Summary of the parties' arguments
- According to the appellants, the court's determination regarding the infrastructure required for the attribution of an arbitration clause signed by a company to its shareholder is inconsistent with the ruling of this court. In accordance with case law, a claim of the existence of a cause for lifting the veil requires the laying of a proper factual basis and compliance with the required burden of proof. The District Court's determination that a more lenient infrastructure is required for the purpose of lifting the veil for the purpose of attributing an arbitration clause will result in any plaintiff interested in adding a shareholder to an arbitration proceeding to be able to do so. In addition, the court ruled contrary to the language of section 6(b) ofthe Companies Law, which allows the attribution of a right of the company to its shareholders, as opposed to a duty that cannot be attributed to a shareholder. Therefore, with regard to lifting the corporate veil in order to impose the company's debts on a shareholder in it, the court should have turned to section 6(a) ofthe Companies Law. To this, it should be added that the court focused on the preamble of section 6(b) of the Companies Law, according to which in the circumstances of the matter it is just and correct to order the lifting of the veil, but ignored its conclusion that this should be done "in view of the intention of the law or the agreement that applies to the matter before it". In our case, the arbitration clause in the agreement was entered into between sophisticated and equal parties, and it uses narrow language that clearly does not include shareholders or officers of the company. In addition, the factual and legal basis on which the District Court relies is poor and erroneous, and it is insufficient to meet the burden required for the purpose of lifting the corporate veil. In view of all of the above, it was requested to cancel the District Court's decision to add Lifshitz to the arbitration proceeding, as well as the court expenses awarded by him, and at least half of them, since the request to join was only partially granted.
- The respondents, on the other hand, relied on the decision of the District Court. It was argued that the application did not meet the conditions for granting leave to appeal. This is especially so, given that it deals with the manner in which the arbitration is conducted, and includes findings of fact and reliability that were determined on the basis of the District Court's direct impression of the witnesses heard before it. On the merits of the matter, the District Court ruled in accordance with the case law with respect to the addition of a shareholder to an arbitration proceeding, and rightly ruled that the conditions required for Lifshitz's inclusion in the arbitration proceeding are met according to the third expansion circle determined in the Ronen case. Contrary to the appellants' arguments, the court did not ignore the fact that the third circle of expansion is an exception, nor did it lower the standard of proof required for the purpose of lifting the veil. The court explicitly clarified that Lifshitz's liability would be clarified in the framework of the arbitration, and all that was said was that for the purpose of adding him to the proceeding, it was possible to use section 6(b) of the Companies Law, which sets a requirement for a more lenient evidentiary basis than that set forth in section 6(a) of the law. Such a foundation was indeed laid in this case, and there was no flaw in the court's conclusion. The appellants' argument that the court ignored the end of section 6(b) ofthe Companies Law, since the partnership agreement clearly states that in any case of dispute between the partners, or against Thai, the matter will be brought to an arbitrator's decision. Once it has been determined that the distinction between Tai and Lifshitz is artificial, the obvious conclusion is that Lifshitz should be included in the proceeding. Finally, it was argued that there was no substance to the claim that there was a factual or legal error in the court's decision. The decision is based on solid foundations of evidence and law, and it does not establish any grounds for intervention.
Discussion and Decision
- Leave to appeal decisions in arbitration matters is reserved for exceptional cases in which a legal or public question arises that deviates from the interests of the parties, or when intervention is required for considerations of justice or for the purpose of preventing a miscarriage of justice (see, for example, a recent example: Civil Appeals Authority 61325-02-25 Perlstein v. Kiryat Harama, Housing and Development Ltd., para. 7 [Nevo] (May 4, 2025); Civil Appeal Authority 34232-03-25 Moyal v. Moyal, para. 6 [Nevo] (May 4, 2025)). The application before us raises a question that goes beyond the individual interest of the parties, which concerns the possibility of using the doctrine of lifting the veil under section 6 of the Companies Law for the purpose of adding a party who is not a signatory to an arbitration agreement to an arbitration proceeding. Therefore, it is one of the cases that justify granting leave to appeal.
- I will begin with basic concepts. An arbitration proceeding derives its power from the parties' agreement to clarify their disputes before an arbitrator. The consent (see various plurals: Civil Appeal Authority 8523/05 Central Company for the Development of Samaria in Tax Appeal v. Mazi & Yehezkel Ltd., para. 14 [Nevo] (February 14, 2010) (hereinafter: the Central Company case); Civil Appeal Authority 6264/21 Tal Hel Yiska B Tax Appeal v. A.B. Trade and Management Ltd., para. 10 [Nevo] (October 6, 2021); Civil Appeal Authority 4095/12 Magenzi Infrastructures B.G.M. in Tax Appeal v. Sakik Earthworks and Development Company Ltd., para. 14 [Nevo] (November 13, 2012)). From the contractual foundation of the arbitration proceeding stems another basic principle, namely that an arbitration agreement can generally bind only the parties to it (Civil Appeal Authority 1950/20 Yaffe v. Diamant, para. 14 [Nevo] (May 10, 2020); The Central Company case, para. 14; The Ronen case, paragraph 11). However, as detailed above, a number of exceptions were made to this rule, which were classified in the Ronen case under three "expansion circles": the first circle, cases in which the interpretation of the arbitration agreement and the contractual relationship between the parties indicate that the party whose joining is requested agreed to be part of the arbitration proceeding; the second circle, cases in which the party whose addition is requested is a substitute of the parties to the arbitration agreement; and the third circle, cases in which the same party wishes to avoid participation in an arbitration proceeding on formalistic grounds even though it has agreed to participate in it in substance (Ronen, paragraphs 12-14; see also: Civil Appeal Authority 2639/14 Adv. Uri Brimer (Trustee) v. Atar, para. 11 [Nevo] (December 9, 2015) (hereinafter: the Brimer case); Civil Appeals Authority 5184/17 Beresheet Diamonds in Tax Appeal v. Namdar, para. 7 [Nevo] (September 17, 2017); Civil Appeal Authority 475/15 F. Gordi Engineering in Tax Appeal v. Ortam Group - Malibu Ltd., para. 10 [Nevo] (October 25, 2015)).
- Our discussion therefore focuses on the third circle of expansion. Regarding the scope of the spread of this expansion circle , the following was said in the Ronen case:
"The most typical cases of this circle are those in which it is requested that persons who are closely connected to one of the parties who sign the arbitration agreement, but the principle of separate legal personality separates them. Thus, for example, when a party to the arbitration wishes to add to the proceeding the controlling shareholder of the company with which it has signed an arbitration agreement, or when it wishes to add to the proceeding the company that is fully controlled by the other party" (ibid.).