Israeli Customs May Use Guarantee to Secure Costs of Seizure and Destruction

On June 20, 2011 the Israeli Supreme Court handed down its decision in State of Israel v. Christian Dior Couture et. al. providing insight into section 200A to the Customs Ordinance[New Version].

The case started in January 2010 when the Israeli Customs sent Christine Dior a notice stating that it seized a shipment of infringing shoes. Customs provided in the notice to Christine Dior that it will continue to hold the infringing shoes pending the deposit of a banker’s guarantee for the sum of NIS5,000. Christine Dior deposited the

Christian Dior Shoes (Illustration only)

banker’s guarantee and filed a lawsuit against the importer. The importer, residing in the Palestinian Authority, was unavailable and a default judgment was entered. Christine Dior sought to recover the banker’s guarantee. Because the importer could not be found, Customs requested the court to forfeit the bank guarantee to cover the storage and destruction expenses. The District Court rejected the Customs’ position stating that the purpose of the guarantee was to guarantee the damages which may be caused to the importer if the seizure was not merited. Christian Dior appealed the decision to the Supreme Court.

The Supreme Court reversed holding that section 200A(c) provides that the right’s owner must deposit a guarantee which shall cover any expense related to the seizure or to compensate for any damage caused by the seizure. The bank’s guarantee is deposited in addition to a self guarantee which is designed to cover for damages caused if the seizure was unjustified. The Supreme Court held that the language of the law does not prohibit Customs from using the rights owner’s bank guarantee to cover its expenses if the importer fails to do so or is unreachable. This, the court said, is in line with article 53(1) of the TRIPs agreement, in compliance with which section 200A was initially enacted.

TRIPs Article 53(1) provides for the applicant to provide a security assurance to protect both the authority and the defendant. In addition, the court held that there is no justification that the public will bear the cost of protecting the property rights of a private entity. This, irrespective the interest of the State, in protecting intellectual property rights and the State’s expenditure in this regard.

Finally, the court suggested that some of the costs borne by the rights owner could be recovered if within the lawsuit filed by the rights owner a motion is made to apply a temporary attachment on the import duties paid by the importer to the Customs, even if this sum is lower than the costs of seizure and destruction.