The defendant's refusal to exercise the option clause in the agreement
- Finally, the plaintiff emphasized that the defendant's refusal to exercise the option clause in the agreement amounts to discrimination against the minority. According to her, refraining from exercising the option is contrary to the agreement between the parties and is done in bad faith.
- In our case, the defendant's refusal to exercise the option clause constitutes a violation of the plaintiff's legitimate expectations. The agreement between the parties was built in advance so that the plaintiff, as a minority shareholder, could guarantee herself an "exit route" from the company at the end of the vesting period [clause 4.3 of the agreement]. As a result, it can be concluded that the plaintiff has a legitimate expectation to be entitled to exercise the option in accordance with the provisions of the agreement, and that a refusal to exercise it, without exhaustive reason, may lead to a situation that harms this expectation. This is especially true because the test for the existence of discrimination focuses on the result of the refusal and not on its motives [see: Adler, at para. 65; Civil Appeal 3432/17 Shai Topaz (Yocht) v. Haim Yocht, at paragraph 25 of the judgment of Judge G. Kara (Nevo, April 16, 2020)].
- As will be explained below, I found that the defendant's reasons do not justify the non-exercise of the option clause as in question, and that such refusal amounts to a lack of good faith in the performance of a contract as defined in section 39 of the Contracts (General Part) Law, 5733-1973. I am persuaded that such a refusal, which was done without a sufficiently convincing reason, harms the plaintiff's legitimate expectations with regard to the exercise of the option clause, and even leads in the circumstances here, to a result that deprives the plaintiff. This is where the defendant emphasized the plaintiff's right to exercise the option as stated at the beginning of the proceeding [for example, see paragraph 24.5 of the original statement of defense].
What is the law regarding the option clause in the agreement?
- As explained above, the defendant points to two main reasons for not exercising the option clause in the agreement as it is written: first, the defendant claims that no notice was sent regarding the exercise of the option in the manner prescribed in clause 5.7 of the agreement, so that the date for its actual exercise has passed. Second, the defendant is of the opinion that the plaintiff is not entitled to benefit from the exercise of the option clause when she is in breach of the agreement herself. Therefore, it was argued that the plaintiff's arguments regarding the exercise of the option clause should be rejected.
- The option clause is as follows:
"4.3 The seller will give the buyer an option to sell to the seller (option "PUT") all shares sold under the following conditions: Price per share - according to the value of the company on the day of exercise of the option to be determined by an agreed real estate appraiser or ILS 700 per share, whichever is higher. ; Ripening period (vesting) - Five (5) years from the date of signing the agreement; Exercise Period - The Purchaser is entitled to exercise the option within 30 days from the end of the vesting period;[Clause 4.3 of the Agreement].