Recently, a ruling was handed down by the Herzliya Magistrates Court which addresses the collection of an international air cargo fuel surcharge.

An importer who imported spare parts for vehicles with air cargo from Europe filed a claim against the freight forwarder who managed the forwarding of the cargo on his behalf. The importer claimed, inter alia, that the freight forwarder misled him by requiring him to pay fuel surcharges according to the chargeable weight of the cargo whilst the freight forwarder paid fuel surcharges to the airline according to the actual weight of the cargo.

Our law office represents the international freight forwarder in this case.

The importer claimed that the fuel surcharge imposed by the airlines constitutes a tax (as opposed to a commercial charge) and therefore it is mandatory for the freight forwarder to charge the importer “back to back” in accordance with the airline’s charges. In addition, the importer argued that according to accepted practice during the relevant period, the importer would have been charged for the fuel charges according to actual weight.

The importer further claimed that the payment of air freight was stipulated in an agreement between him and the airline and that the freight forwarder is not entitled to any receipt whatsoever for its services except for delivery order fees collected by him from importer. According to the importer, the freight forwarder must transfer to the importer any credit the forwarder received from the airline regarding the freight payments.

The importer filed a financial claim which included the differentials between the airline’s fuel surcharges and the fuel charges of the freight forwarder for the cargo imported by the importer in 2000 and 2001 along with linkage differentials and interest as well as import duty differentials that were overpaid according to the importer for the same cargo because the cargo value from which the import duties derived included, inter alia, the freight payment and fuel surcharge.

The freight forwarder claimed that the fuel surcharge does not constitute a tax but rather a commercial charge of the airlines for rising fuel prices and therefore the contractual charge is negotiable. In the past, the fuel price was expressed in the price of air freight. However, following a rise in fuel prices in 2000, the airlines decided to disentangle the component of rise in fuel prices from the cost of air freight.

The freight forwarder further claimed that the final price that the importer pays is a result of the agreement between the freight forwarder and the importer about the commissions rate (credits) which the freight forwarder gives to the importer on the price of air freight on a monthly basis. However, the final price the freight forwarder pays the airline is a result of the agreement between him and the airline about the monthly commissions which the airline gives the freight forwarder. This involves two separate and independent agreements. The commissions (credits) which the airline gives to the freight forwarder are determined by the entire scope of activities of all the freight forwarders customers with the airline. The freight forwarder’s obligation to pay the airline is an independent obligation and not dependent or contingent on the importer making a payment to the freight forwarder. The airline does not involve itself with the commissions agreement between the freight forwarder and the importer. Also, the payment terms are different.

The freight forwarder added that the importer was charged for clear and detailed charges (including the charge for the fuel surcharge) and he never objected or appealed them. If the importer did not agree to the charges, he would be obliged to inform the freight forwarder of this in real time and the fact that he confirmed the charges and paid them attests that these charges were agreed upon. If the importer had reservations about the charges for the fuel surcharges, the freight forwarder would have examined the feasibility of continued engagement and also would have cancelled or reduced the commissions rate given to the importer through monthly credits.

In addition, the freight forwarder claimed that the importer is not entitled to import duty differentials because the import duties paid by him were passed on to his clients and in any case he has not proven otherwise as required pursuant to the Indirect Taxes Law.

Furthermore, the freight forwarder has raised a claim of time bar limitation and delay.

The court ruled that the freight forwarder did not mislead the importer. This involves the controversy of the method of calculating the fuel charges to be paid. The freight forwarder presented all the charges in detail and if the importer had conducted an examination he would have been able to bring his objections to the freight forwarder in real time and the parties would have been able to decide whether they wished to continue working together or not and to address these arguments in real time. The importer, who accepted all charges and calculations, but at the same time did not conduct an examination, cannot claim in these circumstances deception of the freight forwarder. According to the court, the facts were placed before the importer and he is the one who chose not to do any examination even after the imposition of the fuel surcharge in 2000.

Under these circumstances, the court accepted the freight forwarder’s claim regarding time bar limitation of part of the claim and also regarding the delay in filing the claim.
The court ruled that there was no written agreement between the parties defined as such, but there was correspondence which enshrined the parties’ agreements in various matters such as freight prices and fee rates. The court reasoned that it would be appropriate that the issue of fuel surcharges would be settled between the acting parties to a large extent, in writing and in a clear manner and it would not be left to depend on this agreement or otherwise orally.

The court came to the conclusion that in the relationship which applied between the parties, the majority of ties attest to the fact that the calculation of fuel surcharges which the importer is charged for ought to be according to actual weight.

The court reiterated that the fuel surcharge does not constitute a tax but rather it involves a commercial payment determined by the airlines as a result of rising fuel prices and therefore, the parties were apparently permitted to stipulate it as with any other commercial component. Nevertheless, the court established that the accepted practice at the end of the day would create the business practice according to which the parties subscribe and in this case, the court came to the conclusion that according to the business practice in operation at the relevant time, the freight forwarder would be charged for the fuel surcharges according to actual weight and not chargeable weight. It should be noted that the relevant period is 2000-2001 during which the airlines first began to charge fuel surcharges.

The court rejected the importer’s claim that the payments which he paid to the freight forwarder must be reduced because the freight forwarder was allegedly, the “marginal player” in the triangular relationship: importer – forwarder – airline. The court ruled that by the very fact that the importer needed the freight forwarder’s services attests to the freight forwarder’s entitlement to receive payment for these services.

The court accepted the freight forwarder’s claim that the importer has not proven that import duties paid by him for importing cargo (and derived from the value of the cargo, inter alia, the shipping costs and fuel surcharges) were not “passed on” to the final consumers and in the absence of such proof, the importer is not entitled to a refund.

The court did not accept the international freight forwarders set-off claim which argued that if the importer had reservations in real time about the fuel surcharges required, then the freight forwarder would not have given him the monthly credits given to him with air freight payment and therefore, the credits the importer received must be offset from the fuel surcharge differentials. The court reasoned that the freight forwarder is not entitled to perform offsetting without presenting precise data and figures regarding the fees agreed between it and the airline, even though these fees are apparently not relevant to the relationships between the freight forwarder and the importer in the context of the set-off claim.

Ultimately, the court accepted the claim in part and ruled that the freight forwarder must return the charge differentials to the importer for fuel surcharges in relation to part of the bills of lading claimed by the importer. The court rejected part of the claim for time bar limitation and also rejected the part which relates to import duty differentials. Regarding the amount awarded to the importer, it was established that the linkage only must be attached in light of receiving the claim of delay.

In our estimation, the amount awarded is less than 40% of the amount of the claim, accurate as of today.

We believe one of the important questions discussed in the ruling deals with the question of the nature of the fuel surcharge. The court accepts the freight forwarder’s claim that the fuel surcharge does not constitute a tax or mandatory payment (despite the use of the term “surcharge”) but rather it is a commercial charge of the airlines which can be stipulated and which is negotiable in the relationships between the freight forwarder and the importer. Another question which remains unanswered in our opinion in the ruling is how the bills of lading can be relied upon as an indicator for payment of fuel surcharges by the freight forwarder to the airline if there was no dispute about the fact that the price which appears on the bills of lading is not necessarily the price charged for payment.

Attorney Roy Gilad

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