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ARBITRATION DECISION BRIEF: Private surveys and failing to comply with a settlement agreement

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 Standards (R&S) apply in the event of a dispute. DRC Dispute R&S 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 #20132 – Parties Domiciled – Mexico and Canada

Facts

  • The Claimant shipped a load of different size avocados (12’s, 14’s, 16’s, 20’s, and 22’s in 4kgs. and 48’s, 60’s, and 70’s in 11kgs. cartons) to the Respondent on March 4, 2018. According to the invoice, the total price was US$45,636.80. 
  • The load arrived on Saturday, March 10, 2018. Upon arrival, Respondent sent an email to Claimant indicating there were some issues with the load. Claimant replied, indicating an inspection was needed.
  • On March 11th, Respondent requested a private survey and performed it on March 12th. The survey report shows on the 3456 cartons of size 12’s, 14’s, 16’s, 20’s, and 22’s (16% discolored spots, 3% bruises/soft areas, 3% excessive scars* for a 22% total defects). And on the 400 cartons of size 48’s, 60’s, and 70’s, the report shows (18% discolored spots, 5% bruises/soft areas, 3% excessive scars* giving us 26% total defects. Note: * On transactions where no grade standard has been agreed upon, permanent/quality defects such as scars do not count towards the total sum of average defects.
  • On March 13th, the results of the private survey were communicated to the Claimant. The parties had a few discussions regarding requesting a federal inspection. Even though the Claimant was not fully convinced, he decided that the federal inspection was no longer required and that an authorized discount would be granted for this load.
  • Respondent sent an account of sales to the Claimant on April 11, 2018, in which it shows a return of US$29,736.00 and requested a corrected invoice.
  • The Claimant did not accept Respondent’s proposed return and asked for the payment of the total invoice price, offering a credit in the amount of US$3,300.00 that the Respondent did not accept.
  • Negotiations continued after closing the informal process, where parties reached an agreement. Parties agreed on a proposal payment of US$29,736.00 and a credit note for US$15,900.80 divided into three payments of US$10,000.00 due by 10/13/2018, US$10,000.00 due by 11/13/2018 and US$9,736.00due 12/13/2018. Respondent failed to comply with the agreed payment, and the Claimant decided to commence the Arbitration process.

Issues

  • Whether there was an agreement between the parties to use an independent private commercial survey service.
  • Whether Respondent was responsible for paying the full invoice amount after failing to provide payments as parties agreed.

Arbitrator’s Analysis/Reasoning

Should the Respondent be obligated to pay US$45,636.80 in the absence of a federal inspection?

There is evidence in the file that both parties knew there were problems with the avocados. According to the DRC rules, a buyer who receives product in a deteriorated condition is obligated to request a federal inspection unless there is an agreement between the parties regarding the use of private surveys. While there is no written agreement that the parties had agreed to a private survey, negotiations for a discount started after receipt of the private inspection report. This certainly suggests that the seller knew of the produce condition.

Evidence in the file suggests the inspection was done in a timely manner. Also, it appears the discolored spots were not caused because of deterioration, but because of growing conditions. The results of the private survey suggest that the avocados failed to meet the DRC Good Arrival Guidelines.

Did the parties reach an agreement regarding how much the avocado load was worth?

Each party in their own pleadings stated there was an agreement on how much the Respondent owed the Claimant. Each party stated that the agreement was for Respondent to pay Claimant US$29,736.00.

This arbitrator could not find any reason why the US$29,736.00 was not paid to complainant.

Arbitrator’s Decision

Award in favor of Claimant, in the amount of US$29,736.00 plus US$2,500.00 for arbitration filing fees. A total of US$32,236.00 must be paid by Respondent, to Claimant, within the next 30 days.

 

DRC Comments

As a receiver/buyer, if you have received produce in deteriorated condition, you must request a federal inspection unless otherwise agreed. Alternative inspection services must be discussed, understood, and agreed upon, and preferably in writing. In this case, the arbitrator found the parties discussed adjusting the original invoice price based on the results of the inspection. In the eyes of the arbitrator, the Claimant waved his right to have a government inspection due to reaching an agreement on a price adjustment based on the results of the private survey.

Another important point in this decision that DRC members must take into consideration in their transactions is the importance of having proper documentation. In order for a contract or agreement to serve its intended purpose, it must be detailed. The rights and duties of each party should be defined clearly, with little room for interpretation. Issues such as timely performance, payment terms and termination rights should all be clearly documented. For example, in this case, parties agreed to settle the matter with a payment plan, where they specified the amount to be paid and the date on which those payments needed to de made. However, it was not specified that the settlement agreement would be terminated if Respondent failed to make those payments and would be responsible for paying the total invoice amount.

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

DRC Trading Standards: