Opinion: how to win the claim game

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Opinion: how to win the claim game

By AgriBusiness Legal Desk attorney Jan van de Ven

Jan van de Ven profileProbably one of the most discomforting messages a produce exporter can receive is news that his produce, carefully selected and packed in origin, arrived in less than perfect condition at destination. A lot is at stake, and the importer seems to hold all the cards, forcing the exporter to play catch up.

Having possession of the fruit, the importer has control over what happens and very often also holds the money that still needs to paid for the fruit. A successful exporter will need to know how to defend himself against such claims, or he'll fall victim to 'the claim game'.

It is in the interest of both exporter and importer to deal quickly and fairly with any quality issues. What is fair depends very much on the rules that are applicable. Any exporter must have a good understanding of such rules if he wants to assess and negotiate a fair deal with an importer.

The rules

All too often judges and lawyers unfamiliar with the produce industry look at me in disbelief when I explain to them that there is no written contract between an exporter and an importer who are quarrelling about unpaid invoices worth hundreds of thousands of dollars. And I have to admit, it never ceases to amaze me how exporters readily ship fruit and vegetables – sometimes worth more than a million dollars – to the other side of the world, without even so much as a basic contract in place. But, such are the ways of the industry. If anything, the produce industry is a business where people need to trust one another to be able to do business. Unfortunately, quality claims have a tendency to dissipate such trust quickly.

In the absence of a written contract stipulating the rules, lawyers may argue that a number of national laws or international treaties might be applicable. The most common of these are the laws of the country of the exporter, the country of the importer or the United Nations Convention on Contracts for the International Sale of Goods. Some of these may benefit the exporter, some the importer.

The approach to quality complaints

When discussing quality complaints or issues at destination, an exporter needs to ask two questions: is there really a quality problem? And if so, is this really my problem? Many exporters seem primarily focused and ready to deal with the first question. Answering the second question more often than not leads to the conclusion that it really is not the exporter's, but rather the importer's problem.

Is there really a problem?

This one is probably easiest to answer, but still requires a certain amount of organization from the exporter. In many cases it must be assumed that formal delivery of the fruit takes place when it arrives at the port of destination. At this moment, title and risk transfer from exporter to importer. The importer becomes the owner of the fruit, and he bears the risk of any deteriorations in quality afterwards.

It is therefore critically important for both parties to establish the quality of the fruit at the moment of delivery in the port of destination. An exporter who plans to rely solely on the information provided to him by the importer needlessly exposes himself to subjective or incorrect reports. In my experience it is generally penny wise, pound foolish to not use the services of one of the independent inspection companies that operate in many ports around the world where produce is shipped to. With this independent information at hand, an exporter has the tools to argue the validity of any alleged quality claims made by an importer.

If there appears to be a serious quality issue, it is important for both the exporter and importer together to get the shipping line involved to jointly appoint an independent fruit surveyor who is qualified to make up an official report, assessing the extent and cause of the quality issue. If quality problems are caused by the shipping line, that's where the claim needs to go of course, but let's assume for the remainder of this column that quality is only an issue between exporter and importer.

Is this really my problem?

Many laws and international treaties stipulate that a buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it.

What is reasonable depends on the circumstances, and in the case of international produce trading a good argument can be made that a reasonable timeframe for notifying quality problems is measured in hours rather than in weeks. An exporter who is notified only several days after arrival would be well advised to consider refusing any liability for alleged quality issues with fruit, especially if it concerns quality issues that could have been identified earlier.

But importers face similar challenges when selling fruit on to their customers across the European continent. A customer in a faraway place like Russia or Slovakia may refuse to take delivery of a truckload of fruit on account of quality issues after transportation from Rotterdam or Hamburg that took three to four days.

That puts the importer in a difficult situation that is similar to what the exporter is facing. After all, what can you do with a truckload of mangoes in Moscow that may or may not have a quality problem and can most probably only be sold at a hefty loss?

I guess nobody will be surprised that quality issues seem to be much more prevalent in slow markets with reduced prices, which in itself is testament to the highly subjective nature of quality complaints.

The claim game

In the past, more than one trader has readily admitted to me that the fruit business sometimes looks like a claims industry. Margins are tight, expenses high and importers naturally have a tendency to pass claims from their customers to their exporters in an attempt to keep their own margins as much intact as possible.

The exporter, far away from where it all happens and often still waiting to receive payment for his fruit, needs to play his cards well if he wants to avoid taking the loss. That requires knowledge of the rules to get the best deal possible out of a difficult situation.

Jan van de Ven is a lawyer at AgriBusiness Legal Desk, an Amsterdam-based law firm providing legal services to the international food and agribusiness industry. Van de Ven frequently represents overseas fruit exporters in Europe.

Related story: Opinion: provisional attachment to ensure fruit exporter payment



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