Civil Appeal Authority 66369-02-25 Tai Investment and Trade Ltd. v. Gideon Fishman and 29 others

Civil Appeal Authority 66369-02-25

Judge David Mintz:

Is it possible to use the lifting of the veil under Section 6 of the Companies Law, 5759-1999 (hereinafter: Companies Law or The Law), for the purpose of joining a party to an arbitration proceeding even though he is not a signatory to the arbitration agreement?

This is the question that arises in the application before us, which is directed against the decision of the Tel Aviv District Court (Judge Y.  Shevach) from January 8, 2025 in a civil case 24838-05-24, [Nevo] in which the respondents' request to join the parties to an arbitration proceeding before the arbitrator, the judge (retired) Y.  Sheinman (Hereinafter: The Selector).  I will preface the latter by saying that since this is a question of principle that deserves to be discussed, I saw fit to accept the application and consider it as if permission to appeal had been granted and an appeal was filed pursuant to it by virtue of the authority given in Regulation 149(2)(b) of the Civil Procedure Regulations, 5779-2018.  The applicants will therefore be called as follows: The Appellants.

Background to the application

1. Appellant 1 is a real estate project management company (hereinafter: Thai or the Company) which is the sole ownership of appellant No. 2 (hereinafter: Lifshitz). At the relevant times of the dispute that is the subject of the application, the company was one of the owners of the rights in the western plots of theland known as the "Gra Complex" in Tel Aviv (hereinafter: the western plots and the complex, respectively).  The respondents were also counted on the relevant dates among the owners of the rights in the western plots.  In order to maximize the building possibilities and rights in the complex, in November 2017 most of the rights holders in the western plots, including the respondents and Tai, entered into a partnership agreement that sets out provisions for regulating the parties' relations and objectives (hereinafter: the partners and the agreement or sharing agreement, respectively).  Among other things, the partnership agreement stipulates that Tai will serve as the group's manager, and in doing so, she will be responsible for carrying out various actions and will work with the planning authorities in order to maximize the rights of the partners.  The agreement also stipulates that in any case of dispute between the partners, the matter will be referred to an arbitrator's decision.
2. As stated, the partnership agreement was signed by almost all of the rights holders in the western plots, with the exception of one rights holder - the Tasvir company in a tax appeal (hereinafter: Tasvir), which refused to do so. The partners aspired to add Tasvir to the partnership agreement and to work with it for the optimal realization of the rights in the complex, but despite their attempts, they were unable to do so.  At a certain point, Tasawir decided to sell its rights in the western plots and negotiated the matter with various parties, including Thai.  Ultimately, in 2019, Taswir's rights were sold to two companies, including Appellant 3 (hereinafter: Cuba) - another company exclusively owned by Lifshitz.  However, these companies also refused to sign the sharing agreement.
3. This state of affairs led the respondents in 2021 to sell their rights in the western plots, which they claim was done at a considerable loss. After the completion of this transaction, each of the parties had grievances against the other, and in view of the provisions of the sharing agreement, the disputes were transferred by agreement to arbitration.  As part of the arbitration proceeding, Tai filed a claim against the respondents for payment of fees in the amount of approximately ILS 17.7 million, which it claims is due to it as the manager of the group according to the agreement.  The respondents, for their part, filed a lawsuit against Lifshitz, Thai and Kuba, in which they complained about their conduct in connection with the purchase of Tasvir's rights and claimed that they had suffered various damages, which they estimated at approximately ILS 27 million.  Lifshitz and Kuba, who were not parties to the sharing agreement, refused to join them in the arbitration proceeding, and as a result, the respondents filed a motion with the District Court to join them.
4. The arguments of the parties in the proceeding before the District Court focused on the implementation of the rulings of this Court in Civil Appeal Authority 3925/12 Ronen v. Yuval Cohen [Nevo] (June 17, 2013) (hereinafter: the Ronen case), which dealt with the question of the possibility of adding to the arbitration proceeding parties who are not signatories to the arbitration agreement.  Due to the importance of the Ronen case for our case, it should be noted that in that proceeding it was determined, in summary, that although as a rule an arbitration agreement binds only the parties who signed it, it is possible to add to the proceeding an entity that was not a party to the arbitration agreement by means of three "extension circles": first, where the interpretation of the arbitration agreement and the contractual relationship between the parties indicate that that party agreed to be part of the arbitration proceeding; second, when it comes to the parties' alternatives to the arbitration agreement; andthird, cases in which that party tries to evade participation in an arbitration proceeding by means of formalistic arguments such as the principle of separate legal personality and the like.  With regard to the third circle, it was clarified in the Ronen case that there is no reason to ignore the principle of the separate legal personality of the company, and that in order to use it, the veil must be lifted in accordance with the provisions of section 6 ofthe Companies Law.  Since this section is also of great importance for our matter, I will quote it as it is now:

(a) (1) A court may attribute a debt of a company to a shareholder therein, if it finds that in the circumstances of the case it is just and proper to do so, in the exceptional cases in which the use of the separate legal personality is made in one of the following: