Author: DRC

The DRC Help Desk often receives calls from shippers asking if they can have the product back after the buyer has expressed discontent over its quality or condition upon arrival.  The simple answer to this question is no.

There is a very close relationship between risk, control, and title which is discussed further below.

Delivered* (destination transfer of risk)

On a Delivered transaction, the shipper maintains control of the product until arrival at final destination.   Prior to delivery, a call to the transportation company to have the product returned or redirected to an alternate receiver could be made. The risk of taking either of these actions without reasonable cause, is that the buyer may claim damages including the purchase of replacement product because the shipper did not fulfill the contract. However, once the buyer accepts the load, they are under no obligation to give it back.

FOB* (shipping point transfer of risk)

On an FOB transaction, the shipper loses control over the product and transit risk transfers to the buyer when the buyer’s transportation company picks up the load at the named origin and starts conveyance to the final destination. Therefore, the only ways the shipper can have the product back is if the buyer agrees to give it back or if the buyer rejects and follows the proper procedures to reject the load. Section 10 – Dealers Duties – of the DRC Trading Standards details the procedure to reject the load as long as the buyer has not committed an act of acceptance as indicated in Section 19.1.    it is important to note that the buyer, having assumed the transit risk at shipping point, may not make a proper rejection unless transit time and temperatures are normal.

*We have used the North American contract terms, not ICC Incoterms for this explanation.

Few things in the produce business stay the same. People, products, terms, and technology change constantly. During my 35-year career, one thing has stayed the same, though, and I call it the Silly Season.

As the holidays approach in North America, new faces appear in our industry anxious to capitalize on the demand for fresh fruits and vegetables. Most, of course, are legitimate people who see an opportunity to start and grow a business. Others, however, seek only to secure product, sell it quickly and then disappear as quickly as they arrived. Everyone is extra busy during the holiday season and these individuals count on your being busy to sneak through your screening process. While we cannot accomplish all that a credit application does, checking the DRC membership status may save you the time of having to review the entire application. This is especially true when you get a cold call from outside of your province.

There are only three legitimate reasons why a Canadian firm (buyer or seller) would NOT be LEGALLY REQUIRED to be a DRC member to buy or sell a load of produce:

1. They grew the products themselves.
2. Both of the businesses (i.e. buyer and seller) are in the same Canadian province.
3. They are a retailer buying less than $100,000 a year in produce from all sources.

Both buyer and seller should be checking out their potential trading partner. For sellers, getting paid is obviously important. For buyers, the seller’s DRC membership helps ensure the product they are buying is not stolen, obtained fraudulently or otherwise compromised.

Always ask if they are a member of the DRC. It only takes a minute to go to our website and check the active member list, which is updated every Friday, and then call our office if you require additional information. Verifying DRC membership is your first line of defense against becoming a victim of the Silly Season.

 

Fred Webber,

President & CEO

A friendly reminder that annual invoices will be mailed to most members on November 15th.

If your company information has changed in the past 12 months, including your responsibly connected individuals, please download the  Membership Records Update Form and submit it to DRC prior to November 1st, 2018.

Please note some members may have a different invoicing date depending on when they joined DRC. A quick check of your records by phone or email will confirm your invoice anniversary date.

For more information call or email the DRC Help Desk at:

DRC Help Desk | 613-234-0982 | [email protected]

In last month’s edition of Solutions we informed readers of our upcoming “Dispute Resolution Rules”.  As noted in the article, please be reminded that:

• All Statements of Claim received prior to the coming into force date of November 01, 2018 will follow the Mediation and Arbitration Rules.
• All Statements of Claim submitted after November 01, 2018 will be subject to the new Dispute Resolution Rules.

We recommend that you become familiar with these rules and contact our Trading Assistance team if you have any questions.

DISPUTE RESOLUTION RULES  

 

Effective January 15, 2019

Canadians who buy and sell

fresh fruit and vegetables must

be members of the

Dispute Resolution Corporation (DRC)

 

Important Considerations for Suppliers to Canada

The following points are key considerations for persons selling produce to Canada:

• The consignee is subject to the Safe Food for Canadians Regulations (SFCR) and must be a DRC member. In other words, all buyers in Canada must be a DRC member. The DRC member list available online is updated weekly
• If your buyer is not a DRC member, the buyer is not operating in conformance with the SFCR and your load will be refused entry at the border.
• The loss of DRC membership impacts a Canadian buyer in the same manner the loss of a PACA licence impacts a US buyer.
• Canada, like the US, has a government inspection services. Use of that service is the default requirement under DRC Good Inspection Guidelines to determine product quality and condition upon arrival. A number of private inspection firms are operating in Canada. Should you agree to use one of these private companies, you should be aware of the potential challenges and implications of that choice.
• All DRC members agree to meet their obligations as they come due; all suppliers may come to DRC for assistance to resolve slow pay or no pay shipments.
• If the buyer is able to show evidence of a valid dispute (inspection, credit memo, etc.) the DRC only has jurisdiction to help resolve the dispute if both parties were members of the DRC at the time the dispute arises.
• A Canadian Food Inspection Agency (CFIA) food safety licence is not proof of a DRC membership (always check the list of members on our website).
• CFIA SFCR food safety/traceability requirements (i.e.: Food Safety licence) and trade/commerce requirements (i.e.: DRC membership) are separate and distinct requirements within the SFCR. Persons must determine if they are subject to either one of, or both of the regulatory requirements.

In May 2017, DRC’s Solutions Blog included an article identifying the differences between North American Trade Terms and International Commercial Terms (INCOTERMS). In this edition, we will review how DRC Good Arrival Guidelines (Good Arrival) and INCOTERMS are connected.

Good Arrival is a combination of PACA 5 Day FOB Good Delivery Guidelines, CFIA Canadian Destination Tolerances and Suitable Shipping Condition Guidelines which establish the maximum percentage of defects allowed at destination for FOB shipping point transactions. Good Arrival assumes sales are FOB shipping point with regard to risk, regardless of how freight is billed.

Section 20, Trade Terms of the DRC Trading Standards states that INCOTERMS such as CPT, CIP, CFR, and CIF are all deemed to be the same as FOB except that the seller assumes the costs associated with the named INCOTERM. However, the risk of transit remains with the buyer.

Therefore, unless there is an agreement for a specific and defined grade standard, such as US #1, Canada #1, or Class I (also known as CAT I in the Spanish and French versions of the CODEX Standards), all transactions between DRC members will default to FOB No Grade Good Arrival. This means that the third or fourth column of DRC Good Arrival Guidelines containing the maximum percentage of defects per commodity will apply.

The Safe Food for Canadians Regulations require that Canadians who buy and sell fresh fruits and vegetables be members of the DRC. This is effective January 15, 2019.

As we transition to this role, updates to the “Agreements and Consents” clauses of the DRC member application as well as the DRC Privacy Policy are being implemented available here https://fvdrc.com/by-laws-and-operating-rules/

To ensure all members are aware of and agree to the new “Consent to Disclosure of Agreement and other Information”, every member will be required to complete their Membership Information Update Form. Members are encouraged to download the form and submit it to DRC at their earliest convenience. Please ensure the individual signing the consent is a responsibly connected individual, as defined on the form.

We have reviewed a few cases lately where a receiver fails to notify the shipper of problems on arrival in a timely manner. Unfortunately, in these instances, the shipper has not found out about this issue until payment was due.  When the shipper contacts the receiver inquiring about payment, they learn that a government inspection (performed in a timely manner) proves the product failed to meet DRC Good Arrival Guidelines.  Should the receiver be worried about not notifying the shipper of quality problems in a timely manner?

Yes. There are a couple of circumstances where a receiver should be very worried about failing to communicate problems, including not sharing the results of a government inspection, in a timely manner.

In keeping with Perishable Agricultural Commodities Act (PACA) precedent and DRC’s Trading Standards, to have a fully successful claim, three elements must be proven: (1) that there was a breach of contract by the shipper; (2) that notice of the breach of contract was given to the shipper; (3) proof of damages.

Number two is the one that concerns us in this article. DRC and PACA define reasonable time as to not to exceed 24 hours on rail and boat shipments, and 8 hours by truck. In addition, both require that a copy of the government inspection is shared within 24 hours after the inspection report is made accessible to the applicant.

It is quite common for a shipper to have 30 day payment terms yet his supplier (another shipper or a grower) may have ten (10) day payment terms. In this case, if the shipper proceeds to pay the supplier within terms because he was not notified of problems on arrival, the receiver may be responsible for full payment even if they have a timely government inspection proving damages. Finally, we would add, notifying the supplier that the product arrived in deteriorated condition is a common courtesy that fosters long term business relationships.

 

The DRC’s Mediation and Arbitration Rules have been revised to avoid repetition of some articles; updated to a more common wording; addition of definitions to better protect the process and its participants; and, align our rules with the most progressive arbitration centres in the world. DRC Trading Assistance Staff with the help of a recognized arbitration expert in Canada, Professor Anthony Daimsis, have finalized this project.  At the latest Board of Director’s meeting in June, the DRC Board approved the new Mediation and Arbitration Rules and allocated a coming into force date of November 1^st, 2018. Although most are minor changes, here are some of the most significant ones:

• Name change: The new name for our Mediation and Arbitration Rules will be “Dispute Resolution Rules”
• Current Mediation and Arbitration Rules have two separate arbitration procedures: expedited arbitration and formal arbitration procedures. The new Dispute Resolution Rules have one arbitration proceeding with an appendix to cover expedited procedures.
• In the new Dispute Resolution Rules all of the arbitration procedures will be considered international arbitrations in accordance with Ontario’s International Arbitration Act.
• New articles have been added to the Dispute Resolution Rules that provide for multiple contracts, additional parties or cases to be joined in one arbitration proceeding.
• All arbitrator’s draft decisions will be reviewed by DRC without affecting the arbitrator’s liberty of decision prior to submitting their decision and award to the parties. DRC may make observations as to the form of the award and draw attention to points of substance.
• Early dismissal. Cases that have no merit can be expedited.

Please note, all Statements of Claim received prior to the coming into force date of November 01, 2018 will follow the Mediation and Arbitration.  All Statements of Claim submitted after November 01, 2018 will be subject to the new Dispute Resolution Rules.

Professor Anthony Daimsis is a Law Professor and member of the International Law Group at the University of Ottawa.  He is Director of the Faculty of Law’s moot court program, and of the National Program (a bijurial curricular program that leads to a dual JD/L.L.L. degree).  Additionally, he teaches courses in international arbitration and international sales law for Osgoode Hall’s LLM program and he is a lecturer on international arbitration for the Swiss International Law School’s LLM program.  He is author of the forthcoming book International Arbitration: the fundamentals and the indispensables and The Common Law lawyer’s guide to the Convention on the International Sale of Goods.

Effective January 15, 2019 Canadians who buy and sell fresh fruit and vegetables must be members in good standing of the

Dispute Resolution Corporation (DRC)

On June 13, 2018, Canada’s Ministers of Health and Agriculture and Agri-Food announced the publication of the final Safe Food for Canadians Regulations (SFCR) in Canada Gazette, Part II (CGII). The regulations come into force on January 15, 2019.

While the regulations primarily address important food safety and traceability matters, there is a significant trade and commerce element of particular interest to the produce industry. Canadians who buy, sell or negotiate the sale or purchase of fresh fruits and vegetables inter-provincially, and internationally will be required to be a member in good standing of the Fruit and Vegetable Dispute Resolution Corporation, unless excepted from the regulations. The requirements are outlined in Part 6, Division 6 Fresh Fruits or Vegetables, Subdivision C Trade of Fresh Fruits or Vegetables, paragraphs 122(1), (2) and (3). In other words: all Canadian buyers must be members in good standing of the DRC. The SFCR repeals the option of a choice between a CFIA Produce Licence and a DRC membership.

What is the impact of the SFCR?

For existing DRC members, it is business as usual. However, Canadians who are not a DRC member and buy and sell fresh fruit and vegetables must consider whether they are subject to the requirement or exempt.

How do I know if I am exempt from the requirement?

Under the SFCR, it is prohibited to:

(a) sell any fresh fruits or vegetables that are to be exported or sent or conveyed from one province to another;

(b) purchase or negotiate the purchase on another person’s behalf of any fresh fruits or vegetables that are to be imported or to be sent or conveyed from one province to another;

(c) receive any fresh fruits or vegetables that have been

imported or sent or conveyed to from one province to another; or

(d) send or convey from one province to another or import or export any fresh fruits or vegetables.

The SFCR does provide for exceptions, which are listed below:

(a)	any person who is a member in good standing of the Fruit and Vegetable Dispute Resolution Corporation, a corporation incorporated under Part 2 of the Canada not-for-profit Corporations Act, as described in its bylaws;
(b)	any person who only sells fresh fruits or vegetables directly to consumers if that person paid less than $100,000 for the fresh fruits and vegetables that they sold to consumers within the previous 12 months;
(c)	any person who only purchases, sells or negotiates the purchase or sale on another person’s behalf, sends or conveys from one province to another or imports or exports less than one metric ton of fresh fruits and vegetables per day;
(d)	any person who only sells fresh fruits or vegetables that they have grown themselves; or
(e)	a registered charity as defined in subsection 248(1) of the Income Tax Act or a club, society or association described in paragraph 149(1)(1) of that Act.

A DRC membership fulfills the CFIA SFCR regulatory requirement that provides authority to buy, sell or negotiate the sale or purchase of fruits and vegetables inter-provincially, intra-provincially and internationally. For additional information, contact the DRC Help Desk (+1 613 234 0982) or visit the dedicated section of the website to complete a self assessment to determine if you are subject to the requirement or exempt: https://fvdrc.com/sfcr/.