On Wilhelm Tell, Bibi and Contractual Legal Certainty in Israel

On Wilhelm Tell, Bibi and Contractual Legal Certainty in Israel

Doron Afik, Esq.
May 2, 2020

On April 6, 1995, one of the most famous murder cases took place in Israel and would occupy the Israeli courts, scholars and the legislature for the ensuing decades - the Supreme Court gave the verdict in the Apropim case,(1) thus murdering, some say, the contractual legal certainty in Israel. Even when the legislature changed the law, the Supreme Court did not recognize it, but on November 20, 2019, a judgment was given in the Bibi Roads case(2) and the earth shook again – Apropim is dead, long live the legal certainty! But a verdict by the President of the Supreme Court of April 2020(3) holds that nothing had changed. Or not...

When two parties draft a contract between them, they do not always know how a Court will, sometimes years thereafter, read it. Until the Apropim case, as Common Law has it for centuries and as expressly stated under Israeli law, if the language of the contract is clear - the Court construes it without reviewing extrinsic evidence, but in that certain 90’s real-estate dispute the Supreme Court held that a contract must always be read under its external circumstances. This means that the Court construes a contract in a way that neither party thereto intended, thus allowing the Court to first decide the outcome it wishes and only then construe the contract accordingly. And if we apply it to the famous Swiss folk legend: first the Court shoots the arrow and only then decides where the child held the apple, even if in the process the child is sometimes injured ...

The meaning of the Apropim caselaw is a death-strike to the contractual legal certainty and that is the reason for which it attracted much criticism over the years. The Israeli legislature also took rightful action and in 2011 the Israeli contract law was amended(4), so that it now explicitly states that when the contract is clear it will be construed in accordance with its language. The clear purpose of the legislature, as recorded everywhere possible, was to abolish the Apropim caselaw and revive the contractual legal certainty in Israel, but shortly after the law came into force, judgments were given stating that the legislature did not really intend to abolish Apropim and that in practice, in order to decide whether the contract is clear, one must first examine the external circumstances of the contract. In other words, nothing changed ...

Much apple juice flowed under the bridge for nearly 10 years until the Bibi case was decided in late 2019, involving interpretation of a long contract, entered as a result of a public tender before the Contracts Law was amended. One of the justices, Professor Alex Stein, held that "Apropim applies to every contract, but not all contracts are born equal." Long-term contracts require deeper interpretation under general principles such as good faith, fairness and reasonableness but contracts all terms of which are defined will be read according to their language. While justice Uzi Vogelman agreed to the outcome, he based his refusal to intervene on the fact that the contract was the result of a public tender. The third justice, Dr. Ofer Grosskopf, set three levels of construction: no intervention in a business contract for which all parties were legally represented; less intervention in a private contract; and deep intervention in a consumer contract between a dealer and a private person. The Supreme Court was moved for an additional hearing on the grounds that this is an innovative caselaw, but President Esther Hayut decided that nothing has changed and in fact the decision walked in the path of Apropim, under which the Court must do everything possible to avoid injecting into a contract things that the parties did not intend. Thus,"the language of the contract plays a pivotal and important role in the interpretive process” and “it is presumed that interpretation of the contract is consistent with the plain and natural meaning of the text." In other words, the revolutionary Bibi verdict did not change anything because Apropim never said what everyone, over the past 25 years, believe it said...

So what did change? Legal certainty certainly strengthened and significantly strengthened the dire need to use lawyers in drafting commercial agreements but far beyond that, the importance of using good lawyers with experience in the relevant field. On the other hand, ancient wisdom states that trying to save money costs much more at the end, so here too there is not really anything new ...

(1) CA 4628/93 State of Israel v. Apropim Housing and Development (1991) Ltd., 49(2) 265 (April 06, 1995), Supreme Court, the honorable Deputy President Aharon Barak, Justice Dov Levin, Justice Eliyahu Matza
(2) CA 7649/18 Bibi Roads Dirt and Development Ltd. v. Israel Railways Ltd. (20.11.2019), Supreme Court, the honorable Justices Uzi Fogelman, Dr. Ofer Grosskopf, Prof. Alex Stein
(3) AHA 8100/19 Bibi Roads Dirt and Development Ltd. v. Israel Railways Ltd. (19.04.2020), Supreme Court, President Esther Hayut
(4) The Law of Contracts (General Part) (Amendment No. 2), 2011, January 26, 2011, p. 202 (Knesset Bills, No. 335, p. 198) - Amendment No. 2.