Still, "in successive case law, the principle was established that not every breach of the duty of good faith in negotiations, for which the company may be liable for compensation, allows for the imposition of personal liability on the organ as well. While the duty of good faith in negotiations is, as a rule, an obligation to meet the standard of objective conduct of good faith and an acceptable way, in order to impose personal liability on the organ, it is not enough to prove that the objective standard was violated, but it must be shown that the manager 'lies personal (subjective) guilt for acts or omissions that constitute the commission of a tort or a breach of a legal duty'" (Goshen and Eckstein, at p. 207; See also the discussion of the Nashashibi case at paragraph 44).
Tort Liability
- Even with regard to the existence of tort liability, the basic point of departure is that "the fact that a certain person is an organ of a company, inter alia, does not grant him immunity from torts, and he cannot hide behind the legal personality of a company, where it has been determined that this or that tortious act was committed by him" (Civil Appeal 725/78 British Canadian Builders in Tax Appeal v. Oren, IsrSC 35(4) 253; 256 (1981)).
In this regard, the Honorable Judge, as he was then described as a colleague with respect to directors' liability, noted that "the director is no different from other potential wrongdoers, in the sense that his conduct is examined objectively and taking into account the circumstances of the case. Indeed, the established rule is that the director is obligated to 'take all the same precautions that a reasonable director would have taken in the circumstances of the case'" (Civil Appeal 7735/14 Radnikov v. Elovitch (published in the [Nevo] databases; 2016 at paragraph 42 of his opinion (hereinafter: the Vardnikov case)). This, of course, has good power for other officers as well, with the necessary changes.
On the other hand, one must be careful about a situation in which the legal system allows for the imposition of liability in torts more easily on officers. If this is realized, it could lead to over-deterrence. Officers, including directors, are expected to take risks in order to maximize the company's profits and situation. "The close connection between the role of the officer and the need to take risky steps also explains the concern that imposing broad liability negligently on officers may deter them from taking risks, and even deter suitable candidates from being willing to serve as officers, in a manner that may ultimately harm the company and the shareholders" (ibid., at paragraph 44). This concern was expressed in relation to the relationship between the officers and the company, but it is also relevant to the relationship between them and third parties external to it.
- When, then, will it be appropriate to impose on the officers personal liability in tort against a third party external to it? When would it be appropriate to establish a rival relationship between them and that third party? When will the third party have legal standing to sue them?
- The truth can be said that in this regard, the case law conveys various messages that do not always coincide with each other. Alongside statements that the liability of the company's organ is determined on the basis of his behavior and on the basis of the answer to the question of whether it fulfills the elements of the tort attributed to him, one can find statements according to which "imposing personal liability by virtue of tort law on an organ in the company for actions he took on behalf of the company will be done only in exceptional cases" (the variety of statements here and there is brought by Amos Herman Law 221-222 (2020)).
It is possible that this happens when it is not always careful to separate the liability of the company's officer towards the company from his responsibility towards a third party. In any case, it is still a matter of law that even in the world of tort law, the establishment of direct tort liability of a person who holds a position in the company is not a trivial matter.
- Since in our case Mr. Knefler focuses his arguments on the tort of negligence and the tort of causing a statutory breach, we will also focus on them. An examination of the normative situation in relation to these two torts shows that the fact that the officer of the company is involved in the activity that is alleged to have led to the damage is not sufficient to impose personal liability on him. Here, too, as in contract law, "something extra" is required, which can create the direct rivalry between the third party and the officer, and that will allow the third party legal status to sue him.
The tort of negligence
- Even with regard to the imposition of liability for the tort of negligence, policy considerations lead in conflicting directions. On the one hand, there is a need to impose liability in appropriate cases when officers deviated from the standards of conduct expected of them. On the other hand, the harmful company is the obvious rival of the injured third party. He has legal standing to sue her for his damages. Establishing too easily a class and a rivalry with its officers will lead to a serious blow to the purposes that the veil of association promotes.
- The way to formulate the proper approach to imposing personal liability on officers is through the concept of "kinship relations" or "neighborly relations", which serve as the basis link for the development of negligence law.
The concept of proximity is "a valuable tool for filtering out unwanted responsibility. In its original meaning, this test allows the court to condition liability on the existence of a connection between the injured party and the tortfeasor - a connection of time and place, an affinity that derives from a special relationship between them, acquaintance, reliance, the fact that the injured party is part of a limited group, a high probability of damage, and more... Since the main considerations against the imposition of liability are excessive deterrence, excessive burden on tortfeasors, and multiple claims, controlling the circles of entitlement through sacrifice allows for proper supervision of the scope of liability" (Israel Gilad, "On 'Working Assumptions', Judicial Intuition and Rationality in Determination of the Boundaries of Liability in Negligence," Mishpatim 26, 295, 322 (1996); See also Civil Appeal 7547/99 Maccabi Health Services v. Dubek Ltd., IsrSC 65(1) 144, 197 (2011)).
- The balance between the various considerations has also led to an obstacle for those who wish to sue the officers for negligence and to impose personal liability on them for the damages caused by the company.
It was ruled that it is not simple to establish the duty of care imposed on the organ towards a third party. "The main discussion in the case law on the question of the personal liability of the managers revolves around the question of the existence of a duty of care between the injured party and the managers. The duty of care exists only in exceptional situations, in which there was a special relationship of closeness between the injured party and the manager. These are situations in which the injured party tended to trust, i.e., relied on the manager personally, on the basis of promises or representations made by the manager personally, or on the basis of the existence of special circumstances" (Goshen and Eckstein, at p. 202).