Civil Case (Jerusalem) 5433-01-18 Super Lang – Gardener and Farmer Ltd. v. Amgazit P.K. Ltd. - part 3

Is the agreement time-bound or indefinite?;

What was the reason for terminating the engagement?;

the question of the restrictive arrangement;

the obligation to give advance notice;

the scope of the compensation;

the promissory note claim and the balance of the debt;

The question of offset.

Discussion and Decision

1. I will discuss the questions in dispute in a gradual manner and with reference to the relevant normative background and the evidence presented at trial.

Was there an agreement between the parties and what is its nature?

1. There is no dispute that the parties have had a business relationship for about 15 years.  The question is what is the nature of the relationship.  Is it a distribution agreement, a commercial agency, or a supplier-customer relationship?
2. Section 23 of the Contracts (General Part) Law, 5733-1973 (hereinafter: "the Contracts Law") establishes the principle of freedom of form as follows: "A contract may be made orally, in writing or in any other form unless the law or the parties have determined that a certain form shall be a condition for the validity of the contract." However, concluding a contract requires both an offer and acceptance and discretion to create a binding legal relationship.
3. The parties themselves refer to their relationship as a "distribution agreement." However, a careful examination of the case law shows that a distribution agreement has certain characteristics that not all of them exist in our case.  In Civil Appeal 2850/99 Shimon Ben Hamo v.  Tena Noga inTax Appeal [Nevo] (October 13, 2000), and in Civil Case (Tel Aviv District) 2449/06 Aharon Products v.  Tnuva Cooperative Center for the Marketing of Agricultural Produce in Israel in Tax Appeal [Nevo] (April 28, 2013), the characteristics of a distribution contract were detailed, including: Determination of the status of the distributor Exclusive or not, distribution area, description of the type of produce, price to the distributor, method of calculation, distributor compensation, minimum purchase quota and more.
4. In our case, most of these characteristics were not explicitly regulated.  No exclusivity, distribution area, minimum purchase quota, or detailed policies have been established.  The relationship was characterized by a sequence of seasonal orders, product delivery, payment and additional supply , etc.
5. Nevertheless, and in light of the parties' consent, I accept that there was a "loose" distribution agreement between the parties, which did not include all the classic characteristics, but in which the plaintiff served as a distributor of the defendant's products, and not as a commercial agent.  The essence of the agreement is derived from the conduct of the parties over the course of 15 years, as appears from section 25(a) of the Contracts Law.

Was the agreement time-bound or indefinite?

1. This is a key question for resolving the conflict.  The defendant claims that the agreement was seasonal and time-bound, and at the end of the period it expired spontaneously.  The plaintiff claims that there was reliance on the continuation of the engagement.
2. The order forms (Appendices 1 and 2 to Eli Lang's affidavit) have a defined temporary validity: "Prices are valid until June 30, 2015" and "Prices are valid until February 28, 2016." These formulations explicitly refer to the validity of the prices, and not necessarily to the validity of the entire engagement.  However, they support the claim that the agreement was seasonal.
3. On the other hand, the fact that the orders were renewed consistently over the course of 15 years created a reasonable expectation on the plaintiff for the continuation of the relationship.  The case law held that even when a time-bound agreement is reached, within the framework of a long-term relationship, an expectation may be formed for the continuation of the engagement.  However, the case law explicitly stated that there is no contract that lasts "forever and ever", and even in the absence of a fixed period, a party may bring the agreement to termination, subject to the provision of reasonable advance notice (Civil Appeal 47/88 Hershtik v.  Yachin Hakal in Tax Appeal [Nevo] (May 16, 1993)); Civil Appeal 2491/90 Israel Travel and Tourism Agents Association v.  Panel of Airlines Operating in Israel [Nevo] (May 3, 1994)).
4. Decision: This is an agreement with a seasonal element, since the prices were set for a defined period, but the overall engagement was not explicitly limited in time.  Therefore, the defendant was entitled to bring the agreement to termination, subject to the provision of reasonable advance notice.

The reason for the production of the engagement and whether the agreement was breached

1. Was there a fundamental breach? According to the plaintiff, the defendant breached the agreement by stopping supplying products unilaterally and without notice.  The defendant claims that it did not renew the agreement for legitimate reasons.
2. The evidence shows that the last supply of the products to the plaintiff was in November 2015.  The defendant did not send a warning letter or advance notice of its intention to terminate the engagement.  In light of the above, and in light of the case law cited, stopping the supply without prior notice constitutes a breach of a contractual obligation.
3. Why was the engagement terminated? This question has legal implications, since a bad faith termination may affect the scope of compensation.
4. The defendant claimed for three reasons: an unpaid debt; Nimrod Lang's abusive behavior toward its employees; and the lack of a license for a warehouse helped store gas tanks.
5. As to the matter of the debt; Ashkenazi's testimony indicates that the defendant did not send a warning letter or a demand for payment of a debt prior to the cessation of the supply ( transcript at pp.  30, paras.  17-20; p.  34, paras.  17-20).  Moreover, the defendant confirmed that in the past the plaintiff had higher debts, and yet she continued to supply her with products.  The cessation in November 2015 preceded the repayment date of February 2016, and therefore there is no clear causal connection between the debt and the cessation of supply.
6. As to the allegation of abusive behavior on the part of Nimrod Lang, no concrete evidence was presented to support this claim.  The defendant did not summon Amos Rubin, the agent who allegedly witnessed the events, to testify, and this is her obligation.  In addition, even if I assume in the defendant's favor that there were indeed incidents of friction or tension between Nimrod and Lang and the defendant's employees, this is not sufficient to justify a unilateral termination of a 15-year engagement without warning.  In the commercial world, it is accepted that disagreements and tensions are part of the norm, and do not constitute grounds for a breach of an agreement.  The defendant, to the extent that it saw Nimrod's conduct as an injury to its employees or business, should have written to the defendant and raised the issue explicitly, while providing an opportunity for correction.  The fact that this was not done, and that the claim was raised for the first time only in this legal proceeding, weakens its credibility.  Moreover, if such serious incidents had indeed occurred, it is reasonable to assume that the defendant would have documented them in writing, whether by email or letters, but no such documentation was presented.
7. as to the lack of a license for an auxiliary warehouse for the storage of gas tanks; This claim has not been proven either.  The defendant did not present any letter or written letter to the plaintiff demanding to present a license.  Moreover, the permit that was attached as Appendix A/1 is a permit issued to the defendant herself and not to the plaintiff, and it has no relevance to the issue.  If there was indeed such a demand, why did the defendant continue to supply the plaintiff with products for many years?

Moreover, even if there was such a demand, the defendant continued to supply the plaintiff with gas products for many years without any warning or written requirement to arrange a license.  This conduct shows that if there was indeed a lack of a license, the defendant did not consider that it was of sufficient importance to stop the supply.  The fact that the claim was raised only retroactively, after the supply had already been stopped for other reasons, strengthens the conclusion that this is an incidental claim and not a real reason.  In addition, if the defendant was indeed concerned about regulatory liability for the supply of gas without a license, it should have stopped the supply immediately as soon as it became aware of the lack of the license, and not continue to supply goods for years.  The fact that it did not do so shows that the claim was raised retroactively in order to justify the termination of the engagement

1. 00Decision: The reason for terminating the engagement is, apparently, the plaintiff's refusal to comply with the demand to publish minimum prices.  This conclusion is supported by Ashkenazi's testimony: "I tell you that the matter unfolded following the letter that Nimrod sent you following your demand to publish different prices on the website [...This is for all customers, not just for them.  All the customers undertook not to publish a price below the official price..." (Transcript, p.  26, paras.  16-18).

Therefore, termination of the engagement without prior notice and without allowing time to organize, after 15 years of joint work, and without a warning letter or a clear demand, constitutes a breach of the duty of good faith in the conduct of contractual relations.