Limits of custom agents liability towards the customer

In a recent ruling, the Court has determined that the customs agent and international freight forwarder cannot and are not obligated to warn the customer of the risks in an import transaction.

An importer of textile products from England approached a company that is engaged in international freight forwarding and serves as a customs agent, to handle the import of the goods.

Since the goods were imported from England, a member in the European Union, the Agreement for Preferential Treatment between the countries of the European Union and Israel, should have applied to the import of the merchandise. The instructions of the agreement exempt from custom merchandise imported from the European Union to Israel.

In order to obtain the exemption, the importer must provide the customs authorities with a traffic certificate EUR1, attesting that the goods were manufactured in a Union member state (or that part of the manufacturing activities were done in that state – according to the definition in the Rules of Origin in the Preference Agreement Instructions).

The goods were not charged with customs upon arrival to the country, however, after some time the importer was issued a customs payment charge because, according to the argument of the Customs Authority, the Preference Documents were sent for verification and it was found they do not meet the Rules of Origin. It became clear that the Customs Authority in Israel, by its authority, approached the English Customs Authority so that it would examine whether the goods meet the Rules of Origin according to the Preference Agreement.

The English Customs Authority responded to the Israeli Customs Authority, that its investigation revealed that the exporter does not hold the supporting evidence of his claim that the goods are entitled to the preference in accordance with the Agreement, i.e., documents attesting to the origin of the merchandise. Therefore, the gods do not meet the Preference conditions according to the Agreement. Because of this failure by the exporter, the customs exemption provided to the goods at the time of import was cancelled, and the importer was obligated to pay the full amount of the duty, plus interest, linkage and arrear fine.

The Court examines the instructions of the Preference Agreement and determines, that upon the European exporter’s signature on the petition to allow a traffic permit, EUR1, he declares that he has in his possession all the documents attesting to the origin of the goods. Therefore, his signature on the petition when he is not in the possession of the required documents is allegedly a criminal offence. “Under these circumstances it seems that a reasonable importer would assume that if the traffic certificate was issued, it can be assumed that the exporter olds the required documents to prove the origin of the goods, as he declared in the petition to the customs authorities.

It is not apparent to me that the importer is obligated to anticipate that it is possible that the exporter will act illegally when he makes his declaration, (i.e., a false declaration, an act that could be considered a criminal offense), or that he will be negligent in maintaining the documents that can prove the origin of the merchandise, in spite of the duty imposed on him by the instructions of the law that applies to him and the Agreement. The more reasonable assumption is that the exporter made a true declaration; has enclosed to it the required documents that also convinced the customs authorities of the member state to the Agreement; and that the customs authorities that issued the certificate acted as required from them”.

The importer filed suit at the Jerusalem Magistrate Court against the company that provided, as aforementioned, the services of a customs agent and international dispatcher for the import of the goods from England (hereinafter: the customs agent). According to the importer’s argument, the customs agent was negligent by not bringing to the importer’s attention the fact that the customs authorities are entitled to examine the truth of the argument that the goods are entitled to preference, and in such case, the English customs authorities must verify the origin of the goods. According to the argument, the customs agent was negligent since in the framework of the consultancy he provided the importer; he did not alert it to the possibility that the exporter will not possess the documents proving the origin of the goods. If he had done so, according to the importer’s argument, the importer would have insisted that the exporter would possess these documents and alternatively, would have entered into purchase agreements with other importers who could introduce sc documents.

The Court rejects the suit against the customs agent. First, the Court outlines the legal framework of the customs agent’s obligation towards his customers, even if there is no explicit agreement between them.

Section 20 of the Customs Agents Law, which applies to customs agents and international dispatchers, determines an obligation to act: “Reliably, loyally and honestly both towards the Customs Authority as well as towards his customers”. It is clear that the customs agent has a loyalty obligation towards a customer, the violation of which could result in his being obligated towards the customer. Moreover, the Court determines that, following the ruling in Transclal V. M.A.R, the duty of trust does not derogate from the customs agent’s responsibility in torts, and with regard to this it needs to be examined whether the customs agent acted as can be expected from a professional providing professional counsel in the field of his expertise. The Court emphasizes, that in principle, the duty of a customs agent is not different from the liability of another professional that provides a service in the field of his professional expertise, and is obligated to act according to the appropriate standards of this profession.

Based on these principles, the Court asks itself whether the customs agent was negligent, within the framework of the advice he provided the importer, by not alerting it to the possibility that the exporter will not possess the documents proving the origin of the goods; was he negligent by not warning the importer that there is a possibility that the exporter will not retain in his hands the documents proving the origin of the goods.

The Court’s legal analysis relates to both the normal torts of negligence as well as the specific tort of “Negligent misrepresentation”, a civil wrong that deals with providing negligent information under circumstances of a professional providing counsel in the area of his expertise. In any case, it is the responsibility of the harmed, the importer in this case, to prove that the harmer, the customs agent, has violated his obligation to act as a reasonable and skilled professional, in a manner being in line with that which is customary among those engaged in the profession.

Based on those principles, and in light of the courts determination that an exporter signing a petition for a traffic permit, when he is not in possession of the required documents, is allegedly committing a criminal offense, the Court examines the question of the customs agent’s negligence under the circumstances of the case.

The Court reaches the conclusion that there is no room to attribute any negligence to the customs agent under the circumstances of the case, and the suit against him is rejected. “The assumption that a professional is under an obligation to warn his client against a theoretical possibility, that a supplier or a part to an agreement, would act criminally, is not at all acceptable to me. A determination of this nature is within the boundaries of over broadening the duty of caution of the provider of advice. Should you say so, there is no end to it. Indeed, there could be cases under which such duty would be imposed; however, it can be assumed that such cases, would arise only when there is concrete apprehension for a possible criminal act (and the nature of the relations between the parties obligates giving a warning of this nature).

A normal business contract between a purchaser of merchandise and a supplier, does not establish any apprehension of this nature. Should there have been room for such a determination, it would have been necessary to set that the defendant must warn its customer not only of the possibility that the signer of the certificate would provide false details to the customs regarding his possessing of the sufficient evidence, but also that he would warn him of the possibility that the supplier is a crook that does not intend to supply the merchandise, or the possibility that he would supply merchandise of a poorer quality from that he obligated himself, or the possibility that he might supply only part of the merchandise, or the possibility that he would supply forged merchandise that is not from the Country of Origin, and so on and on. It seems that warnings of this nature are not supposed to come from the dispatcher.

The warning of possible contractual violations of that or another nature, whether resulting from the fault of the supplier or such that do not involve a component of guilt, are not within the scope of counseling obligation imposed on the international dispatcher. Just like he is not obligated to warn the importer of the possibility that he could be supplied forged merchandise, no doubt a criminal act, he is not obligated to warn him of the possibility that the supplier would violate the European Law and Trade Agreements, and sign a required affidavit for the issuance of a traffic certificate when proof of the origin of the merchandise is not in his hands.

Hence is the conclusion that the defendant was not negligent in its actions, and did not violate its contractual obligation, which also does not include but providing reasonable counsel under the circumstances of the matter. The actions of the defendant correspond with what is expected of a customs agent, and, there is no room to determine, that a customs agent must warn his client of various possibilities of fraud or actions against the law, that the other party to a transaction may perpetrate. Therefore the sentence of the suit is to be rejected”.

The Court expresses wonder that the importer avoided sing the exporter in England, although there is no doubt that he is the one who violated his statutory obligations regarding the exportation of the goods and the preference certificate he was not entitled to receive.

The conclusion from this ruling is that there is no room, to place on the customs agent / international dispatcher, the failures of an import transaction, which caused damage to the importer, the customs agent’s client. This is true even if the customs agent was a party to the process of the importing and followed it all along as the professional factor on behalf of the importer. It is necessary to examine, each case, to the crux of the matter, whether it could have been expected from the customs agent, in a reasonable and sensible manner, based on objective professional standards, that he would warn the client against any risks involved with the process of the importing. In this case, the Court has determined that even the importer could not have anticipated that the exporter would act illegally when he submitted the declaration in the framework of the traffic certificate.

(C.C (Jerusalem) 10456/02 Elba Pharmacy Ltd. V. Agish International Transportation Ltd. Advocate Axelrad on behalf of Elba and advocate Yado and Berik on behalf of Agish).

Shmuel Grossman, Adv.