Judgment

I have before me a claim to declare that the defendant breached the duty of fiduciary duty and/or the duty of care towards the plaintiff and/or towards Alice Bein Ami (Assets) in a tax appeal (hereinafter: the "Company").  to impose on the defendant punitive damages in favor of the plaintiff in the amount of ILS 1,000,000, plus linkage differentials and interest until actual payment.

Alternatively, and at the very least, to award the defendant the plaintiffs' actual damages and indirect damages, all as detailed below.

To charge the defendant for the plaintiffs' expenses in this proceeding, including attorney's fees.

Background and main disputes

1. The parties are shareholders in the company. The shares were inherited by the parties and others from their parents, who founded the company and through it acquired rights in real estate assets that the company rents out to various parties.  The company is managed as a small family company, in such a way that the duties and rights are personally attributed to each of the shareholders for tax purposes.
2. The plaintiffs are Mr. Gideon Alis (hereinafter: "the plaintiff" or "Gideon"), an Israeli citizen who has been living in Australia for decades, and Romi Ask Holdings in a Tax Appeal (hereinafter: "Romi Ask"), an Israeli holding company wholly owned and controlled by the plaintiff. The plaintiff inherited one-sixth of the company's shares.
3. The defendant is Ms. Miri Zilberman (hereinafter: "the defendant"), the plaintiff's sister and an Israeli resident, a real estate appraiser by profession. The defendant also inherited one-sixth of the company's shares.
4. The Ottoman Settlement [Old Version] 1916After the death of all the founders of the company and their wives, the shares were divided among their heirs as follows: Mrs. Arza Ben-Ami held 25% of the shares; Asif with David and Bar with David each held 12.5% of the shares (25%); the defendant, Ms. Miri Zilberman, held 16.66% of the shares; the plaintiff, Mr. Gideon Alis, held 16.66% of the shares; Niv, Uri and Roy Alis (hereinafter: "the sellers"") each held 5.55% of the shares (antitrust 16.65%). The defendant and Ms. Arza Ben-Ami have served as directors of the company since May 12, 2019.
5. 12-34-56-78 Chekhov v. State of Israel, P.D.  51 (2)The defendant negotiated with the sellers to purchase their shares.  This deal did not materialize in the end.  On September 25, 2019, the plaintiff purchased, through Romi Ask, the shares of the sellers (one-sixth of the company) for ILS 6 million.  In addition, on September 23, 2019, the plaintiff transferred his inherited shares (an additional sixth) to Romi Ask.  As a result of these transactions, Romi Ask holds a third of the company's shares.
6. The Tax Authority - Real Estate Taxation Administration (hereinafter: the Land Taxation Authority) classified the company as a "real estate association", and accordingly imposed the obligation to pay purchase tax on the transactions. The plaintiff filed an objection to the determination of the company's classification.
7. During the objection proceedings, on January 5, 2021, the CMC demanded that the plaintiffs' attorney receive additional documents relating to the company.  On January 11, 2021, the plaintiffs' attorney contacted the directors (including the defendant) and asked them to hand over the requested documents.
8. On January 12, 2021, the defendant contacted the CCC directly and provided an estimate of the value of the company's assets, in which it noted that the value of the property in Holon is ILS 49 million, the value of all real estate assets ranges from ILS 90 to ILS 100 million, and the value of the shares sold ranges from ILS 15 million to ILS 17 million.
9. During February 2021, the CCC required clarifications and additional documents. The plaintiffs submitted additional documents to the CCC, including in a letter sent on February 22, 2021, that they submitted an updated valuation, in which they increased the value of the company's assets from ILS 36 million (the original reported value) to a range of ILS 41.5 million to ILS 50.5 million.
10. On March 17, 2021, SMC issued a decision in appeal, in which it increased the tax assessments to the plaintiff and set the value of the company's assets at a total of ILS 65,629,154. The plaintiff filed an appeal with the Appeals Committee in the District Court.  These proceedings ended in a settlement, in which it was agreed that the company is a "real estate association" within the meaning of the Real Estate Taxation Law and that the tax charges would be executed according to a company value of ILS 49.5 million.
11. The focus of the claim before me is the plaintiffs' claim, in summary, that the defendant abused information that came into her possession by virtue of her position as a director of the company, acted out of personal and improper motives, and in a conflict of interest, in order to harm the plaintiffs. This was against the background of a strained relationship between the plaintiff and the plaintiff, and in an attempt to thwart a share purchase transaction in which the plaintiff purchased shares that the defendant itself had been interested in purchasing a few weeks earlier.  According to the plaintiff, the defendant knowingly provided the CCC with incorrect information about the value of the company's assets, which led to an increase in the tax assessments required to be paid and heavy expenses.
12. The defendant argues in relation to this, on the other hand, that its actions vis-à-vis the tax authorities were done in good faith and in accordance with its legal obligation to provide information by virtue of section 96(1) of the Real Estate Taxation Law. According to her, she acted as a shareholder in a company in which profits and losses are attributed directly to the shareholders, and therefore she had a personal obligation to provide accurate information to the authorities.  According to the defendant, her assessment of the value of the assets was based on open market information and conversations with realtors, and there was no official appraisal or deliberate attempt to inflate the value.  According to her, the tax imposed on the plaintiffs is not "damage", but rather the result of assisting the tax authorities to collect real tax, as required by a law-abiding citizen.

Copied from Nevothe main arguments of the parties

The plaintiffs' arguments

13. Status of the defendant as a director in her initiation application to the Tax Authority

There are clear indications that the defendant acted with the Tax Authority by virtue of her role as a director and not as a private person or shareholder only, as the defendant claims.  , it was proven that: (a) the reference dated January 11, 2021 reached the defendant by virtue of her position as a director; (b) the defendant introduced herself as a director in her application to the CCC; (c) The defendant transferred documents to the CMC that were in the hands of the board of directors only and not in the hands of the shareholder and therefore cannot claim that she did not act by virtue of her role as a director.

14. Regarding breach of duty of fiduciary duty and/or care
15. The plaintiffs claim that while the company in question is a small family company, the officer also owes fiduciary duties to the shareholder. This is further strengthened by the fact that the defendant took the initiative and was in direct contact with the plaintiffs' personal affairs, at which time it acted as their extension, and accordingly it has increased fiduciary duties towards them.
16. According to the plaintiffs, the defendant acted out of personal motives, and with a glaring conflict of interest, in order to harm the plaintiffs against the background of the murky relationship between her and Gideon, while attempting to thwart the transaction in which he purchased the same shares that she had been interested in purchasing a few weeks earlier. In doing so, she violated the fiduciary duty that applied to her as an officer.

• It was claimed that the defendant (knowingly) provided the Tax Authority with erroneous and distorted information, an exaggerated estimate regarding the value of the company's assets, in the framework of the letter dated January 12, 2021, according to which the value of the assets is ILS 90-100 million (while determining that the value of the property in Holon is ILS 49 million). The defendant also clarified and clarified that according to her, the value of the shares sold is ILS 15-17 million (the plaintiffs referred to Appendix 20 to Gideon's affidavit).  According to them, when we examine the information that was in the possession of the company and the defendant at the time, it is clear that this estimate cannot stand, and it is light years away from reality.

15. Concealment and bad faith
16. It was argued that the defendant's goal was not to bring about the payment of "real tax" as it claims from the outside world, but rather to cause damage to the plaintiffs, and to bring the Tax Authority to impose huge taxes on the plaintiffs (and the sellers) that would de facto thwart the transaction, and thus open the way for the defendant to receive the sellers' shares in the transaction for the exchange of assets in exchange for the share it inherited in the lands in Ra'anana.
17. The plaintiffs argued that the fact that the defendant did not see fit to update Gideon or their attorney on the documents and details she provided to the CCC, or the existence of a direct connection between her and the CCC, is particularly serious, and she also admitted to this. Given that in parallel with the defendant's correspondence with the CCC, their counsel continued to contact him and demand to receive the documents demanded by the CMC, the defendant was expected, at the very least, to inform Gideon that she was already in direct contact with the CCC and was passing on information and documents to them.  Despite the repeated demands of their counsel, the defendant filled her mouth with water and concealed the direct connection between her and the CCC.
18. Damage and causal connection
19. It was argued that the damage caused to the plaintiffs was direct and indirect financial damage. The direct damage is the gap between the amount of tax they were originally supposed to pay according to their reports to the tax authorities, and the amount they were actually forced to pay.  The amount of the alleged direct financial damage is ILS 188,479, because instead of paying purchase tax in the amount of ILS 360,000 for the share purchase transaction and ILS 30,000 in respect of the share transfer transaction (antitrust ILS 390,000), the plaintiffs were forced to pay a total of ILS 578,479 as a result of the defendantIn addition, it was claimed that indirect damages were incurred in the amount of ILS 52,709 for appraisal expenses that were forced to be added in the appeal process, and ILS 50,000 for substantial legal expenses related to the appeal process.

• With regard to the causal connection to the damage, it was argued that the Tax Authority initially determined that the contractual consideration paid in the share transfer transaction between the sellers and the defendants reflected the market value, and there was no dispute on the matter. However, only after and close to the correspondence between the defendant and the Tax Authority, in which the defendant presented exaggerated data regarding the value of the company's assets, did the Tax Authority decide to open a new front of dispute.
• As evidence that the defendant's intervention is the cause without which there is no damage, it was argued that in the parallel case of the sellers, in respect of which the defendant did not contact the Tax Authority, he did not find a CCC to intervene in determining the value of the transaction. There was no real estate taxation proceeding against the sellers for 4 years, and they paid betterment tax according to the actual value of the transaction (ILS 6 million), and today there is even a statute of limitations on the assessment.  This comparison, according to the plaintiffs, proves that it was the defendant's intervention in their case that created the incentive for the Tax Authority to change its position and demand that they pay higher tax.

1. The plaintiffs claimed that the defendant must have anticipated, and should have expected, that providing incorrect information to the Tax Authority would lead to harm to the plaintiffs, and it can only be assumed that this was also her intention in light of the murky relationship between the parties.

The defendant's arguments

17. Status of the defendant in an application to the Tax Authority
18. The defendant claims that a director is in charge of managing the company's business, whereas transactions of the transfer of shares in a corporation from a certain corporation to an anonymous person - with the exception of a 'buyback' of company shares by the company - are completely 'external' to the company's business and management.
19. The defendant argues that the letter to the CMC of January 12, 2021 - even if we ignore the fact that this was the fulfillment of a duty under section 96(1) of the Real Estate Taxation Law - with respect to 'external' transactions in the company's shares, has no connection, even in a narrow way, to her role as a director.

• The defendant argued that the question of whether the action of a certain person is as a director of a certain company is substantially examined - whether it really falls within the scope of the aforesaid; Accordingly, even if the plaintiffs' counsel contacted the directors, this will not determine whether this is indeed an appeal to them in this hat, but the matter is decided according to the content of the application and the question of whether or not it has a connection to the company's activity and business.

18. Regarding breach of fiduciary duty and/or caution and/or good faith and conflict of interest

• The defendant argued that the transfer of information to the tax authorities in order for them to collect a 'true tax' from a certain person - including on its own initiative and even as an 'informant' (which is not the case here) - is strictly legal because of 'public policy regarding the collection of 'true tax' and in an egalitarian manner - which is the 'overarching principle' in tax law .
• The defendant claimed that from the moment she was asked by the Tax Authority by telephone to transfer documents, she was obligated by virtue of section 96(1) of the Real Estate Taxation Law to hand over the documents to the CMC authorities.

19. Arguments regarding the absence of damage and the absence of a causal connection
20. The evidence submitted shows the "mosaic of information" that was used by the Tax Authority in formulating its position - with regard to thetransactions reported by the plaintiffs, both with regard to the classification of the company as a 'real estate association' and with regard to the value of the transactions - it is evident that the information provided by the defendant to them was perceived by the CMC authorities as marginal and negligible.

• It was argued that the plaintiffs - without any knowledge of the defendant's letter of January 12, 2021 and a year and a half before they learned of it on 7/22/22 - were the ones who notified the CCC on their own initiative, already on January 22, 2021, of the increase in the value of the company's real estate assets to an amount of ILS 50.5 million, compared to the maximum value of ILS 36 million that appeared in the transaction documents and in the initial report thereon. If so, the plaintiffs are the ones who reported to the authorities a developing and changing report on the amount of the company's assets and their value.
• It was argued that the combination of the facts - both the plaintiffs' contradictory representations regarding the nature of the company as a real estate association - and the plaintiffs' developing and changing reporting regarding the amount and value of the company's real estate assets - caused, in any event, and without any connection to any action of the defendant, to great suspicion on the part of the CCC authorities towards the plaintiffs, and to an in-depth inquiry with them regarding the value of the company's assets.
• With regard to the absence of damage, it was argued that the plaintiffs were the ones who compromised at a slightly lower value - ILS 49.5 million - than the maximum value that they themselves had estimated on their own initiative, which was ILS 50.5 million.
• Also with regard to the damage, it was argued that there can be no cause of action for the taxpayer because he was charged an additional tax - which expresses a true tax - against the person who provided the information.  From the same considerations, it is also impossible to say that an 'addition' of tax paid by a taxpayer - as opposed to his position - when it is a 'true tax', is a claimable 'damage'; Moreover, when the tax paid will be deductible at the time of sale, both according to the law and according to the plaintiffs' settlement agreement with SMAK.

20. Plaintiffs' lack of good faith
21. The defendant claimed that the plaintiffs were the ones who presented in the two transactions to the tax authorities a representation and its complete opposite regarding the classification of the company in whose shares the transactions were carried out as a 'real estate association'. It was argued that the same legal entity, the plaintiff, in which the plaintiff is a controlling shareholder and the sole organ, simultaneously holds the position and the opposite in two transactions in which it is the 'buyer' that were made two days apart on the issue of whether the company is a 'real estate association' or not, in transactions that require reporting backed up by an affidavit to the tax authorities.

• It was argued that in this lawsuit, the plaintiffs are stating that they wanted to be able to selectively transfer documents to the CCC and not the entire documents. This testifies to their "integrity" and good faith.

Discussion and Decision