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ARBITRATION DECISION BRIEF:Whether the Inspection Certificates show that the fruit failed to meet contract terms.

Commencing this year, we will publish a summary series of arbitration decisions which will help members better understand how DRC Rules and Regulations apply in the event of a dispute. DRC Dispute Resolution Rules state that all DRC arbitrations are private and confidential. We have omitted the names of people, including arbitrators, as well as companies. DRC only acted as the administrator of the arbitration process, and did not participate during any hearings (if applicable), 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 #19617 –Parties Domiciled- Spain and Canada

Facts:

  • The Claimant shipped to the Respondent 1,820 cartons of mandarins CAT#1 quality on February 26, 2016. The product origin was Spain and according to the invoice, it was sold F.O.B. at $22,200.01. The Respondent received the shipment in Canada on March 10, 2016, and a private inspection was performed. The private inspection showed defects ranging from 8-11%, with decay ranging 2-4%.
  • Upon receiving a copy of the private inspection on March 12, 2016, the Claimant requested that a CFIA inspection be performed. The CFIA inspection was performed on March 15, 2016 but, only on1,152 cartons. The results of the inspection indicate the mandarins were affected by 7% decay and 1% skin breakdown. The Respondent forwarded the inspection to the Claimant, arguing that the load was out of grade as it did not meet good arrival.
  • After the Respondent claimed damages, a $14,938.01payment was submitted to the Claimant. The Respondent supports the alleged damages with a detailed account of sales. 

Issue:

Whether the inspection certificates show that the fruit failed to meet contract terms.

Arbitrator’s Analysis/Reasoning:

There was no disagreement between the parties that the mandarins in question were sold as CAT#1. They disagreed, however, as to whether the inspection certificates show that the fruit failed to comply with this grade.

The Claimant’s invoice indicates that the mandarins were sold FOB. The risk of loss would have passed to the Respondent once the Claimant loaded the product (or container) onto the ship. The Claimant was required to meet the agreed-upon CAT#1 standard at shipping point on or about February 26, 2016 (the date the ship departed), which was two weeks before the product was inspected by a private company in Canada (and two and one-half weeks before the CFIA inspected the load).

With respect to the relevant grade standard, the question that arises is, do the inspections taken in Canada show that the product was out of grade when loaded at the Port of Spain? In view of the two-week voyage from Spain, the inspections taken in Canada are simply too remote (in time and place) to establish that the mandarins were out of grade on or about February 26, 2016, when the product, and the risk of loss, passed from the Claimant to the Respondent. The decay reported in Canada may very well have developed in transit and/or while awaiting inspection. 

DRC’s Good Arrival Guidelines provide that tangerines (i.e. mandarins), upon arrival at contract destination, may be affected by no more than 15% average condition defects, 8% very serious defects, and 5% decay.  If a timely inspection shows that any of these percentages are exceeded, the product in question may be deemed to be abnormally deteriorated in breach of the shipper’s warranty of suitable shipping condition which is applicable in FOB sales.

The private inspection does not show that the mandarins exceeded the relevant good arrival guidelines upon arrival in Montreal. (As an aside, it is worth noting that private inspection are not typically given the same weight as government inspections unless it is clear that both parties agreed to the use of a private inspection; therefore, it should not be assumed that the private inspection certificate would have been sufficient to establish a breach even if the percentage of defects reported were greater).

Irrespective of the cause of the delay in obtaining the inspection, establishing that the fruit was affected by 7% decay on March 15, 2016, does little to prove that this product was affected by more than 5% decay on March 10, 2016, when the product arrived. Furthermore, it is important to note that only 1,152 of the 1,820 cartons shipped were available for the CFIA inspection.  Given the timing of this inspection, and the fact that a significant portion of the product was not inspected, the CFIA inspection, does not establish that the mandarins in question failed to make good arrival in breach of the sales agreement.

Arbitrator’s Decision:

The Respondent failed to prove that the mandarins in question failed to comply with the sales agreement; therefore, Claimant is owed the balance of its invoice price, or $7,261.99, plus arbitration fees of $2,200.00, for a total amount due from the Respondent to the Claimant of $9,461.99 (U.S.).

DRC Comments:

There are several points in this decision that DRC members must take into consideration in their transactions:

  • When a Grade Standard is discussed between parties, make sure both parties understand what grade standard is referred to, and if the product must meet the grade standard at shipping point or at destination.
  • For DRC members, in the absence of an agreement on a grade standard, under DRC Good Arrival Guidelines, the transaction defaults to FOB no grade contract and Good Arrival applies.
  • In the absence of an agreement on a private inspection/survey, DRC members must request a CFIA inspection.
  • To prove the product arrived in deteriorated condition, the request for an inspection must be done in a timely manner. A buyer who requests a private inspection/survey first without a prior agreement in place, may find that it is too late to request a government inspection if the seller does not accept the private inspection/survey.
  • The results of a government inspection are representative of the full load when a minimum of 75% of the load is available for inspection and satisfactory reason exists for limited sales prior to inspection.

For more information regarding what sections of DRC Trading Standards applied to this dispute, you can review the following sections:

DRC Trading Standards: