With regard to respondent 3, it was claimed that he breached his duty of care, since he knew in real time the details of the deficit created in the Association's coffers and about the illegal expenditure of funds. Despite this, for years he did not act to bring the matter to the attention of the required parties in the association or to stop spending money. Respondent No. 3 is also responsible for the misleading recording in the Association's financial statements and for the attempt to offset the funds laterally, unlawfully.
With regard to respondent 4, it was claimed that he breached his duty of care towards the Association. The financial statements for 2008-2012, which he was in charge of auditing and supervising, were incorrect and included misleading details. Respondent No. 4 knew that there was a surplus of transfers to the groups, and he knew (or should have known) that this surplus could not be registered as an asset.
- With regard to the question of whether it is possible to recognize – in general and in this case in particular – the possibility of filing a derivative claim in the association, the applicants argued that the answer to this is in the affirmative. This is based on a series of rulings in which the courts recognized the possibility of filing a derivative action on behalf of a corporation that is not a company, and on the basis of a distinction between the present case and the case heard in the judgment in the Civil Appeals Authority 4958/15 Clalit Health Services v. Aharon [Published in Nevo] (23.10.2017) (hereinafter: "Priestly Matter").
It was further argued that in this case the conditions for approving a derivative claim are met: the applicants applied to the association in advance; They proved at the level required for this stage the existence of a cause of action against respondents 2-4, and the respondents did not contradict their claims – moreover, after the respondents withdrew their affidavits, their factual argument is not based on admissible evidence; and the lawsuit and its management are for the benefit of the Association. This is in view of the majority in the Claims Committee's determination that the chances of a NIS 5 million claim being accepted are high, in view of the possibility of claiming a much higher sum, and in view of the position of the majority in the Claims Committee that the costs of managing the claim that will be imposed on the Association are not expected to be high. Finally, the applicants act in good faith and have the best interests of the association in mind only.
The Association's Claims
- The Association (and respondents 3-4 who joined its arguments) argued that the application for approval should be dismissed in limine, since it is not possible to file a derivative claim on behalf of an association in general, and on behalf of the association in particular. According to them, there is no place to apply the mechanism of a derivative action in relation to the Association, in light of its characteristics – including its public character and the supervision to which it is subject, as well as in light of the absence of a property interest of the Association's members in it. In addition, even if there were substantial justification for applying the derivative claim mechanism in the association, in view of the fact that this is an exceptional mechanism, it should not be applied by way of inference and in the absence of an explicit statutory provision. The respondents further argued that even if this were possible, the applicants, as members of the management, whose status does not correspond to the status of shareholders or directors in the company, do not have the right to file such an application.
- According to the Association, the request for approval should also be rejected in light of the fact that there was no flaw in the process of appointing the independent committee and its work, or in the substantive level of the content of its conclusions.
With regard to the procedural level, the Claims Committee operated under the "auspices" of the court, its composition was changed and its provisions were expanded by it. Therefore, it should be seen as his long arm. It was also argued that the establishment of the Claims Committee and its conduct fulfilled the requirements set forth in the case law in this matter. The factual clarification that led to the formulation of the cause of action (the Alkalay Report and later the Sol Report) originated at the initiative of the Association, and at least it was done with the full involvement of the Association, following a change of men in its management. The establishment of the Claims Committee was done at the earliest possible time allowed by the circumstances, and certainly not because of the request for approval – which was submitted only after the Sol Report was received, adopted and its implementation began.