Civil Case (Center) 31902-02-21 Excalibur Online Ltd v. Raphael Ben Arar, Israel Police

Prior to three claims in which the hearing was consolidated:

One, a lawsuit filed by Excalibur Online Ltd.  (Hereinafter: "Exclivare") controlled by "Rafi") and RBA Eqities LLC (hereinafter: "RBA") in the sum of approximately ILS 4 million plus interest and linkage differentials due to breach of a loan agreement (CA 31902-02-21) (hereinafter: the "Loan Claim");

The second, a claim filed by Rafi and a company under his control, Adidim Brokerage, Management and Project Consulting in a Tax Appeal (hereinafter: "Adim") against Sarel and Shahar and companies under their control, in the sum of approximately ILS 6 million, plus interest and linkage differentials for alleged damages incurred in connection with the management of a joint venture company called Cybertrade in a tax appeal (hereinafter: "Cybertrade") and an alleged investment loss in virtual currency (CA 35413-12-21) (hereinafter: the "Coin Claim");

The third is a lawsuit filed by Sarel and Shahar and companies under their control against Rafi and Adirim in the amount of approximately ILS 4.7 million for alleged damages caused to them, inter alia, in connection with the management of Cybertrade (CA 16633-03-24).

Background to the Claims and Summary of the Parties' Arguments

1. CA 31902-02-21

• The plaintiff in the loan claim, Excalibur, is a foreign company controlled by Israeli businessmen, Sarel and Shahar.

2. Defendant 1, Rafi, is an Israeli businessman, who is engaged, among other things, in real estate business.
3. Defendant 2, RBA, is a foreign company controlled by Rafi.
4. Sarel, Shahar and Rafi met back in 2014 and together established a currency venture under a joint company called CyberTrade, which developed an online trading system for difference [Contract for Difference) - a financial instrument that allows you to trade on changes/differences in the price of an underlying asset - without actually holding it.
5. In 2016, the parties agreed that Excalibur would provide Rafi with a loan in the amount of $647,000, which would be repaid within a year from the date of its provision, or upon the sale of a property from a list of assets that Rafi intended to sell, whichever comes first. According to ExCalibre, it was agreed that the loan would be repaid with an additional annual interest rate of 10% and that Rafi would personally guarantee the repayment of the loan.
6. In accordance with the parties' agreement, on May 17, 2016, Excalibur transferred the sum of $647,000 to Rafi's personal account at UBS Bank .
7. On May 19, 2016, the loan agreement was signed. The agreement was signed between Excalibur and RBA (a company controlled by Rafi), whereby RBA was provided with a loan in the aforementioned amount for the purpose of investing in an office building project that RBA is involved in construction at 809 Broadway Street in New York City, United States of America (hereinafter: the "Loan Agreement").  In accordance with the terms of the loan, it was agreed that:
8. The loan was made available for a period of one year, or until the sale of one of the properties specified in the agreement (a real estate property in the Blue Project, a real estate property in Rishpon and RBA rights in the office building in Broadway, United States), whichever comes first.
9. The loan will bear an annual interest rate of 10% for a period of 12 months (or until one of the assets is sold, whichever comes first).

• In clause 5 of the agreement, it was determined that the "borrower" provides a personal guarantee as collateral for the execution of the loan agreement.

8. After 12 months, the loan was not repaid.
9. When Excalibur realized that the defendants did not intend to repay the loan, it petitioned in the loan claim to charge the defendants, Rafi and RBA, jointly and severally, in the sum of ₪647,000 plus interest and linkage, as well as in the sum of ILS 300,000 in damages for breach of contract and for losses incurred by it in light of the non-repayment of the loan. This is in accordance with the provisions of sections 12 and 39 of the Contracts (General Part) Law, 5733-1973 (hereinafter: the "Contracts Law"), and by virtue of the Unlawful Enrichment Law, 5739-1979.
10. According to Excalibur, Rafi misrepresented in the loan agreement in order to receive it and that in fact he used the loan money for the construction of his house in Rishpon, contrary to his representation, that he would use the funds for RBA's real estate project abroad; Rafi made false representations regarding his intention to repay the loan and in relation to his intentions to sell the assets, and even after one of the properties was sold (in the Excise Project), the proceeds received in respect of him were not used to repay the loan.
11. The defendants denied what was alleged in the statement of claim and claimed that:
12. The loan agreement was drawn up by Sarel and in accordance with his instructions.
13. This is an agreement that is ostensibly different from the real agreement that was agreed upon orally. According to the actual agreement, Sarel and Shahar are supposed to receive the repayment of the loan personally; The money will be repaid from the sale of one of the properties specified in the loan agreement and no interest payment has been agreed.  Even according to what was written in the loan agreement, the interest was limited to one year only.

• It was also agreed that Rafi was not a guarantor personally. Therefore, it was claimed that there was no rivalry between Rafi and Excalibur.

1. In accordance with the provisions of Section 8 of the Guarantee Law, 5727-1967 (hereinafter: the "Guarantee Law"), it is not possible to demand from the guarantor his guarantee without first required the main debtor to fulfill his obligation. Therefore, even if Rafi is a personal guarantor, it is not possible for the plaintiff to do so, at this stage.
2. It was further argued that the lawsuit was filed on behalf of the wrong party, since the entitlement to receive the funds belongs to Sarel and Shahar and not to Excalibur, which is an empty company, without a bank account.
3. On the merits of the matter, the main defense arguments are based on the offset claim, by virtue of arguments that are mostly consistent with the plaintiffs' claims in the coin suit, the matter of which will be detailed below. According to the defendants, an agreement was reached between Rafi and Mr. Gil Lev (hereinafter: "Gil"), a cousin of Sarel, according to which the loan funds would remain in the hands of RBA until the disputes between the parties were resolved and would be offset if it became clear that there was a debt to Rafi or anyone on his behalf.

• Alternatively, it was argued that all the rights relating to our case should be attributed to Rafi, Sarel and Shahar themselves, in accordance with the provisions of section 6 of the Companies Law, 5759-1999 (hereinafter: the "Companies Law").

12. Excalibur rejected the defendants' arguments, arguing that:
13. The argument that the loan agreement is not a genuine agreement must be rejected. The agreement was drafted by CPA Vered Vatori, Rafi's confidant (hereinafter: "CPA and Etori") in accordance with the terms agreed upon by the parties and which were put in writing by Sarel in an email message dated May 15, 2016 (Appendix 3 to Sarel's affidavit);
14. Contrary to what was claimed, it was agreed that Rafi would be a personal guarantor for the repayment of the loan. The claim that RBA undertook to guarantee personally is devoid of any commercial logic, since RBA cannot guarantee the repayment of its own charge.  In addition, two of the three properties specified in the loan agreement are directly owned by Rafi, and even after the date for repayment of the loan has passed, Rafi offered assets, which are not owned by RBA, as collateral for the repayment of the loan.

• There is no basis for the claim of offset, both in view of the non-fulfillment of the conditions of section 53 of the Contracts Law, and in light of the fact that, contrary to what is claimed, no agreement was reached for the offset. Gil's goal in the meeting he held with Rafi was to try to understand why Rafi refrained from repaying his debt, and he was not authorized to make compromise proposals in any case.  The claim of deduction was argued in a suppressive manner only after the claim was filed and not in real time, and should be rejected.

13. A. 35413-12-21

• The plaintiffs are Rafi and Adim. Rafi was a shareholder in Cybertrade until he transferred the shares to Adrim, which he fully owns.

14. Defendant 1, Sarel is a businessman, with expertise in the field of technology and Internet ventures, and was a shareholder and director in Cybertrade, through a company he owns - Full Position in a Tax Appeal (hereinafter: "Full Position"), is Defendant 3.
15. Defendant 2, Shahar has about 20 years of experience in the field of software development, was a shareholder and a director of Cybertrade, through a company he owns - Waze Star in a tax appeal (hereinafter: "Waze Star"), is defendant 4.
16. Defendant 5 - Cyberlogic in a Tax Appeal (hereinafter: "Cyberlogic") is a company owned by defendants 3 and 4. Sarel and Shahar serve as directors of the same company, and it was it that made the owner's loan available to Cybertrade.
17. According to Rafi and Adirim, they fell victim to a series of fraudulent acts by Sarel and Shahar, who stole their money, took money out of them under the pretext of fraud and falsehood, burdened their joint company - Cybertrade - with their own personal expenses or those of other unrelated businesses, mainly Cyberlogic, and caused them financial damage and loss of profits. This is, inter alia, in the following parashiot:
18. Cybertrade: At the beginning of 2014, Sarel and Shahar offered Rafi a business proposal to invest in a venture they intended to establish that would deal with the field of trading in contracts for difference (CFDs).

On September 10, 2014, a founders' agreement was signed between the three and around the same time, the company engaged in the development and operation of the venture - Cybertrade - was established.  Sarel and Shahar, who had professional knowledge, were the ones who were supposed to establish and operate the venture, and Rafi, who had no professional knowledge in the field, was an external investor.  Each of the three received a third of CyberTrade's shares, when it was agreed that Rafi would invest half of the investment amount and Sarel and Shahar the other half.