Derivative Claim (Haifa) 64048-07-24 Amit Gnessin Law Firm v. Oil Refineries Ltd. - part 10

(1) The company organ authorized to decide on the filing of the lawsuit has a personal interest in the decision, and if the said organ consists of several individuals – half or more of the unit in which the organiser has a personal interest in the decision;

(2) There is a reasonable concern that a request to the company will harm the possibility of receiving the requested relief."

72. On the level of principle, I am of the opinion that the absence of a prior application, where there is an obligation to do so, constitutes grounds for dismissing the application in limine, due to the purposes of the preliminary application, and since it is usually a simple inquiry and does not require a complex factual inquiry or the allocation of many judicial resources, whereas accepting the argument may save many resources that will be invested in the hearing of the application on its merits.
73. There is no dispute that the Applicant did not apply to the companies in advance, because according to her, in the circumstances of the case, she was not obligated to do so, and in this move she relies on the reservation set forth in section 194(d)(1) of the Law, according to which there is no need for a prior application when "the company organ authorized to decide on the filing of the lawsuit has a personal interest in the decision, and if the said organization consists of several individuals – half or more of the organizing unit has a personal interest in the decision". According to the respondents, most of the application for approval is directed at officers who are not currently members of the BAZAN Board of Directors (only 8 of the 28 defendant officers currently serve in the companies), and the Board of Directors had no impediment to making a decision to file a lawsuit against them.
74. The law applies to the Applicant, because in the circumstances of the case, the Applicant was not obligated to apply to the Board of Directors in advance. All of the officers currently serving are among the defendants, and therefore, if the request is granted, it will lead to the obligation of all the officers.  The personal interest of the board of directors is therefore clear.  The fact that the application is also filed against officers who served in the past does not change it, because the decision whether to sue the officers who no longer serve in the company will have a direct impact on the officers who currently serve, since "the directors who control the company can be viewed as having a personal interest in the decision, if there is a reasonable basis to assume that the decision to sue the directors who no longer control the company, will also create significant exposure to the current Board of Directors (Tel Aviv District) 13663-03-14 Newman v.  Financialtech Ltd., para.  45 [Nevo] (May 24, 2015) (hereinafter: the Newman case)).
75. I cannot accept the respondents' argument that the current board of directors had no impediment to discussing the question of whether to file a lawsuit against directors and officers in the past, because they have no personal interest in this decision. Such a move creates an artificial distinction between the claim against the serving officers and the officers who appointed him in the past, and in any event does not negate the existence of the personal interest.  Circumstances similar to those before us discussed in the Newman case, where the court rejected a claim similar to that raised by the respondents, and noted that the 'second' group of directors [the actual servants] had great difficulty in deciding that the company should sue the 'first' group [the non-serving officers] without such a determination having an impact on the company's right to sue them as well...  [and] it is not necessary that the cause of action against the two groups be identical in order to obviate the need for prior contact with the company in relation to the group of defendants that does not currently control the company." In contrast to the respondents' attempt to differentiate the two groups from each other, this is the exact same ground, which is based on identical arguments.  The fact that the majority of the current board of directors was appointed after June 2021 does not help the respondents.  Accepting this argument will create an artificial distinction not only between the two groups of directors, but also between the various events that create the same actual cause of action.  In other words, this distinction does not erase the possibility of the existence of a personal interest.
76. I therefore hold that in the circumstances of the case, the Applicant was not obligated to apply to the Board of Directors in advance, since it was found that she was exempt to do so under section 194(d)(1) of the Law.

Interim Summary

77. The path we have taken thus far leads to the conclusion that apart from respondent 22, whose case embodies a unique case in which the application against it should be dismissed in limine, the respondents' requests to dismiss the motion for approval in limine should not be granted. In addition, the Applicant was not obligated to apply to the Board of Directors in advance before submitting the application, and therefore even this argument does not have the power to lead to the dismissal of the application in limine.
78. This I consider to emphasize: This decision deals with the respondents' request to dismiss the motion in limine, the hearing of which takes place at a preliminary stage of the proceeding and even before the respondents have submitted replies and explained their full arguments. Therefore, the decision does not constitute a conclusive determination of the parties' arguments, and it certainly does not imply anything about the outcome.  A time for removal and a time for clarification.  The parties will put aside their full arguments, there will be an in-depth investigation of the application – as befits the serious arguments raised by the parties and the weighty considerations that lie on the agenda – and the time will come to decide the claims.

The Request for a Stay of Proceedings

79. Alongside the motion for dismissal, the companies (respondents 1-3) filed a motion to stay proceedings, in case the motions for dismissal are rejected.

The parties' arguments

80. In the motion to stay proceedings, the respondents argued that the clarification of the application for approval should be delayed until after a decision has been made in two pending proceedings – AP (Jerusalem District) 30269-06-24 Carmel Olefins Ltd.   The Commissioner under Section 52 of the Clean Air Law [Nevo] (hereinafter: the Administrative Petition); andC.I.  (Haifa District) 36568-07-19 Citizens for the Environment Association v.  Elcon Recycling Center (2023) Ltd.  [Nevo] (hereinafter: the class proceeding) that is clarified before the Honorable Justice Sokol in this court.  As part of the class proceeding, a motion to certify a class action filed by Citizens for the Environment against the companies and other parties is being clarified at this stage, claiming that the respondents there violated their duties of care and caused dangerous exposure of residents of the Haifa area to various pollutants, which increased morbidity among them.

In the hearing held on May 25, 2025, it was clarified that the administrative petition, which dealt with the financial sanction of ILS 18,658,920 (dated April 30, 2024) imposed due to an ongoing violation of the delay in the installation of emission treatment facilities from the Carmel facilities, was discussed in court on April 29, 2025, and with the consent of the parties, the petition was rejected, but it was agreed that the financial sanction would be reduced in accordance with Regulation 2(a)(3) of the Clean Air Regulations (Reduction of the Amount of the Financial Sanction and the Spread of Payments).  5772-2011.  Therefore, there is no need to discuss the arguments based on the administrative petition process, and there is also no need to review the claims that relate to this proceeding individually.

81. The motion argues that in the pending proceedings, factual and legal questions overlap with the questions that arise in the motion for approval, and that it is inefficient for these questions to be clarified before two courts, which may even reach different legal results. With regard to the class proceeding, it was argued that the evidentiary basis on which the class proceeding is based is similar to the basis of the motion for certification here, and that some of the evidence brought in one proceeding was brought in the other proceeding – in both proceedings the incident of the fire for which a criminal proceeding was conducted, and in both proceedings the same administrative orders and financial sanctions were discussed; the witnesses testified and were examined on this evidence in the class proceeding, and the court is supposed to decide on it.  It was further argued that the situation in which the companies are liable to find themselves is absurd and will even cause them damage, because at the same time they will have to defend themselves against claims in the class proceeding and make the same claims against the officers within the framework of the class action.
82. The Applicant is of the opinion that there is no reason to order a stay of the proceedings. According to her, the request for a stay does not include an orderly argument as to why the proceedings should be delayed, and the respondents did not attach documents from which it is possible to learn about the disputes in the class proceeding, and therefore it is not clear what the factual division exists with respect to the imposition of the sanctions itself.  It was argued that in the class proceeding an opinion was submitted and the decision will be based on the opinion on issues that do not arise in the case before us, because the proceeding here focuses on the question of the supervision of the board of directors, and the court will have to examine factual questions that are different from what will be examined in the class proceeding.  It was further argued that the legal questions in the two proceedings are also fundamentally different.  While the present proceeding deals with the liability of officers who are not at all sued in the class proceeding; In the class proceeding, other questions will be clarified, such as proof of excess double morbidity of the class members, the existence of a causal link between the morbidity and the activities of the factories, how to attribute liability to any other of the factories, the fulfillment of the terms of the class action, and more.  It was further argued that in the absence of detail in the application, it is difficult to address the respondents' claim that they will have to make contrary claims in parallel proceedings.

Decision

83. The respondents' request to stay the proceedings in the present proceeding is based on the doctrine of "lis alibi pendens", according to which the court has discretionary authority to order a stay of a hearing in the proceeding before it until a decision is made in another proceeding that raises similar legal or factual questions (LCA 64797-03-25 Basol v. IDAI).  Insurance Company Ltd.  [Nevo] (May 26, 2025) (hereinafter: the Basol case); LCA 20276-12-24 Tidhar Construction Ltd.    Y.V.  Alumit 2020 Ltd.  [Nevo] (24.1.2025); CA 9/75 Al-Okbi v.  Israel Lands Administration, IsrSC 29(2) 477 (1975) (hereinafter: the Al-Okbi case)).  It should be noted that the application of the doctrine does not require a complete overlap between the issues that arise in the two proceedings, and it is sufficient that the same substantive issue be the focus of the discussions (Besol, para.  11; CA 4174/23 Cohen v.  Eisenkot, para.  12 [Nevo] (July 27, 2023); Al-Okbi case, p.  481).
84. The doctrine of a pending proceeding is based on a number of purposes that relate mainly to the efficient functioning of the judicial system and the efficient distribution of its limited resources; saving the resources of the litigants; Prevention of frivolous proceedings; and the prevention of conflicting decisions (CA 871/23 Bogofen Ltd.   Pri HaGalil Ltd., para.  22 [Nevo] (May 29, 2023) (hereinafter: the Bogofen case)).  These purposes are, of course, considered in relation to the facts of the case and to the interests of the specific parties.  Therefore, when examining a request for a stay of proceedings, the court must consider a number of factors: the degree of overlap between the issues discussed in each of the proceedings; the identity of the parties – but it should be clarified that it is not necessary that there should be an identity between the parties in the two proceedings and that it is sufficient that the interests of the parties are similar (LCA 3765/01 The Israeli Phoenix Insurance Company Ltd.  v.  Kaplan, para.  3 [Nevo] (January 28, 2002)); the degree of fear of contradictory decisions; The possible savings in resources, and in particular in judicial time (see: the Basol case, para.  11; The Eisenkot case, paragraph 12; CA 2812/13 Columbia Photography Equipment and Supplies Ltd.  v.  Delta Digital Ltd., para.  10 [Nevo] (July 11, 2013); Uri Goren, Issues in Civil Procedure, 463 (13th edition, 2020)).  In the face of these considerations, the court must take into account the right of the parties, especially the person who initiated the proceeding, to have their day in court and to hear their case without delay (LCA 1303/24 Somzin v.  Trading Centers Company Ltd., para.  9 [Nevo] (July 10, 2024)); The Bogofen case, at paragraph 22).
85. The power of the doctrine of a pending proceeding also stands well even in a case where it is a matter of delay in the investigation of a motion to certify a derivative action due to the existence of another proceeding, which is not a derivative action proceeding (it should be noted that section 7 of the Class Actions Law, 5766-2006 includes a specific arrangement for a case in which a number of class proceedings were filed in which common questions of fact or law, identical or essentially similar, arise. and a similar arrangement was also applied by virtue of the case law to proceedings for the approval of a derivative claim – see CA 3293/17 Rivka Technologies Ltd.    Talmor [Nevo] (September 12, 2018)).  This situation in which it is sought to delay the proceeding of a derivative claim (when the additional proceeding is of a different type) may involve additional considerations related to the uniqueness of the derivative claim, foremost of which is the question of whether "the claim and its management are for the benefit of the company", within the meaning of section 198(a) of the Companies Law.  In this context, it may be argued that the continued investigation of the derivative claim alongside the class action may harm the company's interest.
86. The application of the rules to the case before us leads to the conclusion that a stay of the proceedings should not be ordered until a decision is made in the class proceeding.
87. The proceeding before us deals with the liability of the officers towards the companies for violations of the environmental protection laws that led to the imposition of sanctions and causing damage to the companies, while the class proceeding deals with a lawsuit filed by an association against the companies and 27 other factories operating in the Haifa Bay area, for damage to the environment caused as a result of their activity (see the summary of the alleged violations with respect to the companies at pp. 20-23 of Appendix 2 to the motion for approval).
88. The distinction that exists between the two proceedings finds expression in various aspects. First, the legal basis on which each of the proceedings is based is different.  While in the current proceeding the center of gravity is the responsibility of the officers for claims of breach of their duty to supervise the company's activities, the class proceeding is completely different.  In the class proceeding , it was claimed that according to studies and opinions attached, it was found that among the residents, workers and residents in the area near the factories, which is defined as the "Haifa District", there was an excess morbidity of lung cancer and non-Hodgkin's Lymphoma (NHL).  In the motion for approval in the class proceeding, the Applicant petitioned to approve the filing of a claim on behalf of those who were injured and sick as a result of the increased exposure to the pollutants emitted into the air by the respondents there (see the review of the decision given in the motion for summary dismissal of the motion for summary dismissal of the motion for approval in the class proceeding – Case No.  36568-07-19 Citizens for the Environment Association (NPO) v.  Elcon Recycling Center (2003) Ltd.  [Nevo] (February 4, 2021)).  Second, while the main defendants in the proceeding before me are the officers themselves, they are not part of the class proceeding, and the question of their liability to the companies is not examined at all in the class proceeding.  Moreover, the companies (respondents 1-3) in this proceeding are only a small part of the defendants in the class proceeding, which was filed against 30 factories that were alleged to be causing pollution.
89. Due to the different arguments in the two proceedings, the questions that the court will address in each of the proceedings are different. It can be assumed that in the framework of the class proceeding, the court will focus on questions such as the liability of the factories for pollution, in particular the standard of care required of them and the question of whether they deviated from it; complex questions of causal connection, including the need or possibility of attributing the pollution to each plant, on the basis of an analysis of various approaches that arise from the opinions submitted by the parties (see paragraph 76 of the Applicant's response).  These questions do not arise at all in the current proceeding, and the respondents did not elaborate on how these questions are related to the current proceeding and what the reciprocal relationship between them and the current proceeding is.  The discussion of the question of damage is also different in the two proceedings.
90. From the difference between the two proceedings, another conclusion is drawn – the arguments and evidence that will be presented in the class proceeding on this issue are different from the proceeding here. The respondents focus their argument on the fact that some of the evidence presented in the class proceeding to support the claim of the respondents' negligence are those events and the same sanctions that form the basis of the present proceeding.  However, it appears that the same evidence is not a major element in the class proceeding, in which the factual issues that arise are broad and can even be said to be complex, so that it cannot be said that this is a "significant overlap" as claimed by the respondents, both in relation to the respondents themselves and in relation to the proceeding as a whole.  In any event, the respondents did not specify in their application the scope of the dispute regarding those sanctions, which are part of the factual basis.  Moreover, from the hearing that took place before me, in which the respondents were asked to address this aspect, it emerges that the main arguments of the respondents will be on evidentiary questions of admissibility, since the respondents do not dispute that the events on the basis of which the sanctions were imposed did indeed occur, especially since some of them were given even with the consent of the respondents and after a confession (see pp.  3-4 of the transcript).  In the absence of a significant factual dispute regarding the overlapping evidence, it is difficult to see why a stay of proceedings is necessary.
91. I do not believe that the continued conduct of the two proceedings simultaneously harms the best interests of the companies. The respondents claim that the continued conduct of the proceedings in parallel will cause an absurd situation.  In the class proceeding, the companies will have to defend themselves against the claims against them; At the same time, in the current proceeding, they will have to make arguments similar to those against which they are defending in the class proceeding.  This argument is weighty and should be given a place of honor, because it involves a unique question related to the derivative claim, namely whether the conduct of the proceeding will harm the company's interest.  Indeed, this argument formed the basis for the decision in Civil Appeal (Tel Aviv District) 12255-04-19 De Lange v.  Teva Pharmaceutical Industries Ltd.  [Nevo] (February 11, 2020), where the court ordered a stay of the derivative action proceeding, while proceedings were simultaneously conducted against the company in the United States, in which similar claims were raised against it in Israel.  The key point, therefore, lies in the question of whether we are dealing with similar claims in the two proceedings, in such a way that the conduct of the derivative proceeding – in which the company claims against the officers – is liable to contradict the defense that it will have to conduct in order to defend the claims against it in the additional proceeding.  However, as I explained earlier, in the case before us the arguments in the two proceedings are not similar, and the overlap that exists is in a partial and narrow factual layer related to the very imposition of the sanctions, the imposition of which and even the events that formed the basis for their imposition are not in dispute, let alone in a substantive dispute.  To the extent that the motion for approval is approved in the class proceeding, the companies will have to defend themselves against many claims, the vast majority of which are different from the claims they will have to make against the officers, if the application is approved in this proceeding.
92. Finally, as part of the class proceeding, a hearing was held on the motion for approval, and the court is expected to issue its decision. If the motion for approval is rejected, the basis for the motion to stay proceedings will be dropped, but if the motion for approval is granted, then on the basis of the parties' arguments and in light of what is stated in the decision to dismiss (in the class proceeding), it can be estimated that the proceeding will take a long time, due to its complexity.  In these circumstances, I do not believe that the Applicant's right to clarify the application should be violated until the class proceedings have been completed.
93. The conclusion, therefore, is that I decide to reject the request to stay the proceedings.

Result

94. The result, therefore, is that the application for a stay of proceedings should be rejected, and so should the motions for summary dismissal, with the exception of respondent 22. In deciding on the question of costs, I gave my attention to the outcome of the decision and the determinations thereof; to the difficulties that were discovered in the application, and in particular with respect to respondent 22; to the resources invested by the parties, which include submitting responses to the application and holding a hearing; and I also gave my consideration to policy considerations.
95. Therefore, I decide to reject the motion for stay of proceedings as well as the motions for dismissal in limine, except with respect to respondent 22 – with respect to the motion for summary dismissal. I obligate each of respondents 1, 2 and 3 as well as respondents 4-31 (as one; With the exception of respondent 22 and respondent 6, against whom the application was deleted due to his death), to pay the applicant the costs of the application in the amount of ILS 6,500 (a total of ILS 26,000).  The Applicant will pay the Respondent 22 the expenses of the application in the total amount of ILS 4,000.

The Secretariat will send the decision to the parties.