Civil Appeal 7/24 Moshe Levy v. Queen of Sheba-Eilat Properties

766 Civil Appeal 7/24

Judge Alex Stein:

Milin Introduction: How should we respond to the court's proposal at the end of the hearing in the proceeding?

1. A litigant's response to the court's proposal, which is proposed at the end of the legal process, after all the parties' arguments have been heard, should state only one thing: is the court's proposal accepted or rejected?
2. In the case before us, on October 27, 2025, we issued a decision that speaks for itself:

Decision

"At the end of the hearing, after hearing the arguments of the parties and reviewing the texts, the court proposed as follows:

1. The appellants will withdraw their appeal, without an order for costs, since the court was convinced that there was no defect in the termination of the engagement with Hilton and its replacement by another party, and since the termination of the engagement as aforesaid triggered clause 4 of the management agreement and accordingly, led to the cancellation of the mechanism for calculating the management fees set forth in clause 8 of that agreement.
2. This is while preserving the right of the appellants to claim proprietary rights of all kinds in connection with the housing units they purchased in the hotel, without an allegation being raised against them regarding the existence of an act of court, as well as with regard to financial accounting with the management company.
3. In the above matters, which remain open, each party will retain its rights and claims.
4. We have noted before us that this proposal of the court is acceptable to the respondents.
5. The appellants will inform us if the above proposal is acceptable to them, by November 4, 2025.
6. The court will render its judgment after receiving the notice from the appellants."
7. Further to this decision, the appellants laid before us – in blatant violation of the rules of the hearing – a statement of arguments spread over 5 dense pages, accompanied by an appendix, in which they inform us that our proposal is only partially acceptable to them (R.L.: unacceptable) and that they "saw fit" to detail their position, inter alia, due to their "feeling" that "the hearing of the appeal has not exhausted itself". This, as stated, was after the hearing of the appeal – during which we examined the texts and heard the appellants' arguments at length – was over.
8. The Ottoman Settlement [Old Version] 1916 This conduct is fundamentally flawed. The appellants (like any litigant) had every right not to accept the court's proposal and to request that a reasoned judgment be given in their case.  The appellants had no right to submit for our perusal, without obtaining due permission, a supplement to the argument.  For this reason, I am of the opinion that we must ignore the completion of this argument and attribute its submission to the appellants' obligation to award costs.
9. 12-34-56-78 Chekhov v. State  of Israel, P.D. 51 (2)After I have noted before me that the appellants do not accept our proposal, I will consider their appeal on its merits.

The Appeal

6. This appeal is directed against the judgment of the Tel Aviv-Jaffa District Court (Judge Geifman), which was given on July 20, 2023 in the framework of the Tel Aviv-Jaffa District Court. 58683-12-19 [Nevo] and who rejected the claim of the appellants – owners of rights in various housing units in the Queen of Sheba Hotel in Eilat (hereinafter: the hotel), while preserving their rights to file independent claims regarding the proprietary disputes that arose between them and the respondents (for the sake of convenience, the respondents will be referred to collectively as  the owners of the hotel).  The dismissed claims focused mainly on two issues: (a) the appointment of a suitable management company for the hotel at the end of the management contract with Hilton; and (b) the right of the hotel owners – more precisely, the right of respondent 1, Queen of Sheba Properties – Eilat (hereinafter: the management company) – to increase the rate of the management fees, which the appellants, together with the other owners of the rights in the housing units in the hotel, must pay.
7. Another issue on which there is a dispute between the parties is related to the financial accounting that the appellants demand to be maintained with the hotel owners in accordance with the contractual system between the parties. This issue, like the proprietary disputes, was not discussed, and in any case was not decided, in the trial judgment.  As a result, we will also leave these two issues open for future litigation between the parties.  Within the framework of this future litigation, if it takes place, the parties will not be subject to procedural blockades in the form of estoppel of cause of action and estoppel of company; Each party will retain its rights and claims until they are decided by a court.  This, of course, is subject to the determinations that will be determined in our current judgment.
8. Our decision will therefore focus on the two matters that I mentioned above: (a) the matter of the management company that is supposed to replace the Hilton company; and (b) the matter of the management fees.  These two issues will be discussed by me in their order in light of the contractual system between the parties.
9. Before I do so, I will keep from our agenda three issues of secondary importance that arose in the framework of the appeal.

Submission of new evidence in the framework of the appeal

10. The appellants requested that we allow them to submit for our review as new evidence an expert opinion, an accountant by profession, which was submitted in another proceeding (which is being conducted before the Supervisor of Condominiums). According to the appellants, this opinion analyzes the profits of the hotel management company.
11. Apart from the fact that we are dealing with hearsay testimony and reasonable testimony, which does not fall within the scope of any exception to the rules that disqualify such evidence (see: Yaniv Vaki, Evidence Law, Vol. 1, 334-336 (2020)), this opinion does not meet the conditions set forth in Regulation 144 of the Civil Procedure Regulations, 5779-2018, which can only be accepted and considered as new evidence in the framework of an appeal.  First, the appellants could have submitted a professional opinion on the issue of management fees in a proceeding that took place before the District Court.  Instead, they chose to take a different route, the main purpose of which was to try to convince the court that the management fees they had to pay were subject to the contractual ceiling of $3 per square meter for one month (see: paragraph 5 of the trial judgment ("According to the defined company, in this action the court does not discuss the amount of the management fees that were raised, and the manner in which they were determined")).  Second, a private opinion from another proceeding, which does not deal with disputes between the parties before us, is not necessary in order to prevent a miscarriage of justice.  Moreover, since it is inadmissible evidence in the litigation here, this opinion cannot in any case change the outcome of the litigation.  The case before us is therefore not one of those exceptional cases in which there is a special justification for permitting the submission of additional evidence in the framework of an appeal (see: Civil Appeals Authority 985/24 Eliyahu v. Representation of the Condominium at 14-16 Zvi Shatz St., Holon, para. 11 [Nevo] (March 26, 2024)).
12. More than necessary, I will add and note that the appellants are not barred from bringing to the court's decision claims concerning financial accounting with the management company in future litigation – if any.
13. The appellants' request to submit new evidence is therefore denied.

Removal of the temporary representation of the owners of the units inside the hotel database at the Queen of Sheba Hotel in Eilat from the list of plaintiffs

14. The District Court deleted from the list of plaintiffs the "temporary representation of the owners of the units within the hotel database at the Queen of Sheba Hotel in Eilat" (hereinafter: the temporary representative). The appellants complain about this on the grounds that the temporary representation represents a defined group of persons with a common interest, and therefore it should have been recognized as a party in the present case.
15. There is no substance in this complaint. It is plain that only a legal entity recognized in the form of a person, a registered partnership or a corporation can sue and be sued (see:  Civil Appeal Authority 2735/99  Association of the Sephardic Synagogue in the Abu Tor Neighborhood of Jerusalem v. Orenstein, IsrSC 55(3) 433, 441 (2001)).  There is a clear rationale for this rule.  Let us assume that the Temporary Representation received and exercised permission to conduct a claim against the respondents herein, and in this framework it was obligated to make findings that led to the dismissal of the claim and the charging of legal expenses.  Following this development, one of the respondents came to the owner of a unit in the hotel database who did not take any part in the litigation, informed him, with a loud fanfare, that he was bound by the findings of the judgment, demanded that he pay part of the expenses that were awarded in her favor, and the latter replied: "You are not the owner of things."  There is no doubt that this answer is the right answer that will satisfy the court.  After the members of the delegation have dispersed – one by one – the Respondents' victory in the litigation will not bring them any benefit and no one will compensate them for the expenses they incurred for the litigation purposes.
16. The District Court was therefore correct in its decision to delete the temporary representation from the proceeding.

A relationship contract?

17. The District Court classified the contractual system between the parties here as a "relationship contract" – since it is a long-term engagement that will last for decades. The appellants seek to build on this classification by raising arguments that raise considerations of justice for bar-contractual.
18. I am of the opinion that the District Court erred in classifying the contractual system in question as a "contract of relationship". The vast majority of relationship contracts do come to regulate relationships that are intended to exist for very long periods of time, but not every long-term contract is a "relationship contract."  What characterizes a "relationship contract" is that it is open to changes and updates in matters that the contracting parties have chosen not to settle in advance – with the understanding that they will have to settle any such matter, when it arises, by formulating a separate ad hoc agreement; And if such an agreement is not reached, they will turn to a court (or an agreed arbitrator) to find a fair solution that will balance the conflicting interests and achieve the purpose of the engagement.
19. This issue was explained by other municipal applications 7649/18 Bibi Dirt Roads and Development in a Tax  Appeal v. Israel Railways in  a Tax  Appeal [Nevo] (November 20, 2019) (hereinafter: the Bibi Roads case), as follows:

"The level of detail of the obligations and rights is not the same in each and every contract.  At one end of the spectrum is an open-relationship contract that is formulated only in general terms – this is because the signatories of the contract, who have agreed on its purpose and have taken upon themselves the basic commitment to progress, could not, do not want to, or have not been able to determine in it a precise outline of steps in which each of them is supposed to take steps to reach the same common goal.  Usually, though not always, such contracts are made to serve long-term relationships.  [...] Open relationship contracts authorize the court to call into them new terms and obligations, which were not agreed upon in advance, based on broad legal principles such as good faith, fairness, and reasonableness, all of which are tailored to the purposes of the contract.  [...] Open contracts are therefore intended to be managed by judges, since going in a different way – concluding a closed contract with a full or almost complete stipulation – is too expensive or impractical, while the parties are not willing to give up the very engagement between them.  [...] The role of a judge who is required to interpret an open-relationship contract and fill in its gaps by adding conditions and obligations created by him is therefore not limited to determining factual findings.  This role includes the determination of obligations and rights based on moral considerations recognized by contract law and the legal system as a whole." (See ibid., paragraphs 12-17 of my judgment; references to references omitted – A.S.).

20. As will be explained below, the contractual system that was established between the appellants and the respondents includes an exhaustive formal arrangement, detailed in detail on each and every matter; Therefore, it would not be correct to classify it as a "contract of relations." Fortunately, the erroneous classification made by the District Court did not cause any distortion since the court ruled on the basis of what was stated in the written agreements between the parties without introducing into these agreements supplements or changes for non-contractual reasons.

Did the District Court misunderstand the agreements entered into between the parties?

21. The appeal filed by the appellants opens with a weighty accusation. According to the appellants, the District Court "erred in understanding the contractual system in all its components, from the foundation to the bottom."
22. To this argument I will answer simply: not as she shouted (literally). The District Court ruled based on the explicit provisions of the written agreements signed by the parties.  Despite this, the appellants do not see the Writings, which they signed, as the end of the verse.  They have a variety of claims based on the "understandings" that were formulated outside the agreement; "representations" that they say were made by the respondents; and distributive justice and fairness, as they – the appellants – see them; and similar "atmospheric claims" for non-contractual ones.
23. These arguments are to be rejected.
24. The appellants purchased housing units (also known as "vacation units") in a luxury hotel in Eilat for an agreed price and in exchange for signing a contractual system, detailed in dozens of clauses and sub-clauses, which defines the entirety of their rights and obligations in their relations with the hotel owners. This system includes a purchase agreement, a management agreement, and an optional agreement regarding the addition of the purchasing unit to the hotel apartment pool under the terms specified in that agreement (hereinafter: the agreement to join the database) and against receipt of 35% of the payments received for the hotel guests' overnight stay in the unit (minus management fees and participation in the fund for the refurbishment of the hotel's equipment, which the purchaser must pay according to the management agreement).  These three agreements are "closed contracts", as opposed to "relationship contracts" and the like (see: Bibi Roads, paragraphs 13-15 of the judgment).  As stated, each of the agreements is drafted with a high level of detail, containing provisions regarding the exhaustion of all the terms of the engagement in its written instructions and a provision that negates the validity of any change in the agreement that is not made in writing and approved by the signatures of the parties.
25. Thus, the Purchase Agreement states that the provisions thereof "definitively and fully exhaust the agreed and conditional agreement between the parties" – alongside the Purchaser's declaration that "he is not affected, for the purpose of entering into this Agreement, from any publication, statement, promise, representation or statement, oral or written, which were not included in this Agreement" (clause 21.2 of the Purchase Agreement). The Purchase Agreement also stipulates that "any change, cancellation or addition to this Agreement shall not be made or effective except in writing and signed by the parties" (Section 21.3 of the Purchase Agreement).  Identical provisions were set out in the management agreement (see: clauses 15.2 and 15.4 of the management agreement) and in the agreement to join an apartment pool (see: clauses 13.1 and 13.2 of the agreement to join an apartment pool).  With respect to such closed agreements, we have determined that the language of the contract will be given priority status (see: Bibi Roads, paragraphs 11-17 of the judgment and paragraphs 5-7 of the judgment of Justice Grosskopf (November 20, 2019); Additional Civil Hearing 8100/19 Bibi Dirt Roads and Development in the Tax Appeal  v. Israel Railways Ltd., paragraph 17 of the decision of President E. Hayut [Nevo] (April 19, 2020)).  We have also clarified, in clear language, that "each party to a business contract should know that its purpose and intentions must be expressly expressed in the contract it signs; and that no arguments will be heard that the signed agreement does not reflect, as it were, the intention or purpose of the parties" (see: Civil Appeal 1521/21 Bloomgreen Water Technologies in Tax Appeal v. Oris Advanced Materials Ltd.,  Paragraph 32 [Nevo] (March 8, 2023)).

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26. These are the basic concepts. Insofar as the appellants seek to deviate from them, after they have put their signatures on a set of business contracts that have been detailed in detail, we will not allow this.
27. This adherence to the language of the contract was not determined by us in order to promote formalism for its own sake. Arrangements set forth in detailed and explicit agreements, such as those before us, reflect the "give-and-take" nature of the transaction – an exchange that expresses  an autonomous meeting of the parties to an agreement that defines their mutual rights and obligations (see: Gabriela Shalev and Effi Zemach Contract Law 9 (4th ed., 2019); Daniel Friedman and Nili Cohen Contracts 164 (Vol. 1, 2nd ed., 2018)).  No amendment or material change can be imposed on such an agreement due to external considerations that may appear to the judge sitting on a fair and good law.  A judge who makes such a correction or change transfers what the agreement gives Reuven to Shimon's pocket, or vice versa, without any legal justification for it.  The transfer of such rights is not permitted, and it even creates a chilling effect that will be in the minds of individuals and business entities who are considering investing their resources in the framework of one agreement or another.  A person or a business entity that expects that the court will change the agreement to its detriment due to ethical considerations, which the court deems correct and good, may refrain from the originally planned engagement.  Alternatively, that person or business entity will increase the financial consideration it will receive from the other party to the agreement or reduce the payments it will have to pay to the other party.  These results are morally unfair and obviously ineffective from a socio-economic point of view.  The courts must therefore refrain from any interference in detailed and explicit agreements (subject to the protection of special rights that the law does not allow to be waived or conditioned for reasons of consumer protection or for other reasons: see the Bibi Roads case, paragraph 17 of the judgment).  In my opinion, such a material amendment or change cannot be made even on the basis of the principle of good faith, which is enshrined in sections 12 and 39 of the Contracts (General Part) Law, 5733-1973 (hereinafter: the Contracts Law).  This is because the principle of good faith operates within the boundaries of the three interests protected by contract law: the interest of reliance, the interest of expectation and the interest of restitution (see the words  of Justice M. Alon Other Municipal Applications 391/80 Laserson v. Shikun Ovdim Ltd., IsrSC 38(2) 237, 263 (1984)).  A person who has not created a legitimate reliance or expectation on his friend and has not taken possession of any property belonging to his friend in the framework of a contractual relationship or against the background of negotiations between the two – will not owe his friend anything by virtue of the principle of good faith (see ibid.).
28. Adherence to the aforementioned rules, which ensure the stability of the contract, has an additional advantage. Adherence to these rules allays the fears of foreign companies and investors who are considering doing business and investing their money in Israel.  Such companies and investors – in particular, those that are located and operate in the United States – will hesitate to be exposed to litigation in Israel, unless they are assured that the court that will hear their case will rule on the basis of the contract.  This requirement, called "four corners of the contract", is one of the cornerstones of American contract law that comes to ensure the certainty of the contract (see, among many: Gallo v.  Moen Inc., 813 F.3d 265, 273 (6th Cir.  2016) (“The first and best way to divine the intent of the parties is from the four corners of their contract …”)).  This requirement recognizes the possibility that a contract may not be sufficiently detailed and explicit and will need interpretation.  In such cases, the court is required to merge the language of the contract with the circumstances of its conclusion into a comprehensive factual framework and to derive from this mask the intention of the parties (see: Lawrence A.  Cunningham, Contract Interpretation 2.0: Not Winner-Take-All but Best-Tool-for-the-Job, 85   Wash.  L.  Rev.  1625 (2017)).
29. This approach is consistent with Israeli law as it was formulated following the amendment of section 25(a) of the Contracts Law and our ruling in the Bibi Roads case.  In this context, it is important to reiterate that the "intention of the parties" that the court is required to locate may be proven and may be probable – all as a matter of empirical fact.  In each of these cases, the court is required to adhere to the facts and is not permitted to complete the contract by dictating norms of conduct derived from the world of values (see: Bibi Roads case, paragraph 55 of my judgment).
30. Against this background, I will discuss the two questions that remain for us to decide.

Are the respondents obligated to hand over the management of the hotel to an entity with international branding and reputation, such as Hilton?

31. The appellants' argument that the respondents must hand over the management of the hotel to an entity with international branding and reputation, such as the Hilton company, depends on the brakes. The fifth "why" clause of the management agreement does state the fact that the hotel owners entered into an "agreement with Hilton International Co.  Pursuant to the provisions of the said agreement, Hilton will manage and concentrate, exclusively, the maintenance and management services of the entire project", but, as stated in that paragraph, this undertaking is subject to an agreement that the owners made with Hilton, which was terminated after about 20 years of management.
32. Moreover, in the sixth and seventh paragraphs "why" it was explicitly stated that the appellants, like the other purchasers of the hotel housing units, were obligated to "sign a management agreement with the management company" – Queen of Sheba Eilat Properties – "for the purpose of providing maintenance and management services on its part"; and that "the purchaser agrees that the exclusive management and execution of the services in the project will be carried out exclusively by the management company" (emphasis added – A.S.).
33. Alongside what is stated in the "Why" paragraphs (which are the same as the rest of the provisions of the Agreement, as stated in Clause 2.1 of the Management Agreement), Clause 5.1 of the Management Agreement explicitly states that "the management company [Queen of Sheba Eilat Properties – A.S.] will be entitled to contract, at its sole discretion, with subcontractors and any other party, for the purpose of performing one of its services that the Management Company has undertaken and/or undertook under this Agreement" and that "the Management Company will have absolute discretion as to determining the terms of the engagement with those contractors and/or other parties" (emphasis added – A.S.).
34. The appellants claim that contrary to the explicit provisions of the management agreement, which were quoted above, the hotel owners presented them with a representation that the hotel, with its units, would be managed by the Hilton Company or another company with a recognized international reputation and branding. However, this argument is denied by the provisions of the management agreement regarding the exhaustion of the terms and obligations, which, as stated, were set out in clauses 15.2 and 15.4 of the agreement.
35. Therefore, contrary to the appellants' claims, the respondents did not undertake to hand over the management of the hotel to an entity with international branding and reputation after the engagement with Hilton had passed. This argument of the appellants is therefore rejected.

Are the respondents entitled to increase the management fees?

36. The appellants claim that the monthly management fee was set at USD 3 per square meter, as stated in clause 8.2 of the management agreement, and that this amount could not be updated upwards.
37. First, I will note that this claim is inaccurate, since clause 8.7 of the agreement contains a linkage mechanism that explicitly states that the management fee shall never be less than US$3 per square meter. This mechanism was not operated for a period of about 20 years, during which the hotel was managed by the Hilton Company.
38. Greater than that, and this is decisive in our case: clause 4 of the management agreement explicitly states that "the purchaser declares and confirms that he has been informed that due to the long period of engagement [with the Hilton company, A.S.] A formula has been established for calculating the maximum management fees for the entire management period, as detailed below [in clause 8 of the agreement – A.S.] and that "it is hereby clarified that this agreement will be valid as long as the agreement between the company [Queen of Sheba Eilat – A.S.] and Hilton in force" (emphasis added – A.S.).
39. It was therefore found that upon the departure of Hilton, after about 20 years of management, the contractual arrangement that set the monthly management fee at US$3 per square meter expired. As a result, the amount of management fees must be determined in accordance with the "closed economy principle", which is set out in clause 8.1 of the management agreement as follows:

"The management company, at the expense of the rights holders in the residential units in the project, will pay all the necessary payments and expenses in connection with and for the provision of services and the fulfillment of all its obligations under this agreement" (emphasis added – A.S.).