This conclusion is also applicable in relation to commercial contracts between business owners, which should be interpreted according to rules of interpretation that give the language of the contract a decisive status (Civil Appeal 7649/18 Bibi Dirt Roads and Development in a Tax Appeal v. Israel Railways Ltd., in the judgment of Justice A. Grosskopf (Nevo November 20, 2019)), since it is possible to learn in appropriate cases from the language of a stipulation in a business contract whether it "survives" the cancellation of the agreement. Even if the terms "primary obligation" or "secondary obligation" were not explicitly used.
- If so, the secondary obligations in the contract do not constitute a "closed list" and each contractual provision must be examined on its merits in relation to the question of whether it is necessary to complete the contractual obligation or its purpose is to regulate the relationship between the parties at the end of the life of the contract. Thus, for example, there may be a provision in the contract whereby a notice of cancellation will not release the parties from the proper performance of the agreement (see, for example, my decision in Civil Case (Tel Aviv District) 30851-06-25 Metrohm AG v. Gulik inTax Appeal (Nevo 21.7.2025)).
- It should also be clarified that contrary to the claim of motion devices, the cancellation of a contract due to the non-fulfillment of a suspension condition does not expropriate all the obligations of the contract, but only the primary charges, and on the other hand, secondary rights and obligations continue to apply (Shalev and Mamach, at p. 604). Thus, for example, it was held that an arbitration clause, the nature of which constitutes a secondary obligation, may continue to exist even if the entire agreement is void due to the non-existence of a suspension clause (Civil Appeal Authority 4986/08 TYCO BUILDING SERVIES V. ALBEX VIDEO LTD., AT PARAGRAPHS 37-40 OF THE JUDGMENT OF JUDGE Y. DANZIGER AND IN THE JUDGMENT OF JUDGE (AS HE WAS THEN CALLED) Y. AMIT (NEVO, APRIL 12, 2010)). As stated, the secondary charges were intended from the outset to regulate the relationship between the parties at the end of the contract period, whether it was cancelled due to its breach or whether it was void due to non-fulfillment of suspension conditions. The parties can and may formulate provisions in the agreement that are intended to continue to exist even in the period after the cancellation, regardless of the manner of cancellation. Recognition of the survival of secondary obligations prevents the attempt to disavow them due to the cancellation or expiration of the contract.
- In the present case, clause 16.3 of the agreement states in an unambiguous manner that "with respect to an engagement with the manufacturer, this clause shall apply to each party as long as it is a shareholder or rights holder in the company, and for 60 months thereafter."In other words, the explicit provisions of the clause tell us that we are dealing with a "self-bearing animal" that continues to exist independently of the fate of the contract, as long as direct imports and traffic devices hold shares or rights in the joint venture company (China-Israel Company), and for 60 months thereafter. Clause 16.3 of the Agreement therefore also foresees a situation in which either of the parties no longer holds the shares of China-Israel, and despite this, the provisions of the clause will continue to bind it with respect to the engagement with the manufacturer, for a period of five full years.
- The rationale behind clause 16.3 of the agreement is clear. The goal is to prevent a party to the agreement from trying to exploit for its own benefit the connections that were created with the manufacturer as a result of the establishment of the China-Israel company. This provision is also intended to survive a situation of dissolution of the business partnership between the parties, for fear that later a party to the agreement will take advantage of those connections with the manufacturer in order to make it his home. The direct channel with the manufacturer is therefore an asset of great importance. Exploitation outside the joint company, even after the business partnership has come to an end, may be considered enrichment rather than law. For this reason, when entering into the agreement, the parties chose to regulate in advance the rules of what is allowed and prohibited in relations with the manufacturer, even after the business relationship between them expires.
- We will reiterate that it was a direct import that "paved" the way for traffic devices to become a manufacturer, by virtue of the previous relationship it had with it (the franchise to market private vehicles made in Israel). This is in the hope that the manufacturer will grant the joint company that the parties will establish a franchise for the marketing of trucks and heavy vehicles. Therefore, in order to prevent the use of the relationship with the JAC for the benefit of the business partnership between the parties, clause 16.3 of the agreement came into being.
- In fact, this is a provision with business logic similar to that of a stipulation regarding the prohibition of competition, which is common in commercial contracts and employment contracts. The non-compete clause has been discussed more than once in relation to distribution and marketing agreements (see, for example: Civil Appeal 618/85 Western Galilee Springs in Tax Appeal v. Tabori - Soft Drinks Ltd., IsrSC 40(4) 343 (1986); Civil Appeal 901/90 Nahmias v. Columbia Trade and Industry Ltd., IsrSC 47(1) 252 (1993)). An example of this can be found recently in the Supreme Court's ruling in Civil Appeal 8191/16 Dyalit in Tax Appeal v. Harar (Nevo June 17, 2019)), where it was held that:
"There is no dispute between the parties that on October 15, 1997, Dyelite signed an agreement in a tax appeal and Sajjanand signed an agreement for the distribution of diamond polishing machines (hereinafter: the Agreement). This agreement entered into force and the parties considered themselves bound by it (paragraph 27.1 of the District Court's judgment). There is also no dispute that this agreement was cancelled by the parties, no later than March 2000 (see: paragraph 38 of the notice of appeal). It follows from this that at the time that Herar sold 24 polishing machines to Sajjanand (May 2000), the agreement between the parties was already canceled. However, despite its nullity, the non-competition clause set out in clause 23 of the agreement continued to apply and obligate the parties. The same clause explicitly states that it will continue to apply for the duration of the agreement, and at least three years after its termination. Moreover, clause 26 of the agreement further clarified that the provision of clause 23 will continue to be in force and bind the parties even after its termination, regardless of the reason for which the agreement will come to an end [...] In the present case, a reading of the provisions of clauses 23 and 26 of the agreement must be concluded that the parties have expressly agreed that the non-competition clause will continue to apply and bind them even after the end of the contractual period. It was found that although the non-competition clause is characterized by its nature and nature as a 'primary' obligation, it continues to apply and bind the parties even after the termination of the agreement, in view of the explicit consent of the parties. This stipulation becomes, in practice, a kind of independent contract that continues to be valid, despite the cancellation of the general agreement.(ibid., paragraphs 3 and 5).
- The conclusion from the aforesaid is that the independent contacts of Motion Devices with the manufacturer, in an attempt to obtain from it a concession for the marketing of trucks and heavy vehicles, completely contradict its obligation under clause 16.3 of the agreement to refrain from engaging with the manufacturer other than through the China Israel Company. Traffic Devices operated in this way behind the backs of the trustees and did not inform them of this, even though the provision of the aforementioned section 16.3 is still binding on the parties. Therefore, there is justification for issuing an order prohibiting traffic devices from contacting the manufacturer in connection with a concession for the distribution and marketing of trucks and heavy vehicles without cooperation with the trustees, as required by the provision of clause 16.3 of the agreement.
- A similar result, and even broader in the sense that it also applies to private vehicles whose marketing concession is direct imports alone, is also required by the provisions of Section 6 of the letter of undertaking signed by Traffic Devices on December 11, 2024, even before the engagement in the founders' agreement. This section states that:
"We hereby undertake not to make any use of the information, including not to exploit this information in any way for our benefit and/or for the benefit of another, except through you and with your permission. In addition, we undertake not to abuse the information we receive for the purpose of conducting activity that competes with your activity or for the purpose of contacting the manufacturer outside of the transaction."