NEXTracker Inc v ACN 003 905 093 Pty Ltd

Supreme Court of NSW|2019-11-14|Before: Ball J

Solicitors: Dentons Australia (Plaintiff) King Wood Mallesons (Defendant) File Number(s): 2019/153926

Introduction

On 11 July 2018, the plaintiff, NEXTracker Inc, and the defendant, ACN 003 905 093 Pty Ltd (formerly RCR O'Donnell Griffin Pty Ltd) (In liq) (RCR), entered into a contract (the Contract) for the supply by NEXTracker of equipment and materials (the Equipment) for use in the construction of the Greenough River Solar Farm located in Greenough River, Western Australia, which was being undertaken by RCR for a third party.
The sole question in this case is when title to the Equipment passed or was to pass under the Contract. NEXTracker contends that it was only to pass when RCR had paid for the Equipment, which has never occurred. By an amended summons filed at the commencement of the hearing, it seeks declarations and orders to give effect to that contention. RCR, on the other hand, contends that title was to pass when the Equipment was loaded for shipping at the point of origin and certain documents were supplied by NEXTracker, which occurred.

Background

As I have said, the Contract was entered into on 11 July 2018. Prior to that date and following a tender, there were negotiations between the parties concerning modifications to the equipment to be supplied. Those negotiations culminated on 10 July 2018 when NEXTracker sent RCR an email attaching a "revised quotation for Greenough based on the attached updated layout (Rev I) for inclusion in the contract".
The quote set out the equipment to be supplied and the total price of USD5,246,973. It stated that the shipment terms were: Incoterm2010 CIF, port of shipment = port of origin; port of destination = Port of Fremantle (14 Free Detention Days): 37,123,200Wp @ $0.159/Wp
The quote also contained the following term: Risk of Loss and Title. Title and risk of loss for the Products shall pass to the ordering entity at the port of origin. NEXTracker will procure at its cost cargo insurance providing for compensation in the event of loss of the ordered Products while in transit to the delivery destination. Customer shall be named as the beneficiary of such cargo insurance. Customer agrees that NEXTracker will be deemed to hold, and Customer and the ordering entity hereby grant to NEXTracker, a purchase money security interest in the Products to secure the obligation of Customer and the ordering entity to pay NEXTracker all amounts [due] for such Products. Such purchase money security interest shall be released upon NEXTracker's receipt of full payment for such Products.
On 11 July 2018, RCR sent NEXTracker an email which, among other things, contained a letter of acceptance which it asked NEXTracker to sign and return. The letter relevantly said: We provide this notification of acceptance of your quotation and the subsequent commercial and technical negotiations between the Parties regarding the above referenced supply package. Further to this acceptance, we enclose a copy of the supply contract containing the agreed commercial and technical terms and conditions. The letter was signed by RCR and made provision for it to be countersigned by NEXTracker. The letter was countersigned by NEXTracker and returned to RCR the following day.
It is apparent that the tender also contemplated that the parties would sign a formal contract recording the terms of their agreement. The formal contract was based on Australian Standard 4911:2003 General Conditions of Contract for the Supply of Equipment Without Installation (AS 4911:2003). It consisted of a "Formal Instrument of Agreement", the standard conditions set out in AS 4911:2003 (the Standard Conditions) and a number of annexures.
Included with the email that RCR sent NEXTracker on 11 July 2018 was the final version of the "Formal Instrument of Agreement". The email asked NEXTracker to print out two copies of that document, sign them and return them to RCR. The email went on to state that one copy would be signed by RCR and returned to NEXTracker.
NEXTracker signed the Formal Instrument of Agreement at about the time it received it and sent a copy to RCR for execution. Eventually, the executed contract was returned to NEXTracker on 23 August 2018.
It is not necessary to describe all the documents that comprise the formal contract, but it is necessary to say something about some of them. As I have said, the formal contract included the Formal Instrument of Agreement, the Standard Conditions and a number of Annexures. Annexure Part A (as the parties called it) was in the form of a schedule contemplated by AS 4911:2003 and contained information specific to the parties' contract, including matters such as the parties names and addresses, information in relation to delivery, the governing law, currency and other matters required to be specified by the General Conditions. In the case of some items on the form of the schedule that is attached to AS 4911:2003, the schedule was blank and required information to be inserted by the parties. In the case of others, the form set out a default position but made provision for the parties to amend or replace that item, so as to reflect their agreement on that subject matter. Annexure Part B records a number of amendments the parties had agreed to make to the General Conditions and Annexure Part D records a number of special conditions. Annexure Part F sets out provisions in relation to the contract sum. Annexure Part R is a letter dated 7 June 2018 from NEXTracker to RCR which sets out in an appendix "the equipment to be supplied in accordance with the Purchase Order". It is apparent from the appendix that all the Equipment was to be imported into Australia. The letter states: NEXTracker confirms that if it intends to modify the design of the Equipment to be supplied under the Supply Agreement for upcoming product releases such that a new part number is assigned and it changes the applicable harmonized tariff system code and/or the country of origin for the Equipment supplied under the contract, NEXTracker will notify RCR of such intention to change with a Product Change Notification in advance of any change in the Equipment, and the change will be subject to RCR's approval. There is no suggestion that NEXTracker sought, or that RCR gave its approval to, any changes in the Equipment as set out in Annexure Part R.
As is usual, the Formal Instrument of Agreement is a short document which records the fact of the parties' agreement. It sets out in cl 4 the documents which constitute the Contract. Clause 5 of the Formal Instrument of Agreement provides: In the event the terms of the above documents are inconsistent or contradictory then the order of precedence of documents shall be: (a) this Formal Instrument of Agreement; (b) Annexure Part D: the Special Conditions of Contract; (c) Annexure Part B: Deletions, Amendments and Additions; (d) AS 4911:2003 - General Conditions of Contract for Supply of Equipment without Installation including Annexure Part A the General Conditions; (e) Annexure Part E: Scope of Work and Delivery Schedule; (f) Annexure Part G: Technical Specification; (g) Annexure Part H: Drawings & Reference Documents; and (h) all other Annexures
Clause 4 of the General Conditions relevantly provides: Evidence of Contract Until a formal instrument of agreement is executed by the parties, documents evidencing the parties' consensus shall constitute the Contract. If such Contract requires a formal instrument of agreement, the Purchaser shall, within 28 days of the date of acceptance of tender, send it in duplicate for execution by the Supplier. Within 14 days after receiving them, the Supplier shall (if they are correct) properly execute both copies and return them. Within 14 days after receiving them, the Purchaser shall execute both copies, have them stamped as necessary and send one copy to the Supplier. The Purchaser may extend the time under this clause by written notice to the Supplier.
The critical clause is cl 20. It provides: Risk in and ownership of the Equipment 20.1 Risk in the Equipment Risk in the Equipment shall pass from the Supplier to the Purchaser as stated in Item 27. Unless the Equipment is in the Supplier's possession, the Purchaser shall take reasonable measures to protect the Equipment from loss or damage occurring after delivery but before risk in the Equipment has passed to the Purchaser. 20.2 Ownership of Equipment Ownership of, and unencumbered title in, the Equipment or any part of it shall pass to the Purchaser at the time or times specified in Item 28. If the Equipment or any part of it is to be imported, ownership of the Equipment or that part, as the case may be, shall pass to the Purchaser upon: a) payment to the Supplier of the value of the Equipment to be so imported; and b) receipt by the Purchaser or an agent of the Purchaser of a clean on board bill of lading or airways bill, as the case may be, drawn or endorsed to the order of the Purchaser, appropriate insurance certificates and a customs invoice for the Equipment or that part, as the case may be. If ownership of the Equipment has passed to the Purchaser pursuant to this subclause and: a) subclause 21.4(a) applies, ownership of the Equipment shall revert to the Supplier upon the Supplier's delivery to the Purchaser of the replacement Equipment; or b) subclause 21.4(b) applies, ownership of the Equipment shall revert to the Supplier upon the Supplier's compliance with subclause 21.7(a) and (b).
The references to Items 27 and 28 are references to Items 27 and 28 of Annexure Part A.
In the Standard Conditions, those items are in the following terms: 27 When risk in the Equipment passes (subclause 20.1)

If nothing stated, risk in the Equipment shall pass on the later of delivery, acceptance or passing of ownership in accordance with subclause 20.2

28 Time at which ownership of the Equipment passes to the Purchaser (subclause 20.2) Time Item

If no time or times stated, upon the date of payment under clause 24 for that item of Equipment

As completed by the parties, those items were in the following terms: 27 When risk in the Equipment passes (subclause 20.1) Supplier will deliver the Equipment pursuant to the terms of the Contract and applicable purchase order, marked for shipment to the delivery place specified in the applicable purchase order. The Supplier shall make such deliveries pursuant to the applicable delivery term as agreed upon by the parties and set forth in the Contract. Risk of loss and title for the Equipment shall pass from the Supplier to the Purchaser at the port of origin. The Supplier will obtain transit insurance for the full amount of the Equipment included in the applicable purchase order and name the Purchaser as the named insured party. Any loss claim arising on and from the date of transfer of the risk of loss and title would be payable to the Purchaser. The Supplier shall remain liable for any delays in the delivery of the Equipment until it reaches its port of delivery

28 Time at which title to the Equipment passes to the Purchaser (subclause 20.2) Date that the Purchaser receives the confirmed marine (or transit) insurance policy and the Equipment has been loaded on to the boat at the port of origin.

Clause 24.1 of the General Conditions relevantly states: Invoices and time for payment At the times stated in Item 32, the Supplier shall render to the Purchaser an invoice for moneys then due to the Supplier pursuant to the Contract. … … Subject to subclause 24.2, within the period stated in Item 33 after receiving an invoice under this subclause, the Purchaser shall pay to the Supplier the amount then due to the Supplier pursuant to the Contract.
Item 32 states that the milestones for the rendering of Invoices are set out in Annexure Part F. That annexure provides for the payment of what is described as a "deposit" of USD787,045.95. In accordance with Item 33, that amount was payable "14 days from receipt of a correct invoice". Annexure Part F sets out two other milestones in these terms: Milestone Item Milestone Event Milestone Amount M.02 On shipment of the Equipment from port of origin and supporting copy of Bill of Lading. 75% of the value of the Equipment contained within each shipment (refer Items P1.02 to P1.10). For each milestone claim, the Supplier shall provide a commercial invoice required by Australian Customs to the Purchaser which confirms the value of each shipment. M.03 Upon successful commissioning of the Equipment but not later than 90 days after acceptance of the Equipment. 10% of Contract Sum

According to Item 33, amounts payable in respect of the second Milestone Event were payable "Within 75 days from the end of the month of receipt of a correct invoice". The amount payable in respect of the third Milestone Event was payable 14 days after receipt of a correct invoice.
All but three of the consignments to be delivered in accordance with the Contract were shipped from ports in the United States or China between 25 August 2018 and 30 November 2018. Three consignments were airfreighted.
On 21 November 2018, RCR was placed into external administration. It went into liquidation on 26 March 2019. Apart from payment of the deposit, RCR did not pay any amounts for the Equipment.

Relevant legal principles

The principles applicable to the interpretation of a commercial contract were not in dispute. They were summarised in these terms by French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37: 46. The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose. 47. In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. [Footnotes omitted]
Two other principles of interpretation took on particular significance in this case.
First, words in a contract should generally be interpreted in a way which gives them effect rather than in a way which makes them redundant. But that principle is not a universal rule. It does not apply where the alternative construction of the words is inconsistent with other provisions of the contract or where the alternative construction is inconsistent with the commercial purpose of the contract or where the words have been included out of an abundance of caution: XL Insurance Co SE v BNY Trust Company of Australia Limited [2019] NSWCA 215 at [72] per Gleeson JA (with whom Bell P and Emmett AJA agreed), referring to AFC Holdings Pty Ltd v Shiprock Holdings Pty Ltd [2010] NSWSC 985; (2010) 15 BPR 28,199 at [13].
Second, where the parties have negotiated additions to a standard form contract and there is an inconsistency between the standard terms and the added ones, greater weight will normally be given to the added terms: Ryan v Ferguson (1909) 8 CLR 731 at 735-6 per Griffith CJ (with whom O'Connor J agreed); Walker v Citigroup Global Markets Australia Holdings Pty Ltd [2006] FCAFC 101; (2006) 233 ALR 687 at [77]. That principle reflects the obvious fact that the words specifically chosen by the parties are more likely to reflect their intentions than the words of a standard form which they have chosen to incorporate into their contract.

Consideration

NEXTracker's case focusses on the second paragraph of cl 20.2. That paragraph states that, if the Equipment is to be imported, then ownership passes to the Purchaser (that is, RCR) upon "payment to the Supplier [that is, NEXTracker] of the value of the Equipment to be so imported" and the receipt of a bill of lading or airways bill, appropriate insurance certificates and a customs invoice for the Equipment. It is common ground that all the Equipment was imported. Consequently, according to NEXTracker the second paragraph of cl 20.2 applies. It is common ground that, although the other requirements of cl 20.2 have been satisfied, RCR has not paid for the Equipment. It follows that title has not passed.
In my opinion, as attractively simple as that contention is, it cannot be accepted.
It appears that the drafters of the Contract did not pay close attention to the interrelationship between the Standard Conditions and the schedule comprising Annexure Part A. Although Item 27 was intended to be the place where the parties were to state when risk in the Equipment passed, it is apparent that more of their agreement than that is recorded in that item. The item gives information about deliveries and sets out the requirement on the part of NEXTracker to obtain transit insurance and the requirement that that insurance name RCR as an insured party. The item specifically states that "Risk of loss and title for the Equipment shall pass from the Supplier to the Purchaser at the port of origin" (emphasis added). That statement is reinforced by Item 28 which states that ownership passes on the "Date that the Purchaser receives the confirmed marine (or transit) insurance policy and the Equipment has been loaded on to the boat at the port of origin".
NEXTracker submits that the General Conditions and the description of Item 27 itself make it plain that the item only deals with the passing of risk. The completed item must be read in that light. Consequently, according to NEXTracker, "Risk" in the completed item must be read distributively so that it is to be understood as saying something like the "Risk of loss and risk of title" or "Risk of loss including risk of loss of title" passes at the time specified. As to Item 28, according to NEXTracker, that sets out the general position. However, it is subject to the exception contained in the second paragraph of cl 20.2, which applies to Equipment that is imported.
The difficulty with the first of these points is that it makes nonsense out of the phrase "Risk of loss and title", which has a perfectly sensible and grammatical meaning. "Risk of title" makes no sense at all. "Risk of loss of title" involves the addition of words that are not there and in the context is similarly meaningless. Moreover, these interpretations ignore the plain fact that whatever the intended purpose of Item 27 was in the structure of the Standard Conditions, the parties chose to record more of their agreement in that item than the Standard Conditions contemplate.
The difficulty with the second point is that it makes little commercial sense. It is apparent from Annexure Part R that, at the time the Contract was entered into, the parties anticipated that all the Equipment would be imported. It is possible that that could have changed, although any change would have required the consent of RCR. There is no evidence that the parties contemplated such a change. Why, it might be asked, would the parties choose to draft a specific modification to Item 28 to deal with a situation not contemplated at the time (that is, the sourcing of part of the Equipment from within Australia) and to leave the situation they did contemplate to be governed by the Standard Conditions?
Moreover, it is unclear why the parties would choose to treat imported and locally sourced Equipment so differently so far as the passing of title is concerned. Under the Standard Conditions and the default provision in Item 28, title does not pass until payment. The second paragraph of cl 20.2 adds some additional requirements to that general position in the case of imported goods, which cater for the specific issues that arise in that context. But, as might be expected, it applies the same basic principle concerning the passing of title irrespective of the source of the goods. No reason was offered for why the parties would choose to depart radically from that position in this case and treated imported and locally sourced equipment differently.
If effect is given to Items 27 and 28 according to their terms, that renders the second paragraph of cl 20.2 otiose. But that alone does not provide a reason for adopting some other interpretation of the Contract. The alternative interpretation does violence to the words that the parties specifically chose to insert in Items 27 and 28 to express their agreement. Those words should be given their ordinary meaning; and consistently with the principle stated in Ryan v Ferguson, those words interpreted in that way should be given priority over the second paragraph of cl 20.2 of the Standard Conditions.
The conclusion of the preceding paragraphs is supported by two other considerations.
First, the quotation which was accepted by RCR on 11 July 2018 specifically stated that "Title and risk of loss for the product shall pass to the ordering entity at the port of origin". That is consistent with the earlier statement in the quotation that the shipment terms were "Incoterm2010 CIF". Under cl 4 of the General Conditions, the terms of the quotation constituted the Contract until the Formal Instrument of Agreement was executed. RCR sent NEXTracker the formal contract at the same time as it confirmed its acceptance of the quotation. NEXTracker could offer no explanation for why the quotation provided for title and risk to pass at the port of origin but on its case the formal contract provided for title to pass on payment (at least where the goods were imported). Its submission was simply that the formal agreement superseded the quotation. That much may be accepted. But it does not explain the change, particularly in circumstances where the quotation was accepted and the formal terms were sent for signing at the same time. Absent some reason for the difference, the correct explanation must be that the parties intended (objectively) that title would pass under the quotation and the formal contract at the same time. That can only be achieved by giving Items 27 and 28 their ordinary meaning and giving them priority over the Standard Conditions.
Second, if NEXTracker is correct, title would not pass until the third Milestone Event was reached, which was when the final 10 percent of the Contract Sum was due for payment. That would not occur until "successful commissioning of the Equipment but not later than 90 days after acceptance of the Equipment". On that approach, title was unlikely to pass until sometime after the Equipment had been incorporated into the solar farm and successfully commissioned. Or, to put the point another way, on that approach it was likely that there would be a period of time during which the Equipment had been incorporated into the solar farm but title still belonged to NEXTracker. The precise function of the Equipment and how it was to be used in the solar farm was not explained in the evidence. However, it seems unlikely that the parties would have intended title to the Equipment to remain with NEXTracker even after the Equipment had been incorporated into the solar farm.
In response to this last point, NEXTracker sought to draw a distinction between payment for the value of the Equipment (which is when on its case title to the Equipment passed) and payment of the final instalment of the amount due under the Contract, which was due on achievement of the third Milestone Event. That distinction relies on two matters. The first is that the second "Milestone Amount" was expressed in Annexure Part F as a percentage of the value of the Equipment whereas the third amount was expressed as a percentage of the "Contract Sum". The second was that the Schedule that formed part of Annexure Part F described the last payment of USD524,697.30 as being payable in respect of "Commissioning" rather than in respect of delivery of the goods. Consequently, it was said, the Contract drew a distinction between payment of the value of the Equipment and payment of the final instalment of the Contract Price; and the Contract must be interpreted as saying that the value of the Equipment was paid and title passed on payment following achievement of the second Milestone Event.
In my opinion, that interpretation must be rejected. The amount payable on the achievement of the second Milestone Event is expressed to be "75% of the value of the Equipment contained within each shipment". The only other provisions for payment are payment of the deposit of 15 percent (on achievement of the first Milestone Event) and payment of the final 10 percent on achievement of the third Milestone Event. It must follow that the payment of the final 10 percent on achievement of the third Milestone Event is payment of the final 10 percent of the value of the Equipment, even if it is not expressed in those terms. If it were otherwise, the Contract, and Annexure Part F in particular, would make no provision for payment of the final 10 percent of the value of the Equipment at all, which cannot be what was intended. It follows that full payment of the value of the Equipment was not due until after the third Milestone Event was achieved.

Orders

It follows that the Amended Summons must be dismissed with costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 20 November 2019

At a glance

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Judgment (14 paragraphs)

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Cases Cited (7)

Cited By (1)