A manager of a forwarding / customs brokerage firm who is personally involved in the negligent release of goods without the presentation of an original bill of lading may be held personally liable towards the exporter concurrently with the liability imposed on the company under his management.
On September 19, 2011 judgment was given by the Magistrate’s Court in Tel Aviv in Civil File 44474/04 in an action instituted by a British company called Special MetalsWiggin Ltd. (hereinafter the “exporter”) against a firm engaged in customs brokerage and international forwarding (hereinafter: “the customs brokerage firm”). This firm had acted, inter alia, as the customs agent charged with releasing the goods in connection with which the claim was brought. The exporter also alleged that the two managers of the firm who had dealt with the release of the goods were personally liable. The firm and its two managers filed third party notices against a British company which they claimed had dealt with the sea carriage of the goods from the UK port to the port of Ashdod in Israel. A third party notice was also filed against the importer of the goods and against the person then acting as the manager of the importing company.
The principal argument raised against the customs brokerage firm and its managers was that they had breached their obligations towards the exporter by releasing the goods to the importer without the importer first presenting the original bills of lading to them. In doing so, they enabled the importer to receive the goods (and subsequently sell them to his own buyers) without first paying consideration for them to the exporter. It also appears from the judgment that the exporter’s efforts to collect the consideration due to him from the importer by means of a separate claim, failed, apparently because of the insolvency of the importer. Consequently, the exporter sued the customs brokerage firm and its managers for his damages, namely, the consideration for the goods which had never been paid to him.
The Court upheld the claim and ordered the customs brokerage firm and one of the two managers to pay the exporter for the goods.
In essence, the judgment implemented the principle established by the Supreme Court in Civil Appeal 3656/99Transclal Ltd. v. M.A.R. Trade & Shipping Ltd. 56(2) P.D. 344 (2002) (hereinafter: “the Transclal principle”). The Transclal principle states that a customs agent owes a duty of care not only to his customers but also to third parties who may be harmed by his negligent and unprofessional conduct. As Justice Engelard put itt:
“Indeed, it is true that the Customs Agents Law, which imposes a duty of faithfulness and honesty towards the customs authorities and towards the customer (Section 20 of the Law), does not mention the duties of the agent towards other bodies. Nonetheless, it is clear that the duty of faithfulness set out in the Customs Agents Law does not derogate from the liability of the customs agent under any other law, such as his liability for torts”.
Relying on the Law of Trusts, 5739-1979, Justice Engelard added that a “trustee (too) may be held liable in torts towards a third party for his negligence, omissions or on any other ground”.
In his ruling, Justice Engelard agreed with the conclusion reached by the District Court (the judgment which was being appealed) that:
“he (the customs agent)is aware of the norms existing in the trade, its customs, the fact that third party rights will be harmed in the event that he does not act faithfully and honestly… One must be particularly meticulous with international arrangements as these are designed to ensure security in international trade… Proper legal policy concerning the nature of the function of a customs agent, the function that he performs in international trade and his help in preserving customary and known norms of release – requires the imposition of concrete liability in the present case.”
The Magistrate’s Court in Tel Aviv reiterated that “an investor who is not in possession of bills of lading is not entitled to receive the cargo and a person who releases the cargo to him is exposed to a claim by the holder of the original bills of lading”.
In the Transclal case, the banks had held the original bills of lading as security for credit given by them. In this case too, the bills of lading were held by the bank; however, it held them as an agent of the exporter and in a manner intended to secure payment to the exporter of the consideration for the goods. The principle in the two cases was identical, namely, unless the importer held the original bill of lading he could not release the goods and the original bill of lading would not be delivered to him otherwise than on payment of the consideration for the goods. Accordingly, release of the goods to an importer who did not hold the original bill of lading, as he had not paid the consideration for the goods, was an act of negligence amounting to a tort.
A substantial part of the litigation was devoted to the dispute over whether in fact the original bills of lading had not been produced to the international forwarder who was also acting as a customs agent. The Court held that indeed the bills of lading, which were held by the bank, were never presented to the international forwarder and ultimately, when it became apparent that the goods had been released to the importer, the bank returned the bills of lading to the exporter.
The Court held that the shortened period of limitation under the Carriage of Goods by Sea Ordinance would not apply to a customs agent as he was not a “carrier” under the Ordinance. Moreover, the Court held that in this case the Carriage of Goods by Sea Ordinance would not apply because the loss or damage to the goods had not occurred during their carriage but rather in consequence of the unlawful release of the goods (in parenthesis it should be noted that this last ruling was inconsistent with the Supreme Court’s decision in Civil Appeal 3552/01Banco Exterior v. Yaakov Caspi et al where it was held that the process of releasing the goods formed part of the sea carriage for the purpose of the application of the Carriage of Goods by Sea Ordinance).
The Court applied the principle of res ipsa loquitur (“the thing speaks for itself”) set out in Section 41 of the Civil Wrongs Ordinance, to the matter at hand. According to this principle the burden of proving that he was not negligent is imposed on the international forwarder / customs agent upon the occurrence of three conditions: first, when the exporter did not know or could not know the circumstances which led to the release of the goods by the customs agent;second, when the international forwarder / customs agent had the power and control to make decisions in relation to the release of the cargo; third, when the event was more consistent with the conclusion that the international forwarder / customs agent did not take reasonable care than with the conclusion that he did take reasonable care.
The ruling which is of great significance to customs agents as a body is the one holding the manager of the customs brokerage firm personally liable for the damages of the exporter concurrently with the liability of the customs brokerage firm itself.
The Court held that the manager had been personally involved in the release of the goods and that it was he who had claimed that the importer had provided him with the documents which he had used to authorize the release of the goods. In these circumstances, the manager as an office holder in a corporation “could not hide behind the separate legal personality of the corporation, where he himself had performed an act towards another person which was contrary to the provisions of the law applicable to him”. The Court held both the customs brokerage firm and the manager liable for the exporter’s damages.
This ruling compels managers of international forwarding / customs brokerage firms to act with extra caution in view of the risk of now being held personally liable for the damages of importers concurrently with the imposition of liability on the corporation, should it be proved that they acted negligently towards the holders of the original bill of lading.
C.c. 44474/04 Magistrate Court in Tel Aviv- Wiggin Metals Special Limited v Haim Netanel Ltd. and Others.
Adv. Shmuel Grossman, Adv. RoyGilad, Mor