Author: DRC

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 #19758 – Parties Domiciled – United States v. Canada

 

Facts

The Claimant sold two loads of Mexican broccoli crowns to the Respondent.

 

First Load

• Confirmation of Sale dated June 27, 2016, shows the Claimant sold 1,248 boxes of broccoli crowns to the Respondent.
• Invoice #43030 indicates the shipment was sold FOB No Grade Contract, at USD$8.75 per box for a total invoice price of USD$10,920.

• On June 30, 2016, the shipment arrived at the Respondent’s warehouse in Toronto, Ontario. The BoL shows the shipment was received under protest due to the poor quality of the product (hollow stem). It also mentions there was not much ice in the boxes and no ice on top of the pallets.
• A CFIA Inspection was requested and performed the same day that product arrived. The results of the inspection indicate the broccoli crowns were affected by 2% decay, 9% bruising, 2% discoloration, 3% discoloration of cut end and 24% decay at stem end. In addition to the results, the inspector also noted that a trace amount of pack ice accompanied most cartons, and some cartons were accompanied with no pack ice.

• Respondent supplied to Claimant an account of sale for the 1,248 boxes, reflecting a negative return on CAD$7,116.71. This was the result of three rejected sales due to the quality of the product and the deduction of freight, customs charges, inspection, quality control, dump fees and storage. 

 

On this load, Claimant sought 60% of the original invoice value amount (USD$6,552), less the cost of the CFIA Inspection (CAD$236.70) for a total amount of CAD$6,315.30. The Respondent sought CAD$7,116.70 plus DRC fees of CAD$928.86 plus interest in the amount of CAD$498.12 for a total amount of CAD$8,543.68.

 

 

 

Second Load

• Confirmation of Sale dated July 11, 2016, shows Claimant sold 1,344 boxes of broccoli crowns to the Respondent.
• Invoice #43220 indicates the shipment was sold FOB No Grade Contract at USD$8.75 per box for a total invoice price of USD$11,424.
• On July 19, 2016, the shipment arrived at the Respondent’s Warehouse in Toronto, Ontario. On arrival an in-house inspection was performed, indicating the broccoli crowns were affected by 4% yellowing, 5% enlarged buds, 8% bruising, 12% hollow stem, 6% discoloration, 6% brown cut stem and 3% decay.
• On July 20, 2016, the Respondent requested a CFIA inspection which was performed the same day. The results of the inspection indicate the broccoli crowns were affected by 5% bruising and 45% hollow stems. The inspector also noted that nearly all skids showed 5-7 inches of top ice and all flaps open and nearly all skids showed a top layer of skids with pack ice remainder of cartons on skids show no pack ice.
• Parties agreed on a price adjustment in the amount of USD$0.65 per box, thereby reducing the invoice price to USD$10,550.40 (equivalent to a unit price of USD$7.85/box). 
• On August 3, 2016, communication between the parties shows that the Respondent indicated that the problem with icing had led to decay, which in turn led to rejections, estimating the damage to be potentially 9-10 pallets and advising the Claimant not to pay its supplier for this load “until we talk.” The Claimant responded, demanding payment in full, pending final resolution of any claim that might be made against this load. Respondent replied that he would not clip any bills but wanted to talk before remitting any funds.
• On October 6, 2016, the Respondent stated it had a problem with the load. The Claimant rejected responsibility for any issues related to icing, indicating his belief that this problem was the responsibility of the truck.

 

On this load, Claimant sought payment in full of the original invoice of USD$10,550.40. The Respondent sought CAD$4,110.60 plus DRC fees of CAD$928.86 plus interest in the amount of CAD$233.88 for a total amount of CAD$5,273.34.

 

Issues

• Whether the Respondent fulfilled his duties according to the DRC Rules after receiving a commodity in deteriorated condition.
• Whether there was an agreement between the parties that the condition defect of hollow stew would be scorable.

 

Arbitrator’s Analysis/Reasoning

First Load: The CFIA inspection results for this load are condemnatory. The 40% average condition defects identified during this inspection far exceed the tolerance set by the DRC Good Arrival guidelines.

 

Respondent’s description of the quick return of the three consignments it attempted from this load is consistent with what one would expect with product showing this degree of damage. Claimant’s argument that the 60% of ‘sound’ product in the load should have been salvaged via re-packing and sold at normal market prices does not reflect the reality of condition problems of this magnitude.

 

Condition defects are, by definition, progressive, getting worse over time; this means that the 40% average defects identified by CFIA could normally be expected to grow to 45% or 50% or more over the week following the inspection date; this would be particularly true for product which moves from Respondent’s cold storage to ambient temperature, then to customer’s conveyance and on to customer’s place of business, all under the warm temperatures of mid-summer Toronto (with highs ranging from 73°F to 86°F during the 15 days following the load’s arrival in Toronto).

 

It would be unreasonable to expect even the most experienced and specialized re-packer to re-work product with such a high percentage of condition defects and restore the re-packed portion to ‘mostly market’ quality for the 7-10 days needed to move the product through the supply chain. Moreover, Claimant does not appear to have requested such a re-pack effort prior to the time when the cargo was dumped. While I find the final outcome of this shipment to be credible, I must note that, procedurally, Respondent failed to comply with a basic DRC rule: in the case of a dumping event, it is the responsibility of the receiver (here, the Respondent) to obtain a dumping certificate from a reliable third-party inspector (here, CFIA). While Respondent’s account of sale for this load includes CAD$2,745.60 for dump costs, and CAD$289.35 for “Dump CFIA Witness”, no CFIA dump certificate was presented in evidence. Respondent’s failure to meet this dump certification requirement will be an important factor in the calculation of damages for this item.

 

Second Load: This case bears a close resemblance to the case decided by PACA in 1994 (Anthony F. Martori, et al., 53 Agric. Dec 887). The PACA ruling concerned a case where hollow stem was found on 37% of the load of broccoli, with a range from 7-79%. Quoting from the PACA finding, “Even though the broccoli had no decay, the huge percentage of hollow stem defects indicate that the broccoli was not merchantable…In this case broccoli with 37% hollow stem can hardly pass without objection in the trade.

 

Therefore, we find that complainants breached their contract with Respondent.” If such was true in the case of 37% hollow stem, such would be all the truer in the case at hand, where the level of hollow stem attained an average of 45%. As to Claimant’s contention that there existed a pre-sale agreement excluding hollow stem as a cause for claim, I take note of the affidavits furnished by individuals connected to Claimant but find no such corroborating documentation from Respondent.

 

Where default rules are waived by the parties to a transaction, DRC rules require that such waiver be formally recognized in writing by both parties. While there may well have been a verbal agreement with regard to this issue, the lack of bi-lateral recognition of such an agreement precludes me from giving it credence in this deliberation. While I am thus pre-disposed by precedent to consider Respondent’s counterclaim favorably, I find that consideration complicated by several issues:

1. Calculation of damages in the PACA case requires a comparison of the value that would have been received for the product had it arrived in merchantable condition, set against “the actual gross proceeds of a prompt and proper resale”. Regrettably, Respondent has furnished no adequate accounting for this load of broccoli.
2. While Respondent was quite vocal in its initial communications with Claimant regarding the lack of top ice (for which it received an allowance), there was no comparable urgency shown in declaring intent to reject this load, or to handle the load for shipper’s account (such as was clearly the case with Item #1 above). Indeed, I find only one message from Respondent, dated 3 August (14 days after the initial inspection), where Respondent indicates to Claimant that a problem exists with the load which might involve as many as 9-10 pallets. The next email exchange submitted in evidence is dated 6 October, once again indicating that “WE HAVE A PROBLEM WITH THIS LOAD”. Of course, neither of these two email exchanges can be construed as constituting timely notice of Respondent intention with respect to this load.
3. Respondent’s Quality Intake Report, dated 19 July, describes the general appearance of this load as “GOOD”. Comments by the inspector read as follows: “Found some bruising, some yellow and discolored crowns. But in overall is ok. Boxes do not have ice. Only top pallet/boxes have a lot of ice. Boxes are open lids. Pallets need to be re-iced.”

 

These three issues all serve to mitigate the force of Respondent’s arguments regarding the merchantability of the load and will be taken into consideration in the calculation of damages for this item.

 

Arbitrator’s Decision

For First Load, the Arbitrator has rejected Claimant’s claim according to the logic detailed in the above Arbitrator’s Analysis/Reasoning and found in favour of Respondent’s counterclaim in the counterclaimed amount of USD$8,543.68, less a 25% reduction in value in consideration of Respondent’s failure to obtain a valid dump certificate upon disposal of this load, for a net award in the amount of CAD$6,407.76.

 

For Second Load, the Arbitrator has rejected Claimant’s claim, according to the logic detailed in the above Arbitrator’s Analysis/Reasoning and found in favour of the Respondent’s counterclaim. Unfortunately for Respondent, its failure to notify Claimant of a rejection of this cargo constitutes acceptance of the load, carrying with it, under DRC rules, a responsibility to provide a full and fair accounting of sale. No such accounting of sale was submitted as documentation for this file.

 

While the arbitrator did not doubt that some discounts were required to move the hollow stem portion of the load into the market, it was impossible to assess adequately what the extent of those discounts might have been, or what monetary damages Respondent might have incurred in the process. Lacking any firm basis to rule otherwise, I find in favor of Claimant, in the amount of USD$10,550.40. Had Respondent followed DRC rules with respect to timely notice and preparation of account of sale, the decision on this item could well have been considerably different.

 

 

DRC Comments

Regarding the first load, the Respondent followed DRC Trading Standards by giving timely notice of a problem upon arrival, requested a CFIA inspection in a timely manner, claimed damages by providing the Claimant with an acceptable account of sales showing reasonable sales/rejections and deducting the costs incurred as a result of the breach of contract.

 

Regarding the second load, the results of the CFIA Inspection indicate that more than one-third of the shipment was affected by hollow stem which is a quality/permanent defect, and quality/permanent defects are not normally considered in computing total percentage of defects on transactions where no grade was agreed upon. When quality/permanent defects are substantial, they affect the warranty of merchantability. The warranty of merchantability is a warranty that asserts that the product is fit for the intended purpose for which they are sold.

 

While the Respondent requested a CFIA Inspection in a timely manner, showing that broccoli crowns were affected by 45% hollow stem, the arbitrator noticed that the Respondent was only complaining about the lack of ice, but otherwise the product looked good. Additionally, the Respondent failed to properly prepare an account of sales, which prevented the arbitrator from understanding how the hollow stem affected their sales.

 

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))
• Dumping product (Before dumping the product, make sure you follow these steps)
• Reasonable Time (Fruit and Vegetable Dispute Resolution Corporation Trading Standards s.19 ss. 18)

The DRC-led initiative to modernize the grades standards found in Compendium 2 (https://inspection.canada.ca/about-cfia/acts-and-regulations/list-of-acts-and-regulations/documents-incorporated-by-reference/canadian-grade-compendium-volume-2/eng/1519996239002/1519996303947) continues to move forward.

Public consultation for Phases 1 (greenhouse tomatoes, greenhouse long seedless cucumbers and a new standard for greenhouse mini seedless cucumbers) and Phase 2 (Apples, Asparagus, Apricots, Grapes, Nectarines (new), Peaches, Pears and Plums and Prunes) have concluded. Comments are under review by CFIA and changes are expected to come into effect later this year.

The industry’s proposed changes for Phase 3 (beets, cabbage, onions, parsnip, potatoes and rutabagas) are also being reviewed by CFIA and public consultation is anticipated in early summer.

For additional information on this DRC initiative, contact Anne Fowlie ([email protected]). Review for other crops contained in Compendium 2 will take place throughout the remainder of 2022.

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

1. 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.

2. 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:

• Reasonable Time (Fruit and Vegetable Dispute Resolution Corporation Trading Standards s.19 ss. 18)

Receiver Duties (Fruit and Vegetable Dispute Resolution Corporation Trading Standards s.10 (2)(b)(ii))

Welcome New Members

From March 15 until April 15, 2022, DRC welcomed the following new members:

ALRAHMA IMPORT LTD. (Also d/b/a Alrahma Import)	AB	Canada
BHANDARI FOOD TRADING INC.	ON	Canada
BONFRUIT (A d/b/a of Torobunch-Pro Inc.)	QC	Canada
CULTIVARES SAC	Lima	Peru
DI VAIN ENTERPRISES (A d/b/a of Quetzal Silva Torres)	BC	Canada
FOMACOP SARL (Also d/b/a Fomacop)	Chichaoua	Morocco
FRESH PACKING CORPORATION	CA	United States
KARANS INTERNATIONAL DISTRIBUTORS LTD.	BC	Canada
KONKAN IMPORTS INC.	ON	Canada
TAMARIN-GOUTT INC.	QC	Canada
THE FUTURES EXCHANGE LTD. (Also d/b/a Greenhouse-Garlic)	ON	Canada

 

DRC Membership: change in status

As of April 15, 2022, the following organizations no longer hold a DRC membership:

EMPACADORA DE AGUACATES SAN LORENZO, S.A. DE C.V.	Michoacan	Mexico
ESXA IMPORT & EXPORT (A d/b/a of Ngoc Quynh Nguyen)	QC	Canada
EXOCAN GROUP INC.	QC	Canada
EXPORTADORA BEST BERRY CHILE S.A.	Bio-Bio	Chile
JOHN GREENE LOGISTICS COMPANY	FL	United States
K & C SPECIALTIES INC.	CA	United States
KEN CORBETT FARMS, LLC	GA	United States
KENWEST TRADING LTD.	BC	Canada
MACARTHUR’S QUALITY FLOWERS & PLANTS INC.	NS	Canada
MAMA’S GREENHOUSE (A d/b/a of 963358 Ltd.)	AB	Canada
MARCHÉ STEVE-ANNA INC.	QC	Canada
NAVS GROCERY ( A d/b/a of 2726265 Ontario Inc.)	ON	Canada
QTI (A d/b/a of QTI Service Corporation)	TX	United States
SERVICIOS COMERCIALES AGROFINE EXPORT SPA	Biobío	Chile
T. E. PRODUCE IMPORT AND EXPORT LTD.	BC	Canada
UNIFRUTA WORLD PRODUCE/UNIFRUTA PRODUITS DU MONDE (Faisant également affaire sous 9850759 Canada Inc.)	QC	Canada
VEG FRESH FARMS, LLC (Also d/b/a Good Life Organics)	CA	United States

For details regarding a change in status, please contact the office.

Important note: Following membership termination, the former member remains liable for claims arising prior to their termination if the claim is submitted to DRC by way of a Notice of Dispute within nine (9) months from when the claim arose or within nine (9) months from when the claimant ought reasonably to have known of its existence.

 

About DRC

DRC is a non-profit membership-based organization whose core work is business-to-business commercial dispute resolution for produce. DRC is a referee between parties when a purchase and sale do not go according to plan. Members adhere to a common set of trading standards and member responsibilities that promote fair and ethical trading for produce entering the North American marketplace. In Canada, membership in the DRC is a regulatory requirement to trade fresh fruits and vegetables (i.e.: buy, sell, import, export) unless excepted from the regulations. Today, DRC has members in 16 countries outside of North America, and membership continues to grow annually. Anyone exporting fresh fruits and vegetables to Canada must sell to a DRC member.

In addition to the DRC’s Operating Rules and Trading Standards, DRC offers a comprehensive, tailored suite of tools to build the knowledge and capacity of members to avoid or resolve disputes, including education, mediation and arbitration. DRC has ability to impose sanctions and disciplinary actions towards members who do not conduct business in accordance with the terms of their membership agreement.

To date, DRC has resolved claims in excess of $105 million dollars. Although arbitration is available, 80% of these claims have been settled in an average of 26 days through our informal consultation/mediation services. Arbitration awards are court enforceable in countries that are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards or subsequent conventions.

To learn more, reach out to our Help Desk at [email protected] or (+1) 613-234-0982 or visit us at www.fvdrc.com.

 

Our continuing series of articles summarizing past DRC arbitration decisions is intended to 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 #20820 – Parties Domiciled – Spain v. Canada

Facts

On February 12, 2021, the Claimant sold the Respondent a container of 1,480 boxes of sizes 90, 100 and 120 lemons from Spain. The invoice shows that the product was sold at USD$19.75/box with a total invoice amount of $29,230.

The container was shipped from Spain on February 22, 2021, arriving at the Montreal Terminal on March 10, 2021, discharged from the vessel on March 11, 2021, and was railed to Toronto on March 18, 2021.

A CFIA Inspection was requested and performed on March 20, 2021 and revealed the following:

• 360 boxes of 90s 7% decay, 5% contact spot, 11% skin breakdown, 1% peteca
• 416 boxes of 100’s 6% decay, 4% contact spot, 17% skin breakdown, 2% peteca
• 704 boxes of 120s 9% decay, 4% contact spots, 17% break down and 1% peteca

On March 22, 2021, the Respondent informed the Claimant of the results of the CFIA inspection. The Claimant requested the Respondent not to move the load until the shipping line surveyor could inspect the load. The Claimant removed the hold on the product on March 23, 2021, although a surveyor had not been on-site. On March 25, 2021, the Respondent proceeded to clean, repack and sell the product.

On March 29, 2021, the Claimant requested an update on the sales. The Respondent replied that the product was selling slowly and that they would try bagging some of the fruit.

On April 5, 2021, 15 days after arrival, the Respondent warned the Claimant of a potential dump of the remining inventory of 1,263 boxes which represented 85% of the total load. The Claimant replied that if a dump was necessary, a CFIA dump certificate and a CFIA inspection showing that the product has no commercial value would be needed.

On April 14, 2021, the Respondent supplied to Claimant an account of sale for the 1,480 boxes at five separate price tiers: 70 boxes at USD$36, 73 boxes at USD$27.50, 35 boxes at USD$25, 195 boxes at USD$16.50, 159 at USD$4 and 948 boxes dumped, resulting in an aggregated sale proceeds of USD$9,256.00. After deducting sorting and cleaning, bagging, freight, inspection, dump certificate and customs clearance expenses totalling USD$9,441.35, Respondent declared that the total expenses exceeded the sale proceeds in the amount of USD$185.35.

Issues

• Whether there was an agreement between the parties on how the product would be handled after arriving in a deteriorated condition.
• Whether the Respondent fulfilled his duties according to the DRC Rules after receiving a product in a deteriorated condition.

Arbitrator’s Analysis/Reasoning

Why did the two parties involved not consent to a mutually agreeable new contract since the Claimant breached the original contract?

When there is a breach of contract, what is equally important after getting an inspection to substantiate that, is a mutually agreeable plan of action going forward. Regrettably, this did not happen.

Why did the Respondent not obtain a “No Commercial Value” inspection as per the Claimant’s request?

DRC Trading Standards, Section 9, indicate the following regarding commercial value:

“The term “commercial value” means any value that a commodity may have for any purpose that can be ascertained by the exercise of due diligence without unreasonable expense or loss of time. 

When produce is being handled for or on behalf of another person, proof as to the quantities of produce destroyed or discarded in excess of five percent of the shipment shall be provided by procuring an official certificate…”

 The Respondent stated they did not have customers now or 15 days ago when the product arrived. If this was the case, why did the Respondent not outrightly reject the product since they state they had no customers for the product?

The arbitrator did not accept the Respondent’s account of sale as submitted. The Respondent charged CAD$4,260.00 for “Sorting and Cleaning” but it provides an account of sale with values ranging from CAD$36.00 to CAD$4.00.

When a commodity is sorted and cleaned, that effort is to remove the distressed product resulting in the remaining product being of the original grade of the contract. Product is not sorted and cleaned to be sold on a consignment basis. if the product was sorted and cleaned, what was the point of sorting and cleaning if the salvage was not going to bring better sales given the efforts and costs?

Given the lack of sales and the excessive amount of product dumped, the arbitrator did not believe the Respondent did the best they could to salvage these goods. If both parties had agreed to cleaning, sorting, and bagging in advance, the Respondent could have stated they would take these actions to have a fire sale on the product since it is continuing to deteriorate.

The arbitrator did not accept the Claimant’s proposed settlement of offering a 31% total invoice credit. In the arbitrator’s opinion, this fruit arrived in good time and presumably good temperature with a significant amount of problems as substantiated by the CFIA Inspection. This product would only further deteriorate as time went on.

The Claimant demanded USD$20,168.70 plus DRC fees of USD$2,800.00 and two other incidental amounts. Because this was a CIF transaction and there was a breach of contract by the Claimant, the Respondent would be entitled to deduct the inland and customs clearance expenses indicated in their account of sales.

Both parties share in the responsibility in this matter. The Claimant shares responsibility for breaching the contract with some very distressed product, and the Respondent for so little salvage given all the efforts they claim to have undertaken to yearn results and the significant amount of product dumped.

Arbitrator’s Decision

Given that the arbitrator did not find the Claimant’s remedy reasonable, and that the Respondent has failed to properly salvage the load, the arbitrator awarded the Claimant USD$11,484.35. This award represents 50% of the USD$20,168.70 claimed by the Claimant plus USD$1,400.00, which is half of the DRC arbitration fees.

DRC Comments

There are a few points in this decision that DRC members must take into consideration in their transactions:   

• Once a receiver has secured evidence of a breach of contract after receiving a product in a deteriorated condition, unless the parties renegotiate a new way to handle the product (such as consignment, price after sale, or repacking), a receiver who is in possession of a damaged load is only entitled to claim damages.
• When more than 5% of the load needs to be disposed of or destroyed, a receiver would require a dump certificate and a governmental inspection demonstrating that product has no commercial value to support the claim.
• An account of sales must be properly supported by sales tickets, invoices or any other material corroborating the sales and expenses incurred.

For more information regarding the sections of DRC Trading Standards applied to this dispute, refer to the following sections:

DRC Trading Standards:

• Accept / Reject Product (Accept or Reject)
• Receiver Duties (Fruit and Vegetable Dispute Resolution Corporation Trading Standards s.10 (2)(b)(ii))
• Truly and Correctly Account (Fruit and Vegetable Dispute Resolution Corporation Trading Standards s.19.25)
• DRC Good Inspection Guidelines (https://fvdrc.com/wp-content/uploads/2016/10/good_inspection_guidelines.pdf )
• Dumping product (Before dumping the product, make sure you follow these steps)

One issue that continues to appear in disputed transactions handled by DRC Trading Assistance Staff is if the seller and buyer agreed on a commodity grade standard.

Each country, region, or economic union, has grade standards for commodities grown and traded in these territories. In the United States and Canada, US Grade Standards and Canadian Grade Standards are the grade standards buyers and sellers are most familiar with. However, there are other commodity grade standards such as the FAO’s CODEX Alimentarius and the United Nations Economic Commission for Europe (UNECE) Standards for Fresh Fruit and Vegetables.

While there are some similarities among the grade standards for specific commodities from the above-mentioned jurisdictions, there are significant differences which make each grade standard stand “its own”.

Therefore, for DRC members, it is a good trade practice to, when discussing the terms of a transaction, agree on a specific, defined grade standard if that is the intention. This is particularly important because for DRC members who fail to demonstrate that a specific grade standard was agreed upon, the transaction defaults to No Grade, DRC Good Arrival Guidelines.

DRC Good Arrival Guidelines is a combination of PACA 5 Day FOB Good Delivery Guidelines, CFIA Canadian Destination Tolerances and Suitable Shipping Condition Guidelines which establish the maximum percentage of defects allowed at destination for FOB shipping point transactions. Suitable Shipping Condition is defined as sellers assuring that the product will meet the agreed quality and condition requirements when the product is shipped. The seller also assures that the product will not deteriorate abnormally if proper transit time and temperatures are maintained during shipment. This implies that some degree of deterioration will normally occur over time, even under the best of transit conditions

Section 20, Trade Terms of the DRC Trading Standards states that INCOTERMS such as CPT, CIP, CFR, and CIF are all deemed to be the same as FOB except that the seller assumes the costs associated with the named INCOTERM. However, the risk of transit remains with the buyer.

Unless there is an agreement on a specific and defined grade standard, such as US #1, Canada #1, Codex Class I, or UNECE Class I (also known as CAT I in the Spanish and French versions of the CODEX Standards or UNECE Standards), all transactions between DRC members will default to FOB No Grade Good Arrival.

Finally, another important matter to consider when negotiating the terms of the transaction, when a grade standard is agreed upon, all defects scored in a quality/condition inspection report count towards the total percentage of defects allowed. However, when no grade standard is identified as part of the terms of the transaction or the transaction defaults to DRC Good Arrival Guidelines, only condition defects count towards the maximum percentage of defects allowed. Permanent or quality defects are those that do not change with time such as scars or hollow stems. Condition defects are those that change with time such as decay, bruising, soft to name a few.

Welcome New Members

From February 15 until March 15, 2022, DRC welcomed the following new members:

ACTUAL TIME LOGISTIC GROUP (A d/b/a of 2449915 Ontario Limited)	ON	Canada
CDMG BUSINESS LTD.	BC	Canada
FRUITS ET LÉGUMES ALIOUNE INC.	QC	Canada
GMSY CANADA LTD.	ON	Canada
HUA GUANG INTERNATIONAL INC.	ON	Canada
KK BEE LTD.	ON	Canada
NATURE’S EMPORIUM LIMITED PARTNERSHIP (Also d/b/a Nature’s Emporium)	ON	Canada
OCEAN KING PRODUCE INC.	CA	Canada
TAYLORS CONTINENTAL FOODS	ON	Canada
UNISEL CO. SIA	Latvia	Latvia

 

DRC Membership: change in status

As of March 15, 2022, the following organizations no longer hold a DRC membership:

12618109 CANADA INC. AB Canada 9421-0986 QUEBEC INC. QC Canada AGRITRADE FARMS, LLC FL United States ATLANTIC TROPICAL TRADING (A d/b/a of  Rajendra Sukul) ON Canada CHADI IMPORT-EXPORT INC. (Faisant également affaire sous Cha QC Canada CHAUHAN FRUITS ET LÉGUMES (A d/b/a of 9277-1625 Québec Inc.) QC Canada CHIYUE FOOD PROCESSING INC. ON Canada EPICUREAN PRODUCE (A d/b/a of Endri Demeti) ON Canada FRUTICOLA VILLAMANGOS, SPR de RL (Chis&Co) Chiapas Mexico LE PALMIER D’OR / MARCHÉ ARDIS (Faisant également affaire so QC Canada MACNAB GRAPE COMPANY LIMITED ON Canada MODES ENTERPRISE LTD. (Also d/b/a Naruto Seafruit Market) BC Canada RAAZFOOD (A d/b/a of 5004405 Ontario Inc.) ON Canada SABATINO TRUFFLES CANADA INC. QC Canada SKYFRUIT INTERNATIONAL INC. AB Canada TENDER HOPE WINERY (A d/b/a of Tender Hope Holdings Ltd.) BC Canada TOP SHELF SPECIALTY CA United States VELJAON SPECIALIZED IMPORTS INC. ON Canada WEN HO OF CANADA LTD. (Also d/b/a Wen Ho) ON Canada

For details regarding a change in status, please contact the office.

Important note: Following membership termination, the former member remains liable for claims arising prior to their termination if the claim is submitted to DRC by way of a Notice of Dispute within nine (9) months from when the claim arose or within nine (9) months from when the claimant ought reasonably to have known of its existence.

About DRC

DRC is a non-profit membership-based organization whose core work is business-to-business commercial dispute resolution for produce. DRC is a referee between parties when a purchase and sale do not go according to plan. Members adhere to a common set of trading standards and member responsibilities that promote fair and ethical trading for produce entering the North American marketplace. In Canada, membership in the DRC is a regulatory requirement to trade fresh fruits and vegetables (i.e.: buy, sell, import, export) unless excepted from the regulations. Today, DRC has members in 16 countries outside of North America, and membership continues to grow annually. Anyone exporting fresh fruits and vegetables to Canada must sell to a DRC member.

In addition to the DRC’s Operating Rules and Trading Standards, DRC offers a comprehensive, tailored suite of tools to build the knowledge and capacity of members to avoid or resolve disputes, including education, mediation and arbitration. DRC has ability to impose sanctions and disciplinary actions towards members who do not conduct business in accordance with the terms of their membership agreement.

To date, DRC has resolved claims in excess of $105 million dollars. Although arbitration is available, 80% of these claims have been settled in an average of 26 days through our informal consultation/mediation services. Arbitration awards are court enforceable in countries that are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards or subsequent conventions.

To learn more, reach out to our Help Desk at [email protected] or (+1) 613-234-0982 or visit us at www.fvdrc.com.

 

During the December 2021 DRC Board of Directors meeting, the Board approved changes to DRC’s Trading Standards and Dispute Resolution Rules. These changes provide clarity and updates to certain terms or concepts.

The following sections from DRC’s Trading Standards and articles from DRC’s Dispute Resolution Rules that have been upgraded and the subject of the amendment:

DRC Trading Standards

• Section 19.7 – Proper reference to DRC Good Arrival Guidelines
• Section 20.1 – INCOTERMS 2020 updated
• Section 21 – The United Nations Convention on Contracts for the International Sale of Goods (CISG) and United States Uniform Commercial Code (UCC)

DRC Dispute Resolution Rules

• Article 1.b.vii – Counterclaim definition updated
• Article 1.b.viii – Counterclaim with setoff definition updated
• Article 2.3 – Arbitration Awards enforceable in the courts
• Article 3 – Arbitration Awards enforceable in the courts
• Article 33.2 – Counterclaim or Counterclaim with setoff submission
• Article 33.3 – Counterclaim or Counterclaim with setoff submission
• Article 53 – Virtual Hearings
• Article 62 – Arbitration Awards enforceable in the courts

These amendments came into in force on February 15, 2022.

If you have any questions about these changes, please contact Jaime Bustamante, Director of Trading Assistance at 613-234-0982 ext. 224

Welcome New Members

From January 15 until February 15, 2022, DRC welcomed the following new members:

COMARCA FRESH LLC		TX	United States
FRONTERRA GROUP INC. (También haciendo negocios como Fronterra)		FL	United States
GEM-PACK BERRIES, LLC. (Also d/b/a Gem Pack Berries)		CA	United States
GLOBAL LIONS CONSULTING COMPANY LTD.		BC	Canada
MCCONNELL TRANSPORT LIMITED		NB	Canada
OPERADORA COMERCIAL DATI S DE RL DE CV (También haciendo negocios como Mexafruits)		Queretaro	Mexico
PATEL SWEETS & SNACKS LTD. (Also d/b/a Patel Supermarket)		BC	Canada
RAINFOREST PRODUCE IMPORTS INC.		ON	Canada
ROUTE D’ENVOI CANADIENNE INC. / CANADIAN SEND ROUTE INC.		QC	Canada
ROYALHALO PRODUCE LTD. (Also d/b/a Royalhalo)		BC	Canada
TASTYFRUTTI INTERNATIONAL, LLC		PA	United States

DRC Membership: change in status

As of February 15, 2022, the following organizations no longer hold a DRC membership:

AGRUMES ED-REC / ED-REC CITRUS (A d/b/a of 9365-3822 Quebec Inc) QC Canada ASLCHEM INTERNATIONAL INC. BC Canada CADI EXPRESS INC. ON Canada FRESCO PRODUCE, LLC TX United States LATCANAM LTD. (Also d/b/a LatCan, Uniberries) AB Canada M & S PRODUCE INC. (A d/b/a of 9120-9064 Quebec Inc.) QC Canada METAGRO NATURELLES RESSOURCES INC. QC Canada MO-NA FOOD DIST. LTD. (Also d/b/a Mona Food) AB Canada SHORE FRESH PACKERS LTD. ON Canada SUNGIVEN FOODS CANADA INC. (Also d/b/a Sungiven Foods Canada) BC Canada TERRA RIKKA ORGANICS INC. (Also d/b/a Terra Rikka) BC Canada TERROIR CANADA (Faisant également affaire sous Kamel Bairi) QC Canada TOP NORTH AMERICA LTD. ON Canada TUTTIFRUTTI INTERNATIONAL INC. PA United States WORLD DIRECT TRADING INC. BC Canada

For details regarding a change in status, please contact the office.

Important note: Following membership termination, the former member remains liable for claims arising prior to their termination if the claim is submitted to DRC by way of a Notice of Dispute within nine (9) months from when the claim arose or within nine (9) months from when the claimant ought reasonably to have known of its existence.

 

About DRC

DRC is a non-profit membership-based organization whose core work is business-to-business commercial dispute resolution for produce. DRC is a referee between parties when a purchase and sale do not go according to plan. Members adhere to a common set of trading standards and member responsibilities that promote fair and ethical trading for produce entering the North American marketplace. In Canada, membership in the DRC is a regulatory requirement to trade fresh fruits and vegetables (i.e.: buy, sell, import, export) unless excepted from the regulations. Today, DRC has members in 16 countries outside of North America, and membership continues to grow annually. Anyone exporting fresh fruits and vegetables to Canada must sell to a DRC member.

In addition to the DRC’s Operating Rules and Trading Standards, DRC offers a comprehensive, tailored suite of tools to build the knowledge and capacity of members to avoid or resolve disputes, including education, mediation and arbitration. DRC has ability to impose sanctions and disciplinary actions towards members who do not conduct business in accordance with the terms of their membership agreement.

To date, DRC has resolved claims in excess of $105 million dollars. Although arbitration is available, 80% of these claims have been settled in an average of 26 days through our informal consultation/mediation services. Arbitration awards are court enforceable in countries that are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards or subsequent conventions.

To learn more, reach out to our Help Desk at [email protected] or (+1) 613-234-0982 or visit us at www.fvdrc.com.