The Dispute Resolution Corporation has released a note to its members after the Centre for Disease Control issued a safety advisory on November 22 not to eat E.colicontaminated romaine lettuce from the Salinas, California growing region. It is published here in its entirety under the signature of Fred Webber, president and CEO.
“As most of you know romaine from the Salinas, California growing area has been the subject of advisories and recalls. For those transactions destined for Canada, the Canadian Food Inspection Agency has implemented a mandatory declaration process for romaine entering Canada. Its website states: shipments of romaine lettuce from California must be accompanied by a letterhead, on a separate page, showing a Proof of Origin with the date of signing and the signature of the exporter declaring that the lettuce was not harvested in the Salinas, California, growing region (counties of Santa Cruz, Santa Clara, San Benito and Monterey.) The requirement will be in place until further notice.
Please note: the dated and signed document must reference the shipment it accompanies,a generic document will not be accepted.
The phones at the Dispute Resolution Corporation (DRC) are continuing to ring regarding the financial losses stemming from the romaine advisory.
In previous notes to you, we urged all stakeholders to be calm. It seems many of you have, but we are seeing indications that others are seeking to recover losses from their trading partners. It is business and mitigating loss is an essential part of a successful business. Loss and recoverable loss are not the same thing in business, particularly when the safety and well being of our ultimate customers has to be protected before a specific source of infection can be identified.
When advisories hit, product is left in the field, dumped at shipping point, dumped at receiving warehouses, and cleared from store shelves. Orders are cancelled and projected sales vanish. So where does the financial risk lie? Is it the farmer who has disked perfectly good product back into the ground? Is it the shipper whose customers cancelled orders? Is it the wholesaler who had product in his warehouse when the advisory hit? Is it the retailer who had product in the distribution center? Is it the store who pulled the product off their shelves?
While there will undoubtedly be cases where the sales will be linked to the source of infection and claims will be proven, however, the vast majority of cases will be decided based on who owned the product when it became unmerchantable. Most produce sales are made FOB shipping point, meaning title and risk pass to the buyer at shipping point. In general, and simply stated, in a FOB sale the shipper owns the loss before it gets on the truck, and the buyer owns the loss after the truck is loaded.
It is understandable that companies do not want to accept a loss they did not cause. But in a case like this where neither party to the transaction may be at fault, the decision must be made based on long-standing principles such as the warranty of merchantability, Acts of God, or force majeure.
Source: Dispute Resolution Corporation November 26, 2019 note to members