Classification of the PrivateAll as an Interim Agreement
- The purpose of contractual negotiations is to formulate an agreement in relation to the main engagement that the parties desire. In our case, the negotiations are intended to formulate a settlement agreement that will regulate the relations between the parties following the act of fraud. However, during negotiations, the parties may reach different types of interim agreements, which do not lead to the conclusion of the negotiations, but rather reflect agreements on various matters relating to the negotiations and the final engagement. There is no dispute that the detail was not supposed to end the negotiations, and that the parties intended to continue to advance it. In this situation, the question arises, insofar as the detail is a legally valid contract, what kind of interim agreement are we dealing with?
- It is possible to distinguish between three types of interim agreements that the parties can make during negotiations prior to the conclusion of a contract: agreements regarding the manner of conducting the negotiations; an agreement to conduct negotiations; and partial agreements in relation to the final engagement (memorandum of understanding or prior agreement). I will briefly present each of these types of agreements, and then refer to their relevance in the context we are dealing with.
- Agreements regarding the manner of conducting the negotiations - the parties can agree among themselves on the rules according to which the negotiations will be conducted between them from now on, and to the extent that they do so, and subject to compliance with the tests of contract law (intention to create legal relations; finalizations; certain and so on), these agreements may be given binding contractual force. An important example of this is an invitation to bid in a tender, which according to the law creates an "appendix contract" that regulates in a binding manner the manner in which the tender is conducted, and the parties, are required to conduct themselves within the framework of the tender proceedings, i.e., the negotiations for the selection of the winner. To the extent that the parties violate this set of rules, the court may grant an enforcement remedy, which will require the negotiations to be conducted in an agreed-upon manner, or a remedy of compensation, which will compensate the injured party for the breach of this duty (see Civil Appeal 700/89 Electric Company v. Malibu, IsrSC 47 (1) 667, 687-688 (1993)). Another example is a commitment to exclusivity in negotiations, which means that one or both parties undertakes not to negotiate with other parties at the same time.
- Contract for Negotiation - Sometimes the parties agree that they will negotiate between them in order to reach an agreement on a certain matter. English law has held that such "naked" consent lacks sufficient specificity, and therefore should not be given legal force (Walford v. Miles [1992] 2 A.C. 128 [H.L.]). In our legal system, such an obligation can be fulfilled in content by means of the principle of good faith, but the question still arises as to what such an undertaking means, and how it adds to the obligation to act in good faith that is already set forth in section 12 of the Contracts Law (for a discussion of a contract for conducting negotiations, see Daniel Friedman and Nili Cohen, Contracts, 1, 357-366 (2nd edition, 2018) (hereinafter: Friedman and Cohen))). To the best of my knowledge, the only judgment of this court that dealt with the obligation to negotiate, and recognized its validity, was a judgment given under the law that preceded theContracts Law (General Part), and was based on the English law that preceded the Walford v. The aforementioned Miles - Civil Appeal 615/72 Gellner v. Haifa Municipal Theater, IsrSC 28(1) 81 (1973) (hereinafter: the Gellner case). In that case, a theater manager promised the plaintiff, an English director who had been invited by the theater in the previous three seasons to direct a play in each season, that he would also be invited to direct a play in the 1969-1970 season. This promise was not kept, and no negotiations were conducted with the director in order to examine the possibility of its fulfillment. Judge Zvi Berenson noted that in his view, even if this undertaking appears to be an undertaking to conduct negotiations (and not a finished undertaking), there is no material difference regarding the final result, and he entitled the injured director to the promised salary and compensation for the consequential damages caused to him, including damage to his good name. The status of this precedent in Israeli law is unclear, and I have already noted in this context, in my capacity as a district judge, as follows: "It seems that what we were required to solve in the past by stretching the face of the contractual doctrine can be achieved today in a simple and natural way, through the use of the principle of good faith" (Civil Case (Center) 44615-07-11 Zip Fashion Marketing inTax Appeal v. H&O Fashion Ltd., Paragraph 29(a) [Nevo] (April 8, 2014) (an appeal filed was deleted on the recommendation of the Supreme Court in Civil Appeal 3915/14 (Nevo]). In any event, it should be emphasized that in the Gellner case itself, the probability that an agreement would have been reached had negotiations been conducted would have been very high (in fact, apparently, the court assumed in that case that it was at a level of certainty). Needless to say, this is not the usual situation in which it is claimed that there is an obligation to conduct negotiations.
- Partial Agreements in Relation to the Final Engagement (Memorandum of Understanding or Preliminary Agreement) - The most common type of interim agreements, in which Israeli case law has dealt extensively, is a partial agreement reached during the negotiations, without pretending to exhaust it, in which the parties formulate agreements regarding the main terms of the transaction, but not in relation to their totality. Such an agreement, which is commonly referred to in Israeli law as a "memorandum of understanding" or a "preliminary agreement" (hereinafter: a memorandum of understanding), raises a dilemma. On the one hand, it constitutes an interim agreement, which was not supposed to bring the negotiations to a conclusion, and this matter supports the view that it should be classified as an auxiliary document, and not given legal validity; On the other hand, the very formulation of the memorandum of understanding (and in the usual case, putting it in writing) is likely to show the discretion to commit to the transaction at this stage, and without this being contingent on the summarization of the rest of its details (which are sometimes not central to the engagement). In light of this, in Israeli law, there are situations in which a memorandum of understanding is classified as a binding contract in relation to the main engagement, and there are times when it is classified as an auxiliary document that has no legal validity as a binding contract - in accordance with the tests defined in case law (for a discussion of the status of a memorandum of understanding in Israeli law, see Friedman and Cohen, at pp. 332-357; Gabriela Shalev and Effi Zemach Contract Law 189-194 (Fourth Edition, 2019) (hereinafter: Shalev and Tzemach)).
- Given the aforementioned distinctions, how should we understand Himanuta's argument that the particulars are a binding contract? Himanuta's main argument in the litigation before us is that the Patriarchate is bound by the settlement agreement (according to the alternative of payment of compensation), and in any case it seems that for this purpose, it must be persuaded that the particulars are a binding memorandum of understanding. This is because the other two alternatives do not relate to agreements in relation to the final transaction, but only to the negotiation stage. Indeed, the trial court understood the Himanuta claim in this way, and analyzed the arguments of the parties accordingly (see paragraphs 106-112 of the trial judgment, which review a ruling on a memorandum of understanding - "prior agreement" in the terminology used by the trial court).
- My colleague, President Amit, identifies the particulars as "a contract to conclude a contract whose terms are known and agreed upon in advance, and whose date of signing is determined in advance" (paragraph 62 of my colleague's opinion; See also paragraph 24 of his opinion). The term "contract to enter into a contract", which my colleague uses, may refer to three different types of contracts: one, it is a contract for the conduct of negotiations in relation to a transaction whose terms have not yet been agreed, in the sense to which I referred in paragraph 19 above; The second is when in the framework of one final contract the parties agree that in the future they will conclude another contract whose terms are defined. This is, for example, the situation when it comes to an option contract or when a tender is held and the winner is announced; The third is an interim situation, in which some of the terms of the contract have been agreed, but negotiations are still required. This situation is in fact equivalent to a memorandum of understanding (for more on the three aforementioned possibilities, see Friedman and Cohen, at pp. 360-363). The first alternative may describe the detail (see paragraph 24 below), but it is doubtful in my eyes whether this is what my colleague was referring to. The second alternative is certainly not appropriate for the particular, since it is clear and open that this is not a final contract, which concludes the negotiations, but only an interim agreement. I therefore assume that my colleague's intention is to the third alternative, the matter of which is not substantially different from the question that the District Court put before its eyes.
- If so, is the particular, by its nature, indeed a memorandum of understanding (as Himanuta claims), or is it more correct to classify it as an agreement for conducting negotiations or as an agreement relating to the manner in which the negotiations are conducted? I will admit that already in view of this question, a considerable difficulty arises in my eyes, which is sufficient to indicate the problem in accepting the position of Himanuta. Thus, since the particulars do not clearly belong to any of these categories. It includes certain components that belong to each of them, but in terms of its essence it does not clearly belong to any of them. I will clarify.
- Some of the provisions of the particulars deal with the manner in which the negotiations will be conducted from now on (for example, section 4 which indicates that the Patriarchate may announce the preference for the second compromise alternative (extension of the lease) within 3 days of receiving the government's approval of the letter of recognition, or section 3 which relates to bringing the alternative of compromise to the approval of the authorized institutions in the Patriarchate on the one hand, and the JNF on the other), but not only does the Himanuta lawsuit not deal with the violation of these provisions, However, it appears that the two sides did not insist on their existence in practice at all (thus, for example, the JNF itself was not interested in binding the patriarchy to the first compromise alternative (payment of compensation), and both sides did not bother to act within the timetable set out in section 3 for the purpose of bringing this alternative to the approval of the competent institutions. See also paragraph 57 below). Another provision, which is clearly a provision regarding the manner in which the negotiations are conducted, is the provision of clause 6.1 of the Particular, which establishes the "formula of the relationship". With regard to this provision, and its meaning, I will relate at length later (paragraphs 66-71 below).
Another part of the provisions of the ParticularAll may be presented in terms of its essence as a commitment to conduct negotiations in an outline that has been agreed, in a manner that reminisces, perhaps, of the matter of Gellner. First and foremost, the provision of section 2 ostensibly gives rise to an undertaking to agree on the first compromise alternative (payment of compensation). However, a reading of the document as a whole shows that not only has this alternative not yet been agreed upon (as evidenced by the possibility of switching to the other alternative, which was obviously preferable to the JNF, which is set out in section 4), but the parties also explicitly clarified that neither it, nor the other alternative, are binding at this stage (section 6.1). If this is not enough, then it appears from paragraph 1 that the parties have agreed "Make every effort to settle through compromise and peace"The differences between them, however, can be deduced from this at most a commitment to make an effort in negotiations, not a commitment to one result or another. In any event, it appears that this aspect of the particulars was examined by the trial court, and so is the case with me, in the framework of the discussion of the principle of good faith (see paragraphs 83-91 below).