Cancellation Remedy
- Throughout the proceeding, the defendant reiterated her claim that the plaintiff never duly sent her a notice of cancellation (see paragraph 6 of the defendant's summary). Indeed, the conduct of the parties shows that between the years 2016-2018 the plaintiff refrained from canceling the agreement, and that it allowed the defendant to continue trying to manufacture the machine, even though the agreed date for its supply had long since passed. In fact, the evidence indicates that only in the months of November and December 2018 did the plaintiff seek legal representation and an attempt to reach agreements regarding the cancellation of the agreement and the return of the sums paid to the defendant (see Hamami's correspondence with Dafna Kiselowitz – Appendix 9 to Hamami's supplementary affidavit; as well as the transcripted meetings from November 2018 in which there was talk of an attempt to reach such a compromise – Appendix 7 to Hamami's supplementary affidavit).
- I am of the opinion that the e-mail message sent by Hamami to Dafna Kiselovich dated December 31, 2018 can be considered a cancellation notice, since Hamami stated in it as follows: "My last proposal remains in place (sic) and without any change. Either you go to a Comornik accountant and finish it today or in court. I'm no longer interested in the law or things with you." Thus, even though the notice does not explicitly state that the agreement between the parties is void, it can be clearly understood from it that the relationship between the parties has come to an end, and that Hamami's demand for the return of the funds is a final compromise proposal in the matter (in this regard, there is no need for a formal notice of cancellation, and it is sufficient that it can be understood from it that the contract between the parties is void – see: Civil Appeal 306/85 Datalab management pty. Ltd v. Pollak International Ltd., IsrSC 34 (2) 309, 316 (1989); Civil Appeal 277/89 Cham Food Products Israel in Tax Appeal v. Ta'imko in Tax Appeal and Counter-Appeal, IsrSC 46 (3) 288, 295 (1992); Civil Case (Haifa) 51193-10-19 A.G.T.D. in Tax Appeal v. GSH Trademarks Limited, paragraph 51 [Nevo] (February 28, 2024)).
- Beyond what is necessary, I will note that even the filing of this claim may be considered a notice of cancellation of the agreement, as has been determined more than once in case law (see, for example: Civil Appeal 7654/07 Berkowitz v. Korin, paragraph 12 [Nevo] (11.2.2010)).
- In addition to the above, it should be noted that Kiselowitz's affidavit indicates that the defendant was aware of the termination of the agreement on the part of the plaintiff, since Kiselowitz stated that "there was a unilateral cancellation on the part of Kiselowitz and not by consent" and then "Kiselowitz was the one who decided to cancel the agreement on her own will and against our will" (paragraphs 33 and 49 of Kiselowitz's supplementary affidavit of July 24, 2023).
- From the aforesaid, it appears that the plaintiff did not notify the defendant of the cancellation of the contract immediately upon the breach of the agreement, and that it should be determined that a notice of cancellation was sent by the plaintiff at the earliest towards the end of 2018. To the question Timing The revocation may have significance with regard to the amount of reliance damages, but it has no effect, in the circumstances of the present case, on the granting of the cancellation remedy, and as a result – the restitution remedy.
Restitution
- According to the plaintiff, she paid the defendant the sum of NIS 1,588,170 as a result of her obligations under the agreement between the parties (this sum includes the sum of NIS 1,161,000 – half of the cost of the machine as a whole before VAT; the sum of NIS 197,370 in respect of the tax appealing component of the transaction; the sum of NIS 100,000 that she paid as a down payment for future payment at Kiselowitz's request; and the sum of NIS 129,800 plus a tax appeal in respect of the prototype agreement). The plaintiff petitions for the return of the said amount.
- According to the defendant, the amount of taxes paid to the defendant in the sum of NIS 197,370 should be deducted from the amount paid to her, since the plaintiff has already been offset for this amount vis-à-vis the tax authorities. It was also argued that the payment paid by virtue of the prototype agreement in the sum of NIS 129,800 (including VAT) should be deducted from the said amount, which cannot be refunded – since this agreement was not breached, and it stands on its own.
After reviewing the arguments of the parties, I found that I decided as follows:
- The Tax Appeal Component - Section 9 The Medicines Law states that "when the contract is canceled, the violator must return to the victim what he received under the contract." Hence, to the extent that the defendant received payment, including payment for the VAT component, it must return it in full to the plaintiff (see and compare: Civil Case (Tel Aviv-Yafo) 2526-00 Kedmat Dekel in Tax Appeal v. Amar, paragraph 18 [Nevo] (October 4, 2006)). To the extent that the plaintiff and the defendant are required to arrange the cancellation of the transaction with the tax authorities, they are presumed to act in accordance with the provisions of the law in this matter (see and compare: Civil Case (Tel Aviv) 44135/08 Firas v. Elgad Pizza Ltd., paragraph 7(4) [Nevo] (October 27, 2011)).
- The consideration paid for the prototype agreement - In this regard, I am of the opinion that the law is with the defendant. The prototype agreement is a stand-alone agreement, which was signed and executed in full in 2013, about two years before the parties entered into agreements for the production and supply of the machine for the production of the overall kit. The parties completed their mutual obligations by virtue of an agreement, and only two years later did they choose to enter into another set of agreements, which may have been based on the success of the prototype, but stood on its own. Therefore, the defendant's argument in this matter should be accepted, and I determine that the defendant is not required to return the amount paid for the prototype agreement to the plaintiff.
The Defendant's Claim for Mutual Restitution
- As stated, according to the defendant, mutual restitution should be ordered, and since it claims that it suffered significant damages and many expenses due to the development of the machine (the defendant estimated that it suffered damages worth millions of NIS), the said amount should be deducted from the total restitution to the plaintiff.
- This argument should be rejected. Indeed, upon the cancellation of the contract, there is mutual restitution, and this is in accordance with Section 9 The Remedies Law states that: "Once the contract is canceled, the violator must return to the injured party what he received under the contract... and the injured party must return to the violator what he received under the contract." However, this does not mean that the injured party is obligated Compensate the breach of the contract for the damages caused to him as a result of the engagement in the contract or its breach. The remedy for compensation is a remedy that is given only to the victim (by virtue of a sign Tuesday to the Medicines Law) and it is not reciprocal.
- The defendant's right to restitution as a result of the cancellation of the contract gives it the right to keep the machine that it has developed so far, and it is not obligated to supply it to the plaintiff. This right does not include the right to receive reliance or subsistence damages from the plaintiff (the victim), including compensation relating to the alleged losses incurred by the defendant as a result of the engagement in the agreement or its breach by it.
Reliance Compensation
- As stated, in view of the breach of the agreement, the plaintiff is also entitled to reliance damages – that is, damages that can put the plaintiff in the place where she would have been if she had not entered into an agreement with the defendant. In this context, the plaintiff made two main claims: The first and the main one, that it lost substantial sums due to the loss of profits as a result of its engagement in the agreement with the defendant; And the second, that she purchased paper rolls for the production of the machine in accordance with the agreement, and she should be compensated for the said amount. As will be clarified below, I am of the opinion that the first argument in this matter should be rejected, while the second argument should be accepted. I will clarify.
Loss of profits
- In order to prove her claims in this regard, the plaintiff attached the opinion of CPA Fenigstein (hereinafter: Reviews). As will be clarified below, I did not find that the plaintiff raised the burden of proof imposed on her in order to prove that she did indeed suffer additional damages due to the breach of the agreement that justify compensation beyond the restitution of the sums she paid by virtue of the agreement itself.
- At the outset, I will note that in the opinion, CPA Fenigstein assessed, inter alia, the damage caused to the plaintiff also because she was unable to derive profits from the machine that is the subject of the agreement. However, compensation for loss of profits due to the fact that the machine was not completed and delivered to the plaintiff is "subsistence compensation", since they are intended to put the plaintiff in the situation she would have been in had the contract been fulfilled. The plaintiff did not claim subsistence damages in her claim (see, inter alia, paragraphs 1 and paragraph 76 of the plaintiff's summaries), nor could she have claimed subsistence damages alongside reliance damages, since these are contradictory remedies (see: Civil Appeal 1094/23 Cooper v. Israel Land Authority Paragraph 33 [Nevo] (9.10.2024)). Against the background of the aforesaid, the plaintiff's arguments are based on the part of the opinion relating to the loss of profits as a result of the Non-compliance with the agreement - They are liable to be rejected, even if for the aforementioned reason.
- The opinion also relates to the assessment of the plaintiff's alleged damages, in that due to the plaintiff's reliance on the engagement with the defendant in the agreement, she refrained from continuing to market the cigarette rolling kits during the period of the agreement, as it did in the period prior to the engagement in the agreement.
- However, the plaintiff did not explain or prove at any stage why she was prevented from continuing to market the cigarette rolling kits during the period of the agreement. The plaintiff claimed only at the summary stage that in 2013 Hamami was required to make a decision – to continue importing the rolling papers made by OCB and relinquish its design rights, or leave the design rights in its hands and waive the import of its products OCB. Subsequently, it was argued that when it became clear to Hamami that it was feasible to manufacture the sample in an industrial manner upon the completion of the prototype agreement, the plaintiff chose to preserve her design rights, and to purchase the machine from the defendant, while ceasing her previous business – marketing kits that were manufactured manually (see: paragraph 67 of the plaintiff's summaries).
- However, beyond the fact that this claim was first made in the framework of Hamami's cross-examination and later in the summaries, this is a claim that was not properly detailed and not even proven. Thus, it was not clarified why Hamami faced the aforementioned choice between keeping the sample and continuing to import the rolling papers; It was not clarified why he did not continue his occupation with other made rolling papers; It was not clarified why, even though he allegedly decided to give up his previous occupation in order to focus on the industrial production of kits, in fact he contracted with the defendant only two years after he stopped marketing the kits manually (see p. 70 of the minutes of the hearing, lines 21-24); It was not clarified why the plaintiff refrained from resuming the marketing of manually manufactured kits even after it became clear that the defendant had failed to manufacture the machine, even though the plaintiff claimed that this business was highly profitable (see pages 73-74 of the minutes of the hearing). In addition to all of the above, the plaintiff did not meet the burden of proof imposed on her to prove this claim (no document was brought to prove that an "ultimatum" was indeed given to the heaters by OCB) or any other causal connection between the termination of her previous occupation and the contractual engagement with the defendant.
- From the aforesaid, it appears that the plaintiff did not prove that her damages alleged in the opinion stemmed from her engagement in the agreement, and the claims in this regard should be dismissed.
Compensation for the purchase of the paper rolls
- The plaintiff further claims that she paid a total of NIS 248,592.54 for rolls of paper of various sizes that she purchased and supplied to the defendant. Since this is an expense that was also incurred as part of the agreement with the defendant, the plaintiff petitions for the refund of this sum as well. According to the defendant, the plaintiff should not be compensated for the amount she spent for the paper sheets, since this is an expense that the plaintiff was required to perform the agreement, and it should not be imposed on the defendant (see: paragraph 54 of the defendant's summaries).
- In this regard, I am of the opinion that the law is with the plaintiff. This is because the sum was paid by the plaintiff as part of the contractual engagement, and if she had not entered into an agreement with the defendant, she would not have purchased the paper rolls. As stated, the reliance damages are intended to place the plaintiff in the place where she would have been had she not entered into an agreement with the defendant, and the return of the payment for the paper rolls is consistent with the purpose of the said compensation.
Conclusion
- In summary, the evidence presented to me shows that An agreement was signed between the plaintiff and the defendant in which the defendant undertook to supply the plaintiff with a machine in exchange for payment in the sum of NIS 2,322,000, but the defendant failed to manufacture the said machine, and thus fundamentally breached the agreement. It also emerges that despite the fact that over a long period of time the plaintiff did not notify the defendant of the cancellation of the agreement, and in fact in her conduct and actions – she agreed to extend the date for the fulfillment of the defendant's contractual obligations, ultimately in the months of November and December 2018, and at the latest upon the filing of the claim in February 2019 – the plaintiff insisted on canceling the agreement, restitution, and receiving reliance compensation. Once it was determined that the defendant had fundamentally breached the agreement between the parties, it was found that the plaintiff was entitled to the remedies that she claimed and proved.
- In accordance with this and my determinations above: The defendant must return to the plaintiff the amount she received as a result of the agreement (not including the consideration paid by virtue of the prototype agreement) – i.e., a total of NIS 1,458,370. In addition, the defendant must pay the plaintiff the sum paid by the plaintiff for the purchase of paper rolls for the purpose of implementing the agreement (Total 248,592.54 NIS).
In other words, the defendant must pay the plaintiff the sum of NIS 1,706,962.54.