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| Abstract | ||||||||||||||||||
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| A British Columbian manufacturer of expanded polystyrene (“EPS”) entered into a contract with an Austrian subsidiary of a German seller for the sale of a pre-expander and a block mould to be financed by a lease contract. Notwithstanding the fact that the buyer had agreed to provide the seller with a letter of credit prior to the shipment of the equipment, it failed to do so. After installation of the equipment, although the buyer had received assurances that the equipment would produce EPS products compatible with Canadian testing requirements, the buyer found several flaws in the blocks produced by means of the seller’s equipment. From July 1, 1997 to July 1999, the seller made several attempts to fix the problems but the equipment was able to produce suitable EPS products only almost one year after delivery. Then the buyer initiated an action against the seller for breach of contract and breach of statutory warranties of fitness.
As to the applicable law, the Court rejected the seller’s argument that the buyer had implicitly agreed to the application of German law. In the opinion of the Court, the mere fact that the seller’s confirmation of order stated that delivery was to be carried out according to “General Terms of Delivery of the [seller]” did not mean that a choice-of-law clause in favor of German law had been agreed upon by the buyer. Instead, the law having the closest relationship with the contract was the law of Ontario, Toronto being the place where the equipment had been installed and put into operation. As to the seller’s argument that late delivery had been provoked by the buyer’s failure to open the letter of credit and that therefore the seller was entitled to suspend performance under Art. 71 CISG (the Convention being applicable as incorporated into Ontario law), the Court found that suspension of performance by the buyer was justified but only for two weeks. Since delivery was delayed for six weeks, such a delay amounted to breach of contract by the buyer. Moreover, the Court held that the seller’s equipment could not be considered as non-conforming under Art. 35 CISG given that, notwithstanding the fact that for a long period of time after installation the equipment was unable to produce suitable EPS blocks, it ultimately became capable of doing so. Without any further reference to CISG provisions, the Court found that the buyer had breached three of the five contractual warranties it had undertaken under the contract and held the seller entitled to damages for late delivery and breach of contractual warranties. |