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ARBITRATION DECISION BRIEF: Whether Respondent performed his duties according to the DRC rules after receiving a commodity in a deteriorated condition.

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 #19404 – Parties Domiciled – United States and Canada

Facts

  • Claimant sold to Respondent 880 cartons of seedless watermelon from Guatemala. According to the invoice, the product was sold FOB at $10.75USD/carton. 
  • Respondent received the load in Montreal on the morning of March 16th, 2015. A federal inspection was requested and performed the same day. The inspection report revealed 0% decay, 2% scars and 25% overripe, which is considered serious damage.  
  • On April 19th, 2015, Respondent supplied to Claimant an account of sale for the 880 cartons at three separate price tiers: 275 cartons at USD$13.11, 220 cartons at USD$11.48, and 385 cartons at $9.02, resulting in an aggregate sale proceed of USD$9,602.46. After deducting freight, inspection and commission charges, totalling USD$5,295.24, Respondent declared that the remitted proceed due to Claimant was USD$4,307.22, which Respondent proposed to round up to USD$4,400.00. 

 

Issues

Whether Respondent performed his duties according to the DRC rules after receiving a commodity in a deteriorated condition.

Arbitrator’s Analysis/Reasoning

This dispute centers around the following question: Did Respondent perform as per the terms of the rules of the Fruit & Vegetable Dispute Resolution Corporation in its handling of the sale of the watermelons it received from Claimant on March 16, 2015? There are several components to this question:

  • Were DRC rules regarding inspection/rejection followed by Respondent?
  • Did Respondent “make every reasonable effort to market the produce as soon as is practicable in the circumstances”?
  • Did Respondent provide a true and correct account of the sales of this product, including the “proper, usual or specifically agreed upon selling charges and expenses properly incurred or agreed to in the handling thereof”?

The Arbitrator answered each of these questions in same sequence:

  1. As to whether DRC rules regarding inspection/rejection were followed by Respondent, it would appear that the call for inspection was made on a timely basis, the quantity of cartons made available to the CFIA inspector was appropriate, and the outcome of the inspection was determinative. The 25% overripe determination materially exceeded the 15% maximum tolerance for condition problems under DRC rules and constituted Shipper’s clear breach of contract in its contract with Respondent. Once this breach of contract had been established, Respondent was then within its rights, with or without the agreement of Claimant, to proceed with the sale of the shipment so as to recover its incurred costs, remitting the balance of the proceeds to Claimant.

 

  1. As to whether Respondent made “every reasonable effort to market the produce as soon as is practicable in the circumstances,” the only timeline evidence in the submittals by both parties is the March 25th email from Respondent to Claimant indicating that only 200 cases remained at that date. Moving 680 cases of deteriorated cargo over the space of 7 working days would appear to fall within a fair interpretation of “every reasonable effort to market the produce as soon as is practicable”.

 

  1. As to whether Respondent provided a true and correct account of the sales of this product, including the “proper, usual or specifically agreed upon selling charges and expenses properly incurred or agreed to in the handling thereof,” there are four principal elements to this question: a) average selling price; b) freight cost; c) inspections; and d) commission. Since there was no specific reference to inspection fees or commissions in the statement of claim or subsequent documents submitted by the parties to this dispute, the Arbitrator limited his consideration to sales results and transportation costs.

 

  1. As to sales proceeds, there were no reports for personal watermelon from the InfoHort website for the Montreal market covering this period. On the Toronto market, for the month of March 2015, there were no InfoHort data points related to Guatemala product. Mexican mini watermelons for the month were reported to have traded in a range from CND$18.00 to CND$23.00 (USD$14.75-$18.85). Respondent reported an average weighted sales price of CND$13.31 for the 880 cases covered by this shipment. The sales price realized by Respondent is thus 74% of the lower end of the normal range reported on the Toronto market. Objectively, this result can only be classified as successful, in light of the high percentage of condition defects identified during the CFIA inspection of this product. The Claimant questioned the accuracy of the three price ranges reported by Respondent and called for a detailed sale-by-sale recapitulation of the individual sales involved in this shipment. By DRC rules, Respondent is under no obligation to provide this level of detail on the sale of a shipment which resulted in a breach of contract by Claimant. While Respondent should have provided the last date of sale in its account of sale, the Arbitrator considered this as a minor flaw. In all other elements, the Arbitrator found that Respondent complied with its responsibilities under the DRC as regards the sale of this distressed merchandise.

 

  1. As to transportation costs, Claimant appeared to believe that the USD $4,600.00 cost from Florida to Montreal was excessive and had called for a copy of the actual bills between Respondent, its transportation provider, and its customs broker. Once again, this request exceeds the requirements under DRC rules, which stipulate only “the proper, usual or specifically agreed upon selling charges and expenses properly incurred or agreed to in the handling thereof.” Given the fact that Respondent was claiming damages rather than a consignment or joint account transaction, there is no requirement under DRC (or PACA) rules that Respondent should seek or obtain Claimant’s agreement to any of these cost elements. With the aforementioned exception of the date of final sale, Respondent provided all such required information. Had Claimant any evidence to support its contention that this transportation cost was excessive, it could have presented such evidence in its filing documents; in fact, no such evidence was presented. For argument’s sake, the Arbitrator consulted with the USDA Fruit and Vegetable Truck Rate Report for the week ending Tuesday, March 17, 2015. Since rates are not provided for Canadian destinations, the Arbitrator settled on the melon rate from South Florida to Boston and found the rates for the week in question ranged from USD$3,450.00 to USD$3,800.00. Adjusting this upper range by the additional 148 miles separating the Chelsea market from Respondent’s location (an increase of 10.1% for the entire journey), the Arbitrator arrived at an extrapolation of USD$4,183.37 for the transit from Florida to the Montreal market. Considering further the customs brokerage and transit charges incurred in crossing the international border, the Arbitrator sees nothing to indicate that the cost stipulated in Respondent’s account of sale is either unreasonable or excessive. While the Arbitrator would have entertained any evidence in support of a different conclusion on this matter, no such evidence was provided.

 

Arbitrator’s Decision

The handling of this transaction by Respondent — from the CFIA inspection, to the expeditious sale of the product, to the preparation of the final account of sale — was handled in conformity with the rules of the DRC. The remittance of USD$4,400.00, as outlined in its account of sale dated April 19, 2015, represents the full extent of Respondent’s liability regarding this dispute. Respondent should remit a check to Claimant in the amount of USD$4,400.00 as full and final settlement of its obligations to Claimant under this transaction. Claimant’s claim for an additional payment in the amount of USD$3,303.81 is therefore denied.

 

DRC Comments

We cannot stress enough the importance of following proper procedures to support claiming damages when a load arrives in deteriorated condition or fails to meet contract terms. 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 Claimant an acceptable account of sales showing reasonable sales and deducting the costs incurred as a result of the breach of contract.

The chances of having a successful defence increase significantly when DRC Trading Standards are followed.

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

 

DRC Trading Standards: