Civil Appeal 1463/22 The Greek Orthodox Patriarchate of Jerusalem v. Himanuta Ltd. - part 48

Interim Summary

81. From what has been said so far, it appears that no binding compromise agreement was signed between the Patriarchate and Himanuta during the negotiations that took place between them. The fact that the detail does not amount to a binding memorandum (which is the argument that stands at the center of our discussion), which binds the parties to one of the alternatives in the settlement agreement, can be learned from a variety of reasons concerning the parties' discretion to enter into a settlement agreement at the time of the reading of the particular, as well as for "formal" reasons that concern the requirements of form that apply in the circumstances of the case.  Therefore, the detail is an interim document, which set out binding provisions regarding the manner in which the negotiations are conducted, but as far as the final transaction - the settlement agreement - its provisions are a reference paper, and have never been perfected into a binding contract.
82. The interim document that is the focus of our discussion is therefore not a binding memorandum of understanding. In my opinion, this is only a reference document, which, to the extent that it contains contractually binding provisions, relates only to the manner in which the negotiations were conducted, and certainly not to the final transaction - the settlement agreement.  Since there is no dispute that these negotiations did not result in a settlement agreement, this conclusion places the continuation of our discussion on the pre-contractual level.  I will therefore turn to this plane now.

The Duty of Good Faith

83. As will be recalled, the financial liability of the Patriarchate, which is at the center of this appeal, is based on the conclusion of the trial court regarding the Patriarchate's breach of the duty of good faith. In summary, according to the approach of the trial court, against the background of the details of the negotiations that took place between the parties, the reliance it established with the JNF, and the absence of "an unclear and justified excuse to refrain from signing the settlement agreement" - the withdrawal of the patriarchy from the negotiations expresses a breach of the obligation set forth in section 12 of the Contracts Law, to a degree of severity that justifies awarding subsistence damages in favor of Himanuta (paragraphs 169-170 of the trial judgment).  As will be detailed in the following paragraphs, my position on this issue is different.  In my opinion, an examination of the case against the background of the totality of its circumstances leads to the conclusion that the Patriarchate was entitled to withdraw from the negotiations in the circumstances in which it did so; And all the more so because this is not a case in which her conduct raises a "cry of fairness." Before I explain this position, I will discuss several elements of the duty of good faith under section 12 of the Contracts Law relevant to our case.

Note: It should be noted that my colleague, the President Associate, reiterated in his opinion that his discussion of the breach of the duty of good faith rested on the recognition of the particulars as a binding compromise agreement, and on the Patriarchate's breach of this contract.  In any event, my colleague refrained from holding that assuming that the detail does not constitute a valid settlement agreement (as the trial court held), the conduct of the patriarchate amounts to bad faith.  Given my determination that the Patriarchate and the JNF did not enter into a settlement agreement, my steps on the issue of good faith will be taken on the ground laid down by the trial court, and not on the ground presented by my colleague.

84. According to Section 12 of the Contracts Law, "in negotiations leading up to the conclusion of a contract, a person must act in an acceptable manner and in good faith." One of the typical cases in which the case law identified the possibility of a breach of this duty at the negotiation stage is "withdrawal from negotiations for non-relevant motives, in a manner that violates the reasonable expectation of the opposing party" (Civil Appeal 8143/14 Halfon v. Discount Mortgage Bank Ltd., paragraph 8 of the opinion of Justice Neil Hendel [Nevo] (January 29, 2017) (hereinafter: the Halfon case); See also: Friedman and Cohen, at pp.  705-708).  To be precise, the starting point in this context is that not every negotiation gives rise to a contract, and that the parties have the right to withdraw from it at any stage (see: Halfon, at paragraph 8 of Justice Hendel's opinion; and see also: Civil Appeal 251/84 G.P.  For Investments inTax Appeal v.  State of Israel, IsrSC 39(2) 463, 467 (1985) (hereinafter: the SGP case).); Friedman and Cohen, at pp.  699-700).  However, in view of the duty established by the legislature in section 12 of the Contracts Law, this right is not absolute, and its realization must be done in good faith, i.e., in the form of "a withdrawal guided by substantive considerations stemming from the nature of the transaction, the development of the negotiations, and the status of the parties to it" (Civil Appeal 2701/99 Fenty v.  Yitzhari, IsrSC 55(5) 721, 727 (2001); See the Halfon case, in paragraph 8 of the opinion of Justice Hendel, who brought these words; and also compare, in relation to the place of such "substantive considerations": the case of S.G.P., at p.  467).  An examination of the case law reveals that among the considerations brought to examine this issue, which, as far as the fulfillment of the duty of good faith must be done from an objective point of view, are the reason why the party accused of bad faith withdrew from the negotiations, the expectations of the parties with respect to the conclusion of the contract given the representations made in this regard, and the array of relations and forces between them (see: Halfon, at paragraphs 9-14 of Justice Hendel' s opinion;Friedman and Cohen, at p.  708).  As I will explain now, an examination of these three aspects in the circumstances of the present case leads to the conclusion that the withdrawal of the Patriarchate from the negotiations after April 2008 does not amount to a lack of good faith.
85. First, the reasons for which the Patriarchate withdrew from the According to the Patriarchate's version, which was not rejected by the trial court (and apparently not even by Himanuta), the main reason for this withdrawal was the withdrawal of the source of funding on which it relied (see paragraph 9 of the Patriarchate's summaries in the present proceeding).  Indeed, as appears from Mr. Sofer's affidavit, around the years 2005-2006, contacts began to take place between the Sofer Group and the Patriarchate, inter alia, with respect to a transaction that would include the purchase of the lease rights in the land in exchange for an amount that would include the payment of the settlement to Hymanuta; However, in April-May 2008, the Sofer Group decided to withdraw from these negotiations due to facts that were discovered in relation to the scope of the land and for reasons of the feasibility of the transaction (see: paragraphs 65 and 91 of the trial judgment).  The trial court did not cast doubt on this testimony of Mr. Sofer, and it is easy to see that it is consistent with the agreed chronology of times, according to which the last meeting between the representatives of Himanuta and the Patriarchate took place on April 15, 2008, after which the disconnect between the parties occurred.
86. At this point, the question arises, does the parallel negotiations that the Patriarchate held with Mr. Sofer and his group in relation to the transfer of the rights in the land constitute improper conduct in itself? Contrary to Himanuta's claims, I believe that the answer to this is negative. The starting point in this context lies in the fact that the very transfer of the Patriarchate's rights in the land to a third party did not contradict the obligations that it claimed to have undertaken.  This is what emerges from the rulings of the trial court (paragraph 164 of the trial judgment), and this is what emerges from the draft default agreement that was attached to the detail (see paragraph 2 of this draft, in which it was determined that the parties' obligations are met "without derogating from the rights of the parties to assign their rights to others", and which appears to have been amended at the request of the patriarchate; See paragraph 362 of the summaries of the Patriarchate in the Preliminary Proceeding), and this is evident from the testimony of Adv. Weinroth in his cross-examination (see the transcript of the hearing of February 15, 2018, at p.  88).  Given this, the negotiations that the Patriarchate held with the Sofer Group were made in relation to a possible kosher transaction, the purpose of which is to finance the agreement that is taking shape with the JNF - a purpose that is undoubtedly relevant and appropriate.  At this point, it should be clarified that we are not negotiating with respect to a counter-transaction, in which the Sofer Group could have come under the JNF.  Indeed, it is possible that this was the case if the Patriarchate had chosen the path paved by Draft B for the particular, which deals with the extension of the lease in the land.  However, it seems that there is no dispute that the Patriarchate has not expressed a willingness to commit to the said outline, and even in the Detail it is presented only as an alternative option, which the Patriarchate is entitled to choose at its discretion, but may also not do so (see section 4 of the Detail).
87. We are dealing with, therefore, a withdrawal from negotiations due to the withdrawal of a source of funding, the contacts for which were proper and matter-of-fact, as described above. In my opinion, this reason constitutes a valid reason for withdrawing from negotiations in the circumstances of the present case.  It is possible that as a matter of proper and ethical conduct, the Patriarchate would have done well to disclose to the JNF the fact of the negotiations with the Sofer Group at an earlier stage (assuming that the JNF did not indeed know about the matter, an assumption that the Patriarchate casts doubt; see paragraphs 366-367 of the Patriarchate's summaries in the preliminary proceeding).  However, "we are concerned with honesty of heart and not with flexibility of character or pleasantness" (the case of S.G.P., at p.  467).  In the circumstances at hand, even if the Patriarchate did not disclose to the JNF about the contacts with the Sofer Group, I did not find that this was conduct that amounted to a lack of good faith, and certainly not a material lack of good faith.  This is especially true given the other two aspects, which I will now address.
88. Second, the expectations of the parties with respect to the contractual status. As stated above, the main argument on which the trial court relies in its determination that the withdrawal of the patriarchate from the negotiations amounts to a lack of good faith is the reliance created by its representations in relation to its intention to enter into a settlement agreement with the JNF (see paragraph 168 of the trial judgment).  However, as emerges from the previous parts of my opinion, in my opinion, the representation presented by the Patriarchate with respect to its final intention to enter into a settlement agreement is not as significant as the JNF claims.  It is sufficient to mention, in this context, the suspicion which in my opinion should be exercised when examining the significance of the reading of the particulars (see paragraphs 33-40 above); the explicit reservation of the Patriarch to the signing of the Particulars (see paragraphs 49-52 above); And other difficulties that arise on the level of judgment.  All of this, I believe, indicate that the presentations of the Patriarchate with respect to its intention to commit to a final deal with the JNF are not like its cry, and accordingly, that the JNF's reliance on these representations should not be exaggerated.
89. Third, the overall relationship between the parties. As previously determined in our case law, the individual circumstances, which are claimed to give rise to bad faith, must be examined from the perspective of the broader context in which the contacts between the parties take place, and in this framework also give weight to the conduct and good faith of the "injured party", i.e., of the party who claims to have been harmed by the lack of good faith of the other contractor (see: the Halfon case, at paragraph 17 of Justice Hendel' s opinion;Civil Appeal 434/07 Prinz v.  Amirim Moshav Ovdim, paragraphs 27-28 [Nevo] (June 14, 2009); and compare: Friedman and Cohen, at pp.  748-751).  In our case, it seems to me that the conduct of the JNF along the way - the conduct in relation to which the claims of the patriarchate's lack of good faith must be examined - makes it very difficult to accept these claims.
90. In this context, it is important to mention what has already been mentioned - we are dealing with a negotiation whose birth, to a large extent, is sin. These negotiations were motivated by illegitimate pressure exerted by the JNF on the Patriarchate - mainly its refusal to delete the warning notes that were written in its favor following the deal.  The deception, but also the use of the issue of official recognition of the State of Israel Patriarch Theopoulos as a bargaining chip (See the reference to this matter in paragraphs 3, 4 and 6.2 of the particular).  It should be emphasized: it is quite clear from the evidence that the JNF understood at an early stage that the Patriarchate had no part in formulating the fraudulent transaction, and that this is the conclusion that the court is expected to reach in the framework of the Patriarchate's claim (see note in paragraph 12 above).  This means that after it was deceived, and despite the clarification of the factual picture, the JNF sought to roll over its damages from the fraud on the patriarchy's coffers, that is, to heal its entire losses by rolling them on the shoulders of an innocent third party.  If this conduct on the part of a public body raises questions of values, then the fact that for the purpose of this move two improper levers of pressure were mobilized - one, recognition of the state in the appointment of Patriarch Theopoulos (an action that raises concerns aboutthe use of state power for a foreign purpose); Second, the refusal to delete the warning notes (even when it was clear that they were illegally recorded) raises questions on the level of legality, and since they were not discussed before us, I will refrain from expanding on them.  For our purposes, I will suffice with the determination that the array of forces on the basis of which the negotiations in question were conducted is one in which the Patriarchate was in a position of weakness, and this fact adds to the difficulty in identifying the conduct of the Patriarchate as embodying bad faith, and certainly as one that raises a "cry of fairness" in favor of the JNF.
91. Summary of the issue of good faith, contrary to the ruling of the trial court, in withdrawing from the negotiations, the Patriarchate did not violate the duty of good faith that applied to it. This conclusion is based on the reasons from which this separation apparently derived; on the conclusion of the above discussions, according to which the parties did not intend to enter into a binding contract during the negotiations that took place between them; and the broad picture of the relationship and forces in the circumstances of the case.  In the absence of bad faith that justifies any damages, all the more so this is not one of the rare cases in which the lack of good faith may justify awarding subsistence damages (on the exception of these cases, see: Civil Appeal 8265/15 Oil Refineries in Tax Appeal v.  Ecosense Group (Middle East Ltd.),  15 [Nevo] (December 1, 2016); Halfon case, at paragraph 17 of Justice Hendel's opinion).

Misdeeds - Approval of the Synod of the Settlement Agreement

92. It's over, but it's not finished. Two other matters require attention, even if briefly.  Both relate to the approval that he given, according to the trial court's ruling, the synod for the settlement agreement in April 2008.  The first concerned the procedural question of producing the minutes in accordance with the court's decisions in this matter; The second concerns the implications of the said approval.  I will relate to these matters in the order in which they are presented.
93. In a decision given by the Telta Chamber of this Court (Judge Yitzhak Amit with the concurrence of Justices Yoram Danziger andMeni Mazuz) in the framework of the discovery proceedings in this case, it was determined that the Patriarchate must submit to Himanuta a text detailing the content of the discussion at the Synod sessions of April 10, 2008 and April 21, 2008 (hereinafter: the April 2008 sessions), and also deposit in the trial court photocopies of the minutes from the April 2008 sessions with a notarized translation into Hebrew (Civil Appeal Authority)5247/15 Giannopoulos v. Himanuta inTax Appeal [Nevo] (August 28, 2016)).  This decision was not fulfilled by the Patriarchate, and this fact is, of course, obligatory, and can justify the imposition of various sanctions, to the point of deleting the statement of defense.  The trial court was of the opinion that there is no justification for resorting in the circumstances of the case to the stringent sanction of deleting the statement of defense (see paragraph 37 of the trial judgment), and in light of what is stated later regarding the implications of the confirmation of the synod (paragraph 94 below), I am of the opinion that it was right.  The trial court also held, inter alia, in light of the aforesaid, that the beneficial assumption should be assumed in this matter, namely that the approval of the synod for the settlement agreement was given at the April 2008 meetings (see paragraphs 149-156 of the trial judgment).  In this, too, I believe that he was right.  Finally, a final result that should be attributed to the violation of the court's order is the matter of court expenses.  I will address this at the end of my judgment.
94. What are the implications of the fact that it was determined that the Synod finally approved the engagement in a settlement agreement at the April 2008 meetings? In my opinion, this fact does not change the conclusion I have reached, according to which there is no valid settlement agreement between the parties, for two reasons, each of which stands on its own: first, in terms of the formal requirements, as we have seen, the parties made it clear that in order for the settlement agreement to be binding, the "full signature" of the parties to the settlement agreement is required (see paragraphs 66-71 above). In addition, the engagement in the settlement agreement requires compliance with the written requirement in section 8 ofthe Real Estate Law (see paragraphs 72-76 above).  The approval of the synod, even if it is possible, certainly does not constitute compliance with the requirement for a "full signature", nor even the written requirement; Second, in the year that elapsed between the date of the reading of the detail (March 12, 2007) and the date of the approval of the synod (April 2008), disputes arose between the parties, and new demands were placed on both sides, so that at this stage it was no longer possible to enter into the settlement agreement in the version attached to the particular, or in any other agreed wording.  Indeed, neither the trial court nor my colleagues believe that the approval of the synod, in and of itself, formulates a binding agreement.  According to the trial court, this approval is part of the circumstances that crystallize the lack of good faith on the part of the patriarchy.  According to my colleague, this is compliance with the condition set out in the binding settlement that was entered into a year earlier, at the time of the reading of the particulars.  As stated, in my opinion, these two approaches cannot stand.

Conclusion

95. My colleague concluded his opinion with a quote from what I have written in the past, according to which "we are not interested in the hidden and hidden desires of the parties to the negotiations, but only in what is revealed to the eyes of an independent observer" (Ofer Grosskopf, "Classification of Messages Exchanged During Negotiations," 22 Iyunei Mishpat 745, 767 (1999)). I am still on this point today, but in our case, the spectacle that unfolds before the eyes of an independent observer is that of parties who were interested, each for his own reasons, in the years 2005-2008 to reach a settlement agreement that would make the litigation that was taking place between them at the time with respect to the results of the fraud affair redundant, but the negotiations between them never matured into a binding contract, and their relationship was ultimately regulated only in the judgment given at the end of 2013.  In fact, it is clear that the entire purpose of the current litigation against the Patriarchate, which Himanuta opened in mid-2011 following the criminal judgments handed down in the affair, is to reverse the expected result of the previous proceeding - the loss of Himanuta, since it was determined that the Patriarchate had no hand in the fraud affair, and therefore the warning notes that were recorded in favor of Himanuta should be deleted.
96. I cannot conclude my opinion without saying something about the sense of justice. We are discussing the arguments of the parties as a court, and in any case it is our duty to rule according to the law.  At the same time, it is important to clarify that, to the best of my knowledge, the result I have reached is not only legally correct, but also morally just.  There is no doubt that the deception affair, which is the "fateful conceptualization" that gave rise to the tragedy we are dealing with, is a very serious affair.  It is serious due to the depravity of the crooks, who stole huge sums of money from the JNF in a despicable trick; It is also serious due to the conduct of Adv. Weinroth, who refused to refund the enormous fees he received, even after the fraudulent act of his clients became clear; Finally, it is also serious due to the negligence of the JNF members, who allowed the theft of public funds, and refused to admit for more than a decade that they had fallen victim to fraud.  The only factor that proved by signs and wonders, after years of litigation, that he should not be held responsible for this serious affair is the patriarchy.  It should be clarified that the Patriarchate has not fallen victim to the fraud of the crooks, and has not been negligent in its act or omission.  The patriarchate's involvement in the affair is entirely the result of the JNF's insistence on continuing to deny the act of deception; Refuse to delete the unlawfully recorded warning notes; and to continue to conduct futile legal proceedings against the Patriarchate in this regard.  As if that were not enough, in parallel with the legal proceedings, the JNF, with the self-interested assistance of Adv. Weinroth, sought to try to bring the damage of the fraud to the patriarchate through negotiations for a settlement.  In these negotiations, the JNF did not hesitate to exert illegitimate means of pressure on the Patriarchate, in the form of an ongoing refusal to delete warning notes that were illegally recorded, and to take advantage of the State of Israel's official recognition of Patriarch Theopoulos.  However, even these negotiations did not yield anything, and in practice, the JNF did not give anything to the patriarchy (except for the recognition of the patriarch - a matter that had no place to be connected to the negotiations in the first place).  Despite this, the JNF continued and conducted the proceeding at hand, which is based entirely on a document that it did not waive anything, and even demanded from the Patriarchate, including at the appeal stage, sums that significantly exceed the damage caused to it by the fraud affair.  The economic significance of accepting the JNF's lawsuit, therefore, is that those who through their negligence opened the door to the crooks will benefit - and not at the expense of the wicked, but at the expense of the innocent.  Indeed, rejecting the JNF's claim is not only the right decision from a legal point of view; It also brings about the proper and just result.
97. In light of all of the above, and given my conclusion that the conduct of the Patriarchate in the circumstances of the case did not amount to bad faith in the negotiations, my position is that the Patriarchate's appeal should be accepted, so that the financial charge imposed on it in paragraph 227 of the trial judgment in the amount of $13 million will be canceled. In view of this conclusion, I would reject Himanuta's appeal, which is based on the conclusion of a contract between the parties and the obligation of the Patriarchate to pay in its light, I would reject it outright.
98. Given the result I have reached, insofar as my opinion is heard, the charge of expenses and fees imposed on the Patriarchate in the judgment of first instance will be canceled, and instead it will be ordered that Himanuta will bear the expenses of the Patriarchate in both instances in a total amount of 150 1,000 ILS. In determining this sum, I have taken into account, to the duty of the Patriarchate, its failure to comply with the decision of this Court regarding the minutes of the April 2008 meetings, as clarified in paragraph 93 above.