For more on this matter, see: CA 18/89 Heschel Trading and Trust Company Ltd. v. Haim Friedman, 46(5) 257, at p. 264 F (1992); and CA 10208/16 Carasso Motors Ltd. v. Better Place Inc [Nevo] (13/12/2017), para. 18.
- In order to examine whether the court is authorized to intervene in an agreed compensation and to reduce it, the question must be answered: "Is the amount of the agreed damages such that a reasonable person in the shoes of a party to the contract could have considered, at the time the compensation was determined, an amount that corresponds to the amount of damage that may be caused, if and when the contract is breached by a breach of the kind that did in fact occur?" (Carasso Motors case, para. 18). "The test is objective, and the question is not what the parties actually expected when the contract was concluded, but what they could reasonably have expected, at that stage (...). The examination, as the clause is worded, relates to the date on which the contract was concluded, but the question of reasonableness at that time is examined in light of the breach today" (Carasso Motors case, paragraph 18).
- "The case law emphasized that the court will make use of the authority to reduce agreed compensation only in exceptional cases, and that such a reduction is limited and rare" (emphases in original) [CA 8506/13 Zeevi Communications Holdings Ltd. Bank Hapoalim Ltd. [Nevo] (August 23, 2015), para. 42(c). See also: The Hashel case, at p. 264 D; Carasso Motors, para. 18]. In this context, it was held that the court would intervene in an agreed compensation clause only if it did not find "any reasonable relationship" between that compensation and the foreseeable damage... As long as there is some reasonable relationship, even if it is pressing, the agreed compensation is left in force" [CA 300/77 Dalia Rosner v. Binini T.L.M. Building and Development Company Ltd., 32(3) 682, at p. 686D (1978). See also: The Hashal Case, at p. 264].
- It should also be noted that the court's authority to intervene in the amount of the agreed compensation is discretionary, as opposed to mandatory authority, even if the conditions for intervention are met [CA 1880/19 The League for the Prevention of Lung Diseases Tel Aviv v. Shir Mishkenot Vetikim Ltd. [Nevo] (October 25, 2020), para. 75].
- I will relate, briefly, to the defendant's argument that in the stages of concluding the contract, the parties did not hold discussions regarding the agreed compensation, and this indicates that the amount of compensation was made separately from the expected damage (paragraph 29 of the defendant's summaries). First, in the Barda Natan case above, a similar argument was rejected, holding that "when the parties signed the contract, they maintain that they have agreed to all that is stated therein, for the tribe or for If we deviate from the principle of reliance on the content of the contract as signed, it will have undesirable consequences of instability and uncertainty. It is therefore necessary to adhere to the said presumption in order to preserve the foundations of the law of contracts" (ibid., at p. 670 D and F). Second, as was clarified in the Carasso Motors case, the test is an objective test and the question of what the parties expected when the contract was concluded, but rather what they could reasonably have foreseen at that stage (ibid., paragraph 18).
- On the merits of the matter, the defendant's main argument on which he bases his request for intervention in the amount of the agreed compensation is rooted in the fact that it is a sweeping stipulation. There is justice in this claim. As already noted above, a court does not invalidate a sweeping stipulation of agreed compensation, but it does indicate that the parties did not consider the question of the relationship between the amount of compensation and the damage expected from the breach, and when this is the case, the court has the authority to intervene in the amount of compensation [see, for example, the Yitzhaki case, at p. 628; Ze'evi, paragraph 42(d); CA 53/86 Amichai Solel v. Matityahu Zuckerman, 42(2) 625, at p. 634 (1988)].
- In our case, too, the sweeping stipulation testifies to the fact that the parties did not foresee the future in determining the agreed amount of compensation, and therefore , in principle, there is authority to intervene in it.
- As to the rate of reduction, this is supposed to bring the agreed compensation rate to an amount in which there is, even if only slightly, some reasonable ratio between the agreed compensation and the estimated damage (Shalev and Adar, at p. 499; Rosner, at pp. 686-687). "The result is its reduction to the high end of the limit of reasonableness" [CA 311/78 Henia Howard v. Nissim Miara, 35(2) 505, at p. 516 E (1980)].
- As stated above, the examination of the reasonableness of agreed compensation is mainly objective (Carasso Motors, para. 18; Within the framework of all the considerations, the court will also consider, inter alia, the following:
"The relative severity of the violation that occurred (e.g., was it a fundamental violation?) and the length of time it lasted; the rate of the agreed consideration or economic value of the contracted asset or service (which in turn affects the damage expected from the breach); the probability that the type and extent of damage could have been foreseen given the type of violation that actually occurred; the possibility that a violation of this type will result in damages that will harm the additional interests of the injured party; the degree of ability to anticipate the specific causation procedure that led to the occurrence of the infringement; the total number of violations committed by the infringer, and similar data that may affect the expected amount of damage" (Shalev and Adar, at pp. 501-502)
- There is no room to set uniform and fixed rules or situations in which the amount will be reduced, just as there is no room to set a uniform reduction rate that is appropriate for all situations. Each case is examined on its own merits and according to its circumstances.
- However, it appears that when it comes to real estate sale agreements, "there is a judicial practice according to which a stipulation that establishes up to 20% of the value of the property as agreed compensation in the event of a fundamental breach will generally be recognized as reasonable, and therefore as protected from judicial intervention" (Shalev and Adar, at p. 503).
- The ruling referred to by the plaintiffs' counsel in the summaries does not deal with situations in which the violation was expressed in a delay in registering the rights in the property, but rather with other, usually more serious violations. Therefore, it is not possible to learn or draw conclusions from this case law for our purposes, since, as determined in the case law mentioned above, the reasonableness of the ratio between the amount of compensation and the damage is examined in light of the specific violation.
- The defendant, for his part, did not refer to the case law on this matter and did not refer to the damage that might have been caused as a result of the delay in registering the rights, and only raised the argument that there is room to "substantially reduce the compensation" (paragraph 31 of its summaries) without specifying the rate that in his opinion maintains a reasonable ratio for such infringements, and in any case without giving a reason for this.
- In CA 532/83 Yehuda Sinai Investments Ltd. Israel and Yehudit Fishel, IsrSC 40(4) 319 (1986), the Supreme Court noted the damage in a breach of the type at hand:
"We must therefore examine whether there is a reasonable relationship between the compensation stipulated in the contracts and the damage, which could have been seen at the time of their conclusion as a probable result of this breach, which is discussed here, of a delay of about five years in registering the apartments. Otherwise, we may reduce the amount of the fixed compensation. In this regard, counsel for the appellants did not bother to bring before us any evidence, not even a claim that could guide us.