Dabush Appeal (Civil Appeal 1163/23)
- The hearing will therefore begin with Dabush's appeal. As stated above, the basis for imposing liability on Dabush in the Yavneel case, which remains for our decision, lies in the breach of the fiduciary duty imposed on him as a director, including the prohibition on being in a conflict of interest, the prohibition on taking a business opportunity and the duty of disclosure. These breaches as aforesaid, as well as the damage caused to the company and the causal connection between it and the violations, his appeal is concerned. Therefore, I will first turn to the normative framework that applies in this case.
Duty of Loyalty and its Derivatives
- The third chapter of Part VI of the Companies Law sets out the basic duties of the officers towards the company, first and foremost – the members of the board of directors. These duties are intended, in essence, to deal with the "representative problem", which stems from the separation between ownership of the company and its control (HCJ 5474/23 Israel Postal Company Ltd. v. Minister of Communications, paragraphs 14 and 17 of my opinion [Nevo] (07.03.2024) (hereinafter: the Israel Post case); Appeal 5955/22 State of Israel v. Elovitch, para. 57 [Nevo] (July 13, 2023) (hereinafter: the Elovitch case); Civil Appeal 7657/17 CPA Chen Berdichev in his capacity as trustee of the creditors' arrangement of Feuchtwanger Industries Ltd. v. Feuchtwanger, para. 37 [Nevo] (June 18, 2020) (hereinafter: the Berdichev case); Ofer Grosskopf and Yifat Naftali Ben-Zion: "'You caught a lot you didn't catch,' is it? On Norms of Conduct, Procedural Mechanisms, and Judicial Review in Corporate Law," Yoram Danziger 133, 146 (Limor Zer-Gutman and Ido Baum eds., 2019) (hereinafter: Grosskopf and Ben Zion)).
Thus, the purpose of these duties is to restrain those who have power, since, as everyone knows, "power without responsibility is like lawlessness" (Uriel Procaccia, "Liquidation of a Company at the Request of a Minority of Shareholders," Mishpatim 8, 13, 17 (1978); Civil Appeal 610/94 Buchbinder v. Official Receiver in his capacity as liquidator of the Bank of North America, IsrSC 57(4) 289, 332 (2003) (hereinafter: the Buchbinder case)). As I noted in this context in the case of the Israel Postal Company, the aforementioned concern is not unique to the corporate environment, and it arises "whenever a person or organization has the power to influence another." Holding a position in a corporation therefore grants the officer great power and with it great responsibility, which derives from his influence on the company and its shareholders and the fear that he will abuse the power in his possession (ibid., at paragraph 13).
- The main duty imposed on officers of a company is the duty of loyalty, which is set forth in section 254 of the Companies Law:
"Duty of Loyalty
- (a) An officer who owes a duty of loyalty to the company shall act in good faith and act in its favor, including –
(1) Refrain from any action that involves a conflict of interest between the performance of his position in the company and the performance of another function of his or her personal interests;