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 #20316 – Parties Domiciled – Canada
Facts
- The Claimant shipped nine (9) loads of its 2018 potatoes to the Respondent between August 11, 2018, to September 19, 2018, for a total invoice price of $234,700.29 on the nine (9) loads.
- There was no formal contract between the parties for the 2018 season. However, the parties had a course of dealing during the transactions in 2017. Under this course of dealing in 2017, the Claimant invoiced the Respondent between August 3, 2017, and September 5, 2017.
- The Claimant shipped its 2018 crop to the Respondent FOB, from August 11, 2018, to September 19, 2018.
- An in-house quality control was performed on the arrival on each load.
- Between September and November 2018, the Claimant received four (4) partial payments totaling CAD$75,699.94.
- Communications between the parties shows that the Respondent agreed to pay CAD$100,640.54 to the Claimant based on the percentage the Respondent was able to use on the nine (9) loads.
- The Claimant is seeking the payment of CAD$145,371.95
Issues
- Whether there was an agreement between the parties to use an in-house quality control inspection.
- Whether the receiver is entitled to claim damages in all the 9(nine) loads.
Arbitrator’s Analysis/Reasoning
This case involves the sale and shipment of nine (9) truckloads of the 2018 potato crop, grown by Claimant in Ontario, and sold to the Respondent, located in Prince Edward Island (“PEI”), from August 11, 2018, to September 18, 2018. In the 2018 season, the Respondent began purchasing the potatoes from the Claimant, starting in August 2018. In the beginning of the season in July 2018, the Claimant appeared to have had good quality potatoes; and the Respondent began receiving potatoes from the Claimant in August 2018, which included yellow, red and white potatoes.
The Respondent provided the trucks that picked up the potatoes from the Claimant and shipped the loads to the Respondent’s facility in PEI. The Respondent packed out the potatoes on each of the nine (9) loads and provided multiple in-house QC inspections on each load.
The Claimant was to ensure the potatoes were in “suitable shipping condition” when loaded on the trucks. However, according to the Claimant, “There were no third-party reviews, and the Claimant has an in-house quality control, and everything was looked at and made sure that it was number one before shipping to the Respondent.” However, in response to the Arbitrator’s request for documents from the Claimant at the hearing to confirm the quality control of the loads of potatoes, the Claimant advised they did not have them. Since there were no Claimant’s documents showing suitable shipping condition inspections regarding the Claimant’s loads, the only QC documentation regarding the Claimant’s loads are provided by the Respondent, showing six (6) or seven (7) in-house detailed QC Inspection Reports for each load.
The Respondent states there were actually two (2) deals with the nine (9) loads. “There was one deal for shipping dirty, unwashed, ungraded potatoes that were loads three and four. And there was another deal entirely, still on a pack-out basis, but for clean, washed, and graded potatoes, which were loads one, two and five through nine.”
Invoicing and Payment
The Claimant invoiced the Respondent CAD$234,700.29 for nine (9) loads of potatoes. The Respondent agreed to pay CAD$100,640.54 to the Claimant based on the percentage the Respondent was able to use.
The Respondent is required to pay CAD$5,399.80, for trucking and dumping for Load four (4). (There were text messages regarding temperature control issues on this load.) The Respondent is not entitled to deduct CAD$4,040.40 from the invoice of Load three (3). (Respondent’s spreadsheet indicated that the amount of CAD$4,040.40 was used to calculate the 36.69% he claimed was usable product from Load three (3).)
The Claimant received the following CAD payments from the Respondent:
09/04/18 – $20,000.
09/11/18 – $15,000.
10/23/18 – $20,000.
11/18/18 – $20,699.94, which totals $75,699.94
The Respondent also claims an additional payment of $13,628.40 on 1/19/2019, which brings the total paid to the Claimant to CAD$89,327.40. The Respondent claims that the amount still owed to the Claimant is CAD$1,872.94.
Finally, the Arbitrator concluded that the Respondent failed to adhere to DRC rules, especially as to CFIA inspections, or any other neutral third-party inspections. It is always the responsibility of the buyer to request inspections to show damages. The Arbitrator finds that a previous course of dealing, and communication exchanges between the parties, make it reasonable to conclude that the pack-out documentation provided by the Respondent indicates the parties established a course of dealing regarding the Claimant’s acceptance of the Respondent’s in house quality control.
Arbitrator’s Decision
The Claimant is entitled to the full invoice price CAD$31,155.75 for Load four (4) as there was evidence of temperature control issues during transit. It is well established a buyer in an FOB sale must establish time and temperature were normal before making a claim to the seller. This coupled with no neutral third-party inspection of this load overrides other considerations given to a previous course of dealing on other shipments. The Respondent must also pay CAD$5,399.80 for trucking and dumping of Load four (4), and CAD$4,040.40 from the original calculation of Load three (3). The total owed to the Claimant by the Respondent is CAD$131,796.29 for the product. CAD$89,327.40 has been paid, leaving a balance of CAD$42,468.89 due to the Claimant.
Lastly, each party shall pay 50% of the arbitrator’s fees of CAD$20,047.38, in the amount of CAD$10,023.69 each. The Claimant has paid CAD$17,747.38 to date. The Respondent has paid CAD$2300.00 to date. Therefore, the Respondent is to pay CAD$7,723.69 in arbitrator’s fees to the Claimant.
Consequently, the Respondent is to pay the Claimant CAD$50,192.58 within 30 days from the date of this decision.
DRC Comments
When claiming damages FOB receivers/buyers have the burden to prove time and temperature while in transit are acceptable, since in a FOB transaction the risk of loss would transfer from the shipper to the buyer once the shipper loaded the product into the truck. In this case, there was evidence of temperature control issues during the transit of load four (4). Therefore, the arbitrator considered that the claimant was entitled to be paid in full for this load. Since there is evidence that there was a problem during transit, the receiver/buyer would have to claim against the transportation company.
Another important point in this decision that DRC members must take into consideration when receiving product in deteriorated condition is that in the US and Canada, a federal inspection must be requested, unless otherwise agreed. A party claiming an agreement to use an alternate service was established has the burden of proving such an agreement was reached. In this case, the arbitrator concluded that the previous course of dealing, and communication exchanges between the parties, were enough evidence that indicates the parties established a course of dealing regarding the Claimant’s acceptance of the Respondent’s in-house quality control.
For more information regarding the sections of DRC Trading Standards applied to this dispute, refer to the following sections:
DRC Trading Standards:
- DRC Good Inspection Guidelines (https://t8t979.p3cdn2.secureserver.net/wp-content/uploads/2016/10/good_inspection_guidelines.pdf )
- Receiver Duties (Fruit and Vegetable Dispute Resolution Corporation Trading Standards s.10 (2)(b)(ii))
- When is valid to request a private inspection? (https://fvdrc.com/solutions/valid- request-private-survey/)
