The most important thing you can do before, during and after a dispute is communicate clearly your expectations and document your understandings. If you agree to a price adjustment over the phone, send a quick email confirming it. If your trading partner waives their right to a federal inspection, again confirm it in writing.
Case Study 1: Receiver Claiming Damages
Company A shipped one truck load of 1,920 cartons of broccoli from California to Company B in Quebec. The terms of the contract were FOB No Grade, Good Arrival. Transit times and temperatures were normal at the destination. Upon arrival, Company B requested a federal inspection which was conducted at their facilities the same day. The inspection showed a total of 16% bruising, and the results were sent to claimant within twenty-four hours, as stipulated under Section 10 of the DRC Trading Standards.
- According to DRC Good Arrival Guidelines the tolerances for broccoli sold FOB No Grade, Good Arrival are no more than 15% total defects and no more than 4% decay. The defects found in the inspection indicate the broccoli fails to meet DRC Good Arrival Guidelines.
- After Company A received the inspection indicating product failed to meet DRC Good Arrival Guidelines, they communicated with Company B to determine the best way to sell the product.
- Unfortunately, the parties did not come to an agreement and Company B decided to “handle the product” for Company A’s account.
DRC Help Desk:
- Once it is established that product fails to meet DRC Good Arrival Guidelines, the parties should communicate to discuss how the product should be sold. If no agreement is reached, the receiver is responsible for paying invoice price less provable damages.
- Two weeks later, the liquidation report was sent to the shipper. Company A remarked it included expenses that were never discussed or agreed upon such as warehousing, handling and commission.
- In the absence of an agreement on how to sell product that fails to meet DRC Good Arrival Guidelines, the receiver/buyer is only entitled to “claim damages.”
- Since the receiver/buyer has accepted the product (please refer to Section 19 of DRC Trading Standards for an explanation of which acts constitute acceptance), they have to make every reasonable effort to sell the product at a fair price and deduct from their sales normal expenses such as freight, inspection, and brokerage.
- Expenses that are not incurred as a result of a breach of contract such as warehousing, handling or commission are not considered normal expenses, and should not be deducted unless agreed upon in advance.
- Failing to submit a timely and accurate accounting can jeopardize a receiver’s/buyer’s ability to claim damages.
Case Study 2 : Carrier Claim
On The Road Transportation Co. delivered a load to Company B, on-time as scheduled. Upon arrival, the product was pulping warm and the BOL could not be found. As a result, Company B stamped the BOL “Received Under Protest due to warm temperatures. Temperature Recorder not found.”
- It is the carrier’s responsibility to deliver all items signed for on the BOL, including temperature recorders. If the driver does not have the opportunity to witness the loading, the BOL should be signed “shippers load and count.”
- If the driver is not able to pulp the product prior to departure, the receiver should be notified immediately, and the BOL should be marked accordingly.
- If the driver signs for a temperature recorder but it is not recovered at the destination, that creates a negative inference on the truck.
- If a reefer unit download is not available, the receiver may not be able to prove transit conditions were normal and therefore, it would be increasingly difficult to make a claim against the shipper.
- Company B immediately requested a temperature and condition inspection and both were performed timely.
- The results of the temperature inspection indicated the product pulped between 4 and 5 degrees above desired transit temperatures.
- The condition inspection showed the product had 20% decay and 45% discoloration. The product failed to meet DRC Good Arrival Guidelines.
- To successfully claim damages, three components are necessary:
- prove a breach of contract;
- prove damages; and,
- prove the damages are a result of the breach.
- Company B can prove the first two components with the temperature and condition inspection, which show us temperatures were abused and deterioration occurred.
- The question remains, did the temperature abuse cause the damages recorded on the federal inspection?
- The amount of average defects scored on the inspection seem excessive to be all attributable to undesired temperatures during transit. However, since there is no record of temperatures during transit, and the driver did not indicate on the BOL any temperature issues at shipping point, it would be hard to prove the shipper is partially at fault.
Case Study 3: Permanent (Quality) Defects v. Conditions Defects
Company A shipped one truck load of 1,000 cartons of onions from Texas to Company B in Toronto. The terms of the contract were FOB No Grade, Good Arrival, and transit time and temperatures were normal. Upon arrival, Company B requested a federal inspection which was conducted at their facilities the same day. The inspection revealed 3% decay, 5% peeling, 4% watery scales and 8% ovoid specimens (a permanent/quality defect) for a total of 20% defects.
DRC Help Desk:
- According to DRC Good Arrival Guidelines the tolerances for onions sold FOB No Grade, Good Arrival are not more than 15% total defects, 10% of the same condition defect, and 4% decay.
- The defects documented by the inspector indicate the onions meet DRC Good Arrival Guidelines, because permanent/quality defects are not scorable defects in FOB No Grade, Good Arrival transactions.
- Upon receiving a copy of the inspection, the shipper, Company A, called the receiver, Company B, in an attempt to renegotiate the price. Unable to agree on a new price, Company B decided to treat this load as open price and sold it for the shippers account.
- Failure to establish that the product fails to meet DRC Good Arrival Guidelines leaves the receiver without recourse to claim damages. The receiver is still liable for the full invoice price.
- Should a receiver feel that in this situation they would not be able to break even, we would suggest to accept any price adjustment offered by the shipper to minimize their losses.