Continuing with our series of articles summarizing past DRC arbitration decisions. We believe this will help members to better understand how the DRC Dispute Rules and Regulations (R&R) apply in the event of a dispute. DRC Dispute R&R state 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 DRC’s sole role is as administrator of the arbitration process; 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.
Case: DRC File #20568 – Parties Domiciled in Canada – Ontario and Saskatoon
Facts
- On May 7, 2019, the Claimant sold 600 cases of beef tomatoes from Mexico to the Respondent.
- An invoice dated May 15, 2019, indicates the shipment was sold FOB Laredo, TX, at USD$15.65 per carton for a total invoice of USD$9,570. Billing terms were net 30 days, due on June 14, 2019.
- The Respondent picked up the shipment in Laredo, TX, on May 16, 2019, and delivered it to the Respondent’s facilities in Calgary, AB, on Sunday, May 19, 2019. When the load was received in Calgary, AB, a note on the receiving report stated: “Needs grading for soft and colour sorting.” No defects were noted, and the tomatoes were not listed as distressed.
- On May 21, 2019, the Respondent emailed the Claimant and stated: “The tomatoes aren’t holding up and are very soft. We are calling an inspection on what we have”.
- A CFIA Inspection was requested and performed on May 21, 2019, showing:
|
May 21, 2019 |
Defect |
Average |
Range |
|
|
|
Firm Ripe |
95% |
|
|
|
|
(C) Soft |
6% |
|
|
|
|
(C) Decay |
0% |
0% |
0% |
|
|
(C)Discoloration |
4% |
0% |
10% |
|
|
(C) Soft Areas |
4% |
0% |
10% |
|
|
(P) Scars |
2% |
0% |
5% |
|
|
(C)Sunken Areas |
2% |
0% |
5% |
- On May 22, 20219, a second CFIA Inspection was requested. The second CFIA Inspection report noted a slight increase in softness and listed other variables not indicated in the first report. Still, only 388 cartons were inspected, showing:
|
May 22, 2019 |
Defect |
Average |
Range |
|
|
|
Turning |
2% |
|
|
|
|
Semi-Ripe |
1% |
|
|
|
|
Firm Ripe |
88% |
|
|
|
|
(C) Decay |
1% |
0% |
5% |
|
|
(C)Discoloration |
3% |
0% |
5% |
|
|
(C) Skin Punctures |
1% |
0% |
5% |
|
|
(C) Soft |
8% |
0% |
25% |
|
|
(C) Soft Areas |
6% |
0% |
15% |
|
|
(C)Sunken Areas |
3% |
0% |
5% |
Issues
Whether the Claimant submitted its claim within the DRC statute of limitations (nine (9) months), and if the Respondent fulfilled his duties according to the DRC Rules after receiving a commodity in deteriorated condition.
Arbitrator’s Analysis/Reasoning
- Is the arbitration claim barred under the DRC rules?
According to the DRC rules:
Article 4 Limitation of Claims.
- 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 evidence of further communication.
The Respondent argues that the Statute of Limitations began running on May 21, 2019, 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 invoice date was June 14, 2019, therefore, the statute period would have commenced on June 15, 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.
- 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 the absence of an agreement on grade, the default is the DRC “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 |
Two 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 produce 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 were 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 the Respondent’s client involvement, there may have been a separate agreement for the purchase. However, their participation was not well explained and not a major factor in the decision. The Respondent stated they were “told” to purchase the tomatoes.
Arbitrator’s Decision
Award in favor of the Claimant in the amount of USD$10,248.00 (USD$9,570.00 plus arbitration fee of USD$678.00) to be paid within 30 days.
DRC Comments
DRC members must observe the limitation of claims established under DRC Dispute Resolution Rules. DRC Members have nine (9) months from when the dispute arose to file a notice of dispute with us. Therefore, the following dates can be taken into consideration when determining if a dispute arose within the limitation of claims:
- the invoice dates
- the payment terms
- the date notifying of a claim
- the date a return or a liquidation report is submitted
- the date when negotiations are finished
It is up to the parties to make their arguments as to when they believe a dispute started.
Even when product arrives on a weekend or a holiday, buyers/receivers can proceed to request a government inspection. In any event, once an act of acceptance has occurred, such as unloading a load from the truck and releasing the truck, the clock starts ticking regarding timely performance of an inspection.
One issue the arbitrator dismissed entirely were the respondent’s client specs. The respondent could have successfully proven that the specs where part of the contract if they would have been able to show through a contract or a communication such as an email, that these specs where discussed, understood, and agreed to.
For more information regarding the sections of DRC Trading Standards applied to this dispute, refer to the following sections:
Receiver Duties (Fruit and Vegetable Dispute Resolution Corporation Trading Standards s.10 (2)(b)(ii))
