Dispute over the limitation of the claims period and the timely inspection request.
The Fruit and Vegetable Dispute Resolution Corporation (DRC) has developed a series of articles summarizing past arbitration decisions. These articles will help members understand how the DRC Dispute Rules and Standards (R&S) apply in a dispute.
The DRC Dispute R&S states that all DRC arbitrations are private and confidential. As such, the names of all parties, including arbitrators and companies, are not included. A reminder that the DRC’s sole role is to administer the arbitration process; the DRC does not participate in any hearings. Therefore, this summary is based solely on the arbitrator’s written decision and may not reflect important information shared with the arbitrator through written briefs or verbal testimony.
ABSTRACT:
The arbitration decision addresses a dispute between parties from Canada. The dispute arose when the Respondent did not pay an invoice within the agreed payment terms. The Respondent contended that the Claimant’s claim was submitted outside the limitation period. Additionally, the Respondent claimed that as the receiver/buyer, they fulfilled their obligations in a timely manner after receiving the product, which they stated arrived in a deteriorated condition.
The arbitrator determined that the Respondent did not successfully prove that the Claimant’s claim was filed outside the limitation of claims period, and the Respondent failed to demonstrate that an inspection was requested and performed in a timely manner to show the product failed to meet DRC Good Arrival Guidelines.
This summary provides an essential overview of the arbitration decision and its implications for international commercial disputes.
CASE: DRC File #20568 – Parties Domiciled – Canada
SUMMARY OF FACTS:
According to the transportation entry/manifest and bill of lading dated May 15, 2019, a shipment of 600 cases of beef tomatoes (25 LB rounds) was sent from Mexico to Laredo, Texas. Invoice #19005 dated May 15, 2019, indicates that the shipment was sold by the Claimant to the Respondent. The tomatoes were to be picked up by the Respondent, and the load was bonded for transport to Canada. The invoice states that the amount owed for the tomatoes was $9,570.00 US, with billing terms of net 30 days, making the payment due on June 14, 2019.
STATEMENT OF CLAIM:
The Claimant asserts that the Respondent picked up the load at the Claimant’s warehouse in Laredo, Texas. The invoice does not indicate any issues with the tomatoes during the pickup. The Respondent subsequently shipped the tomatoes to Calgary, Alberta, where the truck arrived on May 19, 2019.
Statement of Defence to Statement of Claim
The Respondent purchased the tomatoes (invoice #19005) from the Claimant. The tomatoes were for “X”. The load was picked up in Laredo, TX, on 5/16/2019 and shipped to Calgary, Alberta.
The truck arrived in Calgary on 5/19/2019.
On Tuesday, May 21, 2019, at 8:48 AM, the Respondent emailed the Claimant stating, “The tomatoes aren’t holding up and are very soft. We are calling for an inspection on what we have.”
A Canadian Food Inspection Agency (CFIA) inspection was performed on the tomatoes at 10:30 AM on May 21, 2019, at the Respondent’s warehouse, showing:
| Defect | Average |
|---|---|
| Firm Ripe | 95% |
| (C) Soft | 6% |
| (C) Decay | 0% |
| (C) Discoloration | 4% |
| (C) Soft areas | 4% |
| (P) Scars | 2% |
| (C) Sunken areas | 2% |
The following day, another inspection was conducted by the CFIA. The second report noted a slight increase in softness and outlined additional variables not mentioned in the first report; however, only 388 cartons were inspected.
The Respondent argues that the tomatoes did not meet their specifications and that the claim should be barred because it was not filed within the appropriate statute of limitations timeframe provided in the DRC rules.
Reply to Statement of Defence to Statement of Claim
The Claimant states that on 5-28-19, they responded to an e-mail from the Respondent regarding the tomatoes. The Claimant indicates that the inspection barely showed any soft tomatoes. The Claimant indicated that, based on the inspection report, they would probably not issue any credit to the Respondent. The Claimant claims they had no indication that the invoice would not be paid.
The Claimant argues that they never received any accounting of Sale, until the arbitration proceeding was filed. Further, the Respondent didn’t provide any invoices associated with the sale of reworked product. There is no documentation as to final disposition of the tomatoes. There is no documentation as to dumping claims or sales revenues.
SUMMARY OF ARBITRATOR’S ANALYSIS AND REASONING:
First question/issue: Is the arbitration claim barred under the DRC rules?
According to the DRC Rules:
“Article 4 Limitation of Claims.
1) Unless the parties otherwise specifically agree in writing, no Claim may be brought under these Rules by one member against another unless the Claim is notified to the DRC by filing a Notice of Dispute within nine (9) months of when the Claim arose or within nine (9) months of when the claimant ought reasonably to have known of its existence. Failure to file the Notice of Dispute with the DRC within this time is deemed an abandonment of the Claim and shall prevent recovery against another member.”
The record is devoid of communication efforts after May 28, 2019. Neither party submitted further communication evidence.
The Respondent argues that the Statute of Limitations began running on 5-21-19, because they ordered an inspection on that date. Just because someone orders an inspection, doesn’t mean there won’t be some type of resolution on the file. There is no evidence that the invoice would not be paid. How long should a company try to collect on an invoice before they reasonably know it is not going to be paid? It is reasonable in this industry that resolution could take months.
The actual due date for the invoice would have been June 14, 2019. The statute would have started running after June 14, 2019.
The Claimant filled its complaint with the DRC on March 9, 2020, within the 9-month time period. The complaint was filed within the Statutory time limit, and the arbitration will go forward.
Second question/issue: Does the Claimant present a case against the Respondent for recoverable damages?
The complaint states that the Respondent purchased the tomatoes from the Claimant. The Respondent sent the product to Calgary, Alberta. On arrival, the Respondent’s receiving report indicated the product arrived at 7:18 AM on Sunday, May 19, 2019. The report indicated the tomatoes needed grading for soft and colour sorting. Other than that notation, there is no other evidence of a problem with the load of tomatoes. If the tomatoes were deteriorating, an inspection could have been requested on Sunday, the day of their arrival.
Two days later, the Respondent contacts the Claimant and tells them there is a problem with the tomatoes. They have an inspection done that day and another inspection the day after. The first inspection report shows 18% total defects.
In Canada, in absence of an agreement on grade, DRC uses the “Good Arrival Guidelines.”
| DRC Good Arrival Guidelines |
|---|
| Tomatoes |
| 15 – total allowable defects 10 – total allowable permanent defects 05 – total allowable same permanent defect 10 – total allowable same single defect 05 – total allowable decay |
Three days after arrival, the tomatoes fail to meet DRC Good Arrival Guidelines, but only by 2% (permanent defects such as “scars” do not count on no grade contracts). Could this product have met DRC Good Arrival Guidelines if inspected upon arrival?
The record is devoid of further communication between the parties regarding the transaction or payment thereon.
Further, even though the Respondent claims the product was defective and didn’t meet specs, they produced no documentation regarding the disposition of the product. They claim part of the load was dumped, with no documentation to support their claim. What happened to the remaining tomatoes? There is no documentation to support their limited accounting.
Clearly, the Respondent purchased the tomatoes from the Claimant. The invoice has not been disputed. Regardless of other issues, the Respondent failed to prove its case. No evidence of transit temperatures in this FOB sale was [TD2.1] provided; an inspection 2 days after arrival is only marginally out of spec and is completely different than the QC report on arrival. And finally, as already stated, the disposition of the tomatoes is not properly documented.
Regarding “X’s” [TD3.1] involvement, there may have been a separate agreement for the purchase. However, their participation was not well explained and was not a major factor in the decision. The Respondent stated they were “told” to purchase the tomatoes.
This transaction is a buy/sell between the Claimant and the Respondent.
ARBITRATOR’S SUMMARY DECISION
The Arbitrator ruled in favor of the Claimant; the Respondent must pay the Claimant in the amount of $10,248.00 US ($9,570.00 US plus arbitration fee of $678.00 US).
DRC COMMENTS
There are two important issues to address in this case:
1. Importance of submitting your claim within the 9-month limitation Period
The DRC has a limitation period for claims, as outlined in Article 4 of the Dispute Resolution Rules. If you fail to submit a Notice of Dispute within 9 months from the date the dispute arose, you have failed to file a claim in a timely manner and cannot seek recovery through the court system because that claim is deemed abandoned. To avoid missing the deadline, we suggest that our members start counting the 9-month period from the invoice date, the date the product arrives at its final destination, or the date set by payment terms.
2. It is essential to request a federal inspection promptly when receiving a product in deteriorated condition.
If you have a problem with a load, notify the shipper immediately and proceed to request an inspection. According to DRC’s Trading Standards, receivers must request a federal inspection within 8 hours of a product’s arrival by land. Additionally, after receiving a written inspection report, share this information with the shipper within 24 hours.
It is important to note that an inspection conducted more than 2 days after the product’s arrival may not accurately reflect the quality or condition at the time of delivery.
ADDITIONAL RESOURCES:
To access the full redacted arbitration decision, click here.
DRC Dispute Resolution Rules – Article 4
Solutions Newsletter Articles
- Inspection – Performed in a timely manner
- Timely Notice of a Problem
- Back to Basics: Account of Sales
- Claiming Damages: The Power of an itemized Account of Sales
