Ensure you are covered!

Ensure you are covered!

In the freight-forwarding and logistics industry, it is common for high-value cargo to be placed in the hands of employees, at which point things can go wrong

An employer can be held liable for the criminal conduct of their employees if they have not taken the necessary steps to safeguard themselves against such liability. Standard trading terms (STCs) must exclude your liability for the criminal conduct of your employees.

In March 2020, the High Court in South Africa considered whether the liability, amounting to US$516 877, for an employee’s theft of a consignment of laptops from a cargo warehouse at OR Tambo International Airport could be placed on the employer.

The applicant imported a large consignment of laptops and engaged the services of the defendant for freight-forwarding services. The defendant’s employee, who committed the theft, was acting within the course and scope of his employment when collecting the consignment of laptops on behalf of his employer as a freight forwarder. However, the employee stole the goods, never to be seen again.

If someone steals your cargo, you as the owner can claim damages from that wrongdoer. This is a common remedy under the law of delict. As a general rule, an employer is vicariously liable for the wrongful acts or omissions of an employee committed within the course and scope of their employment, while the employee is engaged in any activity reasonably connected to it.

When an employee commits an act outside the course and scope of employment, liability is considered on the “application of deviation” test. The connection between the deviant conduct and the employment needs to be assessed; there must be a sufficient connection between the employment and the wrongful conduct for an employer to be held vicariously liable in deviant cases.

The High Court held that the employee’s wrongful conduct was sufficiently linked to the employment. The employer afforded the employee an opportunity to abuse his powers and the wrongful act was intimately and inherently connected to the business of the employer and employment of the employee. As a result, the employer was found vicariously liable for the theft made by the employee.

However, the enquiry does not end there. The court had to consider, after liability of the employer had been established, whether liability was excluded by its STCs. The court noted that any limitations to liability in contract are strictly interpreted.

Clause 40 reads: “The company shall not be liable for any claim of whatsoever nature (whether in contract or delict) and whether for damages or otherwise, however arising, including any negligent act or omission or statement by the employer or its servants unless the loss or damage arises from a grossly negligent act or omission of the employer or its servants and arises at the time when the goods are in the actual custody of the employer and under its actual control.”

When considering clause 40, in the context of the agreement as a whole and the nature of the agreement – being a service agreement in which the defendant was to perform clearing and freight-forwarding services – the court found that the parties did not intend that the STCs would encompass the delictual claim based on theft. The employee was not acting in terms of the agreement (STCs) when he engaged in the theft of the laptops.

Therefore, the company could not rely on the exemption clause to exclude its liability for the theft of goods by an employee. The court indicated that, should the company want to exclude liability of a delictual claim, based on theft, it could have easily said so in its STCs. A defendant should not be able to hide behind the exemption clauses in circumstances where the employee was not performing in terms of the contract, unless there is a clear intention to exclude such liability.

There is authority, provided that your contractual relationship is not subject to the Consumer Protection Act 68 of 2008, to indicate that delictual liability for theft by employees can be excluded by an exemption clause.

The lesson to be learnt in this is that, to save them from unexpected costs in the future, employers should take time to draft clear and unambiguous, specific and all-encompassing STCs to exclude liability for the theft carried out by employees. The exclusion clause must specifically mention the extent to which liability is excluded. A written agreement between the parties, which excludes liability for theft by employees in all instances, will sufficiently cover an employer from these types of losses.

Published by

Peter Lamb

Peter Lamb is a director in the Norton Rose Fulbright admiralty and shipping team, based in Durban. A qualified attorney, Lamb has an LLM in shipping law from the University of Cape Town. He focuses on shipping, logistics and marine insurance law. Lamb is also able to advise logistics service providers, and users, on numerous commercial aspects and risk management, with a focus on Africa. You can read more from Lamb on the Norton Rose Fulbright insideafricalaw.com blog.
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