Civil Appeal (Haifa) 33822-11-25 Dreadlocks Marketing Ltd. vs. Yehiel Kedem

Judge A.  Attias [presiding judge]:

1. Appeal against the judgment of the Haifa Magistrate's Court (the Honorable Judge Liran Haim) in civil case 30804-04-21, given on July 20, 2025.

Factual Background and Previous Proceedings:

2. On February 1, 2013, an operating concession agreement was entered into between the parties in the field of fashion for a period of five years, with an option to extend for an additional five years (hereinafter: the "Agreement").
3. The respondent operated a fashion store in Afula where the appellant's products were sold until April 5, 2021.
4. At the beginning of March 2021, an exchange of letters began between the parties that led to the termination of the contract, with each party maintaining its legal claims.
5. The appellant filed a main claim with the District Court, in which a permanent injunction was requested to prohibit the respondent from selling products of another fashion company, "The Third Eye", in the store and making use of the appellant's list of customers. In addition, statutory compensation was requested under Section 13 of the Commercial Torts Law, 5759-1999.  At the same time, an application for a temporary injunction was filed which was rejected in the District Court and was granted, after an appeal, in the Supreme Court by the Honorable Justice Sohlberg (Civil Appeal Authority 4252/21).
6. The respondent filed a counterclaim against the appellant in which he claimed that the agreement was extended for an additional five years (until February 2023), and therefore the appellant's notice of its termination about two years before the end of its term constitutes a breach. In these circumstances, it was argued that the respondent is entitled to compensation for loss of profits from business activity for a period of 24 months (from March 31, 2021 until the end of the agreement period on March 31, 2023); compensation for the costs of preparing the store for its intended use and the costs of maintaining the store for the period from March 31, 2021 until the end of the tax year on December 31, 2021; compensation under sections 4(a)(7) and 5(b) of the Agency Contract Law (Commercial Agent and Supplier); 5772-2012 (hereinafter: the "Agency Law"); a credit for excess inventory calculated by the respondent on the basis of an estimate; and compensation for the prohibition of using a list of customers collected by the respondent.
7. On the other hand, the appellant argued that the agreement was not extended after its first five years, and therefore it could be terminated within a reasonable time of 30 days. It was argued that the breach of the agreement was committed by the respondent, because his wife, who actually managed the store, did not act in accordance with the agreed standards, and also that after the termination of the relationship, the respondent violated a prohibition clause included in the agreement, and therefore the respondent is not entitled to compensation.
8. Following the issuance of the temporary injunction, on June 15, 2022, in accordance with the agreement of the parties, a judgment was given in the main claim, according to which a permanent injunction was granted, and the counterclaim filed by the respondent was transferred to the trial court. In a proceeding in the trial court, on March 28, 2024, the parties reached a procedural settlement, according to which the judgment in the counterclaim will be given according to the material in the file, without hearing witnesses, and on the basis of summaries that will be submitted.

The rulings of the trial court in the counterclaim:

9. In its judgment in the counterclaim, the trial court determined the following findings and conclusions:

Was there an obligation to send a notice for the purpose of extending the agreement after February 2018?

1. The Respondent's argument that the extension clause at p. 3 of the agreement should be interpreted so that the obligation to give notice is not necessary, provided that he met the two prerequisites of the clause (compliance with the contract until the date of the extension to the company's satisfaction; and the extension of the lease for the store for a parallel period).
2. The Ottoman Settlement [Old Version] 1916 In this case, the language of the clause is clear and establishes conditions with respect to the possibility of extending the agreement: compliance with the terms of the contract, extension of the lease, giving notice six months before the end of the engagement period. All of the aforementioned conditions are set forth in the same section, and it does not appear that the separation of two paragraphs that also relate to the manner of the extension, justifies a deviation from its clear language.  Nor is it possible to accept the argument that the obligation to send a notice is not formulated as a condition, since the wording of the clause is that 'if the franchisee wishes to extend ...  will have to be announced...'.  In the absence of hearing evidence in light of the parties' agreements, no circumstances have been proven that justify deviating from the explicit language of the section.

• 12-34-56-78 Chekhov v. State of Israel, Pis.    51 (2)Since we are dealing with a section whose interpretation is clear and unique, in accordance with case law, there is also no room for applying the rule of interpretation against the drafter.

1. The respondent did not argue for the interpretation of the extension clause specifically in light of its objective purpose or the fact that we are dealing with a discriminatory condition. His argument focused on the linguistic interpretation of the section.  However, the objective purpose is to establish arrangements regarding the extension of the period of the agreement beyond that determined.  This is a clause that is simply worded, and there is no issue in it that establishes a presumption of deprivation, or justifies a deviation from the language in light of the objective purpose.
2. The appellant argued in the context at hand that the condition according to which the respondent met all the terms of the agreement, in particular in light of the conduct of the store manager on his behalf. However, in the absence of hearing evidence in light of the parties' agreements, it must be determined that this matter has not been proven.
3. Therefore, it should be determined that in accordance with the agreement, notice is required from the respondent of its desire to extend the engagement at least six months before its original termination (in February 2018).

Was a notice given regarding the extension of the engagement in accordance with the agreement?

• The respondent's claim that "on his part he fulfilled the requirement to give notice in a telephone conversation he had with the CEO close to the date required for the renewal of the agreement" (paragraph 26 of the respondent's summaries), was not proven in the absence of hearing evidence in light of the parties' agreements, and when the appellant claims a different version. The respondent did not claim that the conversation in which the said notice was given took place six months before the termination of the agreement, and in any case it was not a binding notice that met the requirements of the agreement.
• More than necessary, in a correspondence between the parties dated March 1, 2021, the Appellant's CEO informed the Respondent that "the agreement between us has expired". In response, the respondent replied that "the agreement between us is for 5 years + 5 years.  We signed in March 2013 - in March 2018 I was entitled to terminate the engagement between us.  Since the termination between us was not carried out in 2018, the contract was extended for another five years." It is puzzling why, in authentic correspondence from a real time, the respondent does not state the reason, prima facie, for the extension of the agreement by giving notice by him in a conversation with the appellant's CEO, as alleged in his summaries, and chooses to cite as a reason for the extension the non-termination of the contract in 2018.

1. In light of the aforesaid, it is also not possible to accept the respondent's argument that insofar as there is doubt about the giving of the notice, it should be attributed to the appellant's obligation, since it is not a matter of doubt about the giving of the notice, except in a case where it has not been proven that it was given, and it even appears from the correspondence between the parties, that the opposite may arise from what is claimed by him.
2. It is not possible to accept the respondent's argument that the very continuation of the engagement between the parties from 2018 to 2021 constitutes in fact an agreement by way of conduct to extend the agreement for an additional five years, explicitly or implicitly. Since the agreement does not specify the manner of giving the notice of extension (or notices at all), section 61(a) of the Contracts (General Part) Law, 5733-1973, which states that "notice under this law shall be given in the manner acceptable in the circumstances of the case".  In accordance with case law, it is possible to demonstrate flexibility in the matter by way the notice is given, but this must include a clear and unambiguous message with respect to the informant's wish, which in our case is the extension of the agreement for an additional five years.  In this case, it was not proven that notice was given within the time specified in the agreement.  Moreover, it was not even claimed or proven that the wording of the alleged notice was such that it was unequivocal in relation to the respondent's expression of desire to extend the agreement for an additional five years, in a manner that meets the requirements of case law.
3. Copied from Nebulfih, it should be determined that when for the purpose of extending the agreement, the obligation to give notice applies, and the duration of which was not given, the agreement was not extended in accordance with the extension clause in 2018.

The law that applies to the parties from the moment the agreement was not extended and the results of their conduct in light of it:

• The agreement was not extended in accordance with the extension clause stated in the agreement. The arguments of the parties indicate that they continued to work together to a certain extent in a manner similar to their previous work routine, for about three more years.  However, in the absence of hearing evidence in light of the parties' agreements, it was not proven which details of the previous engagement were adopted by them and which were not.
• As for the non-compete clause, the issue was at the heart of the main lawsuit that ended in the District Court. However, in our case, it appears that the issue remains only theoretical, since the appellant noted that it is not aware that the respondent actually sold the products of the third eye or that he made use of the list of customers.  It was clarified that the claim of breach in this context stemmed from a desire to breach the agreement, but there is no dispute that it has not been proven that the alleged desire to breach was formed before the appellant announced the termination of the engagement.  Therefore, the aforesaid has no bearing on the procedural framework.  On the sidelines, it was also not proven that in the framework of the continuation of the conduct between the parties after 2018, the non-compete clause set out in the agreement was re-validated (by conduct or otherwise) (when it was not extended in accordance with the extension clause).
• As to the respondent's entitlement to compensation for the termination of the engagement by the appellant in March 2021, it appears that there is no need to address all aspects of a commercial agency and franchise, since in practice, the dispute between the parties is whether the respondent is entitled to advance notice compensation, under section 4(a)(7) and 4(c) of the Agency Law, as well as compensation for the termination of an agency contract, under section 5(b) of the same law.

1. There is no room for compensation in accordance with section 5(b) of the law. In accordance with Section 5(a) of the Law, the compensation is subject to proof of the fulfillment of three cumulative conditions: (1) "The agency contract was valid for at least one year"; (2) "During the period of the agency contract, the commercial agent was the effective factor in the engagements or the increase in the scope of such business"; (3) "The engagements or the increase in the scope of such businesses yield fruit to the supplier even after the end of the agency contract period." Taking into account the fact that no evidence was heard in light of the parties' agreements, the existence of the second and third conditions above was not proven. This, even if we assume that the respondent should be regarded as a commercial agent.

• Regarding the question of compensation for advance notice, in Civil Appeal 4232/13, the Supreme Court noted the legal proximity between the relationship between a commercial agency and a franchise, and ruled that it is justified to make certain inferences between the arrangements that were established in relation to these relationships. The Supreme Court referred to similar parameters such as: "long-term relations that require trust between the parties, reciprocal relations, and a certain degree of ongoing contact and coordination." Taking into account the aforementioned parameters, it seems that an inference from the commercial agency's arrangement for a franchise arrangement is particularly appropriate on the issue of advance notice.  The purpose of the legal arrangement is to protect the reliance interest of the commercial agent, which is strengthened with the passage of time in which the agency arrangement was in effect.  This interest embodies the agent's investment that derives from the long-term relationship between the parties, expected profits affected by the close reciprocal relationship between them, expenses incurred, and more.  Similar characteristics, in the context at hand, also exist in a franchise contract.  Therefore, the standards set in relation to the commercial agent regarding the advance notice are also appropriate in relation to the franchisee.
• Even if the relationship is examined separately from the Agency Law, a similar result will be obtained. In accordance with contract law, when the parties continued to operate after 2018 without extending the contract between them, a new contractual framework was created (the exact scope and limits of which were not proven, as aforesaid) for an indefinite period of time.  In accordance with case law, the termination of relations in an indefinite contract is possible by either party within a reasonable time, within the framework of an arrangement whose purpose is to ensure the interests of the other party.
• The termination of the relationship by the appellant after about eight years of joint activity, in which the respondent operated an active store of the appellant's products while managing an ongoing relationship between the parties, justifies compensation in the form of six months' advance notice. In the absence of evidence in light of the parties' agreements, it was not proven that during the period there were difficulties in the conduct between the parties (prior to March 2021) or that there was a real reason for the termination of the relationship.  The amount of compensation, in this context, was determined in the opinion of an accountant on behalf of the respondent (which was not concealed), in accordance with the parameters set out in section 4 of the Agency Law, in the amount of ILS 46,296.
• Accordingly, whether by analogy from the Agency Law or in light of the General Contracts Law, the Respondent is entitled to compensation for the lack of advance notice in the sum of ILS 46,296.

The components of the compensation requested in the statement of claim:

31. The two heads of damages regarding the loss of profits from the business activity should be postponed for a period of 24 months and compensation for the costs of preparing the store for its special use and the costs of maintaining the store from the date of the actual termination of the engagement until the end of that calendar year (31.3.2021-31.12.2021). Once it was determined that the agreement was not extended beyond 2018, and that its termination did not occur due to a breach by the appellant, there is no cause for compensation for loss of profits until 2023 or for renting the store. Moreover, the cost of preparing the store was used by the respondent from 2013 to 2018, when there was no assurance at the time that the agreement would be extended beyond that.  In addition, with respect to the rent, in her letter of March 1, 2021, the appellant proposed to examine with the shop landlord the possibility of stepping into the respondent's shoes in the current lease.  It has not been proven that the respondent acted in order to realize this possibility.

• Regarding the head of damage of compensation for advance notice in accordance with section 4(7) of the Agency Law, this matter has already been discussed at length in the judgment, and entitlement to compensation in the sum of ILS 46,296 was determined.
• Regarding the head of damage of compensation for loss of income in accordance with section 5(b) of the Agency Law, it has already been determined that there is no entitlement to compensation for this head of damage.
• Regarding the head of damage of compensation for excess inventory that was calculated on the basis of an estimate, in the absence of hearing evidence in light of the parties' agreements, the existence of compensable excess inventory has not been proven, and therefore this head of damage should be rejected. This, in particular, a counter-opinion was submitted on behalf of the appellant relating to negative inventory differences for the relevant years.
• With regard to the head of the damage of compensation for the prohibition of using a list of about 1,000 customers, these are customers who purchased products in the respondent's store, and at this time, they were offered to join the appellant's customer club, and they chose to do so. This head of damage should also be rejected for two reasons: first, the failure to use a customer list stemmed from the District Court's ruling.  Second, the calculation of the damage is done by way of an estimate.  No evidence was presented explaining why the alleged damage could not be proven in practice, or evidence justifying the calculation of the estimate in the manner proposed in the statement of claim.
• Therefore, in the counterclaim, the appellant was ordered to pay the respondent the sum of ILS 46,296 for advance notice, as well as legal expenses in the sum of ILS 3,000 and attorney's fees in the sum of ILS 6,000 (including VAT).

The appellant's arguments in the notice of appeal:

10. The appellant's arguments focus on a number of main points:
11. The trial court erred in determining that it was the appellant who severed the relationship. The appellant claims that the respondent fundamentally violated the franchise agreement (lack of personal management, failure to replace unsuitable employees, systematic violations), and rejected the appellant's offer to continue the engagement on condition that he replace the store manager, and chose to sever the relationship on his own initiative.
12. The trial court ignored many documents and evidence submitted to it by the appellant, in contravention of the law and case law, even in the case of a procedural settlement.

• The trial court ignored a proven fundamental breach of the franchise agreement by the respondent, which was expressed in an attempt to make use of the appellant's customer lists, and was blocked only by virtue of an injunction. This breach, even if it occurred after the termination of the engagement, is considered a fundamental breach of secondary obligations that remain in effect.

1. The trial court erred in applying, by way of "judicial legislation", the statutory compensation set forth in the Agency Law, to franchise relations. Statutory damages are an exception that applies only to the laws in which they are fixed, and the legislature is empowered to correct deficiencies in primary legislation.
2. The trial court erred factually and legally in awarding compensation for the "notice period". From the factual aspect, the respondent did not claim at all and did not demand in real time a period of preparation for advance notice, but rather rejected the appellant's arguments and chose to sever the relationship immediately.  From the legal aspect, even if advance notice had been given, the respondent's fundamental breach (theft of a customer list) at the beginning of the period of the "secondary agreement" would have entitled the appellant to an immediate termination of the engagement without compensation.
3. Alternatively, since an absolute majority of the respondent's claim was rejected (about 90%), the trial court should have ordered the respondent to pay the court costs, and not the other way around.

• Therefore, the obligation to pay the compensation determined in the trial judgment should be completely canceled, and alternatively, the respondent should be charged with court expenses and attorney's fees in both instances.

The respondent's arguments in his response to the appeal:

11. The Respondent seeks to dismiss the appeal on the ground of the following arguments:
12. The appeal attempts to reopen the factual determinations of the trial court, which were determined after examining the totality of the evidence. As a rule, the appellate court does not intervene in factual findings and findings of reliability, except in exceptional cases that do not exist here.  The attempt to turn the appellate court into another trial court undermines the legal policy that seeks to respect procedural arrangements and prevent the complexity of proceedings.
13. The appellant is the one who unilaterally and surprisingly terminated the engagement after 8 years of activity, without prior warning of the "violations". The obligation to give advance notice in a contract for an indefinite period is derived from the principle of good faith, and is intended to allow the other party time to organize and find an alternative source of income.  In circumstances of long-term trust relationships, an abrupt termination of the relationship without giving a reasonable time in advance constitutes a breach of the duty of good faith in the performance of a contract.

• The trial court set a notice period of 6 months, based on an expert opinion and the duration of the engagement (8 years). The respondent argues that this is a minimal and reasonable period in the circumstances of the case, and that the compensation is intended to protect the expectation interest of the injured party.  The compensation awarded reflects the profits that the respondent could have made had he been given reasonable time to organize for the termination of the relationship.

1. The appellant's claims of breaches of agreement on the part of the respondent are "suppressed" claims that were raised only retroactively in order to justify the termination of the engagement. In real time, in the termination notice, the appellant mentioned only the termination of the agreement, and did not hint at any breaches.  Raising claims of violations only after the other party expresses reservations about the termination of the relationship attests to a lack of good faith and an attempt to legitimize misconduct.
2. There is no room to intervene in charging the appellant with legal expenses and attorney's fees, since this issue is left to the broad discretion of the trial court, which is familiar with the conduct of the parties in the case. The intervention of the appellate court in the expenses will be done only in exceptional cases of a legal error or a material defect, which do not exist in this case.
3. Therefore, the appeal should be dismissed in all its components, while leaving the judgment of the trial court in place, since it is based on a solid factual basis and on the proper application of the principles of good faith and the duty of advance notice in long-term commercial relationships.

Discussion and Decision:

12. After I have examined the written arguments of the parties, and have also considered their oral arguments, I will suggest to my colleagues that the appeal be dismissed.
13. The judgment of the trial court, which was given against the background of the procedural arrangement that was formulated between the parties, in which the parties waived the hearing of evidence, is reasoned and detailed, is consistent with the procedural arrangement, and as a rule, I have not found that there is a legal ground for the appellate court's intervention in it.
14. Indeed, the counterclaim was filed by virtue of the Agency Contract (Commercial Agent and Supplier) Law, 5772-2012 (hereinafter: the "Agency Law"), and the judgment of the trial court does not discuss the question of whether or not the aforementioned law applies in the circumstances of the case before us. However, the trial court was entitled to base its ruling on a different legal cause of action than that claimed in the statement of claim, when the facts requiring it were argued in the statement of claim.  Therefore, the trial court was entitled to award the respondent advance notice fees by virtue of the general law and not by virtue of the Agency Law.  See: Civil Appeal Authority 7288/12 Rosen v.  Abramovich (October 23, 2012); Also: Civil Appeal 8023/16 Arbiv Or v.  Pantofat Janah (August 20, 2019).
15. Even if the appellant is correct in her claim that this is a franchise contract and not an agency contract, I have not found anything wrong with the trial court's application to the Agency Law as a criterion or as an indication of the period of advance notice required in the circumstances of the case, according to the general law. In any event, the trial court's determination that after eight years of joint activity, it was appropriate to give six months' advance notice is reasonable and logical and does not justify the intervention of the appellate court.
16. The trial court's determination that it was the appellant that unilaterally severed the relationship with the respondent is consistent with the notice of termination of the engagement of March 1, 2021 (Appendix 2 to the statement of defense), where no claim was made regarding the respondent's breach of the agreement. The claims regarding the breach were raised retroactively after the agreement had already been cancelled without giving the respondent prior notice as required by the provisions of the law.
17. Even if the agreement was breached by the respondent, and I am not persuaded that there was an error in the trial court's failure to rule on the matter, in light of the procedural arrangement that was formulated between the parties, and since it did not hear evidence in this regard, the cancellation notice was not based on an allegation of breach. Nor can it be said that the alleged infringements are fundamental violations that cannot be corrected, especially when the respondent's wife managed the store, and not the respondent, from the beginning of the engagement between the parties.  Hence, the trial court was correct in its determination that the contract was cancelled without giving the respondent prior notice, as required by law, and therefore the respondent is entitled to compensation in lieu of prior notice.
18. The Respondent's consent, after the notice of cancellation was sent, that the business relations between the parties would come to an end on March 31, 2021, as demanded by the Appellant in the notice of cancellation of the agreement, was, as it emerged from his counsel's letter of March 9, 2021, "without any choice", and without this "exhausting the full range of my client's claims". In her aforementioned letter, the respondent's counsel even argued that "...  Your assertion in the letter that the notice sent to my client on March 1, 2021 was sent within a reasonable period of time, is a puzzling assertion, and it will be said to say the least!!." Therefore, the respondent is correct in his argument that this consent cannot be seen as a waiver of compensation for failure to give advance notice.
19. Since the Appellant was the one who presented the Respondent with a fait accompli when it notified him of the termination of the engagement on March 31, 2021, the fact that the Respondent did not ask for time to organize or give advance notice on his own initiative does not exempt the Appellant from the obligation to compensate for the failure to give the prior notice, especially when the Respondent's counsel insisted that her conduct was expected to cause the Respondent substantial damage to income and considerable economic damages (paragraph 2 of the Respondent's letter of March 9, 2021).
20. Admittedly, the appellant offered the respondent to continue operating the store on condition that the respondent replace his wife as the store manager. However, this proposal came into existence after a unilateral notice of termination of the engagement was already given on March 31, 2021, i.e., after a month's advance notice.
21. The appellant's offer on March 15, 2021 to continue the engagement against the appointment of a "worthy replacement for the position of store manager", is a new offer that was made after the appellant had already cancelled the contract without giving the respondent sufficient prior notice. This new proposal was rejected by the respondent, and it does not exempt the appellant from the obligation to pay compensation for the denial of the advance notice.
22. More than necessary, I will add that there is no reason to settle accounts with the respondent for rejecting the offer to replace the store manager. This is where the respondent's wife served as the store manager, with the appellant's consent, from the beginning of the engagement between the parties, in such a way that it can be determined that the appellant waived her requirement in the contract that the appellant personally be the one to manage the store.  In addition, the offer to continue the engagement against the replacement of the respondent's wife as manager was made without the possibility of preparing for the replacement of the principal within a reasonable time.
23. The decision of the Honorable Justice Sohlberg regarding the interim relief in the framework of Civil Appeal Authority 4252/21, when he ordered that until the main claim is decided, the respondent will refrain from making use of the appellant's list of customers, does not establish a breach of the agreement by the respondent in a manner that justifies the cancellation of the agreement without prior notice. Nor is it possible to determine, on the basis of the evidentiary material that was placed before the trial court and the procedural arrangement in which the parties waived the hearing of evidence, that the agreement was breached or that it was expected to be breached by the respondent after the notice of termination of the engagement was sent.
24. With regard to the expenses awarded by the trial court, as a rule, the intervention of the appellate court in the matter of court expenses will be done sparingly, and in exceptional cases that did not take place in our case. Admittedly, most of the claim was dismissed, but the trial court ruled in favor of the respondent a measured and proportionate sum in which there is no justification for intervening.
25. Therefore, I would suggest to my colleagues that the appeal be dismissed while charging the appellant with the respondent's attorney's fees in a reduced sum of ILS 6,000, including VAT. This sum was determined by me in view of the fact that the trial court awarded the respondent compensation for not giving 6 months' advance notice, even though the appellant had already given a month's advance notice.  Admittedly, this argument was not raised in the framework of the appeal, but I saw fit to take this point into account when awarding costs.