In the Vardnikov case, doubt was expressed as to whether it is appropriate to adopt this rule in Israel on its knees, in view of the rigid mechanism for approving transactions of interested parties in Israel (ibid., at paragraph 102), and the possibility of adopting an interim test was raised as the "enhanced examination rule".
Whether the rule of full fairness applies to our case or whether the rule of increased examination applies to our case, in view of the assumption of the personal interest that I assumed, it seems that there is no reason to attribute to the defendants' decisions the presumption of propriety of the business judgment rule.
- For the purpose of continuing the analysis, I will examine the defendants' decisions on their merits, and I will not provide them with any presumption of propriety. The examination will be meticulous, and it will also become clear as a result that the lawsuit will be dismissed.
Against this background, it is necessary to examine whether, on the merits, Mr. Knepfler was able to establish legal status, to sue the three directors and Mr. Nehemia personally, and to establish a direct rivalry with them. We will turn to examine this question, and we will focus first on the matter of the three directors, and then we will turn to examine the case of Mr. Nehemiah.
The circumstances relevant to the examination of the directors' liability (with the exception of Mr. Nehemiah)
- Directors operating within the framework of corporate governance must exercise an appropriate level of skill, and these days it is quite meticulous. As the Honorable Judge noted, as he was described at the time, Amit "is not the director of today as the director of the past. The director of the 2000s cannot be a fool who does not know how to ask questions that occasionally sit together and drink tea at board meetings" (Civil Appeal Authority 4024/14 Africa Israel Investments in Tax Appeal v. Cohen (published in the databases [Nevo]; 2015 at paragraph 53).
Indeed, the Companies Law imposes duties on directors in this regard to act with proper precautions and at a level of skill appropriate to their duties. Section 253 of the Law states:
- Precautions and Skill Level
An officer shall act at the level of skill at which a reasonable officer would have acted, in the same position and in the same circumstances, and shall take, taking reasonable measures, taking into account the circumstances of the case, to obtain information relating to the business feasibility of an action brought to him for approval or of an action carried out by him by virtue of his position, and to receive any other information that is of importance in respect of such actions.
- An example of the exercise of the duty of care imposed on directors is found in Gross, who points to the need to examine the business feasibility of the action brought for approval; Examination of any other information that is of importance to the matter; involvement in the process that preceded the decision; collection of relevant information; updating information related to the company's activities; Demonstrating proficiency in its affairs; Orientation to her financial situation; and attendance at meetings of the board of directors (Gross Directors, at pp. 246-247).
- As we have seen, in order for Mr. Knefler to be able to establish the personal responsibility that he wishes to attribute to the directors, he must point to special circumstances, in order to gain legal standing to sue them directly, and in order to establish a rivalry between him and them. He was unable to establish these circumstances.
The dominant factor with which Mr. Knepfler was in contact was Mr. Nehemiah. The directors themselves did not negotiate with him directly. The representations made by the company to Mr. Kneffler, which the directors were aware of when they approved the engagement with him, were accurate. The decisions they made were in the best interest of the company, and did not stem from a desire to make things easier for Mr. Nehemiah, who personally guaranteed its debts. They were aware of Mr. Nehemiah's personal interests, but the decisions made reflected the company's needs. There was nothing wrong with the fact that the engagement with the Dayan Group was seen as preferable from its point of view. They exercised independent judgment. All of these show that there were no ties that could establish personal liability of the directors towards Mr. Nehemiah.
- I will move on to establish the evidentiary basis that supports all of this, and the legal conclusions that derive from it. Some of the claims attributed to the directors are also attributed to Mr. Nehemia, and what is stated here will also apply to him, with the necessary changes.
Mr. Knepfler negotiated directly with Mr. Nehemiah and not with the directors
- Knefler testified that "during the negotiations, I did not meet or speak with the other directors [other than Mr. Nehemiah], and my conduct was only with Nehemiah, who personally (and sometimes with other members of the management) presented me with the misrepresentations" (paragraph 34 of the affidavit). At the same time, he stated that the fact that the board of directors of a public company that was required for the agreement was important to him, in view of the qualifications expected of these directors and the importance of examining the company's representations.
In this state of affairs, it cannot be said that Mr. Knafler relied on the personal involvement of the directors. There was no special relationship between him and them of one kind or another. Indeed, directors in a public company have an important role, but this is true for any public company that is required to conduct transactions of one kind or another, and which are discussed by its board of directors. The mere fact that the board of directors is directly required to deal with one issue or another does not constitute personal liability in tort on the part of the directors towards third parties.