Civil Case (Herzliya) 47656-04-24 QUERENCIA TECHNOLOGIES PTE LTD N’ B.O.G. Entrepreneurship & Development Ltd.

Decision

The application of the counter-defendant (the applicant) to oblige the counter-plaintiffs (the respondents) to deposit a guarantee to secure payment of expenses, in accordance with Regulation 157 of the Civil Procedure Regulations, 5779 - 2018 (hereinafter - the Regulations) in relation to Counter-Plaintiff 1, and in accordance with Section 353A of the Companies Law, 5759 - 1999 (hereinafter - the Companies Law) in relation to Counter-Plaintiff 2.

The background and the parties' arguments in summary

1. In the framework of the counterclaim filed by the counter-plaintiffs, it was argued that in the course of the conduct of the parties in relation to the funds transferred between the parties and which were discussed in the framework of the main claim, Mr. Tziki Kurland, who serves as the counter-defendant's representative, asked for examples of panels developed by counter-plaintiff 1.
2. Since counter-plaintiff 1 was not in the warehouses of the company in which the panel is held at the time, he suggested that Mr. Kurland come to the company's warehouses for the purpose of taking samples of the panel in order to present it to a potential customer.
3. After counter-plaintiff 1 returned to the company's warehouses, he discovered that out of the 1,000 meters of panel that were in the company's warehouses, only 200 meters remained. In other words, Mr. Kurland stole 800 meters of panel without permission.
4. According to them, in a conversation with Mr. Kurland, he apologized and promised to return the panels or pay for them.
5. Subsequently, on September 3, 2021, a letter was received from defendant 2, confirming that the panels were taken by their representative (Mr. Kurland) in Israel, in which it was also clarified that the sum of $65,150 transferred from her account to the account of the counter-plaintiff 2 was payment for the industrial panel for construction.
6. On the basis of the aforesaid, it was claimed that the counter-defendant did not return or pay for 800 meters of panel. Therefore, a relief was sought whereby the counter-defendant must pay the counter-plaintiffs the sum of ILS 400,000, which reflects the direct loss in respect of the product taken without permission.
7. In the framework of the statement of injunction for the counterclaim, the counter-defendant denies the claims of the counter-plaintiffs. According to the claim, the document on which the claim is based is a forged document.  It was further argued that this is an evolving version since in the framework of the execution proceedings conducted by the parties, as well as in the original counterclaim, the claim was directed against Mr. Kurland only, and only after an order was issued to open insolvency proceedings against Mr. Kurland, did the counter-plaintiffs seek to create an artificial claim against the counter-defendant.
8. The counter-defendant further argues that even if there was a basis for the claim that Mr. Kurland took the panel, this does not indicate the imposition of liability on the counter-defendant, since it has no connection to the said panel and is not required of the said panel. It claims that it is a fintech company that has no interest in the panel in question.
9. In the framework of the motion to charge the deposit of a guarantee for expenses, the counter-defendant claims that the counter-plaintiff 1 is in financial difficulties. The counter-defendant bases this on the counter-plaintiffs' claim of lack of funds, due to which they initially chose to represent themselves in the absence of the ability to afford an attorney to represent them in the main and counterclaims.  The same is true with respect to the counter-plaintiff 2, since it is a company whose shareholders' liability is limited, and this is sufficient to apply a presumption in the law according to which it is obligated to deposit a guarantee.
10. It was further argued that the counterclaim has slim chances, when, as stated, it is an evolving version in which each time it is claimed that another party took or is responsible for taking the panel, and in particular when the claim that the panel was taken from the warehouses of the counter-plaintiff 2 lacks any basis and is denied on its merits.
11. In response to the motion, the counter-plaintiffs argued that the application should be dismissed out of hand, both because an affidavit was not filed and because the application was filed not in accordance with the provisions of the Regulations. With regard to the motion to charge counter-plaintiff 1, it was argued that no reason was found in the application detailing the exceptional circumstances that justify charging the counter-plaintiff with a guarantee for expenses.  In particular, when the counter-defendant did not present any evidence attesting to the financial situation of the counter-plaintiff 1.
12. As for the counter-plaintiff 2, it was argued that the counter-defendant did not point to circumstances that justify the obligation of the counter-plaintiff 2 to guarantee the expenses. In this framework, it was argued that in any event, the counter-defendant, which is also a plaintiff in the main claim, is a foreign company, and therefore, to the extent that counter-plaintiff 2 is obligated to guarantee costs, it intends to file a similar request to charge the counter-defendant with a guarantee for expenses in the framework of the main claim (it should be noted that following the hearing that was held, the counter-plaintiffs, in their capacity as defendants in the main claim, filed a motion to charge the main plaintiff (the counter-defendant) with a guarantee for costs.  A decision on this request will be given after a response to the request has been submitted).

Discussion and Decision

13. After reviewing the arguments of the parties, I found that the application against the counter-plaintiff 1 should be rejected, while the application against the counter-plaintiff 2 should be granted.
14. As for the application in the case of the counter-plaintiff 1 - the purpose of Regulation 157 is to prevent futile claims and to ensure the defendant's expenses when the chances of the claim are slim (Civil Appeal Authority 5477-22 Yechiel Aburat v. Exodus Premium 2015 in Tax Appeal [published in Nevo] (August 21, 2022)).  At the same time, and in view of the importance of the right of access to the courts, it was determined that the court would use its authority and order the deposit of bail rarely and in exceptional circumstances.
15. In this regard, a number of considerations were set that will guide the court - for example, in the case of a plaintiff who is a foreign resident and is unable to point to assets in Israel from which the defendant can repay at the end of the proceeding; or when the plaintiff did not provide his address as required by the Regulations (Civil Appeal Authority 5738/13 Sara Abu Sa'aluk v. Clalit Health Services [published in Nevo] (November 14, 2013)).  These considerations are examined alongside an examination of the chances of the claim and the plaintiff's financial situation, as detailed in Regulation 157 of the Regulations.
16. With regard to proving the financial situation of the counter-plaintiff 1, unlike in a case where the plaintiff is a limited company, in which case the starting point is to deposit a guarantee, unless its financial capacity is proven, in the case of an individual plaintiff, the rule is not to deposit a guarantee, and the exception is to deposit it, if it is proven that his financial situation puts the possibility of repayment in jeopardy if his claim is rejected (Civil Appeals Authority 1741/17 Gafni v. Avolnik [published in Nevo] (April 5, 2017)).
17. For our purposes, the counter-plaintiff 1 is not a foreign resident, and his address was also indicated in the title of the statement of claim.
18. As to the chances of the lawsuit, at this prima facie stage and in view of the factual arguments raised by the parties, it is difficult to determine the chances of the lawsuit. In this regard, I will only make two comments - one, the claim that the liability in the matter of the panel is the counter-defendant, an argument that arose at a later stage.  As part of the execution proceedings, it was claimed that the person who took the panel was Mr. Kurland.  In the framework of the original statement of claim in our case here, it was also claimed that the person who took the panel, and is therefore responsible for its return or payment for it, is Mr. Kurland.  Only following the issuance of an order to open proceedings against Mr. Kurland was it requested that the counterclaim be amended and that the liability be attributed to the counter-defendant.  Second note, the counterclaim seeks to base the counter-defendant's liability on a letter dated September 3, 2021, in which it is claimed that the counter-defendant admits that the panel was taken by the company's representative (Mr. Kurland).  Beyond the claim that this was a forged document (and this claim requires a factual clarification), in the aforesaid letter on which the counterclaim is based, it was claimed that the counter-defendant paid for the panel in the sum of $65,150 by transferring the sum of $65,150.  Hence, the question arises in relation to the meaning of the letter and the purpose of the funds that were transferred.
19. These arguments have not gone unnoticed by me, but they do not justify the existence of exceptional circumstances with respect to the obligation of counter-plaintiff 1 to guarantee costs.
20. This is also required in view of what is claimed in relation to the financial situation of the counter-plaintiff 1. The applicants did not lay any factual or evidentiary basis according to which the plaintiff's financial situation endangers the possibility of being reimbursed for expenses, should his claim be rejected.  The argument that he chose not to hire the services of a lawyer is not sufficient to substantiate the fear that the counter-defendant will be left with no money, especially since at the end of the day the counter-plaintiffs contracted with an attorney for the purpose of representation.
21. Therefore, the application with respect to counter-plaintiff 1 is denied.
22. As for the motion to charge the counter-plaintiff 2, section 353A of the Companies Law states:

"If a claim is filed with the court by a company or a foreign company, in which the liability of the shareholders is limited, the court may, at the defendant's request, order that the company will provide a sufficient guarantee for the payment of the defendant's expenses if he wins the lawsuit, and may delay the proceedings until the guarantee is given, unless it believes that the circumstances of the case do not justify charging the company or the foreign company with a guarantee or if the company has proven that it is able to pay the defendant's expenses if he wins the lawsuit."

23. As a rule, and in accordance with case law, section 353A of the Companies Law establishes the rule according to which when it comes to a plaintiff who is a company with limited liability, she must be obligated to guarantee expenses. The exception to this rule is the granting of an exemption from a guarantee, and the burden of proving that there is no place for such a charge is placed on the company.
24. In this regard, the section establishes two alternative ways, if they exist, the court will not order the deposit of a guarantee:
    • If the company has proven that it will be able to pay the defendant's expenses, if he wins the law;
    • If the court is of the opinion that the circumstances of the case do not justify requiring the company to deposit a guarantee.

(Civil Appeals Authority 10905/07 - Neot Oasis Hotels in Tax Appeal v.  Zisser [published in Nevo] (July 13, 2008)) (hereinafter - "Neot Oasis"); Civil Appeal Authority 10376/07 - L.N.  Computer Engineering in a Tax Appeal v.  Bank Hapoalim in a Tax Appeal [published in Nevo] (February 11, 2009) (hereinafter - "L.N.  Computer Engineering Ltd."); Civil Appeal Authority 7496/15 Or at the Little Tel Aviv Port in a Tax Appeal v.  North Hayarkon Tel Aviv in a Tax Appeal [published in Nevo] (February 14, 2013) (hereinafter - Or at the Port)).

25. In the Aderet case, the court reiterated that a company's request for a guarantee must be examined in a three-stage test, and the burden is on the company to show why there is no reason to impose a guarantee on it:

"In the first stage, the company's financial capacity will be examined, and in the process, "the court will take into account the plaintiff's financial situation, the amount of the claim, the nature of the expected proceeding, including its complexity, the need for experts or unusual disclosures, the expected fees and the chances of the lawsuit" in order to assess the company's ability to meet the expenses if they are awarded (Taub case, at paragraph 14).  In the second stage, and if it has not been proven that the company will be able to pay the guarantee if it loses the law, the question will be examined whether the circumstances of the case justify charging the company with the guarantee.  At this stage, the constitutional rights of the parties (the right of access to the courts and the right to property), the good faith of the parties, and sometimes also the chances of the proceeding (in cases where the chances of the proceeding are very high or very low).  In the third stage, the amount of the bail will be examined (see: Civil Appeals Authority 10376/07 L.  v.  Computer Engineering in a Tax Appeal v.  Bank Hapoalim Ltd., paragraphs 12-13 [published in Nevo] (February 11, 2009); The Neot Oasis case in paragraph 6; Civil Appeal Authority 7496/15 Or in the Little Tel Aviv Port in Tax Appeal v.  North Hayarkon Tel Aviv Ltd., para.  4 [published in Nevo] (February 14, 2016))."

26. As for the first stage, the counter-plaintiff must prove strength and financial capacity. Economic strength is learned mainly from a company's balance sheets, its conduct and its ability to repay proven debts, immediately upon the presentation of a payment demand (see TA.  (Tel Aviv District) 1593-09 Maytronics in Tax Appeal v.  GEFG NEKAR ANTRIEBSSYSTEME GMBH [PUBLISHED IN NEVO] (27.12.2010), AS WELL AS A.  (Central District) 8607-06-11 Art Judaica in Tax Appeal v.  Getz Tali Ad Transportation in Tax Appeal [Published in Nevo] (November 27, 2011)).
27. In our case, no attempt was made to present any basis for the existence of financial strength whereby the counter-plaintiff 2 would be able to meet the charge for expenses, should the claim be rejected. The counter-plaintiff 2 in fact exempted herself from an attempt to bring any factual basis that could meet the burden imposed on her.
28. Therefore, the counter-plaintiff 2 did not act in order to contradict the presumption in the law set forth in section 353A of the Companies Law, and its failure to do so is in accordance with its duty (see: Miscellaneous Applications Civil 2219/07 Solel Boneh in a Tax Appeal v. Grand Finish in a Tax Appeal [published in Nevo] (February 25, 2007).
29. Whether the circumstances of the case justify requiring the counter-plaintiff No. 2 to deposit a surety, or not.  At this stage, the court must take into account, inter alia, the conflicting constitutional rights of the parties; the assumption that the rule is an obligation on bail while the exemption is an exception, as well as the question of the chances of the proceeding.  As high as the chances of the proceeding are high, it may be sufficient to constitute circumstances for which it will be justified not to obligate the plaintiff to deposit bail.
30. In this framework, the burden of showing what are the circumstances that make it unjustified to require her to deposit a surety, falls on the counter-plaintiff 2. In addition, in this framework, it is usually not appropriate to go into detail about the chances of the lawsuit, and the aforementioned matter should be addressed only when the chances of the proceeding are particularly high, or very low.
31. The counter-plaintiff 2 did not meet the burden of showing that there are special reasons that justify a deviation from the rule regarding her obligation to deposit a guarantee. First, it has not been proven that the deposit of the bail will lead to a violation of the right of access to the courts; Second, a balance must be struck between this right and the proprietary right of the counter-defendant to be repaid from the counter-plaintiff 2 for its expenses, to the extent that the claim is rejected.
32. In this context, taking into account the preliminary stage of the proceeding, I will refer to my comments above in relation to the cause of action with regard to counter-plaintiff 2. In this regard, I will add that the difficulty in the case of the Counter-Plaintiff 2 also appears to arise in view of the statement of the Counter-Plaintiff 2 in the hearing held before me, according to which the rights in the panels are his personally and not that of the Counter-Plaintiff 2.  From this, prima facie, a question arises regarding the status of the plaintiff against 2 and her cause of action in relation to the rights in the panel.
33. Therefore, in the totality of the circumstances and the necessary balance between the rights of the parties, I found that the counter-plaintiff 2 should be obligated to deposit a guarantee for expenses.
34. Taking into account the amount of the claim and the customary rulings regarding the amount of the deposit and the required balance, I found it to be instructed that the counter-plaintiff 2 must deposit in the court's coffers the sum of ILS 30,000 to secure the expenses of the counter-defendant should the claim be rejected. The amount will be deposited within 30 days.

Conclusion

35. Therefore, the application should be granted in part. Counter-plaintiff 2 (Respondent 1) deposited a sum of ILS 30,000 to secure the expenses of the counter-defendant (the Applicant).
36. The application against the counter-plaintiff 1 (respondent 2) is to be dismissed.
37. Respondent 1 will bear the Applicant's expenses in the sum of ILS 2,500 in respect of this application. Expenses will be paid within 30 days from today.

Granted today, 23 Adar 5785, 23 March 2025, in the absence of the parties.