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CISG CASE PRESENTATION

Canada 6 October 2003 Superior Court of Justice, Ontario (Diversitel v. Glacier)
[Cite as: http://cisgw3.law.pace.edu/cases/031006c4.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20031006 (6 October 2003)

JURISDICTION: Canada

TRIBUNAL: Supreme Court of Justice, Ontario

JUDGE(S): G. Toscano Roccamo

CASE NUMBER/DOCKET NUMBER: 03-CV-23776 SR

CASE NAME: Diversitel Communications, Inc. v. Glacier Bay Inc.

CASE HISTORY: 2d instance Court of Appeal for Ontario (Docket: C40887) 26 April 2004 [affirmed]

SELLER'S COUNTRY: United States (defendant)

BUYER'S COUNTRY: Canada (plaintiff)

GOODS INVOLVED: Vacuum panel insulation


Case abstract

CANADA: Ontario Superior Court of Justice 6 October 2003 (Diversitel Communications Inc. v. Glacier Bay Inc.)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/85],
CLOUT abstract no. 859

Reproduced with permission of UNCITRAL

Abstract prepared by Geneviève Saumier, National Correspondent

The plaintiff is a Canadian company doing business in research and development of satellite and terrestrial communications, and in related equipment. The defendant is an American company with its head office in Oakland, California. On 26 August 2002, the plaintiff entered into a contract with the defendant for the supply of vacuum panel insulation. The plaintiff required delivery of the insulation to meet the terms of a pre-existing contract with the Canadian Department of National Defence (DND). As a term of its contract with the defendant, the plaintiff set out a specific schedule of delivery of the insulation by the defendant. The plaintiff paid the defendant a certain amount when it issued its purchase order on 26 August 2002. The defendant admits it breached the terms of its contract by failure to deliver on time, as a result of problems it encountered with its principal supplier. The plaintiff eventually terminated the contract in November 2002, and commenced this action for the return of the amount already paid. In its defence, the defendant pleaded that the plaintiff terminated the contract without appropriate justification, and counterclaimed for damages for breach of contract and for loss of profits.

The court was seized of the dispute on a motion by the defendant for disclosure of documents relating to the plaintiff's contract with DND and its subsequent purchase of equipment from a competitor. The defendant argued that these documents were essential to demonstrate that the plaintiff was not justified in unilaterally repudiating the contract.

The plaintiff argued that under the CISG, breach of the delivery obligation under article 33 could amount to fundamental breach under article 25 which would allow the plaintiff to declare the contract avoided under article 49 and seek restitution under article 81(2). The plaintiff submitted that the CISG established a lower threshold for the proof of fundamental breach than that required by the common law and provided foreign case law in support. The court was not convinced that these cases evidenced a lower threshold. In any event, the court agreed with the plaintiff that even the common law conditions for avoidance had been met in this case, on the finding that the parties had made time of the essence in the contract by their conduct and communications. The defendant's failure to perform in time was thus a fundamental breach as understood in the common law. The court granted summary judgment to the plaintiff and awarded pre- and post-judgment interest calculated according to local law.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 49 [Also cited: Articles 33 ; 81(2) ]

Classification of issues using UNCITRAL classification code numbers:

25A ; 25B [Effect of a fundamental breach: avoidance of contract; Definition: substantial deprivation of expectation, etc.];

49A1 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract]

Descriptors: Fundamental breach ; Avoidance

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Editorial remarks

Excerpt from Rajeev Sharma, "The United Nations Convention on Contracts for the International Sale of Goods: The Canadian Experience", Victoria University of Wellington Law Review (2005/4) 854-856

The 2003 case of Diversitel Communications Inc v Glacier Bay Inc [19] represents the most positive application of the CISG by Canadian courts thus far. In August of 2002, Diversitel, a Canadian company, entered into a contract with Glacier Bay, an American company, for the supply of vacuum panel installation. Diversitel required the product to be delivered by 30 July 2003 in order to meet the terms of a pre-existing contract with the Canadian Department of National Defence. Diversitel paid Glacier Bay US $40,000 when it issued its purchase order on 26 August 2002. Glacier Bay failed to deliver the goods on time leading Diversitel to terminate the contract and commence an action claiming US $40,000 in damages. Glacier Bay argued that Diversitel terminated the contract without appropriate justification and counterclaimed for breach of contract and damages for lost profits in the amount of US $144,900.00.

This case is especially noteworthy because it is the first Canadian case to consider other international decisions interpreting the provisions of the CISG. Diversitel argued that, pursuant to article 25 of the CISG, a failure to deliver what was contracted for may constitute a fundamental breach of contract.[20] Furthermore, Diversitel argued that article 33 of the CISG provides that a seller must deliver by the date specified in the contract.[21]

Diversitel argued that its position was further strengthened by article 49[22] which provides that a buyer may declare the contract avoided in a case of fundamental breach, thereby giving way to a claim for restitution pursuant to article 81(2) of the Convention.[23] Diversitel argued that the CISG may, therefore, establish a lower threshold for the proof of fundamental breach than that required by the common law. However, the Court disagreed with this position. Roccamo J commented that counsel for Diversitel submitted a number of cases which reflected how European Courts had construed late delivery under article 33 CISG as tantamount to fundamental breach of contract.

Roccamo J then summarised one such case involving a contract between an Egyptian businessman and a German company. In an unpublished decision, the plaintiff, an Egyptian businessman, entered into a contract with the defendant, a German company, for the sale of nine used printing machines that were to be shipped to Egypt.[24] The defendant was obliged to send the machines in two shipments with the first shipment containing six machines and the second shipment containing the remaining three machines. The first shipment only included three machines. After demanding the shipment of the missing machines several times, the plaintiff declared the contract at an end and demanded the return of his money. The Court in that case held that the plaintiff properly ended the contract pursuant to the "fundamental breach" provision of article 49 of the CISG. The Court in Diversitel concluded that this decision, while instructive, did not lower the threshold for proving fundamental breach as established by the common law. However, while the Court went on to conclude that a fundamental breach had taken place, it did so on the basis of the common law and not on the basis of article 49 of the CISG, as it should have done.

19. Diversitel Communications Inc v Glacier Bay Inc (Diversitel) [2003] OJ4025 (Ontario Superior Court of Justice).

20. CISG, art 25 provides as follows:

A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result.

21. CISG, art 33 provides as follows:

The seller must deliver the goods:

(a) if a date is fixed by or determinable from the contract, on that date;
(b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or
(c) in any other case, within a reasonable time after the conclusion of the contract.

22. CISG, art 49 provides as follows:

(1) The buyer may declare the contract avoided:

(a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or
(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the buyer in accordance with paragraph (1) of article 47 or declares that he will not deliver within the period so fixed.

(2) However, in cases where the seller has delivered the goods, the buyer loses the right to declare the contract avoided unless he does so:

(a) in respect of late delivery, within a reasonable time after he has become aware that delivery has been made;
(b) in respect of any breach other than late delivery, within a reasonable time: (i) after he knew or ought to have known of the breach;
(ii) after the expiration of any additional period of time fixed by the buyer in accordance with paragraph (1) of article 47, or after the seller has declared that he will not perform his obligations within such an additional period; or
(iii) after the expiration of any additional period of time indicated by the seller in accordance with paragraph (2) of article 48, or after the buyer has declared that he will not accept performances.

23. CISG, art 81(2) provides as follows:

(2) A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently.
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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1189&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (English): CISG-Canada website <http://www.osgoode.yorku.ca/cisg/cases/diversitel>; Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1189&step=FullText>

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

English: Mazzacano, Canadian Jurisprudence and the Uniform Application of the CISG (August 2005) ch. 7

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Pace Law School Institute of International Commercial Law - Last updated August 24, 2009
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