This rule, which was developed overseas, bought Shabbat in our places. "Its principles have permeated Israeli law and are today an integral part of Israeli corporate law" (ibid., at paragraph 74).
- Does this basic rule apply at all in our case? The positive answer is not required at all:
- The applicability of the rule in the relationship between the company's officers and a third party external to it is not self-evident. Historically, the rule has grown to protect directors from allegations of breach of their duties to the company (see Sharon Hanes, "The Rule of Business Judgment," Iyunei Mishpat 313, 319 (2009); and see also a review of the development of the conceptual duty of care of officers towards the company, which served as the basis for the growth of the rule, in Amir Licht, "The Name of the Rose: Precautions and the Business Judgment of an Officer," Law and Business 19, 475; 478 (2015)).
- In its recent ruling, the Supreme Court addressed this matter while demonstrating a willingness to expand the applicability of the rule to a certain extent. Thus, other municipal applications 7417/16 Pinros Holdings in the Tax Appeal v. Class Plaintiff Goldstein (published in Databases [Nevo]; 2021) "The reference to the business judgment rule in the case law of this court was made against the background of the duty of care that an officer owes to the company and not to other parties, including the shareholders. However, it is clear that the reasons underlying the rule - including considerations in institutional policy and the concern of excessive deterrence by officers - are also true in the relationship between an officer and another person to whom he owes a duty of care, and they will also be examined in the circumstances of the case before us, in which the respondent's claims were directed towards a breach of duties by the members of the company's board of directors, towards some of the shareholders" (paragraph 66 of the opinion of the Honorable Vice President (ret.) Melcer [emphases in original]).
In our case, it is not necessary to apply the rule to a shareholder in a company or to its controlling shareholder, but to a third party external to it. This issue raises complexities, but in light of the assumption that I will assume later regarding the non-applicability of the rule in our case, I will not address the determinations on the merits of the matter.
- Moreover, in our case, I deduced, as stated, from the assumption that a transaction in which Mr. Nehemia had a personal interest was subject to the decision of the Board of Directors, and that the proper procedural procedures were not taken in light of this. In these circumstances, it appears that in any case the "presumption of propriety" is not available to the defendants.
As Gross explains, the presumption of propriety by virtue of business judgment does not exist for a company when the controlling shareholder's personal interest exists, in which case the directors are required to meet the stringent test of "complete fairness" before they are protected from liability. "This is a strict standard of audit in which the court enters into the heart of the transaction and examines not only the decision-making process, but also (and mainly) its content. The legal discussion on the subject centers around the level of relations between the controlling shareholder and the minority, i.e., power disparities, information, and conflicting interests" (Yosef Gross, Directors and Officers in the Era of Corporate Governance 283 (2018) (hereinafter: Gross Directors) [emphases in original]).