Publication

Let us tell you a story. Imagine you act on behalf of a company providing principal services (completion of customs formalities). You have an order in relation to delivery of cargo – aviation fuel within the European Union. The carrier provides the delivery of the cargo by rail. As a principal, you are the primary person responsible for all the customs formalities to be completed.

At the Customs office of destination (Latvia) the loss of aviation fuel of approximately three tons is discovered. It turns out that the lower unloading device of one of the wagon tanks in question was not correctly closed or was damaged. There is no evidence that the cargo deficit resulted from an act by the sender. Also, there is no sufficient evidence excluding the entry of lost cargo into the European Union (possible fraud). Taking this into account, the Latvian State Revenue Service (VID) calculates a customs debt. You as a principal have to pay it.

This was exactly the case of Latvijas Dzelzceļš, the main state-owned railway company in Latvia, where the Latvian Supreme Court delivered its judgement in January 2018 (case No.SKA-30/2018).

The Supreme Court, following the preliminary ruling of the Court of Justice of the European Union upon its request (case No.C-154/16), found crucial the circumstance whether there was proper evidence that the cargo deficit in question was totally destructed or irretrievably lost. If the principal fails to prove it, the cargo deficit constitutes an unlawful removal of the respective cargo from the customs supervision in accordance with the Customs Code. In such case a customs debt shall be calculated. Even potential fraud cases may not exclude the principal’s liability.

Regardless the absence of principal’s fault, the principal is deemed to be a tax debtor under the Customs Code. This means that he is liable for the implementation of the customs formalities and the payment of the tax debt once it arises. However, it does not exclude that the Customs authorities may determine the carrier as jointly and severally liable for the customs debt, because he has not fulfilled his obligations under the Customs Code to ensure the production of the goods intact at the Customs office of destination. Still, in case this is not done, the principal can file a recourse claim against the carrier.

Thus, you can learn two main lessons as a possible principal:
1)      To avoid unnecessary litigation with the carrier, make sure your contract with the carrier provides an easy way to ensure the repayment of customs debt by the carrier.
2)      Before starting a legal action against state authorities for calculation of tax debt, assess the sufficiency of evidence at your disposal to prove total destruction or irretrievable loss of the cargo.

Finally, you might be wondering what regulations apply to the loss of cargo in respect to civil liability if you act as a carrier. If the carriage of goods is made by road, the CMR Convention will apply to any cross-border deals. Once the liability of the carrier for the loss of cargo is established, the compensation might be claimed following the limits established by the CMR Convention. In addition, according to the CMR Convention, the carrier is usually liable for paying the transportation charges and customs duties in case of loss of cargo.