Testified on behalf of the defendants - CPA Zohar Avraham (hereinafter: the accountant) in the minutes dated May 7, 2024; the shareholder, who was brought to testify by the defendants, in the minutes dated May 21, 2024; Mr. Yaakov Gorsad, the holder of 90% of the plaintiff's shares (hereinafter: the plaintiff's owners) in the minutes dated May 21, 2024; Mr. Yoni Porat, the manager of the new tenant in the minutes dated June 17, 2024; the defendant; and Aharoni in the minutes of June 17, 2024.
It should be noted that the defendants submitted an affidavit of Mr. Frank Alloush, who, according to his affidavit, was the financial manager of the defendants (hereinafter: the defendants' financial manager), but he did not testify and his affidavit continued.
Summary of the 2018 Agreement and the 2019 Addendum
- The 2018 agreement canceled the 2014 agreement.
- The agreement stipulates both in the third "and therefore" clause and in clause 2.8.4 that the tenant possesses "the knowledge, experience and abilities, including the financial ability to manage and operate restaurants abroad, and that he will do his best to manage the leased property in a manner that will maximize profits".
- The agreement stipulates a minimum rent of ILS 60,000 per month (before VAT) for a restaurant and ILS 70,000 per month (before VAT) for a hotel.
- A first lease period of 5 years, from July 10, 2018 to July 10, 2023 (clause 4.1), as well as 3 options of 5 years each, subject to the fulfillment of any obligations and obligations under the agreement (clause 4.3) An additional period of 5 years will be given subject to approval by the tax authorities (clause 4.4).
- The tenant undertook to start executing the finishing works in the restaurant no later than 6 months from the date of signing the agreement (clause 3.3), i.e. no later than January 10, 2019.
- The tenant undertook to invest at least ILS 8 million in the adaptation works to be carried out by it at the hotel (clause 11.4).
- The plaintiff undertook that at the time of delivery, the property had a certificate of occupancy when all the systems were in good working order.
- The 2019 addendum to the 2018 agreement was signed on May 21, 2019, according to which the tenant transferred her rights in the property and assigned the full provisions of the 2018 agreement to the subsidiary that stepped into the tenant's shoes and all the obligations included in and deriving from the 2018 agreement.
Summary of the plaintiff's arguments
- The defendants, through the defendant, breached their obligations under the agreement by not performing anything: they did not begin the finishing work in the restaurant within 6 months of the date of signing the agreement (and not at all), which prevented the plaintiff from receiving a superior property, avoided realistic rent (an addition to the minimum rent and later on in renting with a third party higher rents that reflect a renovated property in a prestigious finish).
- The defendants did not meet the minimum rent and even admit it, did not make the minimum investment of ILS 8 million plus VAT in the hotel, despite the fact that immediately upon signing the second agreement, the tenant received from the plaintiff a sum of ILS 350,000 plus VAT, in accordance with the plaintiff's undertaking under clause 3.2.1 of the agreement, and immediately later did not operate the restaurant and/or the hotel, which prevented the addition of rent above the minimum. That they were also not paid.
- The subsidiary began to accumulate debts and did not meet the minimum monthly rent payments, and during the months of April to December 2020, it accumulated debts of approximately ILS 960,000 (including VAT) only for non-payment of rent. In addition, it did not begin to carry out the work and investments in the hotel and the restaurant in accordance with the obligations it undertook upon itself when it signed the addition to the lease agreement, and also neglected the property extensively. In view of the aforementioned fundamental violations that were not corrected by the defendants, and after giving opportunities and lengths that did not help (inter alia: email correspondence between the company's attorney and the defendant on pages 49-52 of the legal advisor's affidavit), and the very fact that the defendants stopped paying the minimum rent, the plaintiff was forced to cancel the lease agreement with the subsidiary in order to reduce the scope of her damages, which intensified every month, In accordance with Article 17.2 of the 2018 Agreement.
- The alleged damages caused to the plaintiff were detailed in a detailed table, which was presented both in the statement of claim, in the company's attorney's affidavit and in its summaries. The details of the table will be presented later in the judgment.
- A review of the affidavits and interrogations shows that the defendants did not present any permit and/or license of any kind for work plans, and the claim that they were given orally was contradicted by Aharoni (a witness on behalf of the defendants), who explained that there was no oral confirmation. Similarly, the details of the "state of the works" that they allegedly carried out, as of the date of the termination of the contractual relationship (paragraphs 64-66 of the statement of defense) turned out to be a fabricated story. The defendants were not able to give coherent answers and/or prove that they performed the work that they undertook in the agreement. The employment agreement, work diary, or photos of the property were not presented. The defendants did not present any evidence of their claims that they made investments. No invoices, agreements with architects/consultants/suppliers/contractors, approvals from the competent authorities or other documents supporting their claims and testimony were not presented.
In his affidavit, the defendant refers to Appendix D, which is supposedly an update dated September 11, 2020 from the Supervisor, but a review of that Appendix D reveals that this is an email that Aharoni sent to Adv. Yaakov Gerson, the defendants' attorney, with the date on the email being July 20, 2022, therefore, "... In fine language, the authenticity of the document is questionable. It appears that a party on behalf of the defendants copied the text and signature of the email, but it is clear from examination that this is not an email sent by the supervisor, not on the date claimed, nor to the alleged recipient" (paragraph 23 of the summaries). The same applies to Appendix F to the defendant's affidavit, which is presented as an update. "In any case, these updates turned out to be empty of content without any reference, and the bottom line is that no permits and licenses were obtained, no work was carried out, and the property remained as it was when the possession was handed over, but this time with their death and severe neglect damages" (paragraph 26 of the summaries).
- The forecast given by the expert brought on behalf of the defendants is theoretical only. The defendants have no real defense and the offset claims they raised have no basis.
- The defendants' claims regarding the coronavirus crisis should be rejected. The defendants received possession of the property on July 10, 2018, more than a year and a half before the outbreak of the pandemic in March 2020. This period, which was free of any restrictions, is sufficient to advance the work on the property and to carry out their obligations under the 2018 agreement and its addition, which was not done by them, and the testimony of the new tenant, is sufficient to prove that when there are means, desire and professionalism, it is possible to build, renovate and issue a certificate of completion. It was further argued that in any event, the conditions of section 18 of the Contracts (General Part) Law, 5733-1973 (hereinafter: the Contracts Law) are not met. The case law has already determined that "coronavirus" is not a magic word and that a causal connection between the coronavirus and the failure to perform the obligations in the agreement must be proven. In addition, the defendants are obligated to show that they did everything in their power to try to fulfill the agreement.
- There is no dispute regarding the non-payment of minimum rent for the property, and the defendants do not deny it. According to Note 8 to the financial statements of defendant 2 for the year ended December 31, 2020, which was attached to the defendant's affidavit, in 2020, the defendants paid a minimum rent of approximately ILS 879,000 (before VAT) while the minimum annual rent (before VAT, interest and linkage) is ILS 1,560,000.
- The 2018 agreement was lawfully cancelled when it was clear that the defendants did not enter at all and did not actually take possession of the leased property, which was simply abandoned by the defendants and stood empty, with the exception of pigeons, including pigeon droppings, and homeless people who came and went, due to the defendants' repeated fundamental violations. Exhibit N/1 submitted by the defendants is also of no benefit to them, since nothing arises from it regarding possession of the property, and a refrigerator and stove are not evidence of possession of the property.
On November 11, 2020, the plaintiff discovered that a homeless person lives in a rented property, and therefore the company's attorney again demanded that the matter be accompanied by photographs, in order to deal with the matter immediately. On November 19, 2020, the plaintiff discovered that the homeless man had expanded his residence in the leased property, and settled in a more comfortable manner, so an additional email was sent demanding urgent treatment along with photos of the homeless person living in the leased property. Despite this, it was only on January 3, 2021, that the plaintiff issued a notice of cancellation of the agreement and beyond the letter of the law, and gave an additional extension of 7 days to correct the fundamental violations. Even then, the defendants did not bother to correct the many fundamental violations or some of them. In a reply email dated January 11, 2021, prior to the letter of the law, the plaintiff gave the defendants an additional 48-hour opportunity to correct the violation, and on January 13, 2021, when the defendants did not correct the violations, another email was sent to the hiring attorney, stating that, for the avoidance of doubt, the plaintiff informed her that the agreement was canceled.
- As for the defendant's personal liability - the defendant is a director and manager of the tenant, who owns 100% of the shares of the subsidiary and the person behind the aforementioned lease agreements with the plaintiff and was the living spirit, the issuer and the one who brought about everything and everything in connection with the conclusion and fulfillment of the aforementioned agreements, and more precisely and unfortunately, their non-existence and breach. The defendant is also a shareholder in the chain of the defendants, through the Nili Peri Hagan company. The defendant personally and through the defendants deceived the plaintiff by throwing sand in her eyes time and time again, and in his slippery tongue promised the plaintiff "mountains and hills" and planted in her heart false hopes that he wanted to fulfill the agreement as written and worded. False promises and hopes, all of which turned out to be false, were not incidentally significant financial damages to the plaintiff. The plaintiff refers in this matter to the judgment in CA 3807/12 Ashdod City Center K.A. et al. v. Shimon et al . (January 22, 2015).
- The defendants did not bring relevant witnesses such as the supervisor, whose name was given as Yuval Bleinstein. Aharoni was placed on unpaid leave at the beginning of 2020, and there is no photo or version by the defendants of the same equipment and construction work that they claim were on the property. The defendants did not bring the defendants' financial manager to testify, and withdrew his affidavit at the evidentiary hearing without a satisfactory explanation for his failure to appear.
Summary of the defendants' arguments
- Preliminary arguments: This is a tactical claim intended to precede the defendants' claim; There is a parallel proceeding to a rent claim in the Ramla Magistrate's Court (C.P. 49880-02-21); The claim against the tenant cannot be clarified because she is insolvent.
- After receiving possession of the property on the day of the signing of the 2018 agreement, the tenant acted to adapt the place to the venture's activity (a restaurant on the ground floor and a boutique hotel on the top floor), all under severe conservation restrictions that exist on the property. These adjustments required work and obtaining approvals from the Ministry of Health, the Ministry of Tourism, and the Department of Buildings for Conservation in the Tel Aviv Municipality. Approvals in principle for work plans for the leased property were received from the Ministry of Tourism (for the hotel) and the Ministry of Health (for the restaurant). As of the date of the plaintiff's forcible eviction of the property, the defendants had approvals in principle for the planning of the kitchen, plumbing, electricity, and the restaurant was ready to begin construction, had the hotel not delayed everything.
- In their testimony, Aharoni and the defendant confirmed the status of the permits and the progress of the work, and the receipt of the permits for the execution of the works progressed at a reasonable pace, taking into account the circumstances of the case. Thus, a shaft was opened for the chimney after receiving the approval of the Conservation Department; The hood contractor - all the ducts have been manufactured and are awaiting installation, including a filtration unit and blowers after final approval from the Ministry of Health and Conservation; Merger consultant - submitted plans for a tender for the restaurant awaiting decisions and approvals and completed comprehensive planning; Safety Consultant - Submitted a Safety Plan for the Restaurant - Waiting for Approvals; Plumbing consultant - submitted a plumbing plan for the restaurant; Electrical consultant - has given general instructions for planning, will enter into execution after the completion of plans and approvals; The Ministry of Tourism - approved the hotel's plan (25 rooms), an initial guarantee was deposited, awaiting conservation approval, and interior design approval by the architect - designer Philippe Starck; The Ministry of Health has approved in principle the plans for the kitchens. The plans for the kitchens and bars have been carried out and everything is ready to be carried out, subject to the approval of conservation. All approvals are "in principle" and "oral", since final approvals are given only after construction and a visit (section 38 of the summaries).
The Conservation Department of the Tel Aviv Municipality was supposed to arrive at the site in order to give instructions and approvals for the work as detailed above. The problem is that due to the disruptions of the Corona period, the scheduling of a meeting in the field has been delayed time and time again. "Already on December 18, 2019, a signed approval was received from the Ministry of Health for the restaurant's kitchen through Mr. Jacky Dabba, of DCO, who specializes in the design of professional kitchens for the institutional market (a confirmation email was attached as Appendix 15 to the statement of defense and Appendix E to the affidavit of Emanuel Dayan)" (paragraph 40 of the summaries).