And what are those exceptional cases? Here you can find different approaches:
- The Honorable Justice Danziger ruled that a plaintiff, who wishes to sue the officers personally, will succeed in establishing exceptional cases whether it is fraud on their part or personal (subjective) fault for the acts or omissions he attributes to it (Civil Appeal 3807/12 Ashdod City Center K.A. in Tax Appeal v. Shmuel Shimon (published in Databases, [Nevo], 2015; at paragraph 65) (hereinafter: the Ashdod Center case)).
He further explained that "I am of the opinion that there is a clear difference between an officer or shareholder who assumes a personal undertaking to fulfill the corporation's obligations and an officer or shareholder who undertakes in good faith to try or make an effort to bring about the fulfillment of the corporation's obligations, as long as this undertaking is not accompanied by signs of deception or fraud... I am of the opinion that an undertaking by an officer or shareholder to try or make an effort to bring about the fulfillment of the corporation's obligations will not generally be considered as a personal undertaking, but rather as an undertaking given by him in the framework of his position and on behalf of the corporation, and therefore I do not believe that it in itself justifies the imposition of personal liability, as long as it was given in subjective good faith without being accompanied by signs of deception or fraud" (ibid., in paragraph 77(b) [emphasis in original]).
- The Honorable Justice Barak Erez was willing to take a more expansive approach than that of the Honorable Justice Danziger in the Ashdod Center case, but she still found that she was "in agreement with the principled starting point outlined by my colleague according to which the imposition of personal liability on shareholders or officers of a corporation must be reserved for exceptional cases. There is no doubt that it is important to preserve the separate legal personality of corporations, and accordingly, to the rule that officers of a corporation are not liable, in the usual case, of personal liability due to acts or omissions of the corporation. As determined in case law, for the purpose of imposing personal liability, it is not sufficient that the duty to act in good faith was breached (whether in negotiations prior to a contract or in the performance of a contract), but it is required to prove that the officer is tainted by subjective personal fault for acts or omissions that constitute a tort or involve a breach of a legal duty" (ibid., at paragraph 2 of her opinion).
At the same time, according to its approach, there is no reason to set a very high threshold for imposing such liability so that it would be necessary to establish subjective bad faith, which has signs of deception or fraud on the part of the shareholder or the officer. "I agree that the paradigm case of imposing personal liability on an officer or shareholder will be a case in which his behavior has reached a high degree of bad faith. However, I do not believe that the said lack of good faith should be of a degree close to fraud or necessarily involve deception" (ibid., at paragraph 4).
- The Honorable Judge, as he was then called, Fogelman joined the result reached by the Honorable Justice Danziger in the circumstances of the case.
In any case, the approach expressed in these opinions places a burden on the applicant to claim the existence of personal liability of the officer for its contractual breach towards him. This burden is heavy.
- It will be easier to meet the said burden when the pre-contractual stage is on the agenda. In this regard, it is customary to distinguish between the stage of negotiations and the conclusion of a contract and a situation in which there is a claim that the contract has been breached. This is because at this stage, in many cases, such and such representations are made by officers with the aim of enlisting the third party to engage with it.
And the more misleading and bad faith representations are concerned, the easier the way to establish personal liability, and with it the ability to acquire legal standing and rivalry not only with the company but also with the officer responsible for the said representations.