A deliberate and conscious action by an officer intended to violate the law deviates from the reasonable officer's standard of objective conduct. The company's right to incorporate is conditional on its objectives not contradicting the law (see section 2 of the Companies Law). The duty of the reasonable officer is therefore to act to raise the company's profits within the framework of the law. Hence, if an officer consciously and deliberately deviated from the provisions of the law, he did not act as a reasonable officer, he was negligent and breached his duty of care towards the company, and if as a result damage was caused to the company, he must compensate it for it.
- Duty of Loyalty – This booklet is permanent Section 254(a) According to the Companies Law, the teacher who is an officer must act in good faith and act in the best interest of the company. The officer's deliberate action to violate the law by the company amounts to bad faith, and therefore constitutes a breach of the duty of trust that applies to him. This is also evident from the scholar's article Prof. A. Licht in his article "Trust Relations in a Corporation – Duty of Trust" Law & Business 18 237 (2014), p. 289-290:
"The duty of the trustee to act in good faith is a central component of the laws of trust. This is a requirement for a state of mind of complete clarity of mind – the subjective belief of the believer that he is acting within the framework of his role for the benefit of the beneficiary without fear of an adverse interest. Accordingly, bad faith means some level of awareness of the possibility of opposing things. A conflicting situation with respect to an officer may include the possibility of a conflict of interest that is prohibited or a violation of the law, or the possibility of harm to the company in the absence of a sufficient basis of information (which can be reasonably collected in the circumstances at hand) or the adoption of a decision in an irrational proceeding. A conscious action in such circumstances would be considered an act of bad faith, and it amounts to a breach of a duty of trust" (my emphases – R.R.).
- The case law in the state of Delaware has also determined that a deliberate action intended to violate the law will be considered bad faith on the part of the officer. In the judgment in the Brehm v. Eisner (In re Walt Disney Co. Derivative Litig.), 906 A.2d 27, 2006 Del. The Supreme Court of the State of Delaware has held that an intentional action to violate the law is an example of bad faith conduct on the part of an officer. The court also reiterated this in the matter Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006), while clarifying that The good faith required of the officer constitutes a mental element within the framework of the duty of trust, and therefore acting in bad faith establishes a liability to the officer.
- From all of the above, it therefore emerges that a deliberate and conscious illegal action by the officers on behalf of the company is a breach of their duty of care and duty of loyalty to the company, whatever the motivation for their action. In this context, it should be emphasized that the infringement exists whether it is intended to promote the personal benefit of the officer or whether the officer believes that it is for the "benefit" of the company. In other words, even an officer who knowingly violates the law in order to ostensibly advance the company's interests (for example, by paying bribes) violates both his duty of care and his duty of trust to the company.
When a breach of the duties of trust and care causes damage to the company, the officer may undertake to compensate the company for such damage. This includes a deliberate violation of the law by the officer that resulted in damage to the company (for example, since it is subject to a fine or financial sanction), may lead to the officer who is responsible for the actual violation being obligated to compensate the company in the amount that it should have paid as a result of his conduct.
- Hence, if the Applicant proves that Bezeq's officers or employees acted deliberately and consciously in order to violate the provisions of the Regulator and thwart the reform, and that as a result of their actions and decisions, a financial sanction was imposed on Bezeq, the Company may have a cause of action against these officers. Since we are at the stage before the filing of the derivative claim – if the applicant proves the aforementioned at the required level at this stage of the proceeding, it will be appropriate to grant his request to allow him to receive the relevant documents in relation to the aforesaid ground.
- It should be clarified in the margins that the above determinations related, as stated, to a situation in which the officer knowingly and deliberately violates the law. Of course, these are not the only situations, and there may also be situations in which the violation of the law by the company stems from the action of an organ of the company that is not a deliberate and conscious violation of the law by it. Thus, for example, the officer may misunderstand the provisions of the law or interpret it incorrectly. The breach may also stem from an erroneous decision regarding the manner in which the company must act in order to comply with the provisions of the law. Even in such cases, the company may be found liable for a violation of the law and be liable to pay a fine or financial sanction, even though the officer did not consciously intend to violate a legal provision.
In addition, there may be cases in which the company violated the law and the company's officers were not even aware of it. Such an outcome can happen when junior employees in the company break the law, and the officers do not know about it. In such cases, the responsibility of the officers may be based on a failure to supervise what is happening in the company, a responsibility that will be imposed on them if they do not create proper supervision and control mechanisms. Such a duty of supervision was recognized by the court in the State of Delaware in the judgment of In re Caremark International Inc. Derivative Litigation, 698 A 2d 959 (Del. Ch. 1996) at 967-968).
- However, the above distinctions between officers who knowingly violated the law and unconscious violations or those caused as a result of lack of supervision are not relevant to the case at hand, and there is therefore no room to examine in detail the possibility of imposing a duty to compensate officers in each and every one of the cases detailed above. This is because, as clarified, the Applicant's position in this case is that the violation of the provisions of the service portfolio by Bezeq's organs (as a result of which Bezeq imposed the financial sanction) was a violation Intentional, which was done in a conscious and consistent attempt to thwart the Minister of Communications' reform (see, for example, paragraphs 3, 23-24 of the application).; Clauses 2 and 14 of the Response to the Reply; and paragraphs 13, 19 and 21 of the summaries on behalf of the applicant).
- The Applicant based his claim that Bezeq's officers outlined a deliberate policy of violating the instructions of the Ministry of Communications in order to thwart the reform, on a number of documents to which he referred. According to him, these are documents that show that the violation of the provisions of the service portfolio was not a "malfunction", and did not stem from accidental "rogue" conduct by one or another junior level, but rather from a policy dictated "from above" by the company's senior officers. This policy, led by Bezeq's officers, is what caused Bezeq to violate the provisions of the service portfolio, and it is therefore what led to the imposition of the financial sanction on it.
Has the applicant proved his claim at the required level? Did he present evidence sufficient to meet the evidentiary threshold required in a request for disclosure of documents before filing a motion to certify a derivative claim, evidence proving that Bezeq's officers (or at least some of them) did indeed act deliberately and knowingly in order to thwart the reform and violate the provisions of the service portfolio and the license?