[...]
Q: So your explanation for the difference between 33 and 49 is that in a year the value of real estate increased by 150%?
A: First of all, that's not my explanation. There are data that are open, it's not an appraisal process, there are data that we follow privately, not as directors, but everyone who deals in real estate in Israel. There are summaries of the data, and there is the Tax Authority on transactions that were carried out, all kinds of data,
Q: Is there a figure that you can tell me that you had in your hand that could have taught that it could have learned that the value of this asset is 49 million?
[...]
A: No, no.
Adv. Van Emden: Excuse me, sir, she never claimed that,
Adv. Lustgarten: I asked if she had a document,
A: I don't,
- Indeed, even according to the defendant herself, the valuation that she submitted to the Tax Authority was not based on a professional examination, but was a personal assessment, "I did not make an appraisal there, I did not go into the whole matter" (see in Prut at p. 106, paras. 7 - p. 107, paras. 7-9). The defendant also confirmed that it did not have a document supporting the valuation of ILS 49 million for the property in Holon (Prot. at p. 70), and that on the same day that it submitted its valuation it did not conduct an examination with realtors or on the Tax Authority's website (see Prot. at p. 103:
Q: I see, how many realtors did you have time to talk to?
A: Why?
Q: In response to the questionnaire, you said that you based your valuations on conversations with realtors and examinations of the Tax Authority's outline. I ask, how many realtors did you have time to talk to?
A: Do you think I had time to talk to the realtors that day?
Q: I very much hope because that's what you wrote in response to questions.
A: Me, wake me up at night, I know the component, what are you even talking about? I keep getting calls that people want to buy this place. We are constantly in contact with realtors who want to hear
- The absence of a proper examination and the lack of explicit reservations in the email, along with the significant gap between its estimate and previous appraisals (ILS 33 million vs. ILS 49 million, see: Prot., pp. 70-71), attest to negligence in the process of collecting the information and in the choice to provide it to the Authority without further verification.
Damage and causal connection
- In order for liability in tort to arise, it is not enough to violate the duty of care. It is also required that as a result of the breach, damage will be caused to the plaintiffs and that there be a causal connection between the act or omission of a person, the act that constitutes a breach of the duty of care, and the damage caused to the victim, for which the plaintiff is seeking compensation. The foundation of the causal connection has two aspects: factual and legal. A factual causal connection means that the misrepresentation is a "cause without which there is no reason" for the damage caused to the injured party, and had it not been for the negligent representation, the damage would have been avoided (Civil Appeal 610/94 Buchbinder v. Official Receiver, 57(4) 289, 311 (2003)). The causal-legal connection concerns the question of who should attribute the responsibility to, and it selects from among the various factual factors those factors that bear or are worthy of bearing responsibility according to the legal tests set out in case law: the expectation test; the risk test; and the common sense test (Civil Appeal 7440/19 Emblaze in Tax Appeal v. Double U Trading Fund Inc. (Nevo, April 27, 2021), at para. 17).
- In the context of negligent misrepresentation, proof of the existence of a causal connection, the plaintiff proves that there was reliance on the negligent representation in a reasonable manner, that the defendant should have expected such reliance, and that as a result the plaintiff suffered damage (Civil Appeal 3496/13 Feingold Metals v. Gizelter (Nevo, November 12, 2015), at para. 34; and see also: Amir Licht, "Supporting the Innocent - Contributory Fault and Failure to Reduce the Damage in a Compensation Claim against Emunai," point at the end of judgment (April 20, 2021)).
- For the sake of clarity, I will mention the sequence of events that led to the damage claimed by the plaintiffs, as appears from the evidence before me: In June 2018, an appraisal was conducted by Camille and Rafael, which estimated the value of the property in Holon at ILS 33.7 million. About two years later, in June 2020, the Tax Authority issued preliminary purchase tax and betterment tax assessments, in which it determined that the contractual consideration paid reflected the market value (see: Appendix 7 to the plaintiff's affidavit). Indeed, as the plaintiffs claim, at this stage there was no dispute about the value of the transaction, but rather about the question of the company's classification as a real estate association. In January 2021, during the objection process filed by the plaintiffs regarding the classification of the company as a real estate association, the Tax Authority contacted the plaintiffs' attorney and demanded additional documents and clarifications. As may be recalled, on January 11, 2021, the plaintiffs' counsel contacted the company's directors with a request to provide him with the required documents. The next day, on January 12, 2021, the defendant provided the CCC with its valuation of the company's assets, in which it claimed that the value of the property in Holon was ILS 49 million and that the value of the company's total assets ranged from ILS 90 million to ILS 100 million (see: Appendix 20 to the statement of claim). Subsequently, in February 2021, the plaintiffs submitted additional documents to the Tax Authority in response to its demands, including an update to their total valuation in the range of ILS 41.5 million to ILS 50.5 million (see: Appendix 17 to the plaintiff's affidavit), based on Camille's appraisal from 2018 for the property in Holon and internal and unofficial valuations of the other properties (see: pp. 8-10 of the protégé). In March 2021, SMAC changed its position and made a new decision in the objection, in which it rejected the declared value and set the value of all of the company's assets at ILS 65,629,154: This determination was based on an internal appraisal by the Authority, which was conducted by the appraiser Odem, who valued the property in Yirmiyahu at ILS 31,055,154, the properties in Ben Yehuda at ILS 4,170,000, and adopted Kamil appraisal for the property in Holon. Thus, he consolidated his estimates to a total value of ILS 65.6 million (see P/1). The plaintiffs appealed this decision, and in the framework of the appeal proceedings and in order to support their claims, in December 2021 they submitted an appraisal opinion conducted in June 2021 by the appraiser Bogin, which estimated the value of all assets at ILS 44,553,000 (ILS 25.755 million for the property in Holon, ILS 16.178 million for the property in Yirmiyahu and ILS 2.620 million for the properties in Ben Yehuda) (see Appendix 13 to the appeal, which is Appendix 28 to the plaintiff's affidavit). After negotiations, the plaintiffs and the Tax Authority reached a settlement agreement in March 2023, in which it was determined that the value of the company's assets for tax purposes was ILS 49.5 million, and the appeal was dismissed (see: pp. 1423-1425 of the plaintiff's affidavit).
- In the circumstances at hand, was there a causal connection between the defendant's actions and the alleged damage, and can the final result be considered compensable damage? The plaintiffs argued that the fact that the sellers were not required to clarify at all and were left with the initial reported valuation of ILS 36 million, indicates that the sequence of events vis-à-vis SCMAK with regard to the value of the company's assets began when the defendant approached the Tax Authority. On the face of it, this is an argument that makes sense: the sellers' transaction is the same transaction in which the plaintiffs are the purchasers, and because of this, the sequence of events in their case can serve as a "control group" to understand what would have happened had the information provided by the defendant not been provided.
- However, in order to accept this argument, the question of the existence of compensable damage must first be examined, since if the alleged damage cannot be considered compensable damage, in any case the question of causal connection is irrelevant. According to the plaintiffs, the damage is the tax difference they were forced to pay after the defendant's intervention, as opposed to the initial assessment, in accordance with the initial value that was also determined in relation to the sellers' transaction. This argument is difficult in my opinion, since it means that the damage is the fact that the plaintiffs were unable to pay an assessment according to an estimate that they themselves knew was inaccurate.
- The evidence that the plaintiffs did indeed know that this was not an accurate valuation is the fact that they provided a different and higher valuation, even at the stage when they believed that the only dispute related to the classification of the company as a real estate association. Admittedly, this deviation from their original estimate was not made voluntarily by the plaintiffs, but rather in response to a request for documents from the CC dated February 14, 2021 (see: "Letters of Demand for Receipt of Documents and Clarifications" (Appendix 16 to the Plaintiffs' Affidavit)), which demanded, inter alia, comprehensive details regarding the value of the company's assets, including planning information, the condition of the property and the dates of purchase/renovation. The plaintiffs responded to this demand on February 22, 2021 ("Response to the Document Demand of February 14, 2021" (Appendix 17 to the plaintiffs' affidavit)), with a new assessment according to which the value of their assets is no less than ILS 41.5 million, and up to a maximum of ILS 50.5 million (see Prot. at pp. 8-10). However, at this stage, given that according to the plaintiffs' position the initial valuation they provided in the amount of ILS 36 million was accurate, they had no justification or reason to change it in response to the request of the CC to provide additional documents. For if the first valuation was correct according to them, a request for additional documents that do not add to the valuation but only substantiate it, should have led to the delivery of the same valuation, with the addition of references. The fact that at this stage they deviate from the original statement of value indicates that already at this stage, they themselves are not behind it. The fact that this was done in response to the request does not raise or lower this matter, since, in principle, they could have provided the same value together with references that substantiate it (and in any event, at this stage, at the time of the response to the document demand of February 14, 2021, no up-to-date appraisal was attached). In other words, and to sum up this point, even if what causally led to the increase in value at the plaintiffs' initiative was the demand for a CCC, the plaintiffs were "free" at this stage to provide the correct assessment as they saw fit in response to this demand, and since they did not know about the defendant's actions, they were also not under pressure or fear to give a higher estimate than they believe it to be. The fact that they nevertheless gave a higher estimate than the first one they gave is proof that the first estimate was an underestimation according to their method as well.
- I note that the plaintiffs addressed this issue, and claimed that the source of the discrepancy was that the first assessment also weighed "the serious dispute that exists between the shareholders of the company. which makes it difficult for it to function and manage" (see: Appendix 17 to the plaintiffs' affidavit, at para. 30). Subsequently, the plaintiff argued that the value of a limited partnership or partnership with disputes, in which the partners do not allow for sale or purchase, reduces the value of the shares compared to the value of the assets themselves - and therefore it is possible that the two estimates are consistent with each other. However, these arguments were made without evidence being brought to establish such a difference in the value of a transaction for these reasons, and therefore I did not find them acceptable. Moreover, since there is no longer a dispute that we are dealing with a real estate association, in accordance with Section 9(b)(1) of the Real Estate Taxation Law (Appreciation and Purchase), 5723-1963, in an action in a real estate association, the purchaser will be liable for purchase tax in the amount that would have been liable for the sale of a right in real estate, the value of which is the relative part of the value of all the rights in the real estate owned by the association, the value of real estate from a willing seller to a willing buyer in the free market Therefore, the claim about the difference in the value of the shares compared to the value of the assets is wrong. Moreover, support for the fact that the dispute between the shareholders does not explain the discrepancy between the plaintiffs' initial valuation of the value of the transaction and the later one, can be found in the opinion of the appraiser Bogin, also on behalf of the plaintiffs (see: Appendix 29 to the plaintiffs' affidavit). In its opinion, Bogin weighed the reduction in the value of the assets resulting from a dispute and joint holding, and also in taking into account the reduction, the total value of the assets it reached is ILS 44,553,000, i.e., higher than the initial value of ILS 36 million reported by the plaintiffs to the CCC.
- Therefore, and without determining the question of whether the plaintiffs knew this information in the first place or discovered it when they produced the documents required for the request for a CCC, at the same point at which they submitted the documents, the initial valuation they provided was also inaccurate according to the plaintiffs' approach, and the payment of real tax does not constitute compensable damage in torts (Civil Appeal 153/04 Rubinovich v. Rosenbaum (Nevo 6.2.2006). Verse 6). All the more so in our case, when the amount they ultimately paid is consistent with the range they themselves estimated in relation to the value of their assets: no less than ILS 41.5 million, and up to ILS 50.5 million (see: pp. 8-10 of the minutes).
- More than necessary, and even though this argument was not explicitly argued as such, insofar as the plaintiffs' intention in their claim was to claim that it was the defendant's provision of the information that led to the hardening of the position of the CCC in the negotiations, and thus led to a compromise "on the high side" in the framework of the settlement agreement, no causal connection has been proven in relation to this reference point.
- As stated, the plaintiffs provided the CCC with documents and a higher valuation, about a year and a half before they learned of the defendant's letter (see: paragraph 29.1.2 of Ms. Sidorenko's affidavit). To this must be added the opinion of an appraiser on behalf of the Tax Authority (see: Appendices 27-29 to the plaintiffs' affidavit) and the conduct of the plaintiffs themselves in the proceeding. All of these are significant intervening factors that sever the causal connection between the defendant's action and the final tax result, or at least make it impossible to trace a causal proceeding that derives exclusively from the defendant's actions. The plaintiffs' conduct, the details they provided, and the timing of the delivery of the information, all of these likely influenced the assessment of the CC and possibly also its strategy for conducting the proceeding, and it cannot be determined that this would not have led to the hardening of positions on the part of the CC even if it were not for the defendant's intervention. In these circumstances, it cannot be determined that it was precisely the defendant's actions that led to the hardening of the positions of the CCP and the fact that the compromise was "on the high side". This is because it is not possible to isolate the defendant's influence from the totality of the factors that acted, and it has not been proven that her intervention had a decisive effect.
- If so, the plaintiffs have not been able to prove the elements required for the defendant's actions to fall within the scope of a breach of the duty of care of an officer, since it is doubtful that the damage claimed by the plaintiffs can be regarded as compensable damage in torts, and even to the extent possible, they have not been able to show that there is a causal connection between the breach and the damage. Therefore , unfortunately, with regard to the breach of the duty of care, there is no basis for awarding compensation to the plaintiffs.
In this context, see the following words of the Supreme Court: