The defendant's status at the time of providing the information to the Tax Authority
- The defendant claimed that she acted with the tax authorities in her capacity only as a shareholder and not as an officer. This includes the fact that sharetransfer-purchase transactions are "external" to the company's business, so that all of its activities are also "external" to the company's business and its role as a director. I did not find this argument acceptable.
- At the basis of the fiduciary duty of officers is the need to bridge the gap between the shareholders (the shareholders) and the directors (property managers). Since officers control "the property of others," there is a built-in fear that they will use their power to promote personal goals at the expense of society. The duty of fiduciary duty serves as a legal tool intended to direct their energies to the advancement of the company's affairs and not their personal affairs (see: Yosef Gross, The Companies Law (2016), chapter 33, at p. 587; Civil Appeal 817/79 Kosui v. L. Bank Feuchtwanger Ltd., 38(3) 253 (1984), at para. 46).
- This rationale, which relates to the fear of abuse of the built-in overpower, also exists with respect to the officers' exclusive access to information relating to the company. Information that reached an officer as a result of his position in the company is an asset of the company (see: Tzipora Cohen, Company Officers - Ways to Release Them from Liability (2023), at p. 153), and therefore, the use of this information is also an action in relation to the company's asset, to which the officers' exclusive access may be exploited.
- There is no dispute that the defendant is a director of the company. Since the defendant made use of the information that was accessible to her, but by virtue of her role as a director, and not as an ordinary shareholder, the rationale discussed above that underlies the duty of fiduciary duty is fulfilled. In the present case, the defendant was in possession of documents that were not accessible to all shareholders. Thus, for example, the correspondence with the appraiser Rachel Franco, which was demanded by the Tax Authority, was not in the hands of the plaintiff or other shareholders. As came up in the hearing before me, in response to the plaintiffs' attorney's question: "Now, please confirm to me that this correspondence was not sent to the shareholders?" and the answer was: "I just look at names here and I really see that all the other shareholders are not registered" (Prot. at p. 94, paras. 22-24). When the defendant was asked: "Do you agree with me that the letter of that letter of opening a proceeding by Rachel Franco was not with anyone in the company at the time I contacted me, right?", she replied: "Apparently not" (at p. 82 of the protégé, in the framework of the defendant's cross-examination).
- The access to insider information, and its use for the purpose of appealing to the Tax Authority, therefore strengthens the argument that the defendant acted in her capacity as a director, or at the very least, that the same correct logic exists with respect to the fiduciary duties of a director, and therefore the separation between her hat as a shareholder and her hat as a director would in this case be artificial and would sin against the rationale underlying the concept of fiduciary duties of officers.
- The defendant's self-presentation to the Tax Authority as a director of the company can also serve as a certain indication of her status at the time of the action, and especially how she believed in real time as to the "hat she is wearing" in her conduct vis-à-vis the Tax Authority. Thus, for example, in the case of Hitron v. Teller, the presentation of a person to third parties in a certain hat served as a weighty indication that he was obligated to have a duty of loyalty to the company by virtue of that hat, even though there was no certainty that he was in fact the CEO of the company:
"In addition to the minutes reflecting the parties' agreement to appoint the defendant as the company's CEO and the defendant's actions in the company as described, the evidence shows that the defendant also presented himself as the company's CEO to third parties [bottom line]. [...]. In his application, the defendant introduced himself to the CEO of Clal as the CEO of DSG (Appendix G to Mr. Katzef's affidavit). Also on a document assigning commitments from David Shield to DSG, the defendant signed as the company's CEO (P/5)" (Civil Case (Central District) 13484-03-09 Hitron v. Teller (Nevo, December 17, 2013), at para. 30).
- All the more so, where there is no dispute that the defendant served as a director of the company, her presentation of herself as such vis-à-vis a third party is an indication that she acted in her capacity as such. In any event, even if the defendant acted only as a shareholder, it is liable for duties by virtue of the Companies Law. Section 192(a) of the Companies Law imposes on a shareholder the duty to act in good faith and in an acceptable manner in exercising his rights and fulfilling his duties, and to refrain from abusing his power in the company, both vis-à-vis the company and the other shareholders. Section 192(b) prohibits a shareholder from depriving other shareholders. The late Dr. Habib Segal writes in her book Corporate Law (2007) (at p. 637) that the duty of fairness is equivalent to the duty of trust in the context of shareholders, and it is generally imposed on a shareholder in a position of power. The right not to be disadvantaged does not exist only to a minority shareholder in his relationship with the controlling shareholder of the company, but to every shareholder in any way, in his relations with any of the other shareholders (see: Civil Case (Economic) 12366-09-12 Aharonson v. Altman (Nevo, August 17, 2014), at paragraphs 63-64, of the judgment of the Honorable Justice Kabub).
- In summary of this point, the combination of facts and circumstances shows that the defendant acted, at least in a double hat, and apparently, mainly in her capacity as a director. At the very least, it seems that this was perceived at the time of its operation by the parties involved. Therefore, its actions must be examined in light of its duties as an officer. Moreover, even if it is deemed to have acted as it claims to be a shareholder only, in the circumstances of the case, by virtue of its fact that it is also a director and due to its use of insider information to which it had exclusive access, and since the company is a minority company, it also owes a duty of trust to the plaintiffs.
Was the duty of care violated?
- The defendant is correct in its argument that providing information to the tax authorities, even one that leads to the payment of a higher tax, does not constitute a breach of the duty of care as long as the information is reliable and intended to realize the principle of true This is because there is no duty of care with respect to preventing people from getting rich by underreporting to the tax authorities (see in this context: Civil Appeal 153/04 Rubinovich v. Rosenbaum (Nevo, February 6, 2006), where the appellant received an erroneous assessment from a lawyer regarding betterment tax. The court ruled that there was indeed negligent misrepresentation on the part of the lawyer, and that the appellant relied on him in executing the transaction. However, the majority opinion held that no compensable pecuniary damage had been proven. It was held, with regard to the difference between the erroneous assessment and the real assessment, that "the fact that the plaintiff was required to pay the amount of tax in its entirety derives from the law and is not the result of the defendant's act", ibid., in paragraph 6(2) of the judgment of the Honorable Justice Rubinstein, which quotes the District Court's ruling).
- At the same time, doubt arises as to the reasonable diligence with which the defendant acted when collecting the information as well as when providing it, even under the presumption that it was beneficial to the defendant, that its purpose was to promote the principle of true taxation. Providing misleading information, whether intentionally or negligently, may in certain circumstances constitute a breach of the duty of care and is considered a "negligent misrepresentation" ("speech damage"), for which liability may arise in tort. It should be noted that the legislature subordinated the conduct of officers to the general principles of tort law in section 252(a) of the Companies Law.
- Negligent misrepresentation can be made not only by an act - i.e., by providing erroneous information - but also by omission, when partial information creates a false impression (g., Smith v. Van Gorkom, 488 A.2d 858 Del. 1985; Amir Licht, "The Name of the Rose: Precautions and Business Judgment of an Officer," Law and Business 19 (2016), pp. 501-504 and the references therein). For the purpose of imposing liability on a person who provided information, the law requires that the person have special expertise in the field in which the information was provided; that the information was provided in the ordinary course of business (and not by accident and in the absence of attention); that the person providing the information should have expected that the recipient of the information would rely on it ( Civil Appeal 2413/06 Caspi Rajwan and Building Towers in Tax Appeal v. The Local Planning and Building Committee - Jerusalem (Nevo 10.11.2009), at para. 35, and the references therein; and that there is a practical ability to limit the scope of liability (as opposed to, for example, an opinion in the media, to which an unknown number of potential reliers are exposed) (see: Civil Appeal Authority 7265/23 Amidar The National Housing Company in Israel in Tax Appeal v. Anonymous (Nevo, March 4, 2024), at para. 24).
- Thus, even under the assumption that the defendant did not act maliciously with the aim of misleading the authorities and that all its intentions were pure and for the benefit of the company and the public fund as a whole, the fact that the defendant was a real estate appraiser (see, inter alia: at p. 98 of the protégé), along with the fact that she provided the information without conducting a proper examination, as well as the fact that the assessment she gave was very far from even the most "strict" assessment given, and the fact that she provided the information quickly and almost immediately, without substantiating it - all of these can serve as evidence that she did not exercise reasonable diligence to avoid misrepresentation. Thus, it emerges from the defendant's answers that the assessment was given casually, without relying on sources of information that could have been available to the defendant with reasonable diligence, and see the defendant's answers in this regard in the cross-examination: (pp. 70-71 of the proclamation):
Q: Taxes Appendix 20 shows that the value of the property in Holon is ILS 49 million. Please confirm to me that at that time there was an appraisal of Arie Kamil in the company that spoke of a value of 33 million?