## Facts

- A seller with a place of business in the People’s Republic of China and a buyer with a principal place of business in Zurich entered into several contracts for the sale of goods.
- The buyer allegedly accumulated payment arrears exceeding USD 7 million.
- Relying on CISG Article 71, the seller withheld delivery of further goods, asserting doubts about the buyer’s creditworthiness.
- The seller sued in the Commercial Court of Zurich for (i) payment of the price for the undelivered goods and (ii) payment of the alleged outstanding arrears.
- The buyer asserted that the seller’s withholding was unjustified and that the buyer had declared the contract avoided under CISG Article 49(1) due to nondelivery.
- The Commercial Court rejected the seller’s claims, finding the Article 71 requirements unmet and treating the buyer’s avoidance as effective.
- The seller appealed to the Swiss Federal Supreme Court.

## Issues

1. Whether a general choice of “Swiss law” applies the CISG absent a clear exclusion under CISG Article 6.
2. Whether the seller established the conditions of CISG Article 71 to suspend delivery based on alleged credit risk and payment arrears.
3. Whether the seller’s unjustified nondelivery entitled the buyer to avoid the contract under CISG Article 49(1).

## Decision

- The Federal Supreme Court dismissed the seller’s appeal and affirmed the lower court’s outcome.
- The court applied the CISG, holding that the parties’ selection of Swiss law did not exclude the CISG and that the parties litigated on CISG grounds.
- The court held the seller failed to prove facts showing that, after contract formation, it became apparent the buyer would not perform a substantial part of its obligations, as required by Article 71.
- Because the suspension was unjustified, the seller’s withholding of delivery was a breach supporting the buyer’s declaration of avoidance under Article 49(1).
- The seller was not entitled to recover the price for undelivered goods on the theory advanced, and the buyer’s avoidance defeated the seller’s claims in the posture presented.

## Legal Principles

- A choice of the law of a CISG Contracting State (e.g., “Swiss law”) does not, without clear agreement, exclude the CISG; exclusion requires clarity under CISG Article 6.
- CISG Article 71 suspension requires that it become apparent the other party will not perform a substantial part of its obligations due to serious deficiency in ability or creditworthiness; the suspending party bears the burden of proving concrete facts supporting that conclusion.
- Mere assertions of financial insecurity or the existence of arrears, without objective substantiation sufficient to satisfy Article 71, do not justify withholding performance.
- An unjustified refusal to deliver can constitute a breach that permits the buyer to avoid the contract under CISG Article 49(1) when the breach is treated as fundamental in the circumstances.

## Conclusion

The Swiss Federal Supreme Court applied the CISG despite a general choice of Swiss law, held the seller failed to meet the evidentiary and substantive requirements for suspension under CISG Article 71, and concluded the buyer’s avoidance under Article 49(1) was effective because the seller’s withholding of delivery was unjustified.


Bundesgericht [BG] [Federal Supreme Court] July 17, 2007, 4C.94/2006 (Switz.)