"Medications
- (a) If the shipper breaches one of the duties imposed on him under section 8, the sender is entitled to remedies given due to breach of contract.
(b) If an action taken by the sender against a third party due to a breach of such duty and the breach was at the consent of the third party, the sender is entitled, in addition to the remedies stated in subsection (a), to cancel the action and also to sue the third party for the compensation due to him by the agent" (emphases added – H. 20).
- We see that section 14 of the Trust Law expressly recognizes the possibility of imposing liability on a third party involved in a breach of fiduciary duty by a trustee, as if he were the trustee himself. Similarly, section 9 of the Courier Law allows for the imposition of liability on a third party involved in a breach of the duties of an agent, and in particular to demand compensation from him for the damages caused by the breach (Daniel Friedman and Elran Shapira, Bar-Or, The Law of Enrichment, and Not in Law, 1, 52 (3rd ed., 2015); Licht, at p. 415; For a discussion of the possibility of drawing from these sections also in relation to involvement in the breach of the duties of directors, see: Uriel Procaccia, New Companies Law of Israel 388 (1989) (hereinafter: Procaccia)). As we shall see immediately, explicit provisions in this spirit also exist in the Companies Law.
- An additional basis for imposing liability may be found, in the appropriate circumstances, in the tort of causing an unlawful breach of contract, which is set forth in section 62 of the Torts Ordinance:
"Caused unlawful breach of contract
- (a) A person who knowingly and without sufficient justification causes a person to breach a lawfully binding contract between him and a third person, he is committing a tort against that third person, but the third person cannot be compensated for such tort unless he has suffered pecuniary damage thereby.
(b) For the purposes of this section, the relationship created by marriage shall not be considered as a contract, and a strike and shutdown shall not be considered a breach of contract."
- As stated above, this tort and the doctrines regarding the liability of the intervening alien have common historical roots, which are based on a common perception that it is necessary to protect contractual relations and relationships of trust from improper interference by third parties (paragraph 156 above; Civil Appeal 8191/16 Dyalit Ltd. v. Harar, para. 38 [Nevo] (June 17, 2019) (hereinafter: the Dyalit case); HCJ 5239/11 Avnery v. Knesset, paragraph 11 of the opinion of Justice Hendel [Nevo] (April 15, 2015) (hereinafter: the Avnery case)). As we will see right away, the foundations of this tort are very reminiscent of the foundations of the Delaware Aiding & Betting Doctrine, and for good reason.
In this context, it should be noted that a breach of fiduciary duty by an officer is tantamount to a breach of contract (see: paragraphs 100-102 above), and hence causing a breach of fiduciary duty constitutes an unlawful breach of contract, to the extent that the other conditions set forth in section 62 of the Torts Ordinance are fulfilled (Procaccia, at p. 388; compare: De Lange's case, at para. 125). As I will note later on, this is the situation in our case, and therefore my conclusion is that Deri should be held legally liable, even on the basis of this provision.
- The tort of causing unlawful breach of contract is therefore based on five foundations – (a) the existence of a valid contract, (b) breach of contract, and (c) the existence of a causal connection between the defendant's conduct and the breach. However, in this regard, there is no need to show that the defendant seduced or solicited the breacher to breach the contract, but rather we are dealing with causation in the narrow sense (Dialit case, at paragraph 39; Civil Appeal 123/50 L. Ornfreud v. Drezner, IsrSC 5 1559 (1951)) (d) Knowledge of the third party – both in relation to the existence of the contract and in relation to the fact that its conduct may lead to a breach of the contract, including constructive knowledge or turning a blind eye (Avnery case, at paragraph 11 of the opinion of Justice Hendel; Civil Appeal 8810/08 Brosh v. Yaakov Pritzker & Co. Haifa Building Company Ltd., para. 25 [Nevo] (07.11.2020)) (e) The causation was done in the absence of "sufficient justification" (the Dialit case, at paragraphs 38-40; See also: Civil Appeal 8483/02 Aloniel Ltd. v. MacDonald, IsrSC 58(4) 314, 368 (2004); Cohen – Shareholders in the Company, at page 281).
- The latter element is the most complex of the elements of the tort of causing an unlawful breach of contract, and in doing so, the court is given broad discretion in determining whether there was sufficient justification for causing the breach (see, for example: Nili Cohen, "Cause of Breach of Contract" in Torts Law – Miscellaneous Torts 207 (1986) (hereinafter: Cohen – Cause of Breach of Contract)). Such a justification, therefore, "can be based on self-interest such as a need, protection of a proprietary right, a contractual right or another public interest. The interest must be perceived by the court as preferable, or at least parallel in importance, to the interest in the protection of the contractual relationship" (Diallit, at para. 40; See also: The Avnery case, at paragraph 12 of Justice Hendel's opinion; for more information, see: Cohen – Breach of Contract, at pp. 207-245).
- It should be said at once that, on the face of it, basing the liability of the foreigner intervening on the tort of causing an unlawful breach of contract, as was done in Delaware, ostensibly limits the range of remedies to which the injured party can appeal (Licht, at p. 426); for section 62(a) of the Torts Ordinance states that "the third person may not be able to pay compensation for this tort unless he has suffered pecuniary damage as a result." In light of the aforesaid, in the De Lange case, where Judge Ronen approved a motion to certify a derivative action against officers and a controlling shareholder, in connection with payments made to them by the latter in contravention of the company's remuneration policy – the discussion was based on the laws of enrichment and not on law (ibid., at paragraphs 125-128); This is in connection with the fact that a remedy was requested for the transfer of the prohibited payments to the company's coffers, as opposed to returning them to the controlling shareholder.
I do not require this possibility here, and the discussion of it must be left to the time being; since, as I have already noted above, in this action the respondents petitioned for compensation for pecuniary damage caused to the company – and hence the tort caused by an unlawful breach of contract – serves as a sufficient accommodation for the imposition of liability.
- I also found it necessary to emphasize that when the court finds that a third party should be held liable for having caused a breach of fiduciary duty by an officer, by virtue of section 62 of the Torts Ordinance, this does not mean that the third party becomes a fiduciary who bears a fiduciary duty towards the company. This, as a rule, does not instruct the party who caused a breach of contract to perform the contract in the place of the breacher, but at most commands him to refrain from further committing the tort (Cohen – Cause of Breach of Contract, at p. 288; Licht, on page 409, note 1289). As stated above, this is also the limited framework in which this doctrine is structured in other common law countries, and I do not believe that it should be understood in any other way in our legal system. It is also worth emphasizing that the third party and the officer will generally bear responsibility for compensating the company jointly and severally, and it is also understood that the company will not be entitled to compensation that exceeds its damage, insofar as the imposition of liability is based on the tort of causing an unlawful breach of contract (compare: the De Lange case, at paragraph 129; Civil Appeal 9474/03 Yoram Gadish Infrastructure and Building (1992) Ltd. v. Musa, IsrSC 66(3) 603, 640 (2006); Section 77 of the Torts Ordinance).
- To complete the picture, it should be noted that in order to impose liability on a foreigner who is involved in a breach of a duty of fiduciary, it is also possible to draw a certain inference from section 12 of the Torts Ordinance, which imposes liability on "the person who participates in himself, assists, advises or tempts himself to an act or omission that has been done or is about to be done by another, or commands, authorizes or ratifies them" (for more details, see: LCivil Appeal 2030/22 Eliasi v. Drucker [Nevo] (August 31, 2022); Civil Appeal 5977/07 The Hebrew University of Jerusalem v. Schocken House Publishing Ltd., IsrSC 66(3) 740, 761-762 (June 20, 2011)).
In this context, it should also be said that a tortious construction for imposing liability on an intervening foreigner was established by this court in Civil Appeal 8068/01 Ayalon Insurance Company Ltd. v. Executor of the estate of the late Chaya Oppelger, IsrSC 59(2) 349 (2004). In the same matter, Justice A. Hayut presented a comprehensive overview of the laws of equity in common law, which allow the imposition of liability as aforesaid, but in that case she based the imposition of liability on the tort of negligence (ibid., at pp. 369-375).
- In the context of involvement in the breach of the duties of an officer of a company, two additional provisions can be identified that allow the imposition of liability on an intervening foreigner. Such is section 256(c) of the Companies Law, which deals with remedies granted to a company when an officer has breached the fiduciary duty towards it. Thus, this section states that the company may cancel an action taken in violation of such a breach against a third party, provided that the third party was aware of it, and even claim compensation from it for the damages of the breach. It should be emphasized that the right to compensation is in the hands of the company, even if it chose not to cancel the action (Goshen and Eckstein, at p. 263; Licht, pp. 414-415). At the same time, this provision serves only as a limited framework for imposing liability, since prima facie, it applies only in situations in which an officer took an action on behalf of the company against another person, and it also allows for a claim for compensation for the damages caused by such an action.
- Another relevant provision is found in section 106 of the Companies Law, which establishes, as stated, the principle of independence of discretion of the director. In particular, subsection (a) imposes a duty on a director to exercise independent discretion and also states that a breach of this duty constitutes a breach of the duty of fiduciary duty (see: paragraph 99 above; the Israel Postal Company case, in paragraph 20 of my opinion, and the references therein). Subsection (b) adds to this and imposes an all-encompassing prohibition – on any person – from fulfilling the role of the director or impairing his independent judgment. Subsection (c) completes this arrangement by stating that anyone who violates the said prohibition – "the duties and liability that apply to directors under any law shall apply" (ibid., in paragraphs 24 and 72 of my opinion; Vardnikov, at paragraph 111; Goshen and Eckstein, at p. 260; for more on this doctrine, known as the "Shadow Director," see Lakhovsky, at pp. 56-62).
- Admittedly, "the main concern that section 106(a) of the Companies Law deals with is that the director's discretion will unjustifiably tilt in favor of the controlling shareholder, contrary to the company's interest" (Israel Postal Company, at paragraph 20 of my opinion). In light of the aforesaid, this section has so far been discussed mainly against the background of the claim that it was the controlling shareholder who violated the director's independence (see, for example: ibid., at paragraph 72 of my opinion; the Verdnikov case, at paragraph 111; HCJ 2000/19 Navon v. Director of the Government Companies Authority, para. 56 [Nevo] (November 18, 2019)). However, as stated above, the language of section 106 of the Companies Law does not qualify its applicability, and therefore it may allow the imposition of liability on any person who has violated the judgment of a director, including a CEO with significant influence (see, for example: Assaf Hamdani & Kobi Kastiel, Superstar CEOs and Corporate Law, 100 U. L. Rev. 1353 (2023)) – and even on an external party to the company.
- In any event, and this is the important thing for our purposes, we have an additional provision that makes it possible to impose liability on third parties who were involved in a breach of fiduciary duty by an officer, which also indicates the legislature's awareness of the danger inherent in this; and in particular, to the temptation faced by third parties to try to influence the members of the board of directors in an improper manner.
It should also be noted that in this context, the principle of "liability on the one hand and liability separately" applies only in a limited manner. Because, on the one hand, when the provisions of section 106(c) of the Companies Law are fulfilled, the third party becomes a trustee for all intents and purposes, and thus he is subjected to both the liability and the responsibility of the director. On the other hand, the third party may bear liability even when, in practice, the director himself does not bear liability, due to the existence of insurance or some other mechanism that exempts him from liability (Cohen – Release, at p. 16).
- Before concluding this part, it should be said that there is no dispute that imposing liability on an intervening foreigner, especially in the corporate context, expands the circle of responsibility towards the company, while granting quasi-proprietary status to the trust relations that exist in it; and this, similar to the protection that the tort of unlawful breach of contract provides to contractual relations (see, for example: Weissman, at pp. 63-65). There is no denying that this raises certain difficulties. However, imposing liability – in appropriate circumstances – may be necessary in order to maintain the proper functioning of corporations, as well as of the modern economy. Because, as stated above, the problem of the representative in the corporation creates not only "internal" temptations, but also temptations for third parties who come into contact with the corporation and its representatives.
This approach can be found in the fact that, prima facie, there is no impediment to imposing criminal liability on a party who was involved in the offense of fraud and breach of trust in a corporation, under section 425 of the Penal Law, 5737-1977, just as it is possible to do so in relation to the offense of fraud and breach of trust under section 284 of this law (compare: Crim. Crim. 3817/18 State of Israel v. Hassan, paragraphs 16-19 of the opinion of Justice Y. Elron [Nevo] (03.12.2019); Compare also to the broad definition of the term "insider" set forth in section 52A of the Securities Law, 5728-1968, which also includes an "external" insider, see: Civil Appeal 424/15 Tepper v. State of Israel, paragraphs 15-16 [Nevo] (July 6, 2015); Maor Even-Chen, The Criminal Prohibition on the Use of Insider Information: Behavioral Economic Analysis 40-41 (2008)).