In this dispute, the arbitrator determines that the inspection conducted by the Canadian Food Inspection Agency (CFIA), while considering the Claimant’s concerns about product integrity, proves that the shipment did not meet contract terms, thereby entitling the Respondent to damages.
The Fruit and Vegetable Dispute Resolution Corporation (DRC) has been creating 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 as administrator of 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 brief relates to a dispute between parties from the United States and Canada over the quality of the product and the reliability of CFIA’s inspection results. This dispute arises from concerns about the compromised integrity of the shipment before inspection.
Based on the findings, the arbitrator determined that the integrity of the load was compromised before the CFIA inspection was performed. Since there was no other evidence showing the Claimant breached the contract, the Respondent was responsible for paying the adjusted invoice price and the arbitration commencement fee.
This summary provides an essential overview of the arbitration decision and its implications for international commercial disputes.
CASE
DRC File #20579 – Parties Domiciled – United States and Canada
SUMMARY OF FACTS
The Claimant sold the Respondent one (1) truckload of limes, which included 60 cartons of 175-count limes from Mexico at USD$21.00 per carton (totalling USD$1,260.00) and 300 cartons of 200-count limes from Mexico at USD$22.00 per carton (totalling USD$6,600.00), for a total free on board (FOB) invoice price of USD$7,860.
The load was shipped from McAllen, Texas, to the Respondent in Toronto, Ontario, on March 3, 2020, and arrived on March 8, 2020.
On March 9, 2020, the CFIA inspected 300 cartons of 200-count limes. The inspection found that the limes were affected by 17% permanent defects (12% blanching, 2% oil spots, and 3% scars) and 25% condition defects (4% decay, 17% yellow colour, and 4% skin breakdown). Additionally, the inspection noted that the product’s temperature ranged from 10.8°C to 11°C, and nearly all of the decay was accompanied by mould.
The Respondent reported selling 50 cartons of the 200-count limes at CAD$21.00 per carton and 250 cartons of the 200-count limes at CAD$22.00 per carton.
Respondent issued a cheque (No. 59147) dated March 26, 2020, payable to the Claimant in the amount of USD$3,705.00. This amount included payment at the contract price of USD$21.00 per carton for the 60 cartons of 175-count limes and payment at USD$8.15 per carton for the 300 cartons of 200-count limes. However, the Claimant did not accept this cheque and returned it to the Respondent.
Subsequently, the Claimant issued a revised invoice for 60 cartons of 175-count limes at USD$21.00 per carton (totalling $1,260) and 300 cartons of 200-count limes at USD$18.00 per carton (totalling $5,400), resulting in a total invoice price of USD$6,660.
In its Statement of Claim, the Claimant acknowledges being in breach of the 200-count limes based on the CFIA inspection results. Consequently, the Claimant offered a reduction of US$4.00 per carton on the price of the limes and adjusted the invoice accordingly. However, the Claimant is uncertain whether the inspection only covers the limes from the current shipment. The Claimant suspects limes from a previous shipment to the Respondent were mixed with those from the current shipment and presented to the inspector for inspection. Therefore, the Claimant is seeking payment in full of the revised invoice price of US$6,660.00 for the limes.
IIn its Statement of Defense to Statement of Claim, the Respondent points out that the timely inspection revealed a 42% average defect rate, causing the 200-count limes to fail to meet the Good Delivery Standards. The Respondent denies any tampering with the inspection. The limes that failed inspection were handled through price after sale (PAS), resulting in a return of US$8.15 per carton to the Claimant. The Respondent states it had no issues with the 175-count limes and attempted to pay the Claimant the full purchase price of US$21.00 per carton.
SUMMARY OF ARBITRATOR’S ANALYSIS AND REASONING
The main issue that the arbitrator needs to address is whether the CFIA inspection, considering the product identity concerns raised by the Claimant, establishes that the 200-count limes in the shipment did not comply with the contract requirements, thereby entitling Respondent to damages.
The Claimant states that when the limes in question arrived at the Respondent’s warehouse on Sunday, March 8, 2020, the Respondent informed that the limes were in poor condition and sent photos of the limes to the Claimant. According to the Claimant, the photos showed limes from a previous order shipped to the Respondent on February 20, 2020. When asked about the photos, the Claimant says the Respondent insisted the photos were of the limes that had just arrived despite the date tags indicating otherwise. To resolve the issue, the Claimant requested the Respondent to arrange for a CFIA inspection of the limes.
The Respondent confirms that after the shipment’s arrival and upon finding the limes in poor condition, photos of the limes were sent to the Claimant as requested. The Respondent explains that due to a technological error, a single photo of 175-count limes was initially sent to the Claimant, but this was promptly corrected by contacting the Claimant by email and telephone. The Respondent further states that although the Claimant acknowledged the new pictures, they continued to deny their validity.
The Respondent submitted a copy of the photo of the 175-count limes, which bears a label with the handwritten date “02-20-20.” The file contains a number of other photos, some of which are the digital photos taken by the CFIA inspector and some of which are the photos taken by the Respondent.
One photo shows two pallets with cut straps, and the cartons appear to have been moved around. In the picture on the right pallet is a carton labelled “HB533” and another labelled “HB094.” Other photos show that “HB533” is linked to purchase order number #87564, which is related to the limes in question. However, the purchase order number associated with “HB094” cannot be determined from the documents submitted.
The file includes a photo of a carton labelled with a QR code and the number “TRO023024021,” which matches the number on the inspection certificate under “Marks on Packages.” Another photo shows a carton of limes labelled HB533 strapped to a carton of limes with a QR code and a number that is unclear but seems to read “TRO047057013.” This number is different from “TRO023024021.” This suggests that the number on the inspection certificate differs from the number found on a carton strapped to a carton of limes from the shipment in question. This supports the Claimant’s argument that some of the cartons made available to be inspected by the CFIA were from a different shipment of limes.
The CFIA inspection certificate shows defect percentages ranging from 0 to 10% for decay, 0 to 8% for skin breakdown, and 2 to 34% for yellow colour. The presence of sample cartons with little or no defects combined with those showing a significant percentage of the same defect may indicate a non-homogeneous load.
Based on the observations, the integrity of the load was compromised before the CFIA inspection, making it impossible to determine with reasonable certainty that all 300 cartons of 200-count limes covered by the inspection were from the March 3, 2020, shipment in dispute. Therefore, the inspection cannot be used to determine if the 300 cartons of limes in question complied with the contract requirements. As no other evidence shows that the Claimant breached the contract, the Respondent is liable to the Claimant for the limes it accepted at the adjusted invoice price of US$6,660.00 and the US$600.00 arbitration commencement fee.
ARBITRATOR’S SUMMARY DECISION
The Respondent was ordered to pay the Claimant the sum of US$6,660.00, plus the US$600.00 filing fee, within 30 days from the date of this Decision and Award.
DRC COMMENTS
This case shows us that even when a request and performance of a government inspection is made in a timely manner, elements or actions can still make these quality inspection reports insufficient to demonstrate that the product arrived in a deteriorated condition.
The DRC will accept inspection reports issued by the USDA and CFIA as prima facie evidence of the product’s quality and condition at the time the inspection takes place. However, it is the applicant’s responsibility to ensure the right product is inspected or that the inspection is performed according to the contract terms between the parties, such as with the correct grade standard or that the product being inspected pertains to the transaction’s lot numbers.
In this case, since the inspection showed that the inspected product belonged to different shipments, this undermined the applicant’s credibility when making the correct product available for inspection. Therefore, while the inspection results show the product inspected failed to meet DRC Good Arrival Guidelines, the arbitrator concluded that the compromised integrity of the shipment invalidated it as evidence of the Claimant’s breach of contract.
ADDITIONAL RESOURCES
To access the full redacted arbitration decision, click here.
Fruit and Vegetable Dispute Resolution Corporation Trading Standards – Receiver Duties, Section 10.2.(b)(ii)
Dealing with a Bad Load? Your options as a Buyer/Receiver Revealed.
Good Inspection Guidelines for Fruit and Vegetable Dispute Resolution Corporation (DRC)
