. The parties will not be bound unless
they intend to be bound, nor will they be bound until they intend to be bound.
Their intentions in these respects are indicated by the features of offer and
acceptance.
[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 entirely only 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
contract that 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 CCAA order of March 4, 2009. There is no evidence of


Sandvik having communicated unequivocal acceptance of any offer before then, or
at any point. The CCAA order required Redfern to remain in possession and control

Redfern Resources Ltd. (Re)

Page 23

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 provided to 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 the Act, 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

Redfern Resources Ltd. (Re)

Page 24
APPENDIX

The relevant provisions of the Sale of Goods Act, R.S.B.C. 1996, c. 410, are:
1

In this Act:
***
buyer means a person who buys or agrees to buy goods;
***
contract of sale includes an agreement to sell as well as a sale;
delivery means voluntary transfer of possession from one person
to another;
document of title includes
(a)

any bill of lading, dock warrant, warehouse keepers


certificate and warrant or order for the delivery of goods,
and

(b)

any other document used in the ordinary course of


business as proof of the possession or control of goods,
or authorizing or purporting to authorize, either by
endorsement or by delivery, the possessor of the
document to transfer or receive goods represented by it;
***

future goods means goods to be manufactured or acquired by the


seller after the making of the contract of sale;
goods includes
(a)

all chattels personal, other than things in action and


money, and

(b)

growing crops, whether or not industrial, and things


attached to or forming part of the land that are agreed to
be severed before sale or under the contract of sale;
***

property means the general property in goods, and not merely a


special property;
quality of goods includes their state or condition;
sale includes a bargain and sale as well as a sale and delivery;
seller means a person who sells or agrees to sell goods;
specific goods means goods identified and agreed on at the time a
contract of sale is made;
***

Redfern Resources Ltd. (Re)

Page 25

8 (1) Subject to this or any other Act, a contract of sale may be made in
writing, either with or without seal, or by word of mouth, or partly in
writing and partly by word of mouth, or may be implied from the
conduct 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, the
property in them is transferred to the buyer at the time the parties to
the contract intend it to be transferred.
(2) For ascertaining the intention of the parties, regard must be had to the
terms of the contract, the conduct of the parties and the
circumstances of the case.
23 (1) Unless a different intention appears, the intention of the parties as to
the time at which the property in the goods is to pass to the buyer is
governed by the rules set out in this section.
(2) If there is an unconditional contract for the sale of specific goods in a
deliverable state, the property in the goods passes to the buyer when
the contract is made, and it is immaterial whether the time of payment
or the time of delivery, or both, are postponed.
(3) If there is a contract for the sale of specific goods, and the seller is
bound to do something to the goods for the purpose of putting them
into a deliverable state, the property does not pass until that thing is
done and the buyer has notice of it.
(4) If there is a contract for the sale of specific goods in a deliverable
state, but the seller is bound to weigh, measure, test or do some other
act 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 and
the buyer has notice of it.
(5) When goods are delivered to the buyer on approval or on sale or
return, or other similar terms, the property passes to the buyer as
follows:
(a)

when the buyer signifies approval or acceptance to the seller or


does 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 a
time has been set for returning the goods, at the end of that
time, 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 a


question of fact.
(7) If there is a contract for the sale of unascertained or future goods by
description, the property in the goods passes to the buyer when
goods of that description and in a deliverable state are unconditionally
appropriated to the contract

Redfern Resources Ltd. (Re)

Page 26

(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 or
implied, and may be given either before or after the appropriation is
made.
(9) If, in pursuance of the contract, the seller delivers the goods to the
buyer or to a carrier or other bailee, whether named by the buyer or
not, for transmission to the buyer, and does not reserve the right of
disposal, the seller is deemed to have unconditionally appropriated
the goods to the contract.
24 (1) If there is a contract for the sale of specific goods, or if goods are
subsequently appropriated to the contract, the seller may, by the
terms of the contract or appropriation, reserve the right of disposal of
the goods until certain conditions are fulfilled.
(2) In such a case, despite the delivery of the goods to the buyer, or to a
carrier or other bailee for transmission to the buyer, the property in the
goods does not pass to the buyer until the conditions imposed by the
seller are fulfilled.
(3) If goods are shipped, and by the bill of lading the goods are
deliverable to the order of the seller or the sellers agent, the seller is
deemed, unless there is evidence to the contrary, to reserve the right
of disposal.
(4) If the seller of goods draws on the buyer for the price, and transmits
the bill of exchange and bill of lading to the buyer together, to secure
acceptance or payment of the bill of exchange, the buyer is bound to
return the bill of lading if the buyer does not honour the bill of
exchange.
(5) If the buyer wrongfully retains the bill of lading, the property in the
goods does not pass to the buyer.
***
31

It is the duty of the seller to deliver the goods, and of the buyer to
accept and pay for them, in accordance with the terms of the contract
of sale.
***

34 (1) If the seller delivers to the buyer a quantity of goods less than the
seller contracted to sell, the buyer may reject them.
(2) If the buyer accepts the delivered goods, the buyer must pay for them
at the contract rate.
(3) If the seller delivers to the buyer a quantity of goods larger than the
seller contracted to sell, the buyer may
(a)

accept the goods included in the contract and reject the rest, or

(b)

reject the whole.

Redfern Resources Ltd. (Re)

Page 27

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


course of dealing between the parties.
***
36 (1) If, in pursuance of a contract of sale, the seller is authorized or
required to send the goods to the buyer, delivery of the goods to a
carrier, whether named by the buyer or not, for transmission to the
buyer is deemed, unless there is evidence to the contrary, to be a
delivery of the goods to the buyer.
***
38 (1) If goods are delivered to the buyer that the buyer has not previously
examined, the buyer is not deemed to have accepted them unless
and until the buyer has had a reasonable opportunity of examining
them for the purpose of ascertaining whether they are in conformity
with the contract.
(2) Unless otherwise agreed, when the seller tenders delivery of goods to
the buyer, the seller is bound, on request, to afford the buyer a
reasonable 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 accepted
them,

(b)

the goods have been delivered to the buyer, and the buyer does
any act in relation to them which is inconsistent with the
ownership of the seller, or

(c)

after the lapse of a reasonable time, the buyer retains the goods
without intimating to the seller that the buyer has rejected them.