- As to the manner in which the evidentiary basis is examined in the framework of the summary dismissal hearing, as opposed to the position presented in the Africa Israel case, in LCA 4686/19 Citigroup Global Markets Inc. Zemach, paragraph 19 [Nevo] (January 8, 2020), the Honorable Justice Sohlberg expressed a position that favors the preference for postponing the examination of the appropriate infrastructure for the stage of clarifying the application on its merits, rather than the examination in the preliminaries of dismissal in limine. And this is how he explains it –
"If Citi stands behind its claims that the claims of the plaintiffs derived in the motion for approval are general, vague, mere slogans that have nothing behind them, then it will also argue so in its response to the motion for approval, as it did in its motion for summary dismissal. If her argument is accepted – what good (for City); If not, it will be entitled to appeal the final decision made in the application for approval. One way or another, there is no concern that City's right to a fair trial will be violated."
See more on this issue: Civil Appeal (Tel Aviv District) 35114-03-12 Ashash v. Attia, paragraphs 4-5 [Nevo] (June 24, 2015) (hereinafter: the Ashash case – June 24, 2015); Civil Appeal (Tel Aviv District) 15442-11-09 Bertie Sin Betty v. Leviev, para. 68 [Nevo] (April 28, 2012); Civil Appeal (Tel Aviv District) 53034-05-13 Groza Kashpitzky Enterprises Investment Company Ltd. v. Edri-El Israel Properties Ltd. [Nevo] (March 10, 2015)).
- The proposed draft regulations, which include a regulation dealing with outright dismissal and enumerating a number of cases that are not on a closed list, does not include the lack of sufficient infrastructure as grounds for summary dismissal. I believe that this is not for good reason. Usually, a decision on the question of whether there is a sufficient evidentiary basis involves an in-depth and detailed discussion that should not be done in a preliminary manner, because it consumes resources, which are usually preferable to be invested in the framework of the examination of the application on its merits.
- The requirement of detail is even more acute in a request based on the responsibility of directors. The requirement for detail also stems from the fact that the director's responsibility is personal and the duties imposed on each director are examined separately and not as a collective. Therefore, "since it has not been proven that a certain director acted in breach of the duty of care or acted fraudulently or contrary to the duty of trust that applies to him, he should not be held accountable for the misconduct of a director or another officer. Each director and officer shall bear his or her own fault, and no fault should be attributed to the entire board of directors as debtors jointly or severally" (Africa Israel, paragraph 51 of the judgment of the Honorable Justice Amit (as he was then called); See also Ashash, June 24, 2015, paragraphs 4-5). At the same time, it was determined that the board of directors constitutes one division, and this is a circumstance that can be taken into account for the purpose of imposing liability. Therefore, "it is necessary to examine whether, according to the applicant for approval, the board of directors has failed as a collective body in circumstances of a chronic failure of supervision, such as the one discussed in the Buchbinder case, or whether he claims that any of the directors personally breached the duty of care or the duty of fiduciary. In each of the cases, the applicant must argue and lay a preliminary evidentiary foundation in accordance with his claim" (ibid.; See also: CA 610/94 Buchbinder v. Official Receiver in his capacity as liquidator of the Bank of North America, IsrSC 57(4) 289, 312 (2003) – it should be recalled that this proceeding dealt with a claim filed by Bank of North America Ltd. against the directors after the corporation was insolvent, in which it was determined that the directors did not meet the standard of conduct required of a reasonable director and were negligent in the performance of their duties (and also breached fiduciary duties). While the court ruled there that the directors had failed as a total failure – they did not participate in the meetings of the board of directors to the required extent; They did not supervise what was happening in the company; and they had no minimal familiarity with the bank's situation).
- In view of the preliminary stage in which the respondents' arguments are discussed in the case before us, I am unable to accept the argument for the lack of proper detail in the application, and I do not believe that it is possible to accept the respondents' argument that they are therefore unable to defend themselves against the application. We will already note that the decision regarding the inability to defend itself is inconsistent to a considerable extent with the fact that the respondents made detailed arguments regarding the issues in the motions for dismissal themselves.
- A reviewer of the application may get the impression that this is not a request based on "fragments of information"; it is not a matter of arguments that were placed in one sitting, indiscriminately; and it is not a request that lacks an evidentiary basis. The motion for approval includes an orderly argument regarding each of the officers, including the relevant period in which he served, a description of the positions in which he held, as well as an argument that may substantiate, according to the applicant, his responsibility. Thus, for example, with regard to respondent No. 4, it was argued that as chairman of the group, "he should have promoted and dealt with the issue of environmental quality, ensured that the group did not comply with the standards and permits, and certainly imposed control and control mechanisms on the group's compliance with environmental standards, but he, according to the claim, did not supervise the violations during his tenure, particularly in view of the ongoing and recurring nature of the violations, nor did he initiate monitoring of the implementation of decisions on environmental matters" (paragraph 14 of the application). Details are available for each and every one of the officers, even for those who served for short periods. This is the case, for example, with regard to respondent 22, who served as a director of Bazan for five months, in whose case it was claimed that her liability is "including, if the damage due to those violations crystallized after her tenure, and in particular in light of the ongoing and recurring nature of the violations" (paragraph 32 of the motion for approval). Another layer of the application is based on the claim that the companies are "one of the largest entrepreneurs in Israel," and that, according to the Ministry of Environmental Protection, they are ranked "at the top of the ranking of the most polluting industries in Israel" (Chapter C1 of the application). In addition, the motion includes an argument regarding the circumstances that led to the imposition of the sanctions and the steps taken by the authorities and the relationship that existed between them and the companies, which may support the claim that the officers did not heed the regulator's warnings (and I do not rule on the matter).
- The application therefore includes an argument whose essence is that the companies are systematically violating the provisions of the law in the field of environmental protection (chapter C2 of the application for approval), and it details the sanctions and the circumstances of their imposition (and attached documents related to these proceedings). Indeed, the sanctions, in and of themselves, are insufficient and certainly cannot attest to the mental element that exists among the officers involved in the violations (although we should recall that certain officers have been convicted in the criminal proceeding). The very imposition of the sanctity creates only the first layer of the infrastructure from which it can be concluded that the companies violated the law (compare: I. (Haifa District) 35983-12-20 HaGalili v. Chevron Mediterranean Lemitrian, paragraph 45 [Nevo] (February 7, 2024)), and in the context of the duty of the officers – one is whether or not this is a violation that created an actual result or not (this is said given that some of the environmental protection laws allow sanctions based on risk only; see, for example, section 45 to the Clean Air Law). It is therefore clear that the sanctions imposed on the companies are not sufficient to establish the responsibility of the officers for violations (see, for example, the Haight case, January 25, 2025), especially since sometimes a mental element is not required to impose the sanctions, whether the sanction is on the criminal or administrative level. However, contrary to what some of the respondents are trying to portray, the motion for approval does not rely solely on the very imposition of fines and sanctions, and it includes an additional factual argument, so that the application as a whole cannot be a candidate for dismissal in limine.
- The application for approval also includes a chapter detailing the claim that the officers knew about the systematic violations of the law and at least should have known about them, and it bases its arguments in this regard on three clusters of claims: the first – the nature of the companies' business activity, which creates a risk of damage to the environment; the second – the gradual enforcement procedures taken by the Ministry of Environmental Protection, and according to the claim, the sanctions were imposed after inquiries. Warnings, warnings, warnings and demands to remove the deficiencies given by the regulator (i.e., that "red flags" were raised). These proceedings, according to the Applicant, establish the responsibility of the officers. To be precise: the Applicant's arguments were supported by documents that formulate a basis that does not allow the application to be dismissed in limine. The application also included an additional legal and factual argument, which, according to the Applicant, explains why the Respondents breached their duties of fiduciary duty and duty of care, and why, according to them, the officers are "aware" in all its aspects in relation to the activities of the companies. Against the background of the details contained in the application, the respondents' argument that there is a failure in that the application does not include details of concrete decisions made by the board of directors should not be accepted. Moreover, in the context of this argument, consideration must be given to the nature of the Applicant's claims, which are based on allegations of failures in supervision, i.e., not that the Board of Directors made a positive decision, but that it did not or did not do enough to preventthe violation of the law.
- As for the arguments raised in Carmel's application – there is no denying that the application raises considerable difficulty, and I found great reason in Carmel's arguments that the application is formulated without distinction between the companies and while referring to them as a single body – a "group". This is sharpened in light of the need for clarification – to whom does the Applicant attribute the breach of liability? Thus, for example, already at the beginning of the application, it was noted that the court was requested to authorize the applicant to file a claim "on behalf of respondent 1...and its subsidiaries: respondent 2...and respondent 3... against respondents 4-31, for damages caused to the group" (and see below in chapter C1 of the motion for approval), without making a distinction as to who are the defendants in each of the motions. The same is true of the other parts of the motion and the various layers of argument: the reference to the fines and sanctions imposed (section 2 of the application); the argument against the respondents and their attitude to violations of the law (chapters 33); details of violations against the "group" (chapter D1 of the request for approval); Details of the components of the damage (Chapter43 and E1 of the Application). Given that these are three companies, it would have been appropriate to clarify the argument with regard to each of them. However, it cannot be ignored that parts of the application include a detailed and diagnosed argument. In sections 45-46, the Applicant elaborated in a diagnostic manner with respect to each and every company, and similarly there is a detail of the sanctions imposed on each company and the role of each and every one of the officers, with details regarding the officers of Carmel (and Gadiv) in the diagnosed person. From the details presented in chapter B of the application, it appears that respondents 5, 21, 24, 25, 26, 27, 28, 31 – were officers, some of whom held the most senior position on the board of directors of Gadiv and Carmel, while some of them also served as officers of Bazan. Chapter 2 deals in detail with regard to each position, his position, the years in which he served and other details that can be used to understand what is claimed in relation to Carmel and Gadiv. Moreover, during the hearing, it was clarified that the application encompasses in practice a number of motions – a request to certify a derivative claim by BAZAN against its officers; and two dual derivative lawsuits – one by Carmel against its officers, and the other by Gadiv against its officers. More importantly, during the hearing, it was clarified that the argument is not about the "cross-liability" of officers of Company A for what is done in Company B, but rather that the application is intended to move the wheels of the lawsuit of each company against its officers. In view of the above, I am of the opinion that the picture that emerges from the application has become clear and the respondents can raise their arguments in relation to it without violating their procedural right.
- The respondents raised arguments regarding the details of the damage and the attribution of the damage caused to each company. In the application, the Applicant argued for a number of monetary remedies, including the return of the grants received by the officers, as well as the restitution of their wages up to a proper salary; restitution of the amounts charged by the companies for the sanctions; compensation for damage to reputation; and costs for litigation. The application includes proper detail regarding each and every component of the overall remedy, including an argument regarding the causal link. Although the application does not specify the damage caused to any company in the diagnosis, I do not believe that this leads to the dismissal of the application. First, from the argument in the application it emerges that according to the claim, the damages attributed to each of the applications are similar in nature, and the deficiency is in the amount and its attribution to each of the companies. Second, the nature of some of the remedies, such as the restitution of the amount of sanctions (which were imposed on the companies in a diagnostic manner) and the litigation costs (which can be assumed to have been borne by each company separately), automatically solve the difficulty. As for the argument that the application does not include details of the damage caused by each of the officers, this would also lead to dismissal in limine, especially in view of the rules adopted in tort law related to the charging of a number of wrongdoers. The matter was clarified in the Buchbinder case, paragraph 32, and there is no need to repeat it. In any event, even if there are difficulties in the context of the distinction of damage, I do not believe that in view of the other considerations, these difficulties justify dismissing the application in limine. It is preferable to discuss these difficulties at the stage of clarifying the application.
Claims Regarding Specific Officers
- The respondents referred to specific officers and argued about each of them, and referred inter alia to the inconsistency between the term of office and the sanctions that were imposed and the date of the creation of the grounds for imposing them, in a manner that, according to the respondents, omits the basis under the application for approval in relation to each of these officers (paragraph 23 of the respondents' request). However, even these arguments cannot be accepted.
- The claims in relation to these officers involve considerations of the lack of infrastructure and the absence of a cause of action. Given this, it is not clear what is the point of holding a hearing on these claims at this stage, in view of the judicial resources required to hear the case of each and every one of the officers. And if we are dealing with matters of resources, even if the respondents' arguments had been accepted, this would not have made the entire proceeding redundant because the application will continue to be clarified against the other officers (see for this consideration: Tanag (Tel Aviv District) 5334-09-17 Aharoni v. Bank Hapoalim Ltd., para. 10 [Nevo] (March 22, 2018)). If it is ultimately decided to reject the application in its entirety or to reject it against individual officers, it will be possible to find a remedy for the efforts invested in awarding costs. However, I will not skip a discussion of the individual claims.
- The allegations in relation to respondents 10, 12, 14, 20, 23 and 27 – in the context of these officers, it was claimed that each of them began his term after 2019, while they are attributed responsibility for the financial sanction imposed in 2023, which, as stated, deals with an incident from 2019. However, an examination of the application for approval shows that in addition to the 2023 sanction , it is claimed that these officers are responsible for additional sanctions that are relevant to their term of office or that the sanctions are the subject of infringement incidents that are relevant to their term of office. In light of the nature of the hearing at this stage, which deals with the dismissal of the application in limine, I do not believe that it is correct and appropriate to discuss the individual matters of these respondents separately, especially since the acceptance of the application in relation to the specific sanction will not only not make the hearing of the application as a whole redundant, but will not make the hearing of each of them redundant, in view of the additional arguments attributed to each of them, and in view of the term of office of each of them, which may be significant (Respondents 10 and14 incumbents since June 21, 2021; Respondent 12 has been in office since January 16, 2023; Respondent 20 served for a period of about two years; Respondent 23 has served as a director since October 6, 2022; and respondent 27 served for a period of about a year and a half). The same is true of respondent 8, who served for about two and a half years and is attributed responsibility for a number of infringement incidents.
- However, the case of respondent 22 embodies a unique case in which it appears that there is no evidence against her, and therefore the application against her should be dismissed out of hand. In the motion for approval, it was claimed that Respondent 22 served as a director of Bazan from April 14, 2022 until September 15, 2022, and that she was responsible for the financial sanctions imposed on April 19, 2023 and May 8, 2024 (paragraph 32 of the application). A review of the evidence regarding these sanctions shows that the 2024 sanction was imposed in connection with a 2021 incident that was regulated during May 2022 (pp. 323-324 of the application for approval), while the 2023 sanction was imposed due to a leak incident from 2019 (p. 319 onwards) – all before the beginning of the term of respondent 22 on the board of directors of ZAN. Moreover, it appears that the sanction from 2025 was imposed on Carmel, while the sanction from 2023 was imposed on Gadiv, while respondent 22 did not serve on the board of directors of these companies. In this context, we will mention the Applicant's counsel's clarification during the hearing that "Carmel officers owe duties of care and loyalty to Carmel and that the Applicant does not claim that Carmel has a claim against the officer of the BZAN" (p. 24, para. 33 of the minutes onwards). Another consideration is the short term of office of respondent 22, which is inconsistent with the Applicant's claims of systematic and ongoing violation. The Applicant's argument, which is based on the statement in the matter of Africa Israel that we are dealing with "a board of directors that failed as a collective body in circumstances of chronic failure of supervision" does not help the interests of respondent 22. Therefore, I am of the opinion that the application against respondent 22 should be dismissed at this stage.
- Finally – the statute of limitations. The respondents claim that the application purports to attribute liability to some of the officers in connection with a fine in respect of a fire incident from 2016, and therefore the claims in respect of them have become obsolete (paragraph 27 of the respondents ' request). Beyond the fact that some of those respondents are attributed breach of duties apart from this event, given the nature of the claims alleged in the application, the discussion of the statute of limitations may be complex and will require clarification and clarification. Therefore, dismissal in limine is not the proper format for clarifying these claims. In any event, the claim of limitation was argued in connection with the respondents' arguments that the application was drafted in a vague manner that harms the respondents' ability to defend themselves, and I do not believe that the failure to hold a hearing on the question of the statute of limitations, in a preliminary motion, violates the respondents' right to defend themselves duly against the motion for approval.
Early application
- In its application, BAZAN seeks to dismiss the application in limine, also on the grounds that there was no prior application prior to the filing of the application.
- Section 194(b) of the Companies Law states that "a person interested in filing a derivative claim shall contact the company in writing and demand that it exhaust its rights by filing a claim." The prior application is intended to protect the company's ability to file a claim on its own; to prevent a hearing in cases that are not ripe for a decision; and to strengthen the company's ability to address the issues raised by the application itself, by taking corrective measures (Teva Industries – January 28, 2019, paragraph 17; Tzipora Cohen, Company Shareholders – Claims Rights and Remedies, Vol. 3, 521-522 (2nd ed., 2010)).
- However, for the requirement of prior application, exceptions were set out as regulated in section 19(d) of the Companies Law, which states as follows –
"Notwithstanding the provisions of subsection (b), a person who wishes to file a derivative claim is not obligated to apply to the company with a demand in accordance with the provisions of that subsection, if one of the following exists: