(1) It has been proven to the satisfaction of the court that one of the partners is permanently insane; This request shall come from a person who is entitled to claim that partner or one of the other partners;
(2) One of the partners, who is not the applicant, has become on behalf of another who is permanently incapable of fulfilling his duties under the partnership agreement;
(3) One of the partners, who is not the applicant, is guilty of conduct that, in the opinion of the court, taking into account the nature of the partnership's business, may adversely affect the management of its business;
(4) One of the partners, who is not the applicant, intentionally or permanently violates the partnership agreement, or behaves in other matters relating to the partnership in such a way that the other partners have no reasonable practical possibility to continue managing the partnership business with him;
(5) It is no longer possible to manage the business of the partnership except at a loss;
(6) Whenever circumstances arise that, in the opinion of the court, dissolve the partnership in an act of justice and honesty".
- The liquidation application in the heading was filed, as stated, based on the grounds for liquidation set forth in sections 45(4) and 45(6) of the Ordinance.
- The grounds for dissolution set forth in section 45(4) of the Ordinance are, in effect, given to a split into two grounds, each of which is sufficient to exist separately in order for a cause of action for the dissolution of the partnership. First, intentional or permanent breach of the partnership agreement; and second, conduct in matters other than the breach of the agreement, in such a way that there is no reasonable practical possibility of continuing the partnership business with that partner (David Frenkel and Zvi Frenkel, Partnership Law in Israel, Third Edition Expanded 2020, 256-258 (hereinafter: "Frenkel, Partnership Law in Israel").
- The ground for liquidation under section 45(6) of the Ordinance is a residual cause that is entirely at the discretion of the court. Despite being a residual cause, it constitutes an independent cause that cannot be interpreted as subordinate to the other grounds. The cause of liquidation for reasons of "justice and honesty" is also fixed in relation to the liquidation of companies and associations. The parallelism on this ground in the three statutes makes it possible to draw an inference from the rulings that have been ruled on it in corporate law and in the law of associations with regard to partnerships, so that circumstances "which, in the opinion of the court, make the dissolution of the partnership an act of justice and honesty" may include the action of one of the partners in the partnership as his own without regard for the rights of other partners, loss of trust between the partners, or the refusal of a partner to submit accounts to other partners (Frenkel, Partnership Law in Israel , pp. 259-262).
- MHR does not dispute the basic factual basis on which the liquidation application is based with respect to the transfers of funds and rights in the property. Its arguments are divided into three categories: one - a legal impediment on the part of the applicants to file the proceeding in the heading; second, the applicants did not substantiate their claims of loss of confidence in it; Third, that there is no reason to grant a drastic relief of the dissolution of the limited partnership, which is inappropriate to the interest of the applicants, the other limited partners and the respondent.
- The Respondent's argument of legal impediment is based on the provision of clause 9.2 of the partnership agreement entitled "dissolution", which states that "the limited partnership shall be dissolved only in one of the following cases: if it is decided by the general partner to dissolve the partnership with the consent of an ordinary majority of the limited partners (clause 9.2.1 of the agreement); If an order is issued, or a decision is made, with binding legal effect, regarding the dissolution of the General Partner, other than liquidation for the purpose of merging with another company or restructuring of the General Partner (clause 9.2.2 of the Agreement); If a general receiver is appointed over all of the general partner's assets in a manner that will grant the receiver control over the general partner's business (clause 9.2.23 of the agreement); or if the General Partner is declared insolvent (clause 9.2.4 of the Agreement).
- This argument was examined as a threshold argument and rejected in a decision of March 28, 2023, in which the distinction between the arrangements in the Partnerships Ordinance dealing with liquidation by the partners and liquidation by the court, whose authority, I believed, should not be conditional. With regard to the possibility of stipulating the right to take action, it was held that even if it were possible, in any case "... The partnership agreement in our case does not negate the power of the partners to appeal to the court..."
- An application for leave to appeal filed by the Respondent against a similar decision that was given recently in a parallel proceeding (Civil Case 2133-10-22) was rejected by the Supreme Court (the Honorable Justice D. Mintz) in its decision of June 25, 2023 (Civil Appeal Authority 3848/23). In its decision rejecting the application for leave to appeal, the court noted that it found the applicants' argument that the provisions of section 45 of the Ordinance can be conditioned and the court's authority to order the dissolution of the partnership, or to deny a partner's right to apply to the court with a request that it exercise its authority (paragraph 6 of the decision). Even if the words were said as a side note, without a final and binding decision, I believe that they should be adopted.
- The Respondent insists on the argument that the use of the words "only" in clause 9.2 of the partnership agreement expresses the intention of the parties to deny the partners the power to apply to the court, and it refers to a case law in which it was held, incidentally, that "... It is doubtful in my opinion whether in the circumstances of the case, the applicants indeed have the right to request the dissolution of the partnership by the court, when they waived this right in the partnership agreement" (Opening Motion 48408-12-18 Moshe Barach in an appeal under the Disabled Persons Law v. Nahalat Asher (Nevo, February 17, 2019), para. 45).
- After re-examining the matter, I remain of the opinion that this argument of the Respondent should be rejected, on the basis of the same reasons that I detailed in the decision of March 28, 2023, and I will repeat the main points in summary.
- The Partnerships Ordinance distinguishes between the dissolution of a partnership by a notice of one of the partners or by a partner in accordance with the provisions of the agreement between the partners or the control of an event from the events listed in sections 42-44 of the Ordinance, and the dissolution of the partnership by the court, if there is some grounds for liquidation listed in section 45 of the Partnerships Ordinance.
- When it comes to the dissolution of the partnership according to the notice of one of the partners, it is the notice of the partner that creates the act of dissolution. On the other hand, when it comes to the dissolution of a partnership by the court, by virtue of section 45 of the Partnerships Ordinance, it is the judgment ordering the dissolution of the partnership that creates the dissolution of the partnership.
- This distinction between the liquidation tracks was discussed by the Supreme Court in its judgment in the matter of Civil Appeal Authority 8521/09 Biran v. Adv. Adv. Hermolin (Nevo, October 2, 2014), where it was held, in paragraph 24 of the judgment, that:
"....The Partnerships Ordinance, like the English Act, distinguishes between grounds for dissolution by virtue of the law, on the basis of which any partner can bring about the dissolution of the partnerships (such as the grounds listed in sections 41-44 of the Ordinance), and grounds on which the court may, at the request of a partner, order the dissolution of the partnership. Whereas in the first type of causes - the nature of the judgment given by the court following a lawsuit before it is purely declarative, a judgment given by the court, at its discretion, by virtue of grounds of the second type - is constitutional, and it is what creates the dissolution of the partnership..." (Emphasis added. S.Y.).
- The provisions of the Partnerships Ordinance regarding the dissolution of a partnership all focus on the internal relations between the partners, both with regard to the grounds for liquidation and with regard to the liquidation proceeding. However, while according to the first group of grounds (listed in sections 41-44 of the Ordinance), any partner can bring about the dissolution of the partnership, according to the second group of grounds, the court is authorized to order the dissolution of the partnership.
- In my opinion, this distinction also makes a distinction with respect to the possibility of stipulating the provisions of each of the sections.
- While with regard to the mutual rights and obligations of the partners, whether they are defined in the Partnerships Ordinance or set forth in the agreement, the partners have the option of regulating the internal relationship between them as they see fit and even changing it, with the consent of all the partners (section 30 of the Partnerships Ordinance), this freedom does not allow them to condition the authority given to the court, since it is external to the relationship between the partners.
- The language of the Ordinance also supports this distinction. Thus, the Partnerships Ordinance expressly stipulates that the partners are entitled to condition the liquidation provisions set forth in sections 41-43 of the Ordinance, the authority to activate which is given to the partners, and all of them are subject, as expressly appears from the language of these sections, to a different agreement between the partners. In other words, where the power is in the hands of the partners to dissolve the partnership, they are entitled to limit this power (it should be noted that although the power to exercise the ground for dissolution set forth in section 44 of the Partnerships Ordinance is given to the partners, the section does not permit it to be subject to any other agreement between the partners, for the reason that the consent of the partners does not legitimize a prohibited act).
- The authority to order the dissolution of the partnership according to the grounds specified in section 45 of the Partnerships Ordinance, on the other hand, is given to the court and not to the partners, and the parties do not have the power to stipulate this power. This is also supported by the language of the section, which, unlike the provisions of sections 41-42, does not include an explicit provision regarding the ability of the partners to stipulate what is stated in the section, in the sense of "you do not hear from all of them".
- A separate question is whether the partners have the power to restrict, by virtue of consent, their right to apply to the court for the dissolution of the partnership by virtue of the provision of section 45 of the Partnerships Ordinance.
- I am of the opinion that the freedom given to the partners to shape the internal relationship between them as they see fit also includes the possibility of limiting (but not depriving) the ability of a partner to apply to the court for the dissolution of the partnership. However, since such a restriction entails a significant violation of the right of access to the courts of each of the partners, which is reflected not only in their waiver of the right to litigate in court, but also, in our case, grounds for liquidation by virtue of the law and in view of the status of the right of access to the courts as a basic right, the conclusion is obligated in my opinion that parties who wish to limit the possibility of liquidation through the court must To do so explicitly in the agreement, or to indicate clear circumstances that establish intent. This means that in the absence of clear and convincing evidence of such an agreement, the conclusion is necessary that such an agreement was not entered into (see: A. (Tel Aviv) 31900-09-11 Noam Moshe Brodsky v. Yehudit Cohen [published in Nevo] (June 29, 2020) (hereinafter: "the Brodsky case"); see and compare also: Civil Appeals Authority 7608/99 Loki Execution of Projects (Construction) 1989 in Tax Appeal vs. Mitzpe Kinneret 1995 in Tax Appeal [published in Nevo] (June 25, 2002).
- The partnership agreement in our case does not include an explicit restriction on the possibility of applying to the court for the dissolution of the partnership, and in my opinion, the words "only" included in the clause are not sufficient to indicate an explicit intention of the parties to limit their right to appeal to the courts, let alone to deny them the right to turn to the courts in circumstances in which they believe that the general partner is acting in contravention of the partnership agreement or is in breach of his duties towards them.
- In light of the above, I did not see fit to accept the Respondent's argument that the provision of clause 9.2 of the Partners Agreement is sufficient to bring about the rejection of the application.
- I also did not see fit to accept the respondent's argument that the clarification of the application in a proceeding under Regulation 54 of the Civil Procedure Regulations, 5779-2018, instead of filing a lawful civil lawsuit, severely violated the respondents' right to access the courts. Beyond the fact that this argument was raised by the respondents only in the framework of their summaries and they did not raise this argument at earlier stages of the proceeding, I also do not believe that their rights were detracted from in the way of clarifying the application. The respondents were given the opportunity to submit a supplementary affidavit on their behalf (which she did submit), she was given the opportunity to cross-examine the declarant on behalf of the applicants, the declarants on their behalf investigated their affidavits at length and they summarized their arguments in writing at length.
- With regard to the question of whether the Applicants were able to establish the alleged grounds for liquidation, I will preface by noting that the Respondent in its claims tried to link the dispute between the parties with the dispute between the Respondent and the German partner, but as far as the alleged grounds for liquidation are concerned, there is no basis for this. The Applicants' arguments focus on the level of the relationship between them, as limited partners in the limited partnership, and the Respondent as its general partner. The Applicants' arguments do not relate at all to the money from the sale of the property that the Respondent claims was transferred "fraudulently" by Muller to another partnership under the control of the Respondent, but rather to the investment funds that are indisputable that reached the Respondent's pocket, from the very first day of the investment, or to the funds whose disappearance was not explained.
- With regard to the financial aspect, MHR refers its claims to the box "General Partner's Success Fee" in clause 5.2 of the Partnership Agreement. This section, entitled "Expenses to be Covered by the Partnership", instructs that "the Partnership will bear all expenses incurred by its operations, including: the costs of establishing the partnership, fees, expenses and payments related to the purchase, holding and sale of the investments (regardless of whether or not the transaction has been executed) including expenses for due diligence of the investments, success fees of the general partner, travel expenses including flights, brokerage fees and brokers, Commercial and investment banking services, trust and underwriting services, taxes, fees and other government payments, accountants and auditors, lawyers, financing expenses, expenses related to claims and threats of lawsuits, including indemnification and insurance expenses, and any other expenses that may be attributable to the activities of the partnership. The partnership will indemnify the general partner and its related entities for expenses as stated above incurred by them on behalf of and for the partnership."
- MHR does not refer to any document indicating an engagement between the Limited Partnership and any party, including MHR itself, or between the Respondent and the Applicants, which defines what "success" is and what "success fees" are or how they are calculated. Shoval's affidavit stated, among other things, "the gap of about €1 million... derives from the ancillary costs of the transaction - inter alia the success fees of the Respondent and Mr. Muller..." (paragraph 8 of the affidavit) without explanation as to their nature, and similarly in Hermon's affidavit it was stated in this context that "it is clear that the Respondent does not work for nothing and is entitled to the success fees explicitly mentioned in clause 5.2 of the Agreement", without mentioning a specific aspect for which they are required and paid, and in Yagil's affidavit there was no separate reference to "success fees".
In Shoval's testimony in court, it was stated that "the success fee is every time we raise the money, which is ostensibly a success, we managed to raise the money for a deal that has already been signed, it has a notary public and the transaction exists" (transcript at page 133), while Hermon testified that "the success fee is for the success of the transaction, when we bought the property... Success fees are in the beginning, on an ongoing basis it is management fees..." (Transcript, p. 153), and "... You don't have to explain to Rachel, your little daughter, that you have to pay a realtor, for example, or that there is a tax... and there is an entrepreneurship tax" (Protocol, p. 158). When asked about the issue, Yagil replied, "A success fee doesn't matter what you call it, it's a success fee in building the deal. It's not a reward for success in the fact that the deal is over. brokerage fees, success fees, what difference does it make" (transcript page 108, lines 17-19), and "the 300,000 euros or so is exactly the commission we charge for each transaction" (transcript page 113, lines 15-17), and that "the commission is calculated in the amount of the fundraising... in the amount of the transaction, not from the amount of the fundraising" (Transcript, page 114, lines 16-19). It should be noted that as stated in the decision given in civil case 2133-10-22, in the testimony that Yagil gave in the same proceeding, he actually argued, "There are brokerage fees, there are management fees that we take 10% of the annual rent that is due every year, and there is a success fee at the end of the transaction. When we finish the deal, we take 10 percent of their profit alone, which means 5 percent of the deal."