Our continuing series of articles summarizing past DRC arbitration decisions is intended to 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 #20820 – Parties Domiciled – Spain v. Canada
Facts
On February 12, 2021, the Claimant sold the Respondent a container of 1,480 boxes of sizes 90, 100 and 120 lemons from Spain. The invoice shows that the product was sold at USD$19.75/box with a total invoice amount of $29,230.
The container was shipped from Spain on February 22, 2021, arriving at the Montreal Terminal on March 10, 2021, discharged from the vessel on March 11, 2021, and was railed to Toronto on March 18, 2021.
A CFIA Inspection was requested and performed on March 20, 2021 and revealed the following:
- 360 boxes of 90s 7% decay, 5% contact spot, 11% skin breakdown, 1% peteca
- 416 boxes of 100’s 6% decay, 4% contact spot, 17% skin breakdown, 2% peteca
- 704 boxes of 120s 9% decay, 4% contact spots, 17% break down and 1% peteca
On March 22, 2021, the Respondent informed the Claimant of the results of the CFIA inspection. The Claimant requested the Respondent not to move the load until the shipping line surveyor could inspect the load. The Claimant removed the hold on the product on March 23, 2021, although a surveyor had not been on-site. On March 25, 2021, the Respondent proceeded to clean, repack and sell the product.
On March 29, 2021, the Claimant requested an update on the sales. The Respondent replied that the product was selling slowly and that they would try bagging some of the fruit.
On April 5, 2021, 15 days after arrival, the Respondent warned the Claimant of a potential dump of the remining inventory of 1,263 boxes which represented 85% of the total load. The Claimant replied that if a dump was necessary, a CFIA dump certificate and a CFIA inspection showing that the product has no commercial value would be needed.
On April 14, 2021, the Respondent supplied to Claimant an account of sale for the 1,480 boxes at five separate price tiers: 70 boxes at USD$36, 73 boxes at USD$27.50, 35 boxes at USD$25, 195 boxes at USD$16.50, 159 at USD$4 and 948 boxes dumped, resulting in an aggregated sale proceeds of USD$9,256.00. After deducting sorting and cleaning, bagging, freight, inspection, dump certificate and customs clearance expenses totalling USD$9,441.35, Respondent declared that the total expenses exceeded the sale proceeds in the amount of USD$185.35.
Issues
- Whether there was an agreement between the parties on how the product would be handled after arriving in a deteriorated condition.
- Whether the Respondent fulfilled his duties according to the DRC Rules after receiving a product in a deteriorated condition.
Arbitrator’s Analysis/Reasoning
Why did the two parties involved not consent to a mutually agreeable new contract since the Claimant breached the original contract?
When there is a breach of contract, what is equally important after getting an inspection to substantiate that, is a mutually agreeable plan of action going forward. Regrettably, this did not happen.
Why did the Respondent not obtain a “No Commercial Value” inspection as per the Claimant’s request?
DRC Trading Standards, Section 9, indicate the following regarding commercial value:
“The term “commercial value” means any value that a commodity may have for any purpose that can be ascertained by the exercise of due diligence without unreasonable expense or loss of time.
When produce is being handled for or on behalf of another person, proof as to the quantities of produce destroyed or discarded in excess of five percent of the shipment shall be provided by procuring an official certificate…”
The Respondent stated they did not have customers now or 15 days ago when the product arrived. If this was the case, why did the Respondent not outrightly reject the product since they state they had no customers for the product?
The arbitrator did not accept the Respondent’s account of sale as submitted. The Respondent charged CAD$4,260.00 for “Sorting and Cleaning” but it provides an account of sale with values ranging from CAD$36.00 to CAD$4.00.
When a commodity is sorted and cleaned, that effort is to remove the distressed product resulting in the remaining product being of the original grade of the contract. Product is not sorted and cleaned to be sold on a consignment basis. if the product was sorted and cleaned, what was the point of sorting and cleaning if the salvage was not going to bring better sales given the efforts and costs?
Given the lack of sales and the excessive amount of product dumped, the arbitrator did not believe the Respondent did the best they could to salvage these goods. If both parties had agreed to cleaning, sorting, and bagging in advance, the Respondent could have stated they would take these actions to have a fire sale on the product since it is continuing to deteriorate.
The arbitrator did not accept the Claimant’s proposed settlement of offering a 31% total invoice credit. In the arbitrator’s opinion, this fruit arrived in good time and presumably good temperature with a significant amount of problems as substantiated by the CFIA Inspection. This product would only further deteriorate as time went on.
The Claimant demanded USD$20,168.70 plus DRC fees of USD$2,800.00 and two other incidental amounts. Because this was a CIF transaction and there was a breach of contract by the Claimant, the Respondent would be entitled to deduct the inland and customs clearance expenses indicated in their account of sales.
Both parties share in the responsibility in this matter. The Claimant shares responsibility for breaching the contract with some very distressed product, and the Respondent for so little salvage given all the efforts they claim to have undertaken to yearn results and the significant amount of product dumped.
Arbitrator’s Decision
Given that the arbitrator did not find the Claimant’s remedy reasonable, and that the Respondent has failed to properly salvage the load, the arbitrator awarded the Claimant USD$11,484.35. This award represents 50% of the USD$20,168.70 claimed by the Claimant plus USD$1,400.00, which is half of the DRC arbitration fees.
DRC Comments
There are a few points in this decision that DRC members must take into consideration in their transactions:
- Once a receiver has secured evidence of a breach of contract after receiving a product in a deteriorated condition, unless the parties renegotiate a new way to handle the product (such as consignment, price after sale, or repacking), a receiver who is in possession of a damaged load is only entitled to claim damages.
- When more than 5% of the load needs to be disposed of or destroyed, a receiver would require a dump certificate and a governmental inspection demonstrating that product has no commercial value to support the claim.
- An account of sales must be properly supported by sales tickets, invoices or any other material corroborating the sales and expenses incurred.
For more information regarding the sections of DRC Trading Standards applied to this dispute, refer to the following sections:
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)
- DRC Good Inspection Guidelines (https://t8t979.p3cdn2.secureserver.net/wp-content/uploads/2016/10/good_inspection_guidelines.pdf )
- Dumping product (Before dumping the product, make sure you follow these steps)
