## Facts

- A Canadian buyer purchased a pre-expander (prefoamer) and block mould for expanded polystyrene (EPS) production from a seller group involving German, Austrian, and U.S. entities.
- The equipment was to be delivered and installed in Ontario, Canada, and was represented as capable of producing EPS blocks meeting Canadian construction standards.
- The parties’ payment arrangements required the buyer to provide a letter of credit before shipment.
- The buyer failed to open the letter of credit on time; the seller suspended delivery and ultimately delivered the equipment substantially later than the buyer expected.
- After installation, the equipment did not consistently produce EPS blocks meeting required compressive and flexural strength standards for an extended period; the seller made repeated efforts to address performance problems.
- The equipment became capable of reliably producing compliant EPS products nearly one year after delivery, without mechanical alterations to the machinery.
- The buyer sued for breach based on late delivery and alleged non-conforming goods and warranty breaches; the seller argued it was entitled to suspend delivery and that German law (including limitations rules) governed.

## Issues

1. Whether the parties agreed to German law, or instead the contract was governed by the law with the closest and most substantial connection, and whether the CISG applied.
2. Whether the buyer’s failure to open a letter of credit justified the seller’s suspension of delivery under CISG Article 71, and for what duration.
3. Whether prolonged early inability of the equipment to produce goods meeting Canadian standards constituted non-conformity under CISG Article 35.
4. Whether, and to what extent, the buyer could recover damages for late delivery and alleged defects under the applicable law.

## Decision

- The court held there was no agreement selecting German law; the seller’s reference to its “General Terms of Delivery” did not establish a choice-of-law clause.
- Applying a closest-connection analysis, the court selected Ontario law as governing because the equipment was installed and operated there; the CISG applied through Ontario law under CISG Article 1(1)(b).
- The seller was entitled under CISG Article 71 to suspend delivery due to the buyer’s failure to open the letter of credit, but only for a reasonable, limited period (two weeks).
- The portion of the delivery delay beyond that justified suspension (six additional weeks) constituted a breach by the seller.
- The court rejected the buyer’s claim that the machinery was non-conforming under CISG Article 35, emphasizing that it ultimately performed to specification without mechanical alteration and the cause of the initial problems was not proven to be an inherent defect.

## Legal Principles

- A purported choice of law is not established merely by a unilateral reference to standard terms unless the contract formation evidence shows agreement to a choice-of-law clause.
- Under CISG Article 1(1)(b), the CISG applies when the forum’s conflict-of-laws rules select the law of a Contracting State that has incorporated the CISG.
- CISG Article 71 permits temporary suspension of performance when non-performance by the other party becomes apparent, including payment insecurity; the suspension must be proportionate and end when adequate assurance is provided.
- Excess delay beyond a justified Article 71 suspension can constitute a breach of contract.
- Under CISG Article 35, non-conformity requires proof that the goods were not fit for the contractual purpose; later satisfactory functioning without mechanical alteration may weigh against finding non-conformity where no inherent defect is proven.

## Conclusion

The court applied Ontario law and the CISG via conflict rules, found the seller’s delivery suspension justified only briefly under CISG Article 71 and treated the additional delay as breach, but declined to find non-conformity under CISG Article 35 because the machinery ultimately met performance requirements without mechanical alteration and no inherent defect was established.


Mansonville Plastics (B.C.) Ltd. v. Kurtz GmbH, 2003 BCSC 1298 (Can.)