Author: DRC

We have highlighted some DRC statistics from the 2021 Annual Report which may be of interest to you.

 

Membership

• Active members at December 31, 2021: 1,765 from across 15 countries
• Members joined in 2021 – 201
• Members terminated in 2021 – 181
• Annual member retention rate – 95%

Top three member segments by type of business

• Wholesaler – 23%
• Grower/Shipper – 22%
• Distributor – 21%

New member referrals – top three sources

• Trade – 40%
• Associations/Brokers/Legal – 20%
• CFIA/Government – 20%

 

Trading Assistance Statistics of Interest for 2021

Open files

• 140 consultation files
• 39 Informal files
• 16 Formal files (arbitration)

The average number of days open

• 26 Informal (consultations excluded)
• 105 Formal (arbitration)

Files by Jurisdiction – top 3 areas

• Canada/Intraprovincial – 25%
• Canada Interprovincial – 25%
• USA vs Canada – 22%

Average Amount of Claims in 2021

• $54,997 Informal
• $199,585 Formal

For more information, refer to the DRC’s 2021 Annual Report to Members, login into our members only area at www.fvdrc.com

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 #11138 – Parties Domiciled – United States v. Canada

 

Facts

The Claimant sold two loads of Fresh Tomatoes to the Respondent.

 

First Load (INV#40135)

• On October 21, 2001, a load of 1,600 cartons of Fresh Medium Tomatoes at US$5.45 per carton for a US$8,750.00 total invoice were sold FOB from California to Montreal, QC. The invoice also included a USD$20 temperature recorder charge.

• On October 27, 2001, a CFIA Inspection was performed on 1,000 cartons of the 1,600 cartons that were shipped. The results of the inspection indicate the tomatoes were affected by 2% decay, 2% soft, 20% bruising, 8% abnormal color and 3% sunken discolored areas.

 

Second Load (INV#40136)

• On October 23, 2001, a load of 1,600 cartons of Fresh Large Tomatoes were shipped from California to Montreal, QC.
• Invoice #40136 indicates the shipment was sold FOB at USD$8.95 per carton for an invoice total of USD$14,320.

• On October 29, 2001, a CFIA Inspection was performed on the 1,600 cartons. The results of the inspection indicate the tomatoes were affected by 25% total condition defects and 9% decay.

 

Respondent provided an Account of Sale to the Claimant, which contained 33 invoices reflecting the cumulative sale of 3,533 total cartons of tomatoes, whereas only 3,200 cartons of tomatoes were actually shipped.

 

Issue

• Whether the Respondent fulfilled his duties according to the DRC Rules after receiving a commodity in deteriorated condition.

 

Arbitrator’s Analysis/Reasoning

 

Both transactions in issue were FOB sales, and no evidence has been submitted that either sale was made on anything other than a “no grade” basis.  Under established DRC precedent, when parties to a shipment between the U.S. and Canada do not agree on destination tolerances to be applied, DRC Good Arrival Guidelines will govern. 

 

Invoice # 40135.

Having accepted the tomatoes, Respondent bears the burden to prove breach of contract.  The inspection for invoice #40135 covered only 1,000 of the 1,600 cartons shipped. Under established DRC precedent, we must assume that the 600 missing cartons of tomatoes were free from defects. 

 

Applicable good arrival standards allow a maximum of 15% total defects with no more than 5% soft or decay. The CFIA inspection results on the 1,000 cartons of tomatoes showed 35% total condition defects in the aggregate, including 2% decay, 2% soft, 20% bruising, 8% abnormal color and 3% sunken discolored areas. However, upon factoring in the 600 missing cartons, the cumulative defects are reduced to 21.9%, including 1.25% decay, 1.25% soft, 12.5% bruising, 5% abnormal color and 1.9% sunken discolored areas.

 

Accordingly, Respondent has met its burden of proof that the tomatoes sold under invoice #40135 failed to make good delivery. This leaves the question of the amount of damages due Respondent for the breach of contract. Typically, the measure of damages for breach of contract is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted.

 

In this case, determining appropriate damages based on the evidence submitted is problematic, to say the least. First, Respondent has not provided any evidence of the fair market value the goods would have had upon acceptance had they been as warranted. In the absence of any such evidence, we can use the FOB contract price plus freight as the value of the goods had they been as warranted. The contract price for the tomatoes was USD$8,740.00 and the net freight bill for this load submitted by Respondent was USD$2,890.00. Therefore, the value of the goods upon acceptance had they been as warranted is determined to be USD$11,630.00. 

 

Second, although Respondent has submitted an account of sales of sorts, this accounting is far from detailed. The evidence submitted by Respondent consists solely of 33 copies of invoices evidencing the sale of size 6×6 and size 6×7 fresh California tomatoes and one invoice showing the resale of size 5×6, a size which is not the subject of this dispute.  All 33 invoices have been submitted as a single group exhibit for both invoice #40135 and #40136. Moreover, the 33 invoices submitted by Respondent reflect the cumulative sale of 3,533 total cartons of tomatoes whereas only 3,200 cartons of tomatoes were actually shipped, of which 82 were dumped and are therefore not reflected on these invoices. 

 

The only logical conclusion for the excessive carton count on the accountings is that the submitted invoices likely reflect the sale of 415 cartons of tomatoes that are not the subject of this dispute.  Moreover, even though the invoices reflect the size of tomato sold (either ‘6×6’ or ‘6×7’) any attempt to trace the tomatoes by size is equally unhelpful because the invoices reflect the sale of 1,781 cartons of 6×7’s and 1,752 cartons of 6×6’s, whereas only 1,600 of each size were shipped and even fewer were sold given that 82 cartons were dumped. Thus, without a detailed accounting from Respondent, it is virtually impossible to accurately identify which of the submitted invoices reflects the resale of tomatoes that are actually the subject of this dispute without significant speculation. To engage in such speculation would be improper.

 

Although the evidence submitted by Respondent is seriously deficient, it is not wholly without probative value. In the absence of other evidence, the Arbitrator used the average selling price for medium tomatoes (6×7) reflected on the invoices to calculate a fair return for Respondent’s resale of the tomatoes. The average per carton selling price is CAD$8.14 [CAD$14,497.00/1,781 cartons], which converts to USD$5.12 based on an exchange rate of 0.62940, the average rate in effect between October 29 ,2001 and November 9, 2001. Therefore, total amount returned to Respondent for invoice #40135 was determined to be USD$8,017.92 [USD$5.12 x 1,566 cartons actually sold].

 

Accordingly, based upon the evidence submitted, Respondent’s damages for invoice #40135 are USD$4,311.49, itemized as follows:

          

1. USD$3,612.08, which is the difference between the value of the tomatoes upon acceptance had they made good arrival (USD$11,630.00) and the amount determined to have been returned to Respondent for its sale of the tomatoes (USD$8,017.92).
2. Inspection fee (CAD$475.71 x .62940) = USD$299.41.
3. Handling/brokerage fee: USD$400.00.

 

When Respondent’s damages are deducted from the total invoice price of USD$8,740.00, Respondent is liable to Claimant for USD$4,428.51 for invoice #40135. The Arbitrator noted that Respondent had not submitted evidence of any other charges incurred in connection with the breach, such as repacking or dump charges, and therefore no amounts for these charges can be awarded. 

 

Invoice #40136.

The inspection for invoice #40136 covered the entire 1,600 cartons shipped. There is no dispute as to the timing or validity of the inspection. 

 

As stated above, applicable good arrival standards allow a maximum of 15% total defects with no more than 5% soft or decay. The CFIA inspection results on the 1,600 cartons of tomatoes showed 25% total condition defects in the aggregate, including 9% decay. Based on the inspection, this load failed to make good delivery. 

 

Accordingly, Respondent has met its burden of proof to establish breach of contract. This leaves the question of the amount of damages due Respondent for the breach. The evidence submitted by Respondent in connection with invoice #40136 suffers from the same deficiencies as the evidence submitted in connection with invoice #40135, as explained above. Accordingly, the damages analysis used for invoice #40135 equally applies here. 

 

The value of the tomatoes upon acceptance had they been as warranted is determined to be USD$17,260.00, which is the contracted invoice price of USD$14,320.00 plus freight charges of USD$2,940.00 per the freight invoice submitted by Respondent. 

 

Based on the invoices submitted, Respondent received the cumulative amount of CAD$13,398.00 for its sales of 1,751 cartons of Large (6×6) tomatoes. The average per carton price was CAD$7.65, which converts to USD$4.81 based on the average exchange rate in effect between October 29, 2001, and November 9, 2001. Of the 1,600 cartons of 6×6 tomatoes sold under invoice 40136, 48 were dumped leaving a total of 1,552 cartons to be sold. Therefore, the amount determined to have been returned to Respondent for its sale of 6×6 tomatoes is USD$7,465.12 [USD$4.81 x 1,552]. 

 

Accordingly, based upon the evidence submitted, Respondent’s damages for invoice #40136 are USD$10,374.86, itemized as follows:

          

1. USD$9,794.88, which is the difference between the value of the tomatoes upon acceptance had they made good arrival (USD$17,260.00) and the amount determined to have been returned to Respondent for its sale of the tomatoes (USD$7,465.12).
2. Inspection fee (CAD$285.92 x .62940): USD$179.98.
3. Handling/brokerage fee: USD$400.00.

 

When Respondent’s damages are deducted from the total invoice price of USD$14,320.00, Respondent is liable to Claimant for USD$3,945.14 for invoice #40136. The Arbitrator noted that Respondent had not submitted evidence of any other charges incurred in connection with the breach, such as repacking or dump charges, and therefore the Arbitrator did not award amounts for these charges.

 

Arbitrator’s Decision

The Respondent was required to remit to Claimant the amount of USD$8,373.65, plus its DRC arbitration commencement fee of USD$535.00 for a total award of USD$8,908.65

 

DRC Comments

We cannot stress enough the importance of having a representative sample of the load (more than 75%) available for an inspection. We understand that sometimes, an opportunity to sell part of the load at a good price comes along but, when that happens, it is better to communicate with your supplier to confirm it is ok to get a partial inspection.

 

Additionally, when claiming damages, it is very important to present an itemized account of sales showing the date, time, price and volume sold per lot, and when subtracting expenses such as freight, inspection cost, storage, brokerage fees, etc., that all these expenses are supported by the respective bill or invoice.

 

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)

Welcome New Members

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

AFRICA HAVEN INC.	QC	Canada
AGUACATES CORREY SA DE CV (También haciendo negocios como Aguacates Correy)	Michoacan	Mexico
ECHERI UJCHAKURA PRODUCE (A d/b/a of Arturo Hernandez Villegas)	ON	Canada
ESXA IMPORT & EXPORT (A d/b/a of Ngoc Quynh Nguyen)	QC	Canada
EVER TRU FARMS	ON	Canada
EXPORTADORA BEST BERRY CHILE S.A (También haciendo negocios como Best Berry Chile S.A.)	Bio-Bio	Chile
GRUPO AVOMEZA SA DE CV (También haciendo negocios como Avomeza)	Michoacan	Mexico
IMPORT KARI / KARI IMPORT (Faisant également affaire sous 9461-9798 Québec Inc.)	QC	Canada
JOSEPH’S PRODUCE EASTSIDE INC. (Also d/b/a Joseph’s Farm Market)	ON	Canada
KENLIN TRADING INC.	ON	Canada
LES FERMES E. NOTARO ET FILS INC.	QC	Canada
MEATEX FARMS LTD.	AB	Canada
NIGHTINGALE FARMS LIMITED	ON	Canada
THE GLOBAL GROCERS INC.	ON	Canada
VILLITA  AVOCADOS INC.	TX	United States

 

DRC Membership: change in status

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

APNA – PUNJAB GROCERY & MOVIES & GIFTS CORP. AB Canada AST IMPORTS INC. ON Canada BENITO PRODUCE CORP. ON Canada BLUE ORBITS (A d/b/a of Blue Orbits Inc.) ON Canada BRIGHTSTAR SILK SAREES INC ON Canada D&M EXPORTS S.A. De C.V. Michoacan Mexico DALEY FARM FRESH PRODUCE INC. (Also d/b/a Daley’s Trucking) ON Canada ESS ESS DISTRIBUTORS INC. ON Canada FARM ALLIANCE (A d/b/a of 12578468 Canada Inc.) ON Canada FRASER VALLEY EXPORTS INC. (Also d/b/a Vanfruits) BC Canada GREATRATE FOODS LTD. BC Canada HARLEY FOOD DISTRIBUTOR INC. ON Canada HEALTHY CHOICE WHOLESALE FOODS INC. BC Canada HOWIE TROPICAL PRODUCE (A d/b/a of Howard White) ON Canada IKE’S AFRICAN FOODS (A d/b/a of 2212310 Ontario Inc.) ON Canada JG FRESH PRODUCE S. A. C. Lima Peru JOHNSON PRODUCE LTD. ON Canada JOSEPH’S PRODUCE 2005 LTD. ON Canada KAPITAL PRODUCE 2000 INC. ON Canada LEVEL HOLDINGS LTD. BC Canada LOKESH JAIN ENTERPRISE (A d/b/a of Lokesh Jain) ON Canada MANGOLICIOUS BY MM (A d/b/a of Mona Mehta) ON Canada MANNA INTERNATIONAL TRADING LTD BC Canada MARINA EXPORT & IMPORT INC. ON Canada MARTINEZ & SONS PRODUCE INC. CA United States MISSION NATURALS INC. BC Canada NOURIMPEX (A d/b/a of 9347-9426 Quebec Inc.) QC Canada PAHEER VEG & FRUIT GROCERY IMPORT  (A d/b/a of Paheerathan Panchalingam) ON Canada PIP INTERNATIONAL PRODUCE AND SPICES LLC. (También haciendo negocios como PIP INTERNATIONAL) TX United States PURITY-PAK TRADING (A d/b/a of 1823428 Ontario Inc.) ON Canada RAFI FOODS (A d/b/a of Fatemeh Rafiei) BC Canada SUN FRESH CITRUS LLC. CA United States TORCAN TRADING INC. ON Canada TROPICAL WAVE TW INC. ON Canada TURTLE ISLAND PRODUCE LIMITED ON Canada UNIGARDEN INC. ON Canada WEST LAND LIVESTOCK INC. AB Canada YAQTEEN COMPANY (A d/b/a/of 2234075 Ontario Inc.) ON Canada YOUDESSE ALIMENT (Faisant également affaire sous 9300-3580 Québec Inc.) QC 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.

 

We all wish to avoid confrontations or be able to resolve them amicably without having to submit a Notice of Dispute (NOD) to initiate a formal claim through the DRC’s Dispute Resolution Process. However, things happen and every so often a consultation turns into (becomes an) Informal Mediation. Here are some important tips for those who either submit a NOD or become Respondents to such dispute.

 

Be sure to submit your NOD before the 9-month deadline.

Keep in mind that to present a successful NOD, DRC’s Dispute Resolution rules require members to submit their claim within nine (9) months of when the claim arose or when the claimant ought reasonably to have known of its existence. Unfortunately, it is not uncommon to receive calls about claims that are either beyond the nine-month deadline or are quickly approaching it. Having dealt with thousands of calls over the years, we get it. Sometimes things can get away from us, especially if we get busy and most other business is going well.

However, between members, the nine-month limitation of claims must be taken seriously as it prevents you from using any other recourse outside of DRC to resolve your dispute.  DRC Mediation and Arbitration Rules, Article 4, state, “…the Claim is notified to the Corporation by way of 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.”

 

The wording “ought reasonably to have known” is intended to address indirect situations where notice of a problem was not explicitly communicated by one party to another. An example would be when a cheque is returned for non- sufficient funds.

Keep in mind that according to our rules, “Failure to file the Notice of Dispute with the Corporation (DRC) within this time shall be deemed an abandonment of the Claim and prevent recovery against another member.” In other words, you may have lost an opportunity to potentially recover some funds.

How to explain my case.

A NOD is your opportunity to explain:

• Who you are,
• Who you are claiming against,
• What happened that led to the dispute, and
• What remedy you are seeking?

 

Clearly describe and outline the events and reasons you think you are entitled to a remedy. The better you explain and detail your claim, the easier it is to address the main issues. Often a good way to organize your presentation is to order the events chronologically, including:

 

• Term of sales,
• When and from where product was shipped,
• When and where product arrived,
• Pulp temperature(s) at shipping point and/or on arrival (if any),
• Inspection results (if any), and
• Any other information that helps clarify the issue(s).

Be sure to submit all relevant documents with your NOD.

How many times have we read the arguments but have not been given the documentary evidence to back it up? Parties need to remember that we can only give our opinion based on the submissions. Informing us that such and such happened is of no value if there is no evidence to back it up, especially if the opposing party denies the action.

 

If you are relying on any document/s, you should attach copies of these documents:

• Bill of Lading (BOL),
• Invoice,
• Purchase Order (PO),
• Inspection,
• Account of Sale, and/or
• Any other document that is related with the matter.

 

Be sure your evidence is correct.

You would be amazed by the number of claims that come with incorrect arithmetic. Be sure to check it twice.

 

Do not send documents for another load or a different day. Even if your opponent does not notice your deception the DRC team most certainly will, and this will be reflected in our comments/observations of the case.

 

Know the DRC rules.

Many cases that come before us are because a party did not follow the rules. This is especially true of inspections. The DRC rules are very clearly laid out in the members handbook, yet cases continue to arrive where these rules were ignored. Often a party will state that they did not ask for an inspection because of the cost or because the shipper did not request one. It is a buyer’s/receiver’s obligation to prove that a load arrived in deteriorated condition. An inspection must be requested in accordance with DRC Good Inspection Guidelines.

 

If you use a broker, be very aware of the rules governing brokers, especially those that limit the broker’s responsibility. “But I phoned the broker” is an all too familiar refrain, but it is not the broker’s responsibility to pass the complaint on to the other party and the clock is ticking and an inspection is due.

 

Do not try to debase your opponent.

Calling your opponent, a “useless so-and so” or even worse, will not help your case. In fact, it may even hurt it if your opponent maintains a dignified attitude. We base our comments on the evidence and the evidence alone. Name-calling will change nothing.

 

These are very important tips that you may want to follow when filing or defending a claim.

Welcome New Members

 

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

 

13448649 CANADA INC.	ON	Canada
ALPINE FREIGHT LINES INC.	ON	Canada
COMERCIALIZADORA DE FRUTAS DE TACAMBARO, S.A. DE C.V. (También haciendo negocios como Come Fruta)	Michoacan	Mexico
CURTIS RIDGE FARMS LTD.	MB	Canada
EPICUREAN PRODUCE (A d/b/a of Endri Demeti)	ON	Canada
JADU DISTRIBUTION INC.	QC	Canada
LA PRODUCTION BARRY INC.	QC	Canada
LOZA FRESH INC.	ON	Canada
MERCATO FRESH INC. (Also d/b/a Mercato Fresh)	ON	Canada
MYD SOLUTION CANADA CORP.	ON	Canada
NATURES PRODUCE AND SEAFOOD (A d/b/a of 13860922 Canada Inc.)	ON	Canada
PEAK OF THE MARKET LTD.	MB	Canada
SAIRAJ ENTERPRISE CORPORATION	BC	Canada

 

DRC Membership: change in status

 

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

 

AS CARIBBEAN PRODUCE INC. AB Canada AURORA FRESH S.P.R DE R.L. DE C.V. (También haciendo negocio Michoacan Mexico AVO AZTECA SA DE CV Michoacan Mexico COUFFIN BIO CDN INC. QC Canada HIDROPONIA GALICIA Y ASOCIADOS S.P.R. De R.L. (También haci Puebla Mexico MATOOKE SHOP EAST AFRICAN FRESH FOODS INC. ON Canada PERSEVERE PRODUCE (A d/b/a Persevere Produce LLC) OH United States SAVCO WORLDWIDE, INC. ON Canada SUPERIOR SALES, INC. MI United States THE GREENGEN INCORPORATED ON Canada UBBELEA MUSHROOM FARMS LTD. ON Canada VANCITY PRODUCE LTD. BC Canada WAN DA WHOLESALE FOOD LTD. AB 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.

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.