The state is the controlling shareholder of Agrexco, which holds, directly and indirectly (through statutory corporations) about 89% of its shares.
The state's control of Agrexco is referred to in the trust deed for the bonds, and it constituted an important layer in the rating given to the bonds."
- Therefore, my conclusion is that the company would not have ceased its activity sooner and the bonds would not have been a candidate for early repayment if the accounting policy had been changed, since the decisive factor in its continued activity and investments in it was the confidence in the state's support and not the financial data in the reports. Therefore, I have reached the conclusion that the plaintiffs have not proven a causal connection between the accountants' failures and the date of the company's collapse, especially in view of the awareness and approval of the Companies Authority and the company's management of this policy.
- Thus far, the causal connection in its factual sense has been examined: had it not been for the alleged accounting treatment, the date of cessation of activity or the date of early repayment of the bonds would have been changed. Since no factual causal connection has been proven, this is sufficient to reject the claim of liability. More than necessary, I will also examine below the legal causal connection: whether the alleged damage falls within the scope of the risk and expectations attributed to the alleged default.
Legal Causal Connection: Expectations and the Scope of Risk
- The risk test serves as the general framework test for determining a legal causal connection. This test examines, in retrospect, whether the actual damage is the realization of the same risks that made the behavior wrongful in the first place. The Observation Test does not require accurate observations of all the details of the causation process or the exact extent of the damage. It is sufficient that the tortfeasor could have predicted the occurrence in general terms and the type of damage. When it comes to areas of expertise such as accounting, the classification of the type of damage may be influenced by the professional knowledge available at the time of the incident (Herman, at pp. 177-182; Civil Appeal 4486/11 Anonymous v. Clalit Health Services, 66(2) 682, at para. 25 (2013).
- An auditor is obligated by law to conduct the audit with proper professional care and to a scope that will serve as a reliable basis for his opinion. He must expect that failure to perform the audit, failure to disclose material deficiencies or breach of reporting obligations to the board of directors may lead to damages to the company and its shareholders. The expectations required of him are that of a "person from the community" with relevant professional training, who is aware of his statutory obligations (section 4 of the Accountants Regulations; Companies Law, Sections 169-170).
- However, care must be taken to ensure that the examination of the accountant's liability will not be affected by a later development, which was not in the accountant's knowledge and reasonable expectation at the time he performed the actions in question (Anonymous case, at p. 46). In addition, not every case in which the auditor's opinion turns out to be erroneous, he will be held liable as aforesaid. It is the duty of the accountant to take reasonable precautions so that the company's financial statements do not contain errors and accurately reflect its financial situation, but he is not a guarantor of the realization of this goal (Anonymous Case, at para. 51; Anonymous Case, at p. 681; Sayag Case, para. 22; Civil Case (Tel Aviv District) 50971-01-11 Bank Hapoalim in Tax Appeal v. Uri Linter, 54 [Nevo] (August 26, 2015)).
Should a reasonable auditor have expected a deepening of losses?
- This is the place to relate to the purpose of the company, which is declared in section 94 of its articles of association, according to which it does not operate for business reasons or for profit, by definition. Thus, this statutory provision was quoted in the Midroog report, as presented to the investors who participated in the bond raising round (N/2, Midroog Report, p. 5):
"The company's articles of association stipulate that the company will not generate profits