Guest Article – Avoiding loss for non payment


Aaron Tiger, LL.L, LL.B Attorney

Commercial Law, Litigation and Insolvency

Montréal, Canada

The views and opinions expressed here are those of the author, Aaron Tiger, of Tiger Banon Inc. attorneys, of Montreal, Canada, and do not necessarily reflect the views and opinions of the DRC. 

We are often asked, in our practice how to avoid becoming involved in a transaction where the produce buyer is a person who is not in good faith and who has no intention to pay for the produce. In the situation where the buyer intends to act in bad faith, it is the seller who must protect itself against the bad faith buyer.

Some recommendations to protect yourself against getting involved in one of these situations would be the following:

  1. Do a proper credit search and/or report. While the various credit rating agencies, such as the Blue Book, do their best, it might be a good idea to also contact a local credit research agency in the buyer’s jurisdiction, in order to determine the creditworthiness of the buyer. Key questions to ask include:
  • How long has the company been in business?
  • Who is the real person behind the company and what is known about that person?
  • Does the company have a real credit history going back a reasonable time in the industry?
  • Did the seller investigate the credit references? There have been cases where the credit references were also persons also being taken advantage of; however, the seller never contacted the credit references.

Also call the DRC before you ship. They are knowledgeable regarding the persons involved in the industry.

  1. Set a credit limit. It is preferable to lose money for only one (1) load rather than multiple loads. Until an actual payment is received from a relatively unknown buyer, a credit limit should be set. Remember some bad faith buyers may pay for a load or two in order to establish a relationship and then obtain further loads which will not be paid for. A cheque is not a payment until it has cleared your bank. A cheque from a foreign buyer’s bank to a US Seller may require 30 days to clear the buyers bank account.

If you have any doubts, ask for a bank draft and confirm the authenticity of the draft with the issuing bank, or, wait until the cheque has been confirmed by your bank to have been honored before sending another shipment. There are other forms of payment such a bank transfer which will assure that the funds are in the seller’s account. If the buyer advises you that a cheque has been sent, or sends you a copy a of cheque, or says they do not understand why you did not receive the cheque, consider putting a hold on any further shipments until a real payment confirmation is received. Establish a credit limit to minimize losses.

  1. The PACA trust may not apply in Canada. In most jurisdictions in Canada, a trust or lien or movable security (in Quebec a ‘hypothec’) must be registered prior to the shipments being made. This security is certainly not as strong as the PACA, but it may result in some limited protection. It is advisable to contact an attorney in the jurisdiction where the buyer carries on business in order to determine what security could be placed on the assets of the buyer to protect your future claim.
  2. If you feel you have been the victim of a bad faith buyer, contact your trade association, the credit rating companies or an attorney in the jurisdiction where the buyer carries on business as soon as possible. The longer one waits, the less chance there is of recovery. Furthermore, the bad faith buyer will continue to prey on more victims.
  3. Purchase Insurance.

If you are shipping to a foreign jurisdiction, there are companies who insure payment, if the issue is non-payment and not an issue with the produce. The DRC can advise as to companies which provide this coverage.


  1. If the supplier is a DRC member, they can contact DRC to file a claim. DRC can provide resolution for that claim through their arbitration process if the buyer is also a DRC member.

Should an arbitration occur and the buyer fail to comply with the arbitration decision and award, the next step is to contact an attorney in Canada to verify if enforcing the arbitration award in court is an option. Unfortunately, in many cases, by the time the DRC award is granted the buyer is no longer in business and is nowhere to be found.

  1. Contact your local law enforcement and the FBI.

The authorities may not be able to do much in these cases for many reasons, due to overlapping jurisdictions, and the fact that the courts have often been reluctant to intervene in a business transaction. The courts may in many cases consider that in circumstances where a supplier sold merchandise and was not paid, the failure to pay may be deemed to be a civil matter between the parties and not a matter for the criminal justice system. It is still important to file a claim which may prevent a reoccurrence of the situation to another victim.

  1. Seek advise from a local attorney in the buyer’s jurisdiction.

If the buyer is still operating, local legal counsel may be able to take a civil action to recover something, but the seller must act as quickly as possible once it knows of what had transpired.

We hope the above is helpful to you. The most important takeaway from this is you must remember to protect yourself and your own interests. Be aware of who you are dealing with and limit your losses with a strict credit policy.

Aaron Tiger has practiced law since 1978. In addition to holding a law degree from the Université de Montréal he also earned a second law degree from the University of Ottawa where he graduated Magna Cum Laude in 1992. Aaron has completed the Canadian Institute of Arbitrator arbitrator’s course as well as the DRC’s 2004 Mediation & Arbitration Training Seminar. He is fluent in both English and French.

The present is not meant to constitute a legal opinion on any matter. Please contact your attorney in order to obtain advice regarding a specific legal situation

The DRC welcomes members of the trade to submit articles for consideration for future editions of Solutions.