Derivative Claim (Haifa) 64048-07-24 Amit Gnessin Law Firm v. Oil Refineries Ltd. - part 4

In her response to the arguments in the Carmel Application, the Applicant argued that the Respondents do not have any business judgment at all, both insofar as it is a claim of breach of fiduciary duties and in relation to the claim that the officers are knowingly violating the law or by turning a blind eye and recklessly, because these situations negate the protection of business judgment.  It was further argued that the officers did not claim in the removal motions that they had made informed decisions, and no evidence was presented that there was a discussion of the issues for which the sanctions were imposed.  It was argued that even if there was an in-depth discussion and the officers decided to violate the law, this would not have granted them the protection of business judgment.  It was further argued that there is no difficulty in approving the derivative claim in relation to Gadiv and Carmel as well, since only they can claim the damage caused to them, in the framework of a large derivative claim.  The response to Carmel's arguments regarding the lack of an evidentiary basis was intertwined with the response to the claims of BAZAN and the respondents, which included claims in a similar context.

In its response to the motions of Bazan and the officers, the Applicant argued that contrary to what was claimed in the motions for dismissal, the motion for approval includes a proper description of the facts that establish the cause of action and the liability of each of the officers.  It was argued that from the degree of detail in the removal motions it can be concluded that the respondents' right to defend properly was not violated; in addition, in her reply, the Applicant referred to the arguments raised regarding specific officers.  According to the Applicant, the arguments regarding the strength of the evidentiary basis are not grounds that can be raised as threshold arguments, and that in any event, the application for approval includes a "solid" evidentiary basis.  The Applicant went on to claim that without the replies the companies would not have been fenced off, and therefore there is no way to assess the findings of the fact that they will be determined.  With regard to the claim regarding the lack of a prior application, the Applicant argued that she was not obligated by law to apply in advance since the Board of Directors is tainted by a personal matter.

12. On May 25, 2025, I held a hearing during which the parties argued and further clarified their arguments.

Application to certify a derivative action and dismiss it in limine – General

13. The right to file a lawsuit is vested in the plaintiff who is authorized to decide to sue for a violation of his rights, and usually no other party can compel a party to file a lawsuit. The same is true in society.  If the company wishes to file a lawsuit against a third party, the board of directors convenes and decides on it.  The instrument of the derivative action deviates from the usual way and is intended to give a shareholder in the company the right to file a claim on behalf of the company due to a violation of one of its rights, where the organs authorized to move the wheels of the lawsuit on behalf of the company (usually the directors) refrain from doing so, in a manner inconsistent with the company's best interests (CA 2967/95 Magen VaKeshet Ltd.  et al.    Tempo Beer Industries Ltd., IsrSC 51 312, 324 (1997)); CA 3051/98 Darin v.  Discount Investment Company Ltd., IsrSC 59(1) 673, 691 (2004)).  The institution of the derivative claim is intended to overcome the "representative problem", which embodies the conflict of interest between the good of the company and the interest of its organs, which may cause the organs not to make a decision to file a lawsuit on behalf of the company to enforce its rights.  The purpose of the derivative action is therefore to ensure that potential conflicts of interest on the part of the company's leaders will not prevent the company from exercising the causes of action available to it (LCA 4208/24 Segman v.  ANLE YANG, para.  21 [Nevo] (August 6, 2024); Assaf Hamdani and Ruth Ronen, "Who controls the derivative lawsuit?", Yoram Danziger211, 218 (Limor Zer-Gutman and Ido Baum eds., 2019) (hereinafter: Hamdani and Ronen)).  The representative problem arises in full force, where the potential lawsuit is directed against the company's organs themselves or against the controlling shareholder who appointed them, in which case they are "held to be unable to make an 'untainted' decision with respect to the exercise of the company's power of law" (CA 4857/16 Menashe v.  Vision Air Ltd., para.  27 [Nevo] (April 24, 2018) (hereinafter: the Vision case)).
14. The derivative claim instrument carries complex implications with respect to the company due to its circumventive and coercive action: a request to certify a derivative claim is intended to circumvent the authority of the authorized organs by granting a shareholder a "standing right" to sue on behalf of the company, and entrusting its management to the shareholder, who normally has limited rights and does not have the right to file a claim on behalf of the company (CA 6913/18 Shkedi v. Herodium Investments Ltd., Paragraph 20 [Nevo] (August 4, 2020) (hereinafter: the Rhodium case); subject to the possibility of granting status to the company in the process of managing the claim, see in this matter LCA 2260/24 Haliva v.  Ben Zaken [Nevo] (March 31, 2024)).
15. The institution of the derivative claim therefore moves between two main axes – the desire to protect the company from its directors and the desire to protect the company from its shareholders: preventing the effect of the representative's problem, but at the same time preventing the abuse of its right to be granted to him while harming the company's good (the Rhodium case, para. 21).  At the same time, it is necessary to recognize the risk stemming from the very management of the lawsuit deriving from the company, and the concern that a large number of lawsuits against officers may deter directors from taking business risks, and even harm the willingness of potential candidates to serve as directors (ibid.).  Thus, complex considerations are at stake when the court approves a derivative claim.
16. The circumvention of the derivative claim has significant implications, because the company's management has the best knowledge of the company's business, rights and obligations, and hence, it has the best tools to consider the company's best interests. Moreover, the decision of the organs to file a lawsuit must be based on various considerations beyond the chances of the lawsuit, which include, among other things, the cost of managing the proceeding, the expected profit to the company from the management of the proceedings, the implications of the proceeding on the company's business and reputation, its relations with its suppliers and customers, and more.  These considerations are usually hidden from the shareholders' eyes, and therefore a way must be found to consider them, in order to create a "decision-making environment" that is as similar as possible to the decision-making environment by the board of directors in diminishing the potential personal interest that may exist due to the representative's problem.
17. In order to balance all the complex considerations, and especially between the desire to protect the company from tainted decisions by officers and the need to prevent frivolous lawsuits, the filing of a derivative claim is conditional on the court's approval. Section 198(a) of the Companies Law instructs that "a derivative claim requires the approval of the court, which will approve it if it is convinced that the claim and its management are prima facie for the benefit of the company and that the plaintiff is not acting in bad faith." Therefore, in order to obtain the court's approval to file a derivative claim, the applicant is required to be convinced that there is a cause of action for the company, that the claim and its management are for the benefit of the company, and that the applicant is not acting in bad faith in the subjective sense (see: the Vision case; CA 7735/14 Vardnikov v.  Elovitch, para.  17 [Nevo] (December 28, 2016); LCA 5296/13 Antorg v.  Stevinsky [Nevo] (December 24, 2013)).
18. We have said what we have said only as background matters, since at this stage what is at issue is not the application for certification of the body, but rather the respondents' preliminary requests to order the dismissal of the motion for approval in limine. We note that this hearing takes place before the respondents submitted responses to the motion for approval, in accordance with my decision of February 10, 2025, in which I received the request to postpone the date of submission of the responses until a decision is made on the motions for dismissal.
19. Regulation 41(a) of the Civil Procedure Regulations, 5779-2018 (hereinafter: the Regulations), which also applies with the necessary changes to a request to certify a derivative claim, allows the court to delete a statement of claim at any time on one of the following grounds: the statement of claim does not disclose a cause of action; the letter of claim indicates that the claim is nuisance or intrusive; the plaintiff persists, in an unsatisfactory manner, to refrain from complying with a provision of these regulations or refrains from complying with a decision or order of the court; any other reason according to which he believes that it is proper and proper to delete the claim. Although the same law applies to an ordinary action and a request to certify a derivative action, it is not always possible to learn from the manner in which Regulation 41 of the Regulations is applied in ordinary proceedings, with regard to the dismissal of a motion to certify a derivative action.
20. An examination of court rulings shows that similar to the rule adopted in a motion to certify a class action – a motion for summary dismissal of a motion to certify a derivative action is an unusual and unusual move, and as a rule, a motion for summary dismissal should not be heard separately from the hearing of the motion for approval, because the motion for approval is itself a preliminary motion. Therefore, a motion for dismissal in limine can be heard only in cases where it is possible to decide simply and efficiently the arguments that, if granted, would drop the ground under the motion for approval (LCA 1365/17 Bank Hapoalim v.  Nesher [Nevo] (March 9, 2017); Civil Appeal (Tel Aviv District) 35114-03-12 Ashash v.  Attia, paragraph 10 [Nevo] (May 29, 2012) (hereinafter: the Ashash case – May 29, 2012); Civil Appeal (Tel Aviv District) 43335-11-12 Vardnikov v.  Elovitch,   184 [Nevo] (September 17, 2014); Civil Appeal (Tel Aviv District) 20087-11-11 Bezeq Israel Communications Company Ltd.  v.  Hemo, para.  16 [Nevo] (June 14, 2012); Civil Appeal (Tel Aviv District) 37473-09-12 Dankner v.  Ben Yoram [Nevo] (October 19, 2014); Civil Appeal (Tel Aviv District) 12839-08-12 The Association for the Professional and Social Advancement of Administrative and Services Employees v.  Ben Lavi [Nevo] (March 14, 2013); Tanak (Tel Aviv District) 32444-05-16 Harel v.  A.L.  Capital Holdings (2016) Ltd.  [Nevo] (November 8, 2016); see also: CA 8904/13 Maor v.  Lenoel [Nevo] (January 1, 2014); Civil Appeal (Tel Aviv District) 1920/07 Greenfeld v.  Psagot Finance and Factoring Ltd.  [Nevo] (June 22, 2008); for a comprehensive review, see: Jonathan Shiman, "On the Threshold of Derivatives," Kiryat HaMishpat 12, 199, pp.  222-225 (2024) (hereinafter: Shiman)).
21. Alongside this approach, a more qualified approach can be found, according to which it is precisely in the process of approving a derivative claim that the prerequisites of the application must be more careful than in a regular claim, and that the rules of summary disposal should be applied in a more flexible manner than in a regular claim. Justification for this approach can be found in the unique characteristics of the derivative action proceeding, in which the applicant attempts to expropriate from the company's organs their authority to file a claim on its behalf, characteristics that are not so strong in a class action proceeding, where the starting point is that the class plaintiff seeks to consolidate rights, each of which is minimal and does not have an incentive to file a lawsuit.
22. In CA 4024/14 Africa Israel Investments Ltd.   Cohen [Nevo] (April 25, 2015) (hereinafter: the Africa Israel case), the Honorable Justice Amit (as he was then called) discussed the manner in which the existence of a cause of action should be examined, both substantively and evidentially in the framework of a hearing on a motion for summary dismissal, and noted that a distinction must be made between a cause of action, i.e., the set of facts whose proof will entitle the plaintiff to relief.  and the requirement for a preliminary evidentiary basis to prove the existence of a cause of action (a subject that we will address in detail below).  According to this approach, the examination of these systems is different from a regular proceeding – "while dismissal in limine in the absence of a cause is considered an extreme remedy in an ordinary action, this is not the case with regard to the deletion of a motion to certify a derivative claim.  The other side of the coin is that the preliminary examination for the approval of a derivative claim is more stringent and in-depth than the examination of dismissal in limine in the absence of a cause of action in an ordinary suit" (on the other hand, see the qualified position expressed by the Honorable Justice Sohlberg in paragraph 4 ofhis opinion; Civil Appeal (Central District) 40485-08-13 Neumann v.  Central Samaria Development Company Ltd.  [Nevo] (October 27, 2014); Words of the Honorable Justice Ronen in the Ashash case – May 29, 2012; and the words of the Honorable Judge Sokol in the Talmud (Haifa District) 54758-03-23 Sinuga Medical Ltd.  v.  Segman [Nevo] (April 2, 2025)).
23. In May 2025, a (updated ) draft of the Companies Regulations (Provisions Regarding Derivative Claim and Derivative Protection), 5785-2025 (hereinafter: the Draft Regulations) was published for public comments. Regulation 5 of the draft states that without derogating from Regulation 41 of the Civil Procedure Regulations, the court will be entitled to dismiss out of hand the motion for approval insofar as it is theoretical, premature, or the causes of action arising from it are protected under an exemption granted to the defendants.  The explanatory notes to the regulation make it clear that the disposal is intended to enable savings in litigation where there is a preliminary argument involving the investment of many resources, which can be saved for the parties and the court.  It was also noted that the cases mentioned in the regulation are not a closed list, and are nothing more than an adoption of cases that have been discussed in case law.  Thus, for example, the explanatory notes refer to rulings in 2Talmud 26267-07-23 Neto Melinda Sahar v.  Amit Gnessin Law Firm [Nevo] (October 9, 2023), according to which a motion to certify a derivative claim that is ahead of its time should be dismissed out of hand.  For additional cases discussed in case law (see Shiman, pp.  223-224).  We note that in all the situations listed in the proposed Regulation 5, it is not possible to dismiss an application in limine due to the lack of an evidentiary basis.
24. It is therefore possible to sum up.  Since the approval process is in itself a preliminary proceeding, as a rule, a separate hearing should not be held on motions for dismissal in limine before the hearing of the motion forapproval of a body, and emphasis should be placed on the excess resources required for the hearing of motions for summary disposal, and to avoid creating a situation, which seems to already exist in our places, that almost every request for approval (and even a request for disclosure of documents) will be preceded by a request for disposal.  At the same time, consideration should also be given, in appropriate cases, of the usefulness of clarifying in depth applications for approval of derivative claims that raise important public issues (LCA 4665/18 Teva Pharmaceutical Industries Ltd.    Lenoel, paragraph 11 [Nevo] (January 27, 2019) (hereinafter: Teva Industries – January 28, 2019).
25. The main criterion for cases in which a motion for summary dismissal may be required lies in considerations of the allocation of resources by the parties and the court (compare: LCA 10227-06 Bublil v. Indig [Nevo] (February 5, 2007)).  A request for removal should be requested only where the discussion is simple, quick and can lead to a clear and unequivocal conclusion.  Hence, an examination of the factual basis; an application that requires an examination of factual claims; a discussion of complex legal arguments, and all the more so that in order to decide them, reference to a factual basis is required – all these situations dullify the advantage of a preliminary clarification of the application for approval by means of them.  Hearing a motion for summary dismissal in these cases may lead to a waste of the parties' and the court's resources.
26. A glance at the applications filed by the respondents shows that the case before us is not one of the cases that should be discussed in a preliminary motion of dismissal in limine. Later on, I will address the requests and arguments that were raised in their scope individually.  At this stage, I will mention in general a number of considerations that tip the scales in favor of rejecting applications.  First, the complexity of the legal issues raised by the parties: in their motions, the respondents raised weighty legal arguments, the clarification of which requires an in-depth discussion; Thus, for example, the respondents seek to "deny in the main" and fundamentally challenge the rulings of the courts regarding the supervisory duties imposed on directors following a breach of the law, and to deny the possibility that a company will file a lawsuit against its officers for a breach of the law, inter alia, based on the rule that "embezzlement in the event of a tort will not give rise to a right of action".  It can even be said that the weight of the arguments is inversely proportional to the chances of the motion for dismissal being granted.  Second, the public interest in the clarification of the application: Beyond the weighty legal issues raised by the application, the proceeding as a whole raises important public issues, both in the context of the directors' obligations to supervise companies that violated the law and were obligated to pay as a result, and in the more focused context relating to violations of environmental protection laws.  This issue is of public importance, affects the lives of many residents, has broad implications, and therefore requires serious and in-depth attention.  This is even more true when the companies, and in particular ZAN are among the main companies in the energy sector, and according to the data presented in the application, are at the top of the list of polluting factories in Israel.  Third, the complexity of the factual clarification – a significant part of the respondents' arguments focuses on the fact that the applicant did not lay a proper factual foundation.  We will address the arguments of their body below, but at this stage we will note that this inquiry may be complex, and the reward of the hearing at this stage may be lost.  Moreover, the decision on the existence of an evidentiary basis at this stage may take place under a deficiency condition, since the hearing takes place before the respondents submit their responses to the application (and this does not reduce the burden imposed on the applicant to present a proper basis).  Fourth, the respondents raised a number of arguments on a number of levels, and even if some of them had been accepted, this would not have made the discussion of the application for approval redundant.

In the face of these considerations, I did not find a weighty reason justifying holding a preliminary hearing on the motions for dismissal.  In other words, the case before us is not the type of case in which the hearing of the request for removal is simple, quick and can lead to a clear and unequivocal conclusion.  The situation is far from that.

27. After this, we will proceed to discuss in more detail the arguments raised by the respondents in their motions.

Hearing of the Arguments in Gadiv's Application

28. The main argument in the application for approval relates to the violation of the officers' obligations to the companies, based on the fact – which is not in dispute – that the companies were sanctioned, following violations of environmental protection laws and violation of permits. Gadiv raises a number of arguments regarding the basis of the request for approval of those sanctions, the essence of which is that for policy considerations there is no reason to roll over the criminal and administrative sanctions imposed on the companies towards the directors, because this would undermine the considerations underlying the criminal (and administrative) proceeding, harm the efficiency of the criminal (and administrative) proceeding, and disrupt the basic concepts of guilt and retribution.
29. In order to properly relate to Gadiv's claims, it would be correct to note that the claims are in a broad and complex context that deals with the scope of an officer's duties towards the company and the possibility of filing a lawsuit against the officer for breaches of these duties, in particular due to a failure of supervision (duty of oversight), in the event of a breach of law by the companies.
30. The main duty imposed on officers in a company is the duty of fiduciary duty set forth in section 254 of the Companies Law, according to which the officer must act in good faith and act in the best interest of the company. Therefore, a deliberate action by the officer that causes a violation of the law amounts to bad faith and constitutes a breach of the duty of trust that applies to him (see Amir Licht, "Trust Relations in a Corporation – The Duty of Trust," Mishpat and Business 18:237, 289-290 (2014)).  Alongside this obligation, the officer also has a duty of care (see sections 252(a) and 253 of the Companies Law).  Among these duties, it is common to see the duty of loyalty as the most fundamental standard of conduct that the officer is required to meet.  Recently, the Supreme Court discussed these obligations and the distinction between them, noting the following:

"The basic distinction between the duty of fiduciary duty and the duty of care is that the purpose of the duty of fiduciary duty is to determine the goal to which the officers are required to direct the company, while the duty of care is intended to outline the way in which they should navigate to this proper goal...  In the light of this distinction, the duty of care has developed as a kind of branch of tort law, based on an objective standard of conduct that requires the officer, in essence, not to be negligent in his or her duties (see: sections 252(a) and 253 of the Companies Law).  As a result, the company's cause of action is based on the damage caused to it.  On the other hand, the theoretical basis of the duty of fiduciary duty rests, inter alia, on the laws of enrichment and not in law, 'which focus on the self-enrichment of the violator and his subjective motive to derive personal profit from the action'..." (CA 1137/23 Deri v.  Jewish National Fund [Nevo] (May 5, 2025)).

31. In order to complete the picture, let us mention the "Business Judgment Rule" that was first recognized by the Supreme Court in the Vardnikov case (CA 7735/14 Vardnikov v. Elovitch, [Nevo] (December 28, 2016; hereinafter: the Vardnikov case)).  This rule grants a "presumption of propriety" against judicial review of a decision made by an officer of a company, provided that the decision was made not in a situation of conflict of interest, in good faith and in an informed manner (see also Sharon Hanas, "The Business Judgment Rule," Iyunei Mishpat 313, 321 (2008); Greedy and Ronen).  However, if the plaintiff is able to show that one or more of the conditions specified above are not met, then a more stringent standard of judicial review will apply to the decision – whether a "full fairness" rule, which shifts the burden of proving the reasonableness of the decision to the board of directors, or an intermediate standard of "increased examination" (the Verdnikov case, at paragraphs 67-103; The Vision case,   30; and see also: Talmud (Tel Aviv District) 36670-01-22 De Lange v.  Atrakchi, paragraphs 63-64 [Nevo] (April 8, 2025)).
32. The case before us focuses on the officers' supervisory duties over the company's activities and alleged failures in fulfilling the duties that caused damage to the company due to its obligation to pay financial charges stemming from criminal fines, financial sanctions and administrative orders imposed by the authorities. In other words, we are dealing with situations in which the company has violated the law.
33. In the decision given in the Tel Aviv District Court 59581-06-18 Cohen v. Bezeq Israel Communications Company Ltd.  [Nevo] (January 19, 2020) (hereinafter: the Cohen case – Tel Aviv), a question similar to the one that arises here, namely whether Bezeq's officers are liable to Bezeq for damage caused to it as a result of the violation of the license provisions that apply to it (regarding the expansion of competition in the field of fixed communications within the framework of the "wholesale market reform"), Following this, a financial sanction was imposed by the Ministry of Communications.  In that case, the Honorable Justice Ronen ruled that "a deliberate breach of the law by an officer, as a result of which it was determined that the company violated the provisions of the law (on the administrative or criminal level), may establish a cause of action for the company against the officer for breach of his duty of care or breach of his fiduciary duty towards it" (Cohen case – Tel Aviv, para.  30).  There, the court pointed to three situations of infringement according to their degree of severity: the first situation, the deliberate and conscious illegal action of the officer (whether it is intended to promote the personal benefit of the officer or whether the officer believes that it is for the company's 'benefit'); the second situation, a violation of the law by the company which stems from the action of an organ of society that is not a deliberate and conscious violation of the law, for example, a misinterpretation or misunderstanding of the provisions of the law; The third situation is a violation of the law where the officer was not aware of the violation, for example when the violation was committed by a junior level, and then the duty to supervise what is done in the company arises in all its severity.  The court emphasized that in the latter case as well, liability may arise in the absence of proper supervision and control mechanisms (ibid., paragraphs 34-37; and see reference to these situations in the decision of the Honorable Justice H.  Pliner in553 (Tel Aviv District) 43733-04-24 Amit Gnessin Law Firm v.  Neto Melinda Trade Ltd., paragraphs 40-49 [Nevo] (February 3, 2025) (hereinafter: the Gnessin case)).  In the Cohen-Tel Aviv case, the court noted that the latter two situations were irrelevant to the case discussed there and therefore were not discussed in detail.
34. The decision given in Civil Appeal (Haifa District) 9492-03-20 Cohen v. Bezeq Israel Communications Company Ltd.  [Nevo] (June 4, 2023) (hereinafter: the Cohen case – Haifa) also dealt with the "wholesale market reform", but here the court was required to address the matter following the imposition of financial sanctions imposed by the Competition Commissioner under the Economic Competition Law, 5748-1988.  The Honorable Justice Sokol referred to the issue of the liability of officers for a deliberate violation of the law, referred to the rulings of the Honorable Justice Ronen in the Cohen-Tel Aviv case, and noted that "each of the duties imposed on the officer, the duty of loyalty, the duty of care and the duty to act in good faith also includes the duty that the officer act on behalf of the company only within the framework of the provisions of the law and will not deliberately and knowingly violate any provisions of the law." At the same time, it was noted that in a case where the officer is not aware of a breach of the law, for example when the violation is committed by junior employees in contravention of his instructions and instructions, "in such cases it is doubtful whether there is room to consider imposing liability on the officer to compensate the corporation for damages and losses caused as a result of that breach of the law" (ibid., paragraphs 79-82); See also Civil Appeal (Haifa District) 29860-09-22 Haight v.  Israel Discount Bank Ltd., para.  46 [Nevo] (January 20, 2025) (hereinafter: the Hyatt case – January 20, 2025).
35. For the completeness of the picture, we will further turn to the decision given in the Talmud (Jerusalem District) 40169-01-20 De Lange v. Teva Pharmaceutical Industries Ltd.  [Nevo] (August 24, 2022) (hereinafter: Teva Industries, August 24, 2022), in which the court granted a request for disclosure of documents under Section 198A of the Companies Law, which was based on the claim that Teva's subsidiaries paid bribes and kickbacks to doctors in the United States, as part of their efforts to market Teva's medicines (the so-called Cofixon affair).  However, it should be clarified that the request in this proceeding was not filed against the background of the imposition of sanctions, but only after a legal proceeding was filed in the United States, in which a private person is allowed to enforce the law on behalf of the state.  In Tel Aviv (Tel Aviv District) 815-09-13 to Noel v.  Maor [Nevo] (September 14, 2016), the court approved a settlement in connection with a derivative claim after imposing a fine on Bank Leumi forthe benefit of authorities in the United States for suspicions of criminal offenses.
36. It should be noted that the determinations in the Cohen case and in the Teva Industries case, August 24, 2022, were in the framework of a request for disclosure of documents under section 198A of the Companies Law, but this does not obscure the relevance of the determinations that were there in our case. This is because for the purpose of hearing the request for discovery of documents, the applicant is required to provide a preliminary evidentiary basis regarding the existence of the conditions for approving the derivative claim listed in section 198(a), including the existence of a cause of action, and in the proceedings that took place there, the court did not rule out this possibility.  The difference, therefore, is in the evidentiary burden imposed on the applicant in an application for discovery of documents, which is lower than the burden imposed at the stage of the application forapproval.
37. The focus of the argument in the motion for certification is that the officers "knowingly and deliberately led the group (and at least with great negligence, indifference, blindness and recklessness) to commit a series of serious and ongoing violations of the environmental protection laws, including repeated violations of the terms of various permits issued to the group – violations that amount to criminal offenses" (paragraph 1 of the motion for approval). The Applicant's argument is consistent with the arguments raised in the Cohen case.  To a certain extent, the Applicant's claims seek to go one step further and base the liability of the officers not only on a "knowingly and deliberately" breach but also on "gross negligence, indifference, turning a blind eye and recklessness", which may bring the claim closer to clear areas of breach of supervisory duties.  While knowingly and intentionally violating the law means taking part in the violation of the law, situations of breach with indifference, blindness and recklessness raise questions of classification – are we interested in a breach of fiduciary duty or a breach of duty of care? Are we interested in the question of breach of the duty of supervision, which must be examined in the framework of the duty of care? In general, what is the relationship between the duty of fiduciary duties and the duty of care in the context of claims of breach of supervisory duties? What is the role of the business judgment rule and how should it be applied in cases of breach of supervisory duties, and more.
38. Gadiv's arguments seek topull the rug out from under the rulings we reviewed above, in particular in the Cohen case, and the essence of the arguments, as stated, is that for policy considerations the sanctions imposed on the companies should not be rolled over to the officers, because this would undermine the considerations underlying the criminal (and administrative) proceeding. It will be said immediately that the restitution of the sum of the fines and sanctions is only one of all the remedies claimed by the Applicant in the derivative claim, so that on the face of it, Gadiv's arguments do not remove the basis from under the cause of action, since they are aimed at one of all the remedies.  Moreover, it appears that the rationales underlying Gadiv's arguments regarding the criminal sanctions do not apply to the sanctions imposed following an administrative proceeding, due to the different nature of the two charges (as Gadiv herself clarifies in her application, at paragraphs 17-21), without ignoring the overlapping purposes that may exist between them (for more information, see: Ron Shapira, From Criminal Enforcement to Enforcement 19-21 (2019)).
39. Gadiv seeks to exclude in advance and categorically the imposition of liability on an officer for damages caused as a result of the imposition of criminal and administrative sanctions. Gadiv finds support for her position, among other things, in a judgment given by the Court of Appeal in England (Safeway Stores v.  Twigger [2011] 2 ALL ER 841), in which a company's claim against directors and employees for compensation in the amount of a fine it paid for a breach of competition law, caused by the acts and omissions of the directors and employees, was dismissed out of hand, on the grounds that the remedy sought is inconsistent with the rule that "wrongful embezzlement shall not give rise to a right of action".  However, in a later ruling by the Supreme Court in England, the judgment in the case of Safeway stores was criticized (see: Jetivia SA v Bilta (UK) Limited (in liquidation) [2015] UKSC 23), and it is doubtful whether its ruling reflects the current legal situation in England.

In addition, Gadiv refers to the Supreme Court's judgment of 1965 inCA 408/64 Tel Aviv Railways, Freight Transport Company v.  Tuidan Ltd., IsrSC 19(1) 418 (1965) (hereinafter: the Rails Case), in which a financial claim by a transportation company was heard against another company with which it had entered into an agreement, which included a remedy to refund it a fine for prohibited parking in which it was charged.  With regard to this remedy, the court ruled that it should not be extended for reasons of public policy (for a similar approach, see the judgment of the late Judge E.  Elyakim z"l sitting in the Haifa Magistrate's Court in Civil Appeal 9796/01 Nasri Nasour & Sons Ltd.  v.  Deir Hanna Local Council [Nevo] (April 26, 2004)).  In the judgment given in CA 4367/91 Tal Tires Naaman Ltd.  v.  Solel Boneh Port Service Ltd.  [Nevo] (January 31, 1995), the Supreme Court referred to the judgment in the matter of railways against the background of an agreement in which two companies entered into an agreement, and one of them was subject to a civil "fine" under the Customs Ordinance, and in the framework of a lawsuit, the company that was liable for the fine sought to be indemnified.  In the context of this remedy, the Supreme Court noted that in these circumstances, in which a "civil-punitive" sanction was imposed on a person who was not "guilty", it is inappropriate to hear the argument of a person who undertook indemnification who was responsible for imposing the sanction, that "the fine should not be rolled over to him for reasons of public policy" (see also CA 2016/00 Rosenzwit v.  Rosenblit, IsrSC 56(4) 511 (2002), which dealt with the issue in the context of the possibility of insurance and advance indemnification for criminal acts).

40. It should be noted that the grip of the current proceeding is in the sanctions imposed on the companies. In addition to being "damage" caused to the company, the sanctions can be seen as part of the evidentiary system intended to prove the company's violation of the law, as a link in the chain of evidence to charge the officers for the violation of the law (which in itself is not enough).  It can even be said that the sanctions are not the main thing, since they are only one of the consequences of the violation of the law.  Hence, there is substance to the argument that the current proceeding should not be seen as an attempt to "transfer the financial results of payments that the company bore as fines and penalties" on the shoulders of the officers, but rather from a broader perspective regarding the responsibility of the officers for the violation of the law that gave rise to damage in the form of those sanctions and additional damages.
41. Moreover, Gadiv's approach is likely to blur the distinction between the corporation and its officers, and to look at the responsibility of the two as made of the same skin – and not her. While the liability of the corporation stems from a violation of the law, the liability of the officers, according to the claim, stems from a breach of duties imposed onthem not to violate the law through the company, i.e., not to take part in the violation of the law, and to supervise that the corporation does not violate the law.  The theoretical basis for the responsibility of the company and the responsibility of the officers is different.  The aforementioned difference is likely to undermine the other arguments raised by Gadiv in support of her position – that from a theoretical point of view it is not possible to transfer penalties from one person to another, and that the transfer of the fine constitutes an attempt to break away from social disgrace, to get rich outside of the law while committing an act of deception, even in contravention of section 252 of the Penal Law, which prohibits the act of raising money for the payment of fines.  The aforementioned difference may have implications for Gadiv's claims topractical failures such as interference with the discretion of the regulator, a violation of the defendant's right to argue in advance against the sanctions, and the erasure of the differences between an individual and a corporation that are enshrined in environmental legislation.  These arguments ignore the context of the request, which is rooted in the field of corporate governance, and in particular the duties of the officers towards the corporation and the complex questions that may arise regarding the demarcation of duties.  All of this is related to the complex relationship between the company and its officers, and the need to reduce the problem of the representative on the one hand, but to avoid harming the powers of the company's organs on the other.
42. Gadiv's approach is inconsistent with the judicial rulings in a series of court rulings in Israel, including those of the economic departments in Haifa and Tel Aviv (inter alia in the Cohen-Tel Aviv and Cohen-Haifa case), in which the possibility in principle of holding officers liable for damages caused by a breach of the supervisory duty (not necessarily in extreme situations against the background of the company's collapse) was recognized, and therefore this move should not be ruled out out of hand. The discussion in Israel regarding the liability of officers, in particular regarding their liability of officers for breach of the duties of supervision of the company's business activities, is inspired by the development of case law in Delaware, while calling for its adoption with various changes after it has been adapted to the legal situation in Israel (see, in general, regarding the adoption of the ruling from the Delaware court, the words of the Honorable Justice Kabub inthe Tel Aviv District Court 47490-09-13 Public Benefit   Clal Industries Ltd., paragraph 31 [Nevo] (August 6, 2015); Roy Shapira, "Being Like Delaware", Iyunei Mishpat 44 683 (2021)).
43. The judgment in the case of Caremark given in Delaware (In re Caremark International Inc. Derivative Litigation, 698 A 2d 959 Del.  Ch 1996), whose rulings were later adopted by the Supreme Court in Stone v.  Ritter, 911 A.  2d 362 (Del.  2006))) – Founded what was later called Caremark Debts.  In this ruling, it was determined that the directors should be obligated to ensure the existence of a system of supervision over the company's activities, while carrying out proactive preliminary actions to monitor and supervise risks.  However, its directors have discretion regarding the design of the supervision system and its level of tightening, and therefore it will be examined according to the business judgment rule.  Accordingly, it was determined that the court would impose liability on the board of directors where there is a systematic and systemic failure to prevent serial violations, however, the duty was reduced by a requirement that there be a lack of good faith in the sense of conscious disregard of the board's duty (see the adoption of Caremark's obligations in Israel: Tanag (Tel Aviv Economy) 17044-12-14 Aharoni v.  Mizrahi Tefahot Bank Ltd.  [Nevo] (May 11, 2021); The Cohen case – Tel Aviv; The Gnessin case, paragraphs 41-49).

As a result of the case law in the Caremark case , the question of whether the company has adopted an orderly internal compliance program, what that plan should include, and how the board of directors should examine and track it (see: Donald C.  Langevoort, Caremark and Compliance: A Twenty-years Lookback, 90 Temp.  l.  Rev 727, 729 (2018); Armour, John, et al.  Board compliance Minn.  L.  Rev.  104, 1191 (2019)‏).