Categories
Uncategorized

ARBITRATION DECISION BRIEF: Disagreement between the parties on the Terms of Sale and Private Survey

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 #19868 – Parties Domiciled – Spain and Canada

Facts

  • The Claimant sold to the Respondent a container of 2,400 boxes of Argentinian Grapes; according to the invoice, product was sold FCA at $16.00USD/box. The container arrived on February 2nd.
  • According to correspondence between the Respondent and the Claimant dated September 21st, 2016, there is no indication of any grade standard being agreed to. Only grapes of “Quality 1” are mentioned.
  • Respondent requested a Private Survey and a CFIA inspection. The Private Survey was performed on February 2nd indicating that the grapes did not meet US#1. A CFIA inspection was performed on February 3rd and revealed 3% decay, 4% discoloration, 3% shatter, and 2% waterberry. 
  • According to the parties, the Respondent paid in advance $19,680USD of the total invoice value ($38,400 USD) for the first container.

The Respondent supplied an account of sale and remitted the proceeds of $7,472.70USD after a deduction of $13,123.80USD from the original invoice value of $20,596.50USD.  

Issues

  • Whether there was an agreement between the parties on the terms of sale.
  • Whether there was an agreement between the parties to use an independent private commercial inspection service.

Arbitrator’s Analysis/Reasoning

There was no evidence that a Purchase Order was ever issued providing the agreed upon specifications for the shipment. A Purchase Order that was never discussed, understood, and agreed upon cannot be considered a contract.

In addition, neither the invoice nor the bill of lading indicates US # 1, and the INCOTERM used for this transaction was FCA, which would mean that even if there was an agreement for US # 1, it would have meant that US # 1 at the shipping point and not upon arrival.

The statement of purchase orders entitled “XXXX CANADA SPECIFICATION” is not an agreement between the Claimant and the Respondent for the Claimant to provide grapes meeting U.S. No. 1. According to DRC Trading Standards and Related Guidelines, in the absence of an agreement on grade, the transaction defaults to its Good Arrival Guidelines. The grapes, therefore, were to meet the DRC Good Arrival Guidelines upon arrival at destination.

Based on the grower’s explanation of the procedure used in loading freshly harvested grapes into a container, the Arbitrator couldn’t find evidence to indicate that the grapes were not properly pre-cooled.

Based on the CFIA inspection certificate dated February 3, 2017, the condition of the grapes met the DRC’s Good Arrival Guidelines of 15% total defects, no more than 15% of the same single condition defect, and no more than 3% decay for European Type grapes. 

According to the DRC’s Good Inspection Guidelines, “Independent private commercial inspection services mutually agreed upon by both parties; and who meet DRC Inspection Standards and Inspection Elements” can be used in the event of a dispute. 

However, there was no agreement between the parties that the inspection results of an independent inspection service would be used to attest to the condition of the grapes upon arrival.

In addition, the Arbitrator finds that the results and statements made on the independent inspection certificate go beyond the responsibilities of a fruit and vegetable inspector.  An inspector is to observe and report on the condition of the product, and they are not to provide their interpretation of what may have caused the condition. 

In the Arbitrator’s opinion, if the Respondent believed the results of the CFIA inspection were not accurate and the private surveyor reflected a more accurate picture of the condition of the product, they should have requested an appeal of the CFIA inspection immediately upon receiving the results of that inspection.

A further inspection such as this could have affirmed or reversed the fact that the grapes met DRC Good Arrival Guidelines and may have helped in determining the extent of any progressive nature of the condition of the grapes.

Based on the statements and evidence provided by the parties, the Arbitrator found the Claimant succeeded in establishing their claim.

The Respondent has failed to establish damages due to failing to secure an agreement for US # 1 and the CFIA inspection report indicating the product met DRC Good Arrival Guidelines.

 

Arbitrator’s Decision

Regarding the Claimant’s remedy sought, the Respondent is hereby ordered to pay the Claimant the remaining one-half of the invoice price of $19,200USD, plus $700USD as the non-refundable administrative filing fee and $1,500USD for estimated arbitration fees for a total of $21,400USD.

 

DRC Comments

As a receiver/buyer, if you have received produce in deteriorated condition, you must request a federal inspection unless otherwise agreed. When a receiver/shipper is not convinced that the results of a CFIA inspection reflect the condition of a load, they have the right to request an appeal inspection immediately after they are provided with the inspection report. To request an appeal inspection, the following criteria must be met:

Any person who has a financial interest in the produce and it is not satisfied with the initial inspection may apply for an appeal inspection. To perform an appeal inspection, the produce must be accessible for inspection, the load must be identifiable by the original inspection certificate and 75 percent of the lot is available for inspection.

In this decision, and like previous analysed DRC arbitration decisions, we see again the importance of properly discussing, understanding and agreeing to a Grade Standard. In this case, there was no evidence showing the parties agreed to any specific grade standard. As a result, the Arbitrator had to rule that the transaction defaulted to DRC Good Arrival Guidelines.  

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

DRC Trading Standards: