Administrative orders – The application claims that between the years 2017-2023, administrative orders issued by virtue of section 45 of the Clean Air Law, in which an order was given to carry out urgent actions or to stop production operations (see the table in section 60 of the request for approval).
The Parties' Arguments in the Removal Motions
- The respondents filed four motions to dismiss the motion for summary approval in which they laid out a number of arguments: Bazan's request, Carmel's request, Gadiv's request and the officers' request.
- In the application filed by Gadiv, it was argued that the significance of the request for approval is that the financial results of the sanctions (fines and financial penalties) will be transferred to the shoulders of the company's directors and officers. However, it is argued, "public law – with its arms of criminal law and administrative law – does not tolerate the transfer of a fine or a financial sanction from the shoulders of the person against whom it was imposed on the shoulders of a third party whose case has not been discussed." Gadiv went on to elaborate on her argument, while emphasizing the personal nature of the criminal (and administrative) punishment and noted that in her view, the punishment is in accordance with the degree of individual culpability attributed to the criminal defendant, and therefore the transfer of the fine imposed in a criminal proceeding to another party is capable of eroding the considerations underlying the criminal punishment, nullifying the purposes of public law, and harming public policy. It was argued that the rule according to which "wrongful embezzlement shall not give rise to a right of action" also supports her position. Gadiv argued that despite the case law, there is no room to recognize the demand to transfer a sentence imposed on one to the other. Gadiv further detailed additional considerations that in her opinion support her position not to recognize a cause of action that stems from a criminal or administrative penalty. Among other things, it argued that from a theoretical point of view, it is not possible to transfer sentences from one person to another; that this constitutes the transfer of the authority and responsibility to determine the guilt of the defendant from the court to other parties; that the diversion of the punishment may create a dimension of misrepresentation, especially when the punishment comes after a confession; that the rules of judicial estoppel do not allow the punishment to be transferred to another; that the transfer of the sentence constitutes a violation of the criminal prohibition set forth in section 252 of the Penal Law, 5737-1977 (hereinafter: the Penal Law). It was further argued that the transfer of the fine or financial sanction would lead to a number of failures, including – impairment of the discretion granted to the regulator in the administrative proceeding, violation of the defendant's right to argue in advance against the imposition of the fine imposed in the criminal or administrative proceeding, blurring the differences between an individual and a corporation, and a violation of the existing distinctions between an individual and a corporation, in particular in the field of environmental protection law. Finally, Gadiv emphasized that her arguments are appropriate both in relation to the financial sanction and in relation to the criminal fine, and that the fact that the request includes additional remedies beyond the restoration of the sanctions does not dull her arguments. In the margins of the application, it was argued that an equal derivation should not be learned from the case law that dealt with applications under section 198A of the Companies Law, 5759-1999 (hereinafter: the Companies Law or the Law), which were given in the context of companies that violated the law.
- Carmel also filed a motion to dismiss the motion for approval in limine, in which it made a number of claims: First, that the motion for approval does not disclose a cause of action that belongs to Carmel and can be sued in a dual derivative action proceeding. It was claimed that Carmel is a separate private company that has been fully owned by Bazan since 2009, but its activities are different from that of Bazan, and its board of directors is not a board of directors of Bazan. Therefore, it was argued, the application was intended to file a dual derivative action against Carmel without meeting the basic conditions for its filing. Second, Carmel complains that the claims in the application are directed against all the companies as a single entity (referred to in the application as "the group") without making a distinction between Bazan and the other companies, and that no basis was laid for the existence of a prima facie cause of action that Carmel has, due to the comprehensive, sweeping, vague and simplistic wording of the application. Moreover, with regard to the officers, there is no claim that all of them were officers of the Carmel, whereas with regard to the respondents who are officers of the Carmel, the facts that give rise to a cause of action against them were not specified. The requirement for detail is sharpened, so it is claimed, to the extent that the Applicant's claim is that the officers of Bazan caused damage to Carmel. Carmel further argued that the Applicant did not show that she (Carmel) had a cause of action against her officers or against the other officers, who should be allowed to sue in a derivative action separately from the causes of action that are available to Bazan. It was argued that the causes of action that belong to BAZAN can be sued in a derivative action by BAZAN but cannot be sued in a dual derivative action on behalf of Carmel. It was further argued in this context that the Applicant's comprehensive argument violated the procedural rights of the Respondents. Third, it was argued that the application for approval does not first of all evidence of negligence on the part of the officers, either personally or collectively, or of breach of trust. In this context, it was argued that the Applicant's argument that the imposition of sanctions on a certain company attests to negligence on the part of the officer should not be accepted. This is because the sanctions imposed were by virtue of legislation that imposes absolute or strict liability, and naturally do not entail a judicial determination as to which of the officers is guilty of the conduct that gave rise to the imposition of the sanction – and in the absence of additional detail by the Applicant, the application should be rejected. It was argued that the general reference to the size of the companies (the group), the complexity of their business and the environmental risks involved in their activity, does not teach anything because the group's activity entails risks, and by the nature of risks to be realized. The claim that the officers did not force Carmel to take precautionary measures to prevent all the incidents of damage is also not supported by evidence because the claims were made in a comprehensive and collective manner and proceeded from the premise that the damages could have been prevented. It was further argued that the Applicant did not properly elaborate on her claims regarding liability and did not indicate the existence of personal or collective liability to the directors; There is also no evidence to suggest that the directors breached their fiduciary duties. Fourth, it was argued that the decisions of the officers are protected within the framework of the business judgment rule. It was argued that the Applicant did not show, or even prima facie, that the conditions for applying the business judgment rule are not met, particularly in the Carmel. Finally, it was argued that it is appropriate to exercise the court's authority and order the dismissal of the application in limine at this stage.
- BAZAN based its motion to dismiss the motion in limine on two grounds: the lack of minimal detail and proper infrastructure, and the lack of prior application. With regard to the first of the claims, BAZAN complained that despite the allegations of serious breaches of the officers' duties towards BZAN, the Applicant did not bother to describe "a single decision or omission" that she attributed to her, and all she did was refer to a laconic list of administrative orders, financial sanctions and fines. Therefore, the Applicant's claim that the officers knowingly and intentionally led the group to commit a series of violations of the law is nothing more than the applicant's assumption, according to the claim. According to ZAN, in this situation, it is not even possible to respond to the request for approval, and therefore it must be dismissed out of hand. In addition, BAZAN requested that we not learn from the case law to which the Applicant referred because the application in question is not based on facts or evidence similar to those presented in that ruling. It was also argued that it was not possible to link the events that led to the imposition of the sanctions and fines with the actions of the officers. The general manner in which the application is formulated, it is argued, undermines the detail required in the application to certify a derivative claim, and in particular the detail required for each of the officers separately, and especially when it comes to a claim of breach of fiduciary. It was further argued that the very imposition of the sanctions does not necessarily indicate the mental basis of the officer, nor does it indicate any breach of the duties imposed on him or even the duties imposed on the company.
The second head of Bazan's arguments deals with the lack of a prior application, and it is argued that the application should be rejected out of hand because the applicant did not act as required by section 194B of the Companies Law. It was argued that the Applicant should not be allowed to evade her duty to apply to a prior application based on an argument regarding the applicability of the exception in section 194(d)(1) of the Law, according to which there is no need for an early application when there is a personal interest of the Board of Directors in the decision. This is even more true in light of the fact that as of September 2022, the Israel Corporation ceased to be a controlling shareholder in Bazan, and there have been changes in the board of directors. The current state of affairs, it is claimed, is that most of the incumbent board of directors was appointed as of June 2021, and therefore most of them have no personal interest in the alleged events up to that date and with regard to the officers related to them.
- The officers (respondents 4-31) also based the application on deficiencies that they claimed occurred, in detailing the claims against them and in the lack of a proper infrastructure. According to them, the application lacks basic and detailed details regarding the existence of a concrete and separate cause of action in relation to each officer, and the very imposition of the sanctions does not attest to the fact that there was a defect in their conduct. This is especially true where legislation in the field of environmental law imposes strict liability. The officers also argued that the rulings in the case law to which the Applicant referred should not be relied upon, because unlike those cases, in the case before us, alongside the financial sanction, no concrete and weighty evidence was presented attesting to conscious and intentional decisions for a violation of the law. The officers further argued that an application for approval filed against a number of officers should not be investigated if it does not detail the evidentiary basis in relation to the concrete allegations made against each of them separately. According to them, the arguments raised by the Applicant require the laying of a solid evidentiary basis for the existence of a number of components, including: a factual element of making explicit decisions and taking actions, a mental element that includes intention and awareness or recklessness and turning a blind eye, as the Applicant claims, and an element of concrete damage caused as a result of the acts; And there is no basis for each of these components. In support of their claims, the officers refer to the fact that some of them served short periods and that they were not alleged to have taken any actions that establish liability to the company. The ambiguous manner in which the Applicant formulated the application for approval, the officers claimed, impaired their ability to defend themselves.
- The Applicant is of the opinion that the applications should be rejected. In her response, the Applicant reiterated the main points of the motion for approval and argued that the dismissal requests were intended to evade providing a substantive response to the misconduct of the officers, which caused damages of tens of millions of shekels to the companies. The Applicant argued that the application forapproval included proper details in relation to each of the officers – what his role was, why he was responsible for ensuring compliance with environmental protection laws, and in relation to which of the sanctions and fines he violated his responsibility; The circumstances of the imposition of sanctions on the companies, the facts that indicate the companies' awareness and their officers, were also detailed. In this context, the proceedings that took place prior to the imposition of the sanctions between the companies and the authorities were emphasized. It was further argued that the summary dismissal of a motion to certify a derivative action, which is itself a preliminary motion, will be done only in exceptional cases, where the decision in limine is simple and does not require factual clarification, whereas the applications in question do not meet these criteria.
With regard to the arguments in Gadiv's application, it was argued by the Applicant that the ruling does not support Gadiv's position that it is not possible to transfer after payment of a fine imposed on the defendant in the framework of a criminal proceeding, especially since the ruling to which it referred relates to a set of circumstances between "independent" parties, as opposed to the special relationship between an officer and the company, in which personal liability can be imposed on the officers in a case where the company's activity exceeded the scope of business risks. This is in part to prevent incentives to commit "effective" violations. It was argued that the duties of care and trust of the officers are not the product of contractual agreement, but rather general duties prescribed by law. It was further argued that this is all the more lenient with regard to financial sanctions, and in any event, the ruling to which Gadiv referred does not apply to such sanctions. The Applicant also refers to a number of proceedings that were conducted on the basis of a claim of damages caused to the company as a result of a violation of the law and its imposition of fines and financial sanctions. According to the Applicant, Gadiv's argument that the officer cannot be held liable for sanctions and fines due to considerations of fault is inconsistent with the Respondents' argument that the sanctions and fines are part of the companies' routine operations.