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Interpreting Inspection Certificates (as it relates to damages)

Inspection certificates are pivotal in vendor-to-vendor disputes.  PACA precedent provides that establishing a breach of the seller’s warranty of suitable shipping condition requires a timely USDA (or similar) inspection certificate showing the produce was “abnormally deteriorated” at contract destination.  For all practical purposes, abnormal deterioration is defined by PACA’s Good Arrival Guidelines, which sets forth the percentage of defects allowed (by default) under the sales agreement.  Vendor-to-vendor “good arrival” claims often hinge on a mere 1-2% of defects.

Conversely, establishing a breach of the contract of carriage is not about determining the percentage of defects affecting fresh produce at destination.  Rather it is about proving that the carrier failed to use due care to product the product in its possession (see Uniform Commercial Code Sec. 7-309(a)).  Not surprisingly, the failure most often alleged in the carrier claims we see is the failure to properly maintain air temperatures in transit, which is best shown with temperature records from portable and/or reefer-based temperature recorders.

But, of course, proving a breach of the contract of carriage is only half the battle.  Claimants must also show the produce was harmed by the breach, and that this harm led to financial damages.

This is where inspection certificates come into play in the context of carrier claims.  An inspection certificate showing 35% average condition defects will naturally support a greater claim than one showing just 17% average condition defects, assuming both inspections were timely.  Timeliness is critical, of course, because even ideal transportation conditions will not keep produce fresh indefinitely.

So how long after arrival may an inspection certificate be considered meaningful? Although PACA precedent is not directly applicable to transportation claims, decades of decisions related to the timeliness of USDA inspections provide an authoritative reference when considering virtually the same issue in the context of a carrier claim.  Suffice it to say that inspections taken more than two or three days after arrival may be challenged as untimely, especially when highly perishable commodities like strawberries or asparagus are concerned.

Assuming the inspection certificate is timely, the next question is “how is the information on the inspection certificate to be interpreted?”

Taking asparagus, for example, how does the carrier know whether 10% average condition defects is considered abnormal?  How about 10% decay?

This is where PACA Good Arrival Guidelines can be helpful within the context of a carrier claim. With a functional understanding of these guidelines, carriers can more effectively evaluate inspection certificates and, if necessary, challenge the reasonableness of any financial damages claimed against it.

Oversimplifying somewhat, the key numbers to consider when looking at PACA’s Good Arrival Guidelines are those under the Percent of Defects Allowed column.  The first number represents average defects; the second number represents serious condition defects; and the third number represents very serious defects and/or decay. LINK?

If, for example, despite the carrier’s breach, the USDA inspection certificate shows that the percentage of defects does not exceed the relevant standard (15-8-3 after 5 days), then the carrier is in a good position to argue that the commodity in question should have retained a high percentage of its market value.  If, on the other hand, a timely USDA inspection certificate shows defects far exceeding these standards, the carrier should not be surprised to see poor returns, dumped product, and substantial damages alleged.

With the PACA Good Arrival Guidelines as a measuring stick, a timely USDA inspection certificate allows the condition of fresh produce to be quantified and assessed in an objective manner that effectively settles questions with respect to the condition of the produce upon arrival at contract destination.


Doug Nelson is Vice President of Trading Assistance for Blue Book Services Inc.