Civil Appeal 1137/23 , 1163/23 Eliyahu Deri v. 1. The Jewish National Fund - part 10

In this context, it should also be noted that Deri's claim that apart from "modest" brokerage fees, he did not derive any benefit; This is because we are not dealing with a cause of action based on the laws of enrichment and not on the law, but rather on a tort tort, the foundations of which do not depend, as stated, on the wrongdoer's motives or on the profit he generated – but on the pecuniary damage he caused (see: paragraphs 136-137 above).

141. Now to the main question, which is – did Deri indeed make a fraudulent representation to Himanuta? It should be said at this point that unlike the manner in which he described things, the fraudulent representation in our case, as noted in the judgment of the trial court – is not limited to his refusal to disclose to Himanuta the price demanded by Goldman; since, in the judgment it was noted that Deri's conduct as a whole, including the fact that he hastened to advance the negotiations with Saar, Parallel to the promotion of the Goldman-Himanuta deal – and without disclosing this fact to Himanuta – is the act by way of fraud (paragraph 90 of the judgment).  It is not for nothing that my colleague, Justice Amit, noted in the course of the hearing before us that it is possible that the very conduct of the negotiations in parallel and without the intention of entering into a contract with Himanuta constitutes in itself bad faith conduct (p. 17 of the minutes of the hearing) (compare: paragraph 133 above; see also: Omri Ben Shahar and Yuval Procaccia "Contracts"  in the Economic Approach to Trial 153, 174 (Uriel Procaccia, ed. 2012)).
142. It is not superfluous to note that the focus in our case is not only in the very conduct of the negotiations in this way. It is found, therefore, and this is mainly due to the fact that in the background Deri and Bosch worked together in order to carry out the same "round deal," while Deri was fed inside information that came to him from his good friend, Dabush; And all this, without revealing anything to Himanuta or anyone on her behalf.  In this context, it should also be noted that Deri was aware that Debush had violated and continues to violate his duty of loyalty, and he was the one who even asked him to do so.  In these circumstances, I am of the opinion that Deri has a duty of disclosure towards the company, at least, as long as he continues to negotiate with it; The company was legitimately entitled to assume that the negotiations conducted with it were conducted in good faith and in an acceptable manner – without the opposing party "joining hands" with its insiders, in order to improve its situation (compare: Civil Appeal 7730/09 Cohen v. Bnei Gazit (2000) Ltd., para. 18 [Nevo] (June 6, 2011) (hereinafter: the Cohen case); Civil Appeal 5893/91 Tefahot Israel Mortgage Bank Ltd. v. Sabah, IsrSC 48(2) 573, 596-597 (1994); Civil Appeal 2469/06 Suissa v. Zaga Company in Block 5027, Plot 1 Ltd., para. 11 [Nevo] (August 14, 2008)).  His failure to do so also arises as a misrepresentation of the omission.  It is also possible that this is the case, and I am not making any mistakes in this matter, because Deri can be seen as someone who made false representations to Himanuta – by means of Dabush (compare: paragraph 133 above).
143. It should be added that in the judgment it was determined that already on October 27, 2013, Deri was informed that the board of directors had approved the Goldman-Himanuta deal, that he had taken the trouble to inform Mualem about it, and that, apparently, the matter had been brought to his attention by Dabush. I will note, even though this was not positively determined in the judgment, that it is not impossible that Deri was informed on the same day about the price approved by the board of directors of Himanuta.  In any case, and even if we do not assume such a presumption, it should be mentioned that as early as May 1, 2013, Deri was informed by Cohen that Trustees was willing to offer a payment of NIS 54 per square meter for the land.  Combining this fact with Dabush's supplementary update of October 27, 2013, therefore leads to a similar result – whereby on that day Deri knew that Himanuta had approved the transaction and that it was willing to offer a higher sum than the amount determined in the Goldman-Saar deal (see also paragraph 89 of the judgment on this).

These words add another aggravating layer to Deri's deception, since they  negate the existence of effective negotiations between him and Himanuta in connection with the Saar-Himanuta deal; After all, from the moment the parties began negotiations regarding this transaction, Deri knew that  Van Himanuta's directors, which was on the other side of the barricade, had approved the purchase of the land.  And so he also knew the price, which was apparently approved.  Ostensibly, this state of affairs improved Deri's position in the negotiations, so that he was able to "rake" for Saar the entire negotiating margin between the parties – by offering the land at the highest price he knew that Trusta  had long since approved (compare: Thomas C.  Schelling, An Essay on Bargaining, 14 J.  Reprints Antitrust L.  & Econ.  257, 285 (1984)).

144. In summary, it should be said that the facts established in the trial court's judgment show that Deri had an intention to conduct parallel negotiations with the aim of advancing that "round deal," all while violating his duties to his clients and exploiting their innocence. At the same time, Deri also concealed the matter of conducting the negotiations from his credibility, while encouraging Dabush to help him by violating his own duties, presentingadditional false accusations against the company and feeding him inside information about the deal.  Such circumstances amount to the presentation of a number of fraudulent representations, and for this reason I am of the opinion that the above condition A has been met.
145. In a parenthetical article, it will be said, although I am not making any mistakes in this, that on the face of it, it seems that Deri could have been held liable even for a breach of the duty set forth in section 12 of the Contracts Law, as claimed by the Respondents, and based on the facts detailed at length in this section (see: paragraph 141 above; the Cohen case, at paragraph 18, and the references therein).
146. Given this conclusion, I also do not believe that the concern raised by Deri does indeed arise, according to which the judgment of the trial court constitutes a violation of the proper conduct of real estate transactions or in order to adversely affect the real estate brokerage business. This is because the determination that a real estate broker is prohibited from committing fraud against the other party, using information that he received from an insider who breaches his duties to that party, does not prohibit him from charging the proceeds for the property being sold.  In other words, a real estate broker is entitled, naturally, to pay the consideration for the property – to the extent that he acts within the framework of the law, while conducting negotiations in good faith and in an acceptable manner.  However, it is clear that he is not permitted to violate the law, commit torts in torts or deceive the other party.

Needless to say, I also found a reason for the defect in raising the claim mentioned by Deri, when he did not act at all in order to maximize the consideration for his clients, as is expected of him as a person with whom he owes a duty of fiduciary duty (see, for example:  Civil Appeal  214/23 Prospriti Sal Real Estate Investment Consulting and Property Marketing Ltd. v. The Building at 21 Jaffa St., Jerusalem Ltd.,  Paragraph 16 [Nevo] (July 21, 2024)).  Thus, his conduct in question involved making false representations to his clients as well, in order to facilitate the sale of the real estate twice, when the profit generated was transferred to Saar, and not to his clients.

147. Thus far I will deal with the existence of false representation, and from here I will turn to the elements 4-5 above, which deal with the damage caused to the company and the causal connection. As noted, the hearing held in this context in Dabush's case exhausts, in essence, the discussion of Deri's case as well.  In the meantime, I will mention that in the judgment of the first instance, a factual finding was established according to which the company suffered the alleged damage.  It was also ruled that if it were not for Deri's (and Dabush's) conduct described – "there is no doubt that Hemanuta would have purchased from Goldman for NIS 35, and not from Saar for NIS 51" (paragraph 90 of the judgment).  In this determination as aforesaid, I am unable to intervene, and it should be emphasized that it is sufficient for our matter; For, as I noted above, it is not necessary to point out that the misrepresentation was  the sole cause  of the conduct of the injured party or the damage caused to him (see: paragraphs 125 and 137 above).
148. In the margins, I also found reference to Deri's claim that the trial court treated him and Dabush as a "single entity", while obligating them to compensate the respondents jointly and severally – despite the fact that, unlike Dabush, he was not subject to a duty of fiduciary. As I will note more extensively below, I am of the opinion that Deri could have been held legally liable for his involvement in the breach of Dabush's duties, as the respondents argued before us, although not to impose on him a real duty of fiduciary.  In any case, and even without addressing the aforementioned possibility at this stage, I am of the opinion that Deri's argument in this matter as well should be rejected, since in any case the trial court did not impose a duty of fiduciary duty on him; Thus, he also did not treat the two appellants as "one piece".
149. Section 54 of the Contracts Law, which by virtue of section 61(b) of this Law applies to any legal action, states that "years in which one obligation is obligated, it is presumed that they are jointly and severally" (see also:  section  11 of the Torts Ordinance, which establishes a similar provision with respect to torts originating in this Ordinance).  It should be emphasized that this presumption applies even when, as in our case, the source of the obligation of each of the debtors is in a different legal system (see, for example: Civil Appeal 10832/06 Avner – Association of Car Casualties Insurance Ltd. v. Arazim – Engineering Technologies (Holdings) 1991 Ltd., paragraphs 35-36 [Nevo] (November 25, 2012)).
150. In our case, each of the appellants was charged with a financial obligation to compensate the company for the damage they caused it together. We are dealing with, therefore, one obligation, to compensate for one damage  – which  is owed by two.  The result of this legal situation is determined, as stated, in section 54 of the Contracts Law, which means that "the burden of proving that the damage caused is distributable is on them, and if they do not comply with it, they will be liable, jointly and severally, for all the damage caused" (Civil Appeal 2906/01 Haifa Municipality v. Menorah Insurance Company Ltd., para. 49 [Nevo] (May 25, 2006), and the references therein; See also: N.  15/88 Melech v. Kornheuser, IsrSC 44(2) 89 (1990)).
151. We see that the imposition of liability on the appellants jointly and separately does not relate to the appellants as a "single entity" or to determine that the source of the imposition of legal liability is the same.  The significance of this is summarized in the fact that the appellants both caused the same damage, that they are obligated to compensate the company for this damage, and that they are presumed to bear this obligation together and separately.  Since Deri was unable to prove the damage he himself caused  to the company or the damage that Dabush caused it, he was obligated to compensate the company jointly and severally with Dabush.  Therefore, in my opinion, there is no ground for our intervention in this determination of the trial court as well, and the overall conclusion from what is stated in this part is that Deri was legally held liable by virtue of the tort of fraud.

Imposition of liability for involvement in breach of fiduciary duty

152. As I noted above, I accept both the respondents' argument, as raised before the trial court and in the framework of their response to Deri's appeal – that he can also be held liable for his active involvement in the breach of Dabush's duties. Moreover, it seems to me that this also arises, albeit implicitly, from the judgment of the trial court, and in particular its determination that Deri took a business opportunity of Himanuta.  In the absence of any clear source in the law or in the agreement prohibiting Deri from doing so, it appears that the trial court was of the opinion that the source of this prohibition lies in his involvement in the violation of the prohibition imposed on Dabush.  I accept this conclusion, and as I will detail below, I am of the opinion that Deri can also be held liable for his involvement in Dabush's further violations, as described by me above.
153. Before detailing the provisions of the law in Israeli law that allow the imposition of liability for the involvement of a third party in a breach of duty, including a duty of fiduciary, let us turn our gaze to the comparative countries and the laws that apply to them in this context. It should be said at this point: The review that will be carried out below shows that in common law countries for many years, doctrines have been firmly rooted in the law that allow the imposition of legal liability on various and diverse parties involved in the breach of fiduciary duties (as well as other types of obligations), including controlling shareholders, corporations, lawyers, financial advisors, and sometimes even the other party to a merger transaction.
154. These rules, hereinafter referred to as "the laws of the intervening foreigner's liability", deal with various forms of trust relations, including relationships of trust between directors and other officers and the company in which they serve. At the same time, they prohibit various types of involvement – from joint execution, to solicitation of such a violation, to aiding and abetting such a violation.  The scope of these doctrines is quite broad, and has even been expanding in recent years, in terms of the factors exposed to the imposition of responsibility, the level of guilt and the required awareness, and with regard to the scope of the compensation awarded.

Comparative view

155. The protection of a relationship of trust against the interference or harm of foreign parties began to develop in the countries of common law in the mid-19th century, in parallel with the development of the tort of causing an unlawful breach of contract (Amir Licht, Trust Law – The Duty of Trust in a Corporation and the General Law 407 (2013) (hereinafter: Licht); for more in this context, see: Ofer Grosskopf Protecting the Rules of Competition by the Law of Enrichment and Not in Law 251-249 (2002)); Rather, what is common to the protection of contractual relations and trust relations is the perception that such relationships embody behind them an economic-property interest, which deserves the protection of the law (Licht, at p. 403; on the importance of recognizing the proprietary aspect of obligatory rights, in the context of assignment of rights, see: Miguel Deutsch, Law of Assignment of Obligations 16-17 (2018); Daniel Friedman and Nili Cohen Contracts, 1, 84 (2nd ed., 2018)). It is not for nothing that the "Codex" proposal also proposes to change the tort of causing unlawful breach of contract, which is set forth in section 62 of the Torts Ordinance, so that it will be called "cause of breach of obligation" – "since the source of the obligation is of no importance in this matter" (Proposed Property Law Law, 5771-2011, Government Bills 595, 865).
156. At the same time, it seems to me that a relationship of trust, especially when we are dealing with a relationship of trust in a corporation, is a more delicate relationship, and therefore requires a broader protection than a 'regular' contractual relationship (Licht, at pp. 403-404). In view of the information gaps and the differences of interest between the officer and the company, the same representative problem arises that we discussed above.  This problem provides the officer with an inherent incentive and temptation to breach the fiduciary duty, and as such, it may also tempt foreign parties working with the corporation to take advantage of this situation – at the expense of the corporation and its shareholders (Zohar Goshen, "The Representative-Problem" as a Unifying Theory of Corporate Law, Gualtiero Procaccia's Memoir, Legal Essays 239, 244 (1996); Avia Alef,  "On Power,  Money and  White-Collar Offenses," Mishpat Ve-Business 21 263 (2018); see also: para. 88 above).  In view of the aforesaid, it is clear that the protection of the relationship of trust between the officers and the corporation – even against the interference of third parties – is essential for the proper functioning of corporations and, as a result, for the functioning of the modern economy (Goshen and Eckstein, at p. 25).
157. In connection with these matters, from the totality of case law in the countries of common law dealing with the liability of the intervening foreigner, it emerges that these rules have three main purposes, as follows: First, the aspiration to protect the proper system of incentives for the subject of the fiduciary duty against harm by a third party. Second, and even more so in this context, the liability of the intervening foreigner is also intended to deter the third party from such injury, by imposing joint liability for the resulting breach.  And thirdly, the purpose of these rules is also to provide adequate compensation to the beneficiary or to the corporation, as the case may be, in a case where, in the end, such harm was not prevented.  It is worth emphasizing that this last purpose is only validated where the trustee himself finds himself in a state of insolvency, so that the injured party will find it difficult to receive compensation for his damages.  This situation may be particularly common when dealing with an officer in a company, in view of the enormous scope of damage that a breach of his duties may cause it (Licht, at pp. 414 and 482-483; Sharon Hanes, "The Business Judgment Rule," Iyunei Mishpat 313, 333-334 (2009)).
158. In historical retrospect, the ancient roots of the responsibility of the intervening stranger are rooted in English law of honesty (Charles Harpum, The Stranger as a Constructive Trustee, 102 Q.  Rev.  114 (1986); Licht, at p. 405).  Initially, this doctrine dealt mainly with 'classical' trust relations, but later on, it also included the protection of the relationship of trust in the corporation (ibid., at pp. 411-412).  Over the years, this doctrine has spread to a large number of common law countries, including Canada, Australia, New Zealand, and the United States, about which I will elaborate on later (for the fundamental differences between the rules that apply in these countries, see at more detail: ibid., pp. 409-410).
159. In a rough generalization, it can be said that in all of the countries mentioned, as well as in Delaware, which will be discussed below, the imposition of liability on the intervening alien is contingent on some involvement in a breach of the fiduciary duty and a certain degree of guilt, which exceeds mere negligence (Licht, at pp. 413-414). However, in this framework, the laws differ to a great extent, both in relation to the degree of involvement required – the movement between partnership, cause, solicitation, or assistance; Both in relation to the degree of guilt required – moving between intention, awareness, turning a blind eye or recklessness.

In addition, the question of what remedies the court may award by virtue of this doctrine is also a complex question, which goes to the roots of the rules that govern the responsibility of the intervening foreigner and their theoretical basis.  Thus, although there is a consensus that the intervening foreigner can be held liable for compensation for damage, a question that raises a deeper dispute is whether he can be required to transfer to the company the profit that the officer derived from the infringement or the profit that he himself derived from his involvement in it (see, for example: Amir Licht, "Wealth Reserved for its Owner – Liability that Assists in the Exploitation of a Business Opportunity in Relation to the Profit of the Violating Trustee,"  point at the end  of a sentence (December 23, 2023)).