Contract Cancellation due to Substantial Breach of Contract under the Vienna Sales Convention

Facts

The [X. AG] (appellant) and the [Y. SA] (respondent) concluded a contract on December 12, 2000, for the delivery of a filling and packaging plant. The purchase price was Pts 247'278'337.-- (equivalent to EUR 1,486,172.74). The plant consisted of ten machines and the transport and connection systems between them. The appellant was to install and put the packaging line into operation.

After the installation of the plant, the appellant wanted to carry out an acceptance run, but the parties disagreed on the production performance to be achieved. The respondent essentially insisted on a performance capacity of the entire plant of 180 flacons per minute. The appellant stated that such overall performance was neither possible nor agreed upon.

On March 23, 2003, the respondent declared the cancellation of the contract and demanded the refund of the purchase price already paid, plus damages. On February 9, 2004, the respondent initiated debt enforcement proceedings.

The Basel-Stadt Civil Court ordered the appellant to refund EUR 495,390.91 plus 5% interest since January 22, 2001, and EUR 495,390.91 plus 5% interest since September 19, 2001, in exchange for the return of the machine plant delivered by the appellant.

The appellant appealed to the Basel-Stadt Court of Appeal and requested that the judgment of the Civil Court be overturned. The Court of Appeal confirmed the first-instance judgment on September 26, 2008.

Considerations

The lower court assessed the present case under the United Nations Convention on Contracts for the International Sale of Goods (CISG). The applicability of the CISG is undisputed and confirmed among the parties.

The appellant complains of a violation of Art. 8, 25, 49(2)(b), Art. 82(1), Art. 84(2) CISG, as well as Art. 210(1) CO in conjunction with Art. 116 et seq. and 148 PILA. Additionally, it raises several factual objections.

The lower court concluded that the parties had agreed on a production line with a total output of 180 units per minute. It was undisputed that the plant had not achieved the agreed-upon performance.

The lower court upheld the considerations of the Civil Court regarding the cancellation of the contract, according to which the respondent was entitled to cancel the contract both under Art. 49(1)(b) CISG due to non-delivery and under Art. 49(1)(a) CISG due to substantial breach of contract.

The appellant complains that the lower court wrongly concluded that the respondent could cancel the contract due to substantial breach of contract. It sees Art. 25 CISG violated, as the lower court affirmed the substantiality of the breach of contract.

The Federal Court concluded that the lower court did not violate Art. 25 CISG by affirming the substantiality of the breach of contract when the performance was 52 flacons per minute compared to the agreed 180…