Civil Appeal 1137/23 , 1163/23 Eliyahu Deri v. 1. The Jewish National Fund - part 8

However, in addition to what has been said so far, it should be emphasized that one of the foundations of this ground is that the taking of the business opportunity was done "with the aim of obtaining a benefit".   The legislature adds to this determination and notes that it is not only a  matter of personal benefit, but also of obtaining a benefit for "another" (section  254(a)(3) of the Companies Law).  In addition, it appears from the language of the law that it does not matter whether the benefit was ultimately achieved, and all that is required is that the benefit was  the motive for taking the business opportunity.

98. The duty of disclosure set forth in section 254(a)(4) of the Companies Law obligates the officer to disclose to the company any information relating to its affairs, to the extent that it came to him by virtue of his position in the company (see, for example: Civil Appeal 403/07 Indig v. Premier Club Ltd., paragraph 5 [Nevo] (April 25, 2007); Goshen and Eckstein, on page 256; Gross, pp. 605-606).  This approach views the information in the company's possession, similar to business opportunities that arose before it, as the company's property (Ido Lakhovsky, Corporate Law: A Single Company and  Companies Cluster 186 (2014) (hereinafter: Lakhovsky)).  This last provision is complemented by section 269 of the Companies Law, which imposes on an officer the duty to disclose any personal interest he has in the transaction at hand, and the breach of this duty also constitutes a breach of the duty of fiduciary duty (section  283(a) of the Companies Law; the Vardnikov case, at paragraph 47; the Elovitch case, at paragraph 59).

The purpose of this comprehensive disclosure arrangement is, inter alia, to reduce in advance the risk of a breach of the duty of fiduciary duty in other contexts, and to "prevent the evil before it occurs" (Amir Licht, "Fiduciary Relations in a Corporation  – The Duty of Trust," Mishpat Ve-Business 18 237, 269 (2014); See also: Goshen and Eckstein, at p. 349; compare: Crim. Crim. 6426/21 State of Israel v. Biton, para. 53 [Nevo] (January 28, 2024); Crim. Crim. 3891/04 Arad Investments and Industrial Development Ltd. v. State of Israel, IsrSC 60(1) 294, 345 (2005)).

99. To complete the picture, it should be noted that since it is not possible to define in advance and in an exhaustive manner all the behaviors that may breach the duty of fiduciary, which has many and varied facets, section 254(a) of  the Companies Law  explicitly clarifies that the derivatives of this duty, as mentioned so far, are not a closed list (see, for example: the Elovitch case, at paragraph 58).  In the meantime, the Companies Law  contains additional duties deriving from the fiduciary duty.  Thus, for example, it is worth noting the duty imposed on a director to exercise independent discretion, which  is set forth in section 106 of the Companies Law (on this see at more detail: the Israel Postal Company case, in paragraphs 20, 24 and 72 of my opinion; the Vardnikov case, at paragraph 49), as well as the duty of disclosure in section 269 of the Companies Law, which I discussed above.

Consequences of Breach of Duty of Trust

100. Section 256 of the Companies Law  defines the consequences of breach of fiduciary duty – with all its derivatives, so that it was determined, inter alia, that:

"Medications

256. (a) For a breach of an officer's fiduciary duty towards the company, the laws applicable to breach of contract will apply, with the necessary changes.

(b) Without derogating from the generality of what is stated in subsection (a), an officer who has breached a fiduciary duty towards the company is considered to have breached his engagement with the company [...]."

101. It follows from this that a breach of fiduciary duty is a breach of contract, with all that this entails, both in terms of the employment relationship between the officer and the company, and in the matter of the remedies granted by the company, which are defined, therefore, inthe Contracts (Remedies for Breach of Contract) Law, 5731-1970 (hereinafter: the Remedies Law) ( the Vardnikov case, at paragraph 64; Civil Appeal 10137/05 Lieberman v. Tadbik Ltd., para. 20 [Nevo] (August 14, 2008) (hereinafter: the Lieberman case); Gross, p. 615; Goshen and Eckstein, on page 263).
102. As a result of these provisions, "a company can sue for the enforcement of the fiduciary duty, compensation, and even for the restitution of profit" (Civil Appeal 1091/15 Rosenfeld v. Dolphin Fund Limited, para. 10 [Nevo] (July 13, 2016); See also: Yehudit Koren, "The Business Opportunity Doctrine – A Means of Protecting a Company's Business," Hapraklit 45 350, 356 (2001)). In doing so, it should be emphasized that it is customary to say that unlike the duty of care, the breach of the duty of fiduciary duty is not contingent on the fact that damage has been caused to the company.  Therefore, the company, as aforesaid, can also petition for the receipt of the profit that the officer derived as a result of the infringement (the Pinros case, at paragraph 50, and the references therein; the Verdnikov case, at paragraph 48;  18994-07-15 De Lange v. Israel Corporation Ltd., paragraphs 105-121 [Nevo] (April 30, 2017) (hereinafter: De Lange);  Cohen – Release, on page 146).
103. After these introductory remarks, I will turn to examine whether Dabush's conduct, as described above, is consistent with the standard of conduct expected of him, and in the process, I will also discuss the implications of the determinations on this level to our case.

From the general to the individual

104. The sequence of events, as detailed in the first paragraph, indicates, in my opinion, that Bush blatantly violated the duty of fiduciary duty imposed on him. This is said – both in terms of his conduct in its entirety, in view of the general standard imposed on an officer; If we break down his conduct in detail, in light of the three derivatives of the duty of fiduciary duty that have been discussed before us – the prohibition on being in a conflict of interest, the prohibition on taking a business opportunity, and the duty of disclosure.  In this context, it is worth mentioning once again the unequivocal rulings of the trial court, according to which Dabush actively assisted in promoting the Goldman-Saar deal, which contradicts a transaction that was being examined by the company at the time (paragraph 94 of the judgment); that he acted in Deri's shoes as a mediator and thus placed himself in a conflict of interest (paragraph 95 of the judgment); and that he deliberately and continuously concealed information from the board of directors (paragraph 96 of the judgment).
105. In these actions, Dabush acted arbitrarily towards the company, in breach of the duty of loyalty to it. I have discussed the above, and I am of the opinion that such behavior cannot be tolerated – even in the absence of a relationship of trust.  At the same time, it should be emphasized that the set of matters discussed before us indicates that this was not the only time that Dabush behaved in this way toward society; This is because the trial court's rulings in the Falah case, which are no longer in dispute, reflect even more serious conduct, which amounts to "similar acts" that negate any possible and compelling claim that in our case things were done in good faith ( Crim. 3372/11 Katsav v. State of Israel, paragraphs 332-334 [Nevo] (November 10, 2011); Guy Yitzhak Sander,  "Tell Me What Your Actions  Are and I'll Tell You Who You Are – A Call for the Regulation of 'Similar Acts' in Civil Proceedings" Ali Mishpat 17:1 (not yet published 2023); Civil Appeal 104/64 Morgenbasser v. Litvinsky, IsrSC 18(3) 442 (1964)).

This systematic conduct is far from what is expected of a director in the 'era of corporate governance' and cannot be overlooked.  This is true in the circumstances of our case, and it is also true with a view to the future, in view of the need to properly direct the conduct of directors, and to warn them not to be tempted to take this path (cf. my words in Crim. Crim. Crim. 60386-06-14 State of Israel v. Dankner, para. 40 [Nevo]  (December 5, 2016)).

106. It is also superfluous to note that it seems that there is no real dispute between the parties as to the actual violations that were committed; Rather, as stated, the core of the dispute concerns the foundation of the damage and the foundation of the causal connection. At the same time, I found it necessary to elaborate on the nature and severity of the violations, because these words are sufficient to assist in deciding the other issues that are before us decide, inter alia, in the Deri case.
107. First, with regard to the prohibition on being present in a conflict of interest, it should be noted that Dabush's mere presence at the meeting on October 16, 2013, which was set for the purpose of signing the Goldman-Saar deal, constituted a violation of this prohibition. Although, as stated, an objective state of affairs is sufficient  to constitute a violation of the prohibition, in our case there is no dispute that Bush also had  subjective awareness  of the situation in which he found himself, since notice of the meeting of the board of directors scheduled for October 27, 2013, at  which the contradictory Goldman-Himanuta deal was to be examined, was sent in advance, and also that, as stated above, Dabush connected Deri to Leibowitz, in order to assist him in promoting the Goldman-Himanuta deal.
108. Things are clear. I will add that a director who finds himself in a situation in which his duties to the company are in strain vis-à-vis his commitment to his best friend is expected to act immediately in order to extricate himself from such a situation.  In other words, even when Deri asked Debush to appear for the meeting in his place, he had to refuse and immediately inform the company.  But not only did Bushbush do not do so, but  he walked into this situation with his eyes wide open.  Thus, as Dabush himself recounted, he was present at the meeting in order to make sure that the parties had arrived and to get acquainted with each other.  In these acts, in practice, Dabush assisted in promoting a transaction that contradicted a transaction promoted by the company, when there is no dispute that it also amounts to a business opportunity for it, in the legal sense of this term.
109. I will note once again that the mere fact of being in a conflict of interest means a breach of the duty of fiduciary, and it does not matter what the officer wishes to achieve by doing so, if he wishes to achieve anything at all. As a result, Dabush's claim that all he wanted was to help his good friend does not change the conclusion that he breached this duty.  At the same time, I also accept the trial court's determination that even his departure from the premises shortly after the beginning of the meeting does not change anything in this context, since it can be assumed that this stemmed from his awareness of this violation.
110. Hence the breach of the duty of disclosure. In this context, it should be stated once again that the very moment Deri asked Madbush to attend the meeting regarding the Goldman-Saar deal, on October 15, 2013, he was obligated to disclose to the company about his personal interest in the Goldman-Himanuta deal (section 269 of the Companies Law, mentioned at length above).  His failure to act in this manner constitutes a breach of the duty of fiduciary duty imposed on him, and it is capable of granting the company all the remedies granted by such a breach.
111. In a parenthetical article, I will note that it is reasonable to assume that the ongoing breach of the duty of disclosure began at an earlier date. Because, as the trial court noted in its ruling, in a television interview, Dabush testified that in a conversation with Deri on October 15, 2013, he was asked to come to the meeting "[...] [and] explain the transaction to them.  I, since I know her, came to Haifa" (paragraph 50 of the judgment).  From these statements, it appears that he was familiar with the Goldman-Saar deal, in all its details, at some time prior to October 15, 2013.
112. Not only did Debush avoid revealing his personal interest in the deal without delay, but he continued to fill his mouth with water throughout the board meeting and even added sin to the crime by voting for it. It should be emphasized that Dabush's claim that the Goldman-Saar deal was a fait accompli at the time of the meeting does not change my conclusion.  This does not detract from his duty to disclose about a personal interest he has in the transaction, to refrain from voting in favor of a 'tainted' transaction, for which there is no practical feasibility; and likewise, to disclose to his board members that they are discussing and voting in favor of a transaction, which, in practice, is no longer on the agenda.
113. If that were not enough, it should be noted that Dabush's violations continued long after the meeting on October 27, 2013. During the meeting, Dabush disclosed to the board only the company's ties with Deri, but not the depth of the conflict of interest in which he was found, as well as the fact that a conflicting deal was on the agenda, about which he had been present only 11 days earlier.  As the respondents claimed in this context, and this was not concealed by the appellants, the full picture was exposed to the company only years later – following the audit report prepared by President (ret.) Prozhinin.  Thus, it was only in the wake of this report that the depth of Dabush's involvement in the Goldman-Saar deal became clear, which seemed to have been unimaginable earlier. As the trial court noted in this context:

"One thing is to know, in general, that Dabush is connected 'in one way or another' and to make sure that he is not present at the meeting.  Another thing is to discover in retrospect that Dabush was actively involved in the transaction for the sale of those real estate to Saar, all as detailed above, while concealing it from Himanuta, and in blatant breach of the duty of fiduciary duty and the duty of disclosure that applies to him" (paragraph 101 of the judgment).

114. In the margins of my remarks regarding the breach of the duty of disclosure, it should be emphasized that I also found to reject Dabush's argument that the conduct of the "company", which was based on an outdated land registration wording, was the reason why "she" was not aware of the Goldman-Saar transaction. In my opinion, it is highly doubtful whether Dabush is entitled to hear such a claim, in light of the blatant violation committed by him (compare: Civil Appeal 9057/07 Appel v. State of Israel, para. 45 [Nevo] (April 2, 2012) (hereinafter: the Apple case); Amir Licht, "The Refined and Sublime – Contributory Guilt in Breach of Duty of Trust" (December  14, 2015)).  In any case, this argument is directed, inter alia, against his own conduct, as he was one of the members of the board of directors who participated in the meeting on October 27, 2013 and approved the transaction without reviewing the updated land registry – as he claimed it should have been done (Buchbinder case, at p. 302; Civil Appeal 817/79 Kosui v. Y.L. Bank  Feuchtwanger Ltd., IsrSC 38(3) 253, 281 (1984) (hereinafter: the Kossoy case)).
115. Similarly, there is also no basis for Dabush's claim that the company is "silenced" from raising claims on the matter, because it made an informed decision to purchase the land at the set price; since it was Dabush's own conduct that prevented his board members from making an informed decision as alleged, based on all the information required by them, and therefore it is clear that Dabush is silenced from raising any claim in this matter.
116. I will now turn to the prohibition regarding taking a business opportunity. First of all, I will note again that there is no need to discuss the question of whether we are dealing with a business opportunity "of the company", since the appellants did not dispute this before us, nor even before the trial court.  In the meantime, I would like to emphasize that even the argument that was made before us in weak language, according to which the company could not have realized this opportunity and executed the Goldman-Himanuta deal at a price of NIS 35 per square meter – is a factual argument, which was examined and rejected by the trial court.
117. In any event, on the legal level, this is not a consideration that Dabush was entitled to consider among himself, and to make an independent decision on the basis of it. Rather, it should have presented it to the board of directors, while disclosing all the relevant facts and in order to enable its members to act in accordance with their wisdom and understanding ( Zim, at paragraph 92; see also: paragraph 97 above); This is because the combination of the prohibition on taking a business opportunity together with the duty of disclosure requires –

"Because an officer will not make  a 'judgment for himself,' and will not assume, without bringing the question of taking advantage of the business opportunity to a real discussion in the board of directors, that the company has no interest in the opportunity, has no ability to realize it, or in any case the company will not be harmed if it does not take advantage of the business opportunity" (Goshen and Eckstein, at p. 257).

118. Dabush's claim that he did not act in order to obtain a benefit for himself does not change the conclusion that he took a business opportunity for the company.   Section  254(a)(3) of the Companies Law  prohibits taking a business opportunity, even when its purpose is to obtain a benefit for another person.  In our case, Dabush helped promote the Goldman-Saar deal in order to be a helper to his good friend Deri, according to his own version.  From these transactions, as Deri noted in his appeal, he drew brokerage fees.  In addition, the trial court ruled in particular that Deri had a "clear personal interest" in the Goldman-Saar deal, through which the business opportunity was taken away from Nynuta.  We have, therefore, the benefits by which Dabush assisted in favor of Deri, and therefore it is clear that all the foundations set forth in section 254(a)(3) of the Companies Law were met.
119. In the margin of what is stated in this section, it should be noted that I also cannot accept the argument that the determination that Dabush took a business opportunity of the company contradicts the respondents' claim that he pushed for the approval of the transaction by the board of directors. For, as is clearly evident from the chainof events, we are of course dealing with two different transactions, which were executed at a different time and constituted, in practice, two different stages in the same "circular transaction" that the appellants concocted together.  Thus, the first step in this process was  to take the business opportunity that belonged to the company, by promoting the Goldman-Saar deal, in parallel with the approval of the Goldman-Himanuta deal.  In the second stage, therefore, the alleged 'push' to approve the Goldman-Himanuta deal took place, and later on, the Saar-Himanuta deal.  It follows from this that we are not dealing with contradictory actions, but rather two different stages that complement each other.

It should be noted that in the trial judgment it was not at all determined that in the framework of the board meeting of October 27, 2013, Dabush pushed for the approval of the transaction, but all he did in this context was to vote in favor of it and note that it was a good deal.

120. After we have exhausted the discussion on the level of the infringements, I will now turn to discussing the damage caused by these violations to the company, as well as the causal connection between this and those – on which the parties focused their main claims. It should be said by now that the discussion of these elements in this framework will in principle exhaust the discussion of them with regard to Deri's appeal.
121. At the outset, I found it necessary to mention once again that in order to determine that a duty of fiduciary duty was breached, it is not necessary to indicate that damage was caused to the company. In view of the aforesaid, the remedy that can be awarded in favor of the company is not limited to awarding compensation for damages, and thus it is also possible to instruct the officer to return the profit he derived as a result of the breach (see: paragraph 102 above).  However, in our case, the company petitioned for compensation for damage, and therefore it had to prove the extent of the damage and that it was the breaches that caused this damage (see, for example, in a judgment given in Tel Aviv (Tel Aviv-Yafo Economy) 25839-01-19 Ben Yehuda v. Vitner, para. 62 [Nevo] (August 16, 2021)).
122. In any event, breach of fiduciary duty applies, as aforesaid, with the necessary changes, the laws that apply to breach of contract. In all of this,  section  10 of the Medicines Law (with respect to its application in this context, see: the Lieberman case, at paragraph 20), which states as follows:

"The right to compensation

10. The injured party is entitled to compensation for the damage caused to him as a result of the breach and its consequences, and which the violator saw or should have seen in advance, at the time of the conclusion of the contract, as a probable result of the breach."
11. This section limits the right to compensation, so that the damage claimed by the victim must be causally connected to the breach of contract (in our case with the breach of fiduciary), and the injured party must also indicate that this damage should have been foreseen in advance (see, for example: Civil Appeal 184/20 Kedem v. Top Alpha Capital S.M. Ltd., paragraph 32 [Nevo] (July 11, 2022); Civil Appeal 8422/17 State of Israel – Ministry of Transport v. National Council for the Prevention of Road Accidents Ltd., paragraph 3 of the opinion of Judge Kara [Nevo] (February 8, 2021); Gabriela Shalev and Yehuda Adar Contract Law – Remedies 327-328 (2009) (hereinafter: Shalev and Adar)).  The main test used to determine the causal connection is the main element in dispute in our case, based on the question – "Had the contract not been breached, would the damage for which the injured party claim compensation have occurred?" (ibid., p. 328).
12. I will mention in this context that an argument that ran like a thread in the appeals of both of the appellants is that neither of them had the power to bring about the completion of any of the transactions or to cause the damage caused to the company.  Therefore, according to both of them, there is no causal connection between their actions and the damage that was allegedly caused.  Meanwhile, Deri disavows Dabush's breach of fiduciary duty and claims that he was not able to influence the decisions made in the Himanuta corridors. Debush, on the other hand, distances himself from the negotiations conducted by Saar and Goldman, so that his approach could not determine who would purchase the land from Goldman.  The conclusion that both of them wish to conclude, therefore, is that their conduct alone was not sufficient to cause Trustees not to purchase the land from Goldman at a price of NIS 35 per square meter; Therefore, there is no causal connection between their conduct and the damage claimed by the respondents.
13. These arguments were raised by both of the appellants, and for good reason, since, as appears from what has been said so far – they worked together, each according to his part, in order to complete the round transaction, in its various stages.

In such circumstances, when it can be assumed  that had it not been for the  actions of any of the appellants, the damage to the company would not have been caused, it does not matter that  their actions alone would not have been sufficient, as they claim (Shalev and Adar, at p. 328; compare: DNA 4693/05 Carmel Hospital – Haifa v. Malul, IsrSC 66(1) 533, 633 (2010); Civil Appeal 878/06 Troyheft v. Attia, para. 80 [Nevo] (04.01.2009)).  As I will note right away – this assumption exists in the present case, since it was positively determined by the trial court, and therefore it is sufficient to impose on the appellants legal liability for the damage.

126. I will not deny, on the face of it, the question "What would have happened if?" is a difficult question in this case, as well as in many other situations mentioned in the case law, which I will discuss below. The difficulty inherent in it in our case stems from the fact that already in the initial stages, Himanuta was willing to purchase the land for an amount exceeding NIS 35 per square meter; and also from the fact that it approved the deal even after it became aware, even if only partially, of Dabush's involvement in the Goldman-Saar deal.  Therefore, on the face of it, it is not unreasonable to argue that even if the appellants had acted properly, the land would have been sold in the end to Saar, or alternatively, to Himanuta, but at a price higher than NIS 35 per square meter.
127. However, in our case, the trial court made – unequivocally – a positive factual finding, according to which if it were not for Deri's conduct, "there is no doubt that Hymanuta would have purchased from Goldman for NIS 35, and not from Saar for NIS 51" (paragraph 90 of the judgment), and similarly in Dabush's case, it was noted that he "actively [assisted] in promoting the transaction with Saar, and thus was an accomplice in causing the damage to Himanuta" (paragraph 94 of the judgment).  In these conclusive findings, I have not found, as stated, any reason to intervene (see more detail: paragraphs 78-79 above); Therefore, it must be determined that the respondents have lifted the burden of proving the damage and the causal connection, in view of the fact that the 'incomplete test' exists in relation to each of the appellants.
128. In summary, in Dabush's conduct as a whole, he grossly breached the fiduciary duty imposed on him as a director of Himanuta. In addition, Dabush violated three of the four main derivatives of the duty of allegiance, in a serious and ongoing manner.  The argument raised before us, according to which these violations did not cause damage to the company and that there is no causal connection between them and this alleged damage, was examined by the trial court and rejected.  In this determination, I did not find any ground for intervention, and therefore if my opinion were to be heard, I would have ordered the dismissal of Dabush's appeal.

Deri's appeal (Civil Appeal  1137/23)

129. I will now turn to discuss Deri's appeal. As stated above, the main dispute in this context revolves around the question of whether the elements of the tort of fraud existed in our case, and whether it is possible to impose legal liability on Deri for his involvement in the breach of Dabush's duties as a director.  In addition, the parties disagreed on the question of whether damage was caused to the company and whether there is a causal connection between the alleged damage and Deri's actions, but as stated, the discussion of these elements in relation to Dabush's case essentially exhausts the discussion of them in Deri's case.  Let us therefore begin with a discussion of the foundations of the tort of fraud.

Thermal

130. Section 56 of the Torts Ordinance, which enshrines the tort of fraud, states as follows:

"Fraud