On September 4, 2007 the appeal in Cherry Stix Ltd. v. The President of the Canada Border Services Agency (CBSA), 2007 FCA 274 (Court File Number A-607-05), was heard and the appeal was dismissed summarily from the bench. The Federal Court of Appeal was satisfied that the Canadian International Trade Tribunal (“CITT”) had correctly determined that Cherry Stix Ltd. (“Cherry Stix”) was not a purchaser in Canada.
The facts are very straight forward. Between September 1, 1999 and July 14, 2003, Cherry Stix imported women’s and children’s garments into Canada for sale to Wal-Mart. Cherry Stix was not a resident of Canada.
Cherry Stix entered into an agreement with Wal-Mart. The agreement referred to Wal-Mart as the “Purchaser” and Cherry Stix as the “Vendor.” The agreement provided that the terms and conditions in it “do not create an obligation for [the] Purchaser to purchase merchandise or other goods.” The agreement further incorporated by reference the terms and conditions in Wal-Mart’s Vendor Information Manual.
Cherry Stix had samples of garments designed, produced and placed in its sales line. The Wal-Mart buyers would visit the Cherry Stix showroom to view the sample garments. In certain situations, Cherry Stix may have used sketches rather than prepared samples. After viewing the samples or sketches, the Wal-Mart buyers would provide Cherry Stix with a purchase order. One month prior to shipping the finished goods, Wal- Mart submitted to Cherry Stix a “master purchase order.”
Cherry Stix arranged for a third party to manufacture the garments. The overseas supplier would deliver the finished goods to a consolidator and the finished goods would be loaded on a ship. The goods would be shipped to the Port of Vancouver. On the same day, the overseas suppliers would draw on Cherry Stix’s line of credit or payment was otherwise made by Cherry Stix to the suppliers.
Up to seven days prior to shipment, Cherry Stix would send an allocation request form to Wal-Mart. At the time of shipment, Cherry Stix would issue an invoice to Wal-Mart for the finished goods. The facts form a typical sales process between a supplier and a large Canadian retailer. The issue was whether Cherry Stix was a “purchaser in Canada,” pursuant to subsection 2(1) of the Valuation for Duty Regulations, which provide that:
For the purposes of subsection 45(1) of the Act, “purchaser in Canada” means:
(a) a resident;
(b) a person who is not a resident but has a permanent establishment in Canada; or
(c) a person who is neither a resident nor has a permanent establishment in Canada, and who imports the goods for which the value for duty is being determined, (i) for consumption, use or enjoyment by the person in Canada, but not for sale, or (ii) for sale by the person in Canada, if, before the purchase of the goods, the person has not entered into an agreement to sell the goods to a resident.
The issue for the CITT was the timing of the purchase by Cherry Stix in order to determine if Cherry Stix had an agreement to sell the goods to a resident of Canada prior to importation. The CITT determined that pursuant to the agreement with Wal-Mart, Cherry Stix had an agreement to sell the goods to a resident prior to importation. In making this determination, the CITT considered the United Nations Convention on Contracts and the Sale of Goods Act (Canada). As a result, the value for customs duty purposes was the price charged by Cherry Stix to Wal-Mart rather than the price charged by the overseas supplier to Cherry Stix.
The moral of this case is that the terms of contracts are very important. If you have any concerns about the application of Canada’s purchaser in Canada rules to existing or proposed contracts, please contact a Canadian customs lawyer. The purchaser in Canada rules are complex and are evolving. Some of the important guiding information is not in the public domain. If you would like to review a copy of the CITT Decision, please contact Cyndee Todgham Cherniak.