According to Licht, this ruling is inconsistent with the basic principles of the law of trust in Israeli law, since the duty of trust is a maximalist duty that obligates the fiduciary to devote himself completely to the benefit of the beneficiary - the company, and does not tolerate the "infiltration" of a foreign interest, a "balance" or an "extension" for the benefit of another party. In this context, Licht also refers to the fact that the English case law on which Justice Procaccia relied, as agreed in the case of Peskin v. Anderson states that the director-shareholder relationship is not a fiduciary relationship per se, and that the establishment of a fiduciary duty to a shareholder requires a separate and concrete basis - such as a mission relationship or the provision of material information - and not a "gradual expansion" of the fiduciary duty owed by the director to the company.
- At the same time, even in accordance with his critical approach to Licht's case law in the Kot case , there are situations in which an officer will be considered a fiduciary of the shareholders, when the shareholder and the director have a fiduciary relationship on behalf of another person according to the general trust law - for example, when a director serves as an agent of a shareholder (see also: Civil Appeal 4682/92 Estate of the late Ezra Shaya v. Beit Talsh Ltd., 55(5) 252 (2000)) or when, despite the corporate framework, in practice there is a partnership relationship between the parties, which is a relationship of trust that has been clear since ancient times, such as in a small private company (Amir Licht, "The Big Will Be Small - The Duty of a Director to Shareholders", point at the end of a sentence (September 9, 2019)).
- In our case, it appears that the elements are met, and when they are met, the defendant can be regarded as having a duty of trust to the plaintiffs, both in accordance with case law, and in accordance with the position limiting the liability of the officers to the shareholders, which has been expressed in the literature. This is in light of the fact that this is a small family company that is "a kind of partnership".
- In a partnership, a relationship of trust applies between the partners, both by virtue of the general laws of trust in common law and by virtue of section 29 of the Partnerships Ordinance [New Version], 5735-1975 (see: Amir Licht, "Duty of Trust - When?", Duties of Trust in Israeli Law 35 (Ruth Plato-Shinar and Shogi Segev eds., 2016, pp. 42-43). The case law also recognizes that a small private company may be considered a "quasi-partnership", and therefore as maintaining a fiduciary relationship between its shareholders, with criteria such as: personal relations between the shareholders that entails mutual trust; understanding of joint management of the company's business; restrictions on the transfer of shares; a limited number of shareholders; and similar holding relationships between them (8712/13 Adler v. Livnat (Nevo, September 1, 2015); in paragraphs 76-77 of the judgment of Justice Danziger; See also: Civil Case (Tel Aviv District) 16585-12-14 Reichman v. Olansky (Nevo, February 7, 2017), at para. 3). In other words, where a small family company actually functions as a partnership, its shareholders are subject to mutual fiduciary obligations by virtue of the general fiduciary laws, in a manner that may establish an officer's fiduciary duty towards the other shareholders as well. Another reason for the application of the laws of trust in our case and the existence of a duty of trust is the fact that the defendant contacted the CCC at the request of the plaintiffs and in their case, and provided information relating to the plaintiffs' transaction.
The Mental Element - Good Faith
- Section 254(a) of the Companies Law states that "an officer owes a duty of loyalty to the company, shall act in good faith and act in its favor." The element of good faith in the duty of trust is a mental element of cleanliness of mind, and not a standard of behavior of basic decency. As ruled in other municipal applications 262/86 Roth v. Deak and Co. Inc., IsrSC 45(2) 353, 366 (1991), by the Honorable Justice Bach, and other municipal applications 610/94 Buchbinder v. Official Receiver, 57(4) 289 (2003) by the Honorable President (as he was then called) Barak, the trustee is required to have "utmost good faith", which is not increased good faith but the pinnacle of good faith. This derives the metaphor coined by Prof. Barak to describe the duty of trust: "man to man - angel" (Barak, Judicial Discretion 495 (1987)), as opposed to "person to person-person," which describes a standard of conduct of reasonable propriety according to the principle of good faith.
- Lack of good faith in the context of the duty of faith means some level of awareness of the possibility of a contradictory situation, and this also includes knowledge attributed to the various issues, such as because of turning a blind eye or on the basis of the presumption of expectations. A conflicting situation with respect to an officer can include the possibility of a prohibited conflict of interest or a violation of the law, but also the possibility of harm to the company in the absence of a sufficient basis of information (which can be reasonably collected in the circumstances at hand) or a decision made in an irrational proceeding. A conscious action in such circumstances will be considered an act of bad faith, and it amounts to a breach of a duty of trust (Amir Licht, Relations of Trust in a Corporation - The Duty of Trust, at p. 290; Zimmerman v. Crothall, 2012 Del. LEXIS 64, 20-27 (Del. Ch. 2012)). Within the scope of subjective bad faith, it may also include acting in a whimsical manner or out of resentment (Amir Licht, "Relations of Trust in a Corporation - The Duty of Trust," 237 Mishpat Ve-Business , 18 (2014), at p. 290).
- In our case, there are many indications that the mental and behavioral element required to determine that the defendant breached the duty of fiduciary duty This includes the fact that the defendant did not inform the plaintiffs or their representatives of its direct relationship with the Tax Authority, and in the circumstances of the case it appears that it even concealed the aforesaid connection (Prot. at p. 89, paras. 4-18):
"Honorable Judge: And did you respond in some email, someone on your behalf or did you respond to the attorney and say - we have provided information, we are in contact with the Tax Authority, everything is being processed?