The Fruit and Vegetable Dispute Resolution Corporation (DRC) has developed a series of articles summarizing past arbitration decisions. These articles will help members understand how the DRC Dispute Rules and Standards (R&S) apply in a dispute.
The DRC Dispute R&S states that all DRC arbitrations are private and confidential. As such, the names of all parties, including arbitrators and companies, are not included. A reminder that the DRC’s sole role is to administer the arbitration process; the DRC does not participate in any hearings. Therefore, this summary is based solely on the arbitrator’s written decision and may not reflect important information shared with the arbitrator through written briefs or verbal testimony.
ABSTRACT
The arbitration decision addresses a dispute between parties from the United States and Canada. The dispute emerged when the Respondent received a product in deteriorated condition, conducted a restricted inspection, and submitted an account of sales indicating a return that the Claimant did not accept.
The arbitrator found that there was insufficient evidence to support the Respondent’s full claim, but allowed damages for the product that was inspected according to the Canadian Food Inspection Agency (CFIA) inspection results.
This summary provides an essential overview of the arbitration decision and its implications for international commercial disputes.
CASE: DRC File #19197 – Parties Domiciled – United States and Canada
SUMMARY OF FACTS
On or about April 19, 2013, the Claimant sold 910 cartons of romaine lettuce at a price of US$6.45 per carton and 168 cartons of green leaf lettuce at US$5.45 per carton. The total invoice amount (Inv. 311545) was US$6,808.60, which included the cost of a temperature recorder.
Upon arrival on April 23, 2013, the Respondent requested a federal inspection for the romaine. The following morning, a CFIA inspection was conducted on 500 of the 910 cartons shipped. The inspection revealed 22% marginal browning and 3% tip burn. A CFIA inspection certificate was subsequently faxed to the Claimant.
The Respondent claimed that to minimize their losses, they initially distributed some of the romaine to their customers. However, due to the deteriorated condition of the product, it was returned. Ultimately, the Respondent managed to sell 747 cartons at varying prices, with the average price per box being CA$12.50. The Respondent provided the Claimant with an account of sales, indicating a net loss of CA$2,103.80.
The Respondent acknowledged owing the Claimant US$950.60 for the Green Leaf 24’s, as well as an additional US$23.50 for the temperature recorder, which reduced the net loss to US$1,164.80.
Both parties submitted the “Claim Review Report,” prepared by the Claimant. Notably, the Claimant agreed to reduce the price of the 910 cartons from US$6.45 to US$5.17, resulting in a total deduction of US$1,164.80 on invoice 311545.
This document included the following statement: “(tpolk 09/07/2013 15:27:40): The product arrived with 3% edge burn and 22% marginal darkening. The customer handled it discreetly. A lower payment is accepted.” The Respondent argued that this document was interpreted as an admission by the Claimant that all the 24’s romaine lettuce arrived with significant quality issues, which authorized the Respondent to handle the product accordingly. In contrast, the Claimant argued that, based on the CFIA inspection certificate’s results, the Respondent was notified that full payment for this FOB sale was expected.
SUMMARY OF ARBITRATOR’S ANALYSIS AND REASONING
It is not in dispute that the product was shipped from California and arrived in Montreal, nor the amount of the product.
Once the product arrived and the Respondent noticed a problem with the Romaine, they stamped the BOL with RECEIVED UNDER PROTEST and requested a CFIA inspection. These were the correct procedures under the circumstances.
Although no copies of faxes or emails were produced, once the inspection was completed, according to the Respondent, he notified the Claimant of the results as he was required to do so. The Claimant does not dispute that he received this notification.
However, when the Inspector arrived, only 500 cartons, by actual count, out of 910 received were available for inspection. The Respondent never gives a satisfactory explanation for this discrepancy.
He provides substantial evidence that he tried to sell 419 cartons, but gives no indication whether this was before or after the inspection.
Some of it was most definitely after the inspection, as 419 cartons were deducted from the original 910, leaving 491. Therefore, if 500 were inspected at least 9 cartons were sent out after the inspection took place.
The Claimant is correct in that the percentages of defects as listed on the Inspection certificate cannot be considered as representative of the entire shipment.
It is well established in the produce industry and through numerous DRC, the Perishable Agricultural Commodities Act (PACA) and court decisions that any portion of a commercial shipment that is not inspected shall be averaged into the damage calculations as having zero defects. This means that the shipment as a whole would have made good delivery.
The Respondent acted correctly in attempting to sell the product as soon as possible, as per DRC Trading Standards, Section 10, 2b(iii). However, he should have had the entire shipment inspected first. The arbitrator will acknowledge that it is at times acceptable for a buyer to sell a percentage of a load (usually no more than 25%) prior to inspection when that sale serves to minimize the loss. However, in this case, there is no evidence provided as to the date/time that the sales were attempted and no evidence that they occurred before or after the inspection.
In this case, the sales did not serve to minimize the loss. Also, he did not provide a representative sample of the load. The buyer must bear the consequences of his decision.
The Respondent apparently did dispose of the product and states that the receipts did not cover the costs of transportation, customs, inspection fee, etc., and he suffered a net loss. The amount of his loss is recorded in his Account of Sales as US$2,103.64.
How the Respondent disposed of the Product is not disclosed. In the Statement of Defence paragraph 5(d), it claims that there is an “invoice of an integrated waste management company related to the dumping.” No such invoice has been made available to the arbitrator. If the Respondent did dump the product, it should have complied with the DRC Trading Standards, Section 10, 2b(iv), which states that a dump certificate should have been obtained, and a copy forwarded to the Claimant.
Also, in its own Account of Sales, the Respondent shows $0.00 for the Dumping fee.
Therefore, in the absence of such documentation, the Arbitrator must assume that the Respondent did sell the product. The June 11, 2013, Respondent’s Account of Sales sent to the attention of Mr. Y at the Claimants shows an income of US$6,396.36.
Much of the Respondent’s Statement of Defence is given over to explanations of how he has deducted this loss from payments already owing to the Claimants for invoice 310061 shipped about one month previously and (other than a TempTale) for an entirely different product.
For one party to deny payment on another invoice is highly improper, as this is actually changing a contract. This can only be done when both parties agree to the change. The Claimant has not made mention of this in either of its submissions and apparently accepted the check sent by the Respondent for US$7814.61, carefully marked “Full and Final Payment” as the payment of invoice 310061.
The Arbitrator accepts that the check is marked as a full and final payment, and there is a bona fide dispute on invoice 31145. There, however, is no dispute on invoice 310061. Because there is no dispute on this unrelated invoice, the creditor cannot be “held hostage” by the “full and final” notation contained on the check covering two different transactions.
The Respondent has attempted to explain how the Claimant did accept the payment in paragraphs 5 & 6 of its Defence. It is highly confusing. Two different totals are given, along with the statement “that Respondent did acknowledge owing to the Respondent!!”
The Respondent refers to the Claimant’s Review Report. Both parties submitted this interesting document, so there can be no denying its authenticity, even if it gives the arrival date of November 12, 2006.
This document contains a line “(tpolk 09/07/2013 15:27:40): The product arrived with 3% edge burn and 22% marginal darkening. The customer handled it discreetly. A lower payment is accepted.”
The Respondent interprets this as “an admission from the Claimant that all of the Romaine Liner 24’s arrived showing serious condition problems and that therefore the Respondent was authorized to handle said produce.”
Claimant, however, states the opposite. The Statement of Claim states, “based on the results of this CFIA inspection certificate, the Respondent was immediately put on notice that full payment would be anticipated on this FOB sale.”
The same exact phrase is repeated in the Claimant’s Reply to the Statement of Defence.
Unfortunately, the Claimant has submitted no evidence whatsoever to verify that this “notice” was ever given or on what date. Furthermore, the Claimant, even though submitting a copy of the Claim Review Report themselves, never once comments on it. Not even in its final Reply after the Respondent has brought it to the Arbitrator’s attention.
The Claimant does not comment on the phrase “Accept short payment” in its own Claim Review Report.
The Respondent acknowledges that it owed the Claimant for the 168 cartons of Green Leaf 24’s for US$950.68. Where this number comes from is not explained. Both parties forwarded copies of the Claimant’s original Invoice 311545 for US$915.60.
The Respondent also acknowledges that it owed US$23.50 for the TempTale.
The Claimant asserts that none of this has been paid.
ARBITRATOR’S SUMMARY DECISION
The Arbitrator ruled that the Respondent should pay the Claimant for all 410 cases. The Claimant should also be paid for the 500 cases that were found to be defective and that the Respondent sold. However, the price the Claimant receives for these cases should reflect the results of the CFIA inspection. This price should be US$5.17, an amount the Claimant had previously been willing to accept, according to its own Statement of Claim.
The Respondent, by its own admission, owed the Claimant 168 cases of 24-ounce Green Leaf and also the TempTale. The Claimant, who received no payment on this invoice, should be reimbursed for the filing fee.
The Claimant has had to wait a full year for payment and is therefore entitled to interest on the undisputed amounts: the Green Leaf and the TempTale.
AWARD
DRC COMMENTS
There are two important issues to address in this case:
- Importance of inspecting more than 75% of the entire load.
For an inspection report’s results to be considered representative of the full load, more than 75% of the total load must be physically present and available for the inspector to select samples from. This percentage is based on the request for an appeal inspection under CFIA’s Destination Inspection Services, which states that for an appeal inspection to be conducted, more than 75% of the load must be available. Otherwise, an appeal inspection cannot be conducted, as anything lower than 75% available for inspection will not be considered a representative of the full load.
- Properly supporting costs indicated in an account of sales.
We cannot stress enough the importance of properly backing up any expense or cost indicated in an account of sales. Aside from showing that these expenses were discussed, understood and agreed upon, expenses such as warehousing, dumping, freight, repacking, etc., must be supported by the appropriate receipt or bill. Failing to provide this information can lead to an arbitrator dismissing the account of sales and making their own damages calculation using other methods.
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