Thus, the claim, in its current form, puts to the test the question of the personal liability of the company's officers when it is "clean", and stands on its own feet.
- Anyone wishing to impose personal liability on officers of a corporation must pass a hurdle, which is not low. A situation in which such liability is imposed too easily will lead to a violation of the basic principle that underlies all corporate law, which is the principle of the separate legal personality of the company. Admittedly, the company's corporate veil does not confer immunity on its basis, but it is still significant. Ignoring it will lead to no one being willing to serve as an organ of companies and act for them and on their behalf.
Against this background, "something else" is required in order to establish the responsibility of the officers. The plaintiff, who wishes to impose personal liability on them, must establish a direct legal rivalry with them, and not only with the company. He must establish circumstances that will create the same rivalry, or the same neighborly relationship, when there is a claim of liability for the tort of negligence at hand. He must establish the special circumstances that will establish him standing in law to sue them personally.
The laws of legal status and the laws of legal rivalry are the vessels through which conflicting interests are balanced. They take into account the need to give due weight to the principle of legal liability that is separate from it, and to the need to impose direct liability on the officers in cases appropriate to it.
It follows from this that when a person comes into contact with the company, and he claims that it has harmed him, he can easily establish legal status to sue it, on the basis of direct legal rivalry with it. On the other hand, the establishment of rivalry and the status to sue the officers personally is not at all self-evident. In order to establish them, it is necessary to indicate suitable and special circumstances that can open the gate.
- And what about the current case? Here a distinction must be made between the three directors and Mr. Nehemiah.
- As for the three directors:
- They were not in direct contact with the plaintiff. They did not negotiate with him. They did not present him with any kind of representations personally. All the contacts with him were made within the framework of their duties. They approved the agreement made with Mr. Knapfler. As we shall see below, the representations made in this framework were accurate and not misleading.
- It was further established that they acted for the benefit of the company and not for the benefit of Mr. Nehemiah's personal interests. Their goal was to enable the company to receive the cash flow that was so essential to it. They had to make decisions on urgent timetables, and they did so after examining the data before them. The claim that they acted without exercising independent judgment was not proven. The engagement with the Dayan Group was also made in light of their belief that it was better for the company.
- The plaintiff did not prove that the directors acted to help Mr. Nehemia get out of the personal guarantee he undertook, while taking part of the company's loans. In this respect, there was no difference in substance between the engagement with the counter-plaintiff or with the Dayan Group. This and that would have led to the repayment of loans, with the accompanying guarantee, and there is certainly nothing wrong with them preferring the offer that seemed to them to be better for the company, and which was such.
Indeed, insofar as Mr. Nehemia had a personal interest, and the transaction at issue was a "stakeholder" transaction, they should have taken care of the approval of the decisions in the format prescribed by law for this purpose, and they did not do so. However, this matter does not affect the question of their liability in torts. This is because there is no causal connection between this and the damages claimed by Mr. Knafler. After all, if we adopt his method, the transaction with him was also not approved in this format. In any case, this is not a case of realizing a "representative problem" of one kind or another, since the transaction at hand promoted the best interests of all the shareholders in ADN and did not create a conflict between them.
- At this stage, it should be remembered that Mr. Knepfler was portrayed, as far as the directors were concerned, in a problematic light. He did not meet the payment of part of the consideration he committed on the agreed dates. They were told that he did not hold the capital required to complete the investment, even though he declared that it was in his possession. Indeed, it was reported that he acted to raise additional capital, but this still led to a delay in the timetables for receiving the payments, which put the company at risk vis-à-vis its creditors, and cracked trust in it.
And now he announced that he wanted to deviate from the agreement that was formulated with him, leaving 500,000 euros for future reckoning. Even if it was a relatively small balance (about 1/8 of the consideration), it was significant in light of the company's cash flow distress, and in terms of the ability to rely on Mr. Knepfler not to act in a similar manner in the future.
- Knepfler has in effect abandoned the channel of promoting the original agreement he signed. As stated, he asked to account for the balance of the consideration, which meant that his entitlement to the shares of the French company was frozen beyond the shares of Guy Development that were transferred to him.
The accounting for the original agreement was not made. Instead, Mr. Knafler concentrated his efforts on entering into a new deal, in which he would acquire the remaining holdings of ADN in the French company. Under these circumstances, nothing prevented the company from looking for another investor to purchase the remaining shares under its control, which it did. The directors viewed the transaction with the Dayan Group as a better transaction and there was nothing wrong with the judgment they exercised.
- The arguments for not canceling the contract in the agreed way are supposed to be directed at the company and not at the directors. The claim that the directors did not ensure that Mr. Knepler would be able to receive the money he invested due to the cancellation of the agreement does not change the picture. Here, too, we are dealing with claims that are supposed to be directed at the company.
All of this shows that Mr. Knefler has not been able to establish those special circumstances that could grant him legal standing to sue the directors personally and establish a direct legal rivalry against them, neither for the tort of negligence nor for the tort of causing breach of contract. His voice should have been the company and not its board members.
- As for Mr. Nehemiah, the picture is more complicated. He took a much more active part in the contacts with Mr. Knafler. He was the issuer and the importer of the deals on the agenda. He was involved in making representations more significantly than those of the directors. In this respect, his exposure to the imposition of personal liability is higher. It is easier to recognize the neighborly relationship between him and Mr. Knafler, whom he invited to enter into a deal with the company. Still, at the end of the day, the counter-plaintiff was unable to establish the evidentiary basis that would justify imposing personal liability on Mr. Nehemiah:
- The starting point is that most of the representations made to Mr. Knepfler were not misleading. What was stated in the company's financial statements, and in the public reports it published, which were the main representations anchored in the contract, was accurate. Digging deeper into them would have revealed the difficulties that the properties in France were facing. In fact, these difficulties were exposed in examinations conducted at the Tamir-Fishman Fund, and they led to the non-engagement of the transaction through it. All of these were known to Mr. Knapfler.
- Even the forecast document that he mentioned, which was given to him by Mr. Nehemia (and not by the directors), should not have established a rosy picture of things. It should have been clear to anyone who examined the totality of the data that the basic assumptions underlying it did not correspond to reality. In any event, and as will be clarified below, we find that Mr. Knepfler's version regarding his understanding of the data in the forecast document should be rejected.
- Indeed, on one point I found that Mr. Nehemiah had violated the duty of good faith imposed on him, and that this matter could even lead to misleading. He should have disclosed to Mr. Knafler about the dispute with the property management company in France, which could have led to a liability of hundreds of thousands of euros. He didn't do that.
Still, even if Mr. Knafler had a claim of breach of the duty of good faith, and even misleading her, he chose to move forward with the transaction. At this stage, he invested only about one-eighth of the consideration. And now, after he found out about the deception, he chose to invest another three-quarters of it, and reserve the right to make an account of the remaining eighth. He chose to take the risk and move forward, and try to persuade the company to sell the rest of its holdings in properties in France to him at a very reduced price, given its great distress. In doing so, he relinquished his power of nullification.