SHIP AGENT’S LIABILITY FOR CARGO CLAIMS UNDER ISRAELI CASE LAW
By Adv. Merav Nur
Naschitz, Brandes & Co
5 Tuval Street, 67897
Tel Aviv, Israel
Tel: 972 (3) 623-5000
Fax: 972 (3) 623-5005
In Israel, the ship agent is often a potential defendant in actions relating to cargo claims. The reason appears merely to be the ship agent’s availability and the convenience in instituting action against him rather than anything else.
Although it has become a common practice to bring an action against the ship agent, there are many obstacles to overcome in such action. First, Bills of Lading usually contain clauses where the carrier is expressed to be contracting on behalf of himself and his servants and agents. The result of this is that when goods are lost or damaged on a carrying vessel, such agents are able to claim immunity from suit. Second, the reasoning for not holding the Agent liable, has always been based on the general principles of the law of agency that an agent, acting on behalf of a disclosed principal, cannot incur personal liability in his capacity as agent or to be sued when his principal is disclosed. This position is an obvious benefit to the ship agent as all he is required to do when sued by cargo interest is to raise the defense of the disclosed principal.
Consequently, the number of marine cargo claims instituted and succeeded by cargo interests against ship agents is minimal. The concept of personal liability of the ship agent has been introduced by the Israeli Courts in several instances. In this paper I shall review only these cases that found the Agent to be liable, and attempt to show that a ship agent in Israel, under certain circumstances, is no longer fully protected and could incur personal liability for the act or omission of the ship irrespective of whether such agent acted for a disclosed principal.
In general, The Israeli Courts holds that the use of the term “as agent only” on the Bill of Lading, by itself, does not automatically exempt the agent from liability and it is necessary to examine the contractual relations between the cargo interest and the agent as well as the specific actions of the Agent.
C.C. 17805/98 (Magistrates’ Court of Haifa) Markit Products Ltd. v. Caspi Cargo Lines Ltd.
The judgment was given on June 6th 2004 by Judge Nitzah Sharon at the Magistrates’ Court of Haifa.
A monetary claim was submitted by Markit, a chemical importer, against the carrier and against the agent. The plaintiff did not succeed in serving the Statement of Claim to the carrier, and therefore was forced to continue the claim only against the agent.
A cargo of chemicals (magnesium bags) was shipped under a clean Bill of Lading on board the M/V BABA CAPTAIN from Greece to Haifa, and arrived damaged at the port of Haifa. According to the survey report on behalf of the plaintiff, the cargo arrived with water damage, the bags were torn, the content spilled out of the bags. The damage, according to the surveyor, occurred during the voyage due to moisture and wetness in the holds of the vessel.
Arguments of the Plaintiff:
• The agent was negligent as he did not handle and/or shipped and/or stored the
cargo in the appropriate conditions.
• The agent breached the contract with the plaintiff as he did not provide a suitable mean of transportation for this type of cargo.
• The agent was aware of moisture in the holds of the ship and was obligated to notify the plaintiff and provide an alternative.
• The agent chose an unreliable shipping company and despite great efforts, the plaintiff was not able to serve the Statement of Claim to the carrier and therefore was eventually forced to discontinue the claim against the carrier.
Arguments of the Agent:
• The Agent acted as a “broker” only and cannot be responsible for the shipment.
• The Agent has no effective control over the goods and is not liable for the good order and condition of the goods.
• The Agent is not a contracting party to the Bill of Lading and was only allowed to sign the Bill of Lading in the master’s name “as agent only”.
• The Bill of Lading mentions the registered office of the carrier and the Agent cannot bear responsibility for service to the carrier.
Is the ship agent liable to compensate the shipper for the cargo damages caused during the voyage ?
Judgment of the Magistrates’ Court:
• The Court decided that the Agent could not be exempt from liability and held the Agent liable for the damages of the plaintiff, in the following words: “It is true that the parties signed on the bill of lading are liable by contractual liability and I agree that the defendant has not signed the bill of lading as a party to the contract. However, in practice the Agent chose the carrier for the purpose of delivering the goods to the plaintiff in sound good order and condition, and therefore the Agent is not liable “contractually” toward the plaintiff but is liable with implied liability.”
• The court based its decision on the Agency Law and determined that the Agent was authorized to act on behalf of the carrier (the Principal) to create the legal relationship with the plaintiff for the purpose of carriage of goods. But also the actual authority was given to Caspi to act on behalf of the plaintiff in order to deliver the goods from Greece to Israel, and therefore Caspi is liable as an Agent of Markit under vicarious liability.
• The court determined that Caspi had to meet reasonable professional standards in choosing the carrier and the vessel. Caspi, according to the court’s decision, was responsible to check the sea-worthiness of the vessel and its holds to make sure it meets the standard for Markit’s cargo of chemicals.
• Caspi, then, was ordered to pay the full amount of the claim to Markit plus fees and expenses. An appeal was submitted to the District Court of Haifa and at the time of the hearing, a tribunal of 3 (three) judges recommended the appellant to withdraw the appeal as chances are low they would intervene in the decision of the inferior court. The appeal was withdrawn.
Civil Appeal 1107/00 (District Court of Haifa), Amit Industries Ltd. v. Israeli Scandinavian Marine Agency Ltd.
The judgment was given by Judge Dar in the District Court in Haifa on February 18th, 2005.
An importer of trains and locomotives, Amit Industries Ltd. hired the services of a forwarder, Agish International Transport Ltd., to transport locomotives from Spain to Israel. Agish contacted Scandinavian Marine Agency Ltd. (a ship agent) to arrange the shipment of the locomotives to Israel.
The action had been brought against the ship agent for all damages the shipper has suffered due to the substantial delay in the arrival of the shipment. It must be noted that eventually the shipment arrived on a different vessel with a different carrier, other than it was originally booked.
The ship Agent, at relevant times, was in dispute with the carrier but failed to inform the plaintiffs of the dispute and of the predicted failure of the carrier to fulfill his obligations under the Contract of Carriage. The action was brought against the ship agency and also directly against two of the agency’s managers.
Arguments of the Plaintiff:
• The Scandinavian Agency is liable for damages caused to the third party under the Law of Agency as the identity of the principal was undisclosed.
• The agent is a party to the contract of carriage, as the representative of the plaintiff contacted the Scandinavian Agency based on the professionalism, efficiency and reputation of the Agency and not of the carrier which is unknown to him.
Argument of the Defendant:
• The Scandinavian Agency stated that as he was not the carrier, he should not be liable for claims by the plaintiff. The defendant argues he acted as agent only and as such cannot be responsible for the carriage itself or for any delay in departure.
What is the standing of the Scandinavian Agency in the frame of the contractual relationship of the parties ?
Judgment of the District Court:
• Although the Agent has acted within the scope of an authority given to him by the principal, the actual transaction was made directly between the representative of the consignee and the Agent. Under this agreement, the Agent undertook to use suitable carriers and to meet the time schedule represented by the consignee for the expected arrival of the shipment.
• The Agent will not be exempted from liability, although he acted as agent only on behalf of the foreign carrier. The term “as agent” is not an automatic exemption and the Agent would not be entitled to use it, in particular when his words or conduct reasonably led the consignee to believe that he has the best expertise, resources and contacts to accomplish the transaction.
• The intention of the parties when contacted the Scandinavian Agency, was to authorize the Agent to act on behalf of the consignee and not only to carry out the ship’s agent’s normal duties of informing the consignee of the arrival of the ship etc.
• The Agent acted in bad faith as he failed to notify and fully inform the consignee of the delay and did not act to properly replace the carrier and to minimize the delay in the shipment departure.
• The court determined that the Scandinavian Agency and the General Manager of the Agency were also negligent in tort, as their actions caused the Breach of Contract (in accordance with clause 62 to the Israeli Tort Regulations) between the consignee and the carrier.
• Personal liability was imposed on the General Manager of the agency as he initiated and activated the relationship with the consignee and with its representatives. The Scandinavian Agency and its general managers were ordered to pay the full amount of claim to the plaintiffs plus fees and expenses.
• The case bears special circumstances of bad faith and dishonest conduct on part of the Agent. Moreover, the Agent carried out not only the normal duties of a ship agent, but rather led the consignee to believe that he undertook to arrange the carriage by sea. At all relevant times, the principal was unknown to the consignee. Due to the very special circumstances of this case, it would be reasonable to assume that this judgment would not apply to other cases brought against ship agents.
Civil Appeal 3656/99 and Civil Appeal 601/99, Transclal Ltd. v. M.A.R. Trading and Shipping Ltd. 56(2) 2002.
The judgment was given by Judge Engelard in the Supreme Court on December 16th, 2001.
Cargo of steel was purchased and financed by the bank by Documentary Credit. As security, the bank received the original Bills of Lading consigned to orders of the bank. When the goods arrived in Israel, a Delivery Order was issued by the agent and the goods were delivered to the importer without the surrender of the Bills of Lading.
An arrangement was reached between the importer and the ship agent and the Agent received a letter of indemnity from the importer. Therefore, the agent agreed to release the goods without the surrender of the original Bills of Lading.
In this case, the agent’s involvement was merely that of an agent acting on behalf of a carrier, issuing the delivery order, and making arrangements with the customs.
As the Israeli importer was no longer solvent, the bank sued the ship agent for having released the goods without presentation of the Bills of Lading.
The Supreme Court Judgment:
• The Court outlined the legal framework governing the agent’s obligations even in the absence of an explicit agreement between the parties.
• The duty of trust does not derogate from the agent’s responsibility in torts, and with regard to this it needs to be examined whether the agent acted as should be expected from an agent in the field of his expertise. The agent is obligated to act according to the appropriate standards of his profession.
• The Supreme Court reached the conclusion that both, the ship’s agent and the custom’s agent are liable for the damages of the bank, and they were ordered to compensate the bank as follows: the ship’s agent for 75% of the damages and the custom’s agent for 25% of the damages.
Could the ship’s agent rely on a Jurisdiction Clause in the Bill of Lading ?
It was well established by the Supreme Court in Israel that cases of jurisdiction clauses relating to maritime transport should be distinguished, as a jurisdiction clause in such contracts will not achieve its goal unless interpreted by the courts as exclusive. This is an important innovation in the law relating to jurisdiction clauses (C.A. 362/83, Menorah Insurance Co. V. The Donar).
However, this may not be the case when the application for a Stay of Proceedings based on a jurisdiction clause in the Bill of Lading filed by the agent of the carrier, which resides in Israel and its principal place of business is in Israel.
The question was raised before the Supreme Court in two separate cases and in both cases the Court denied a Stay of Proceedings on the basis that the Jurisdiction Clause in the Bill of Lading is not relevant to the Agent but to the carrier only.
Civil Appeal 791/77, Aaron Rosenfeld and Sons Ltd. v. Fireman’s Fund Insurance Company Ltd.
The Bill of Lading contained a Jurisdiction Clause stating that any dispute arising under the Bill of Lading shall be decided in Germany, according to the place of business of the carrier.
The application for Stay of Proceedings filed by the Agent was denied by the Magistrate’s Court and by the District Court.
The Agent refers to clause 24 in the Bill of Lading stating that “Every exemption … applicable to the carrier … shall also be available … to protect every such servant or agent of the carrier … and for the purpose of all the foregoing provisions of his servants from time to time (including independent contractors as aforesaid) and all such persons shall to this extent be or be deemed to be parties to the contract in or evidenced by the bill of lading.”
In its ruling, the Supreme Court held that the Agent was not a contractual party to the Bill of Lading, and in any case the Himalaya clause refers only to the liability of the Agent and not to the procedural matters such as jurisdiction.
The Supreme Court determined that the Jurisdiction Clause in the Bill of Lading meant to benefit the foreign carrier that its place of domicile and business is in Germany. However, all of the Agent’s business was conducted from Haifa, Israel and it is clear that the most convenient forum for the Agent would also be in Israel and not in Germany.
Civil Appeal 140/83, Prudential Ships’ Agents (Israel) Ltd. v. S.K.L. Trading Company Ltd.
The Supreme Court denied the appeal of an Agent for Stay of Proceedings based on a Jurisdiction Clause in the Bill of Lading.
The judgment clearly states that the Agent is not a party to the Bill of Lading and that the consignee and the Agent have a separate implied contract which is not based on the Bill of Lading.
Could the plaintiff serve the Statement of Claim against the foreign carrier at the place of business of the Agent in Israel?
In practice, once a claim is submitted to court against a foreign carrier, the plaintiff has to serve the Statement of Claim at the place of business of the carrier abroad.
A recent case was in Civil Action 5813/08, T.P.L. Investments Ltd. v. Champion Ferries Co., where the court held that as the Agent is the sole representative of the foreign carrier in Israel, the service of the claim at the place of business of the agent is valid.
From the above discussion, it can be concluded that although a ship agent is not regarded as an actual carrier, he may be liable if it appears that he was negligent in his actions. It is therefore imperative that the ship agent fully understand the risks he may be exposing himself to by agreeing to act for a foreign shipping company and make efforts to safeguard himself against damages or plan for recourse measures in the event that he is faced with a court suit.