This information is critical when a new venture is launched for the simple reason that the way the venture functions at the beginning of its journey may have a material impact on its success or failure. A website that is saturated with glitches and problems at the beginning of the project may cause a loss of trust among users and lead to the failure of the venture. The person who expressed this well in her testimony was Alexandra, who, referring to an investigation line that dealt with the question of what attracted her in the business (the uniqueness of the software or the idea of the project and its potential), explained about the system that "it needs to be developed well" and that otherwise it "falls on execution" (p. 43 of the transcript at paras. 10-13).
Accordingly, I accept Werber's testimony - which makes a lot of sense - that if they had been aware of the facts as they were, they would not have entered into the transaction. At the very least, it can be assumed that Schorber was, at the very least, complying, as a condition for joining the deal, a meticulous professional examination of the system by a professional on their behalf and carrying out the necessary repairs while postponing the launch. Froimovich's conduct actually posed a significant risk to Werber - which Werber did not intend to take. This is all the more so given that Werber invested a significant amount of their money in the venture, while Froimovich's financial investment was, as mentioned, negligible.
- Froimovich's duty of disclosure, in the circumstances of the case, stems from Rabbi Schurber's trust in Shmulik as their mentor, as testified and supported by the video that was shown in the evidentiary hearing (p. 169 of the transcript, paras. 1-18); both in view of Froimovich's special expertise in the field of software and his familiarity with the system and the software as the person responsible for the planning and supervision of the execution; They are based on clause 2.2 of the founders' agreement to which Werber referred, which obligated Froimovich to disclose any detail whose failure to disclose was misleading or would have caused a reasonable person not to enter into the transaction. And this is all the more important in light of the timetable in which Werber entered into the deal since it was proposed that they enter as partners - within about 10 days and in view of the upcoming launch date set by Froimovich.
- In this context, reference may be made to Civil Appeal 1564/06 Ben Zeev v. Ben Ami (February 24, 2008), in which the sale of a company was discussed. In that case, the Supreme Court describes the District Court's rulings in which it did not find intervention as follows (paragraph 9 of the judgment; my emphases - L. C):
In the relationship between the parties, the appellants had an increased duty of disclosure towards the respondents prior to entering into the agreements, due to the friendly relations that were forged between them, and in particular in view of the trust and "admiration" that respondent 1 had for appellant 1. The trial court further ruled that appellant 1 did not provide respondent 1 with the data that it needed in order to make an informed decision whether to acquire the company, whether by way of concealment of information or by way of disclosure of erroneous information, and that appellant 1, who was aware of the company's difficult situation, did not inform respondent 1 of this. The trial court noted that respondent 1 ceased to examine the company's situation herself, but held that even if respondent 1 had contacted the relevant parties in the company (the company's bookkeeper and accountant), it would not have benefited greatly from this, in view of their absolute loyalty to appellant 1. In light of the above, the trial court held that appellant 1 misled respondent 1 and as a result of this deception respondent 1 is entitled to cancel the agreements between them and that there were "moral defects" in the conduct of the two appellants.
- Reference may also be made toCivil Appeal 2469/06 Suissa v. Zaga Company in Gush 2027, Part 1 B TaxAppeal (August 14, 2008). This is how the court reasoned the duty of disclosure in that case, taking into account the nature of the relationship between the parties and the trust that the plaintiffs placed in the defendant, the disparities in power and information between the parties, as well as the defendant's eagerness to carry out the transaction:
... I am of the opinion that in the present case as well, appellant 1 has a duty of disclosure vis-à-vis respondents 2 and 3 "in accordance with the circumstances". This is because, as a professional broker, appellant 1 had an advantage over respondents 2 and 3 - an elderly couple from Petah Tikva - with regard to obtaining up-to-date planning information, and also because respondents 2 and 3 relied on him knowing that he was a broker (whom they had also approached in the past for the purpose of obtaining up-to-date information regarding the lot), even though he had purchased the lot for himself and did not serve as an intermediary on their behalf in the transaction and therefore also allowed him to draft the agreement without being required at the time of signing by any other professional entity. Moreover, the initiative for the transaction taken by appellant 1 on the grounds that he had a buyer at an attractive price, the presence of appellant 1 at the home of respondents 2 and 3 shortly thereafter, accompanied by the son of appellant 2 (who was not presented to respondents 2 and 3 by his true identity) and finally, the purchase of the lot by respondent 1 himself on the same day, all of these testify to the haste and excessive eagerness on the part of appellant 1 to complete the transaction before it was in the hands of respondents 2 and 3 to make further inquiries and learn about the new developments that took place As for the planning status of the lot. In view of all of the above, it seems to me that the silence of appellant 1 and the failure to disclose to respondents 2 and 3 regarding the decision of the district committee to approve the outline plan for deposit, constitutes a breach of the duty of disclosure that applies to him "according to the circumstances" in the present case. This breach amounts to misleading respondents 2 and 3 and as a result of it respondents 2 and 3 erred as to the planning condition of the lot they sold to appellant 1, as rightly held by the trial court.
- The evidentiary basis that was presented therefore establishes the conditions for canceling the transaction due to deception. Froimovich misled Werber in a combination of acts and omissions of non-disclosure detailed above, and this deception led them to make a mistake, when due to the mistake and Werber entered into a deal.
- Froimovich cannot build, under the circumstances, from the claim that Schwerber checked or that it was possible to test the software. Werber did not examine the actual software in a professional manner, as appears from the testimony of Racheli, Yonit and the correspondence that was presented (see 65 of the transcript at paras. 10-19). In any event, as it was held, "mere negligence on the part of the erring party does not negate its right to cancel the contract due to a defect in the conclusion of a mistake under section 14(a) of the Contracts Law or deception under section 15 of that law" (Suissa and the references therein; See also, Eyal Zamir, "Mistake in the Profitability of the Transaction: The Value of the Object, Future Occurrences, Risk-Taking, and Negligence of the Erring" Gabriela Shalev - Studies in Contract Theory (2021) 379 (2021)). This is the case in general, and this is especially the case in the circumstances of the case and in view of the trust that Werber has acquired for Froimovich in view of the relationship between them and Shmulik's expertise.
- Finally, I will note, in this context, that the claim of Froimovich Schwerber cannot be accepted and cannot rely on information provided by Froimovich in a webinar intended for lecturers or Lorber when it was discussed that they would be lecturers and prior to the date on which the possibility of joining as partners arose. If Froimovich wanted to have reservations about any information that was provided, the burden on him was to make reservations and clarify. Werber could have assumed that Froimowitz was accurate in the information he gave even when they were planning to take part in the project as lecturers only.
The AS-IS clause does not negate Froimovich's liability for misleading and imposing the risk on Werber
- As the evidence shows, the person who represented both parties in drafting the agreements was Adv. Mor (Schurber also paid his fees). Although Shmulik tried to deny this in his innocent response in his cross-examination, it is clear that Adv. Mor did not represent only Werber, as Shmulik claimed, but also Froimovich. Conclusive evidence of this is the exchange of text messages between the parties in this matter (P/7).
- A material condition in the agreement for the purchase of the system in which the joint venture established by the parties entered into an agreement with KSA, to which Promovitz is referring, is the IS AS stipulation. This is its wording (clause 2 of the agreement):
The seller declares that she presented the system to the founders, and the purchaser agrees to purchase the system as it is. It is clarified, for the avoidance of doubt, that the foregoing does not derogate from the declarations and obligations of the parties under this Agreement
- This stipulation, on which Froimovich bases their main defense argument, was discussed at length in a telephone conversation between Attorneys Mor, Werber and Shmulik prior to the engagement in the transaction between Werber and Froimovich (a full transcript was submitted to the file on February 28, 2024).
- It emerges from the conversation that according to a previous draft drafted by Adv. Mor, "the system is worthy and fit to go live immediately" (p. 2 of the transcript of S. 15). Yonit notes in the conversation that "they want to change it, to something I don't know exactly how. The exact wording, however, which basically says that the system is going AS IS as it is now and the development process is ongoing" and in response to Adv. Mor's questions if "it is no longer suitable? Isn't she fit to go live?" Yonit replies, "She's fit to go on the air. Only it is not a system like a shelf product that is closed and finished and... It rises as it is right now. Rather, it is a system that goes live on Monday, but there is still more on it. Developments and matters and corrections if necessary." Adv. Mor proposes a different formulation according to which "the system works according to standards and is fit to go live immediately, however, there is a need for further development of the system, and it is possible and expected that in the future there will be a need to fix bugs or perform development completions" and asks for the parties' comments regarding this specification, and in response, Shmulik replies, "I don't even know what to say about this clause because the system here is open, everyone can see. Me, what does that mean... I don't know whether to agree to it, not to agree to it. In response to questions from Adv. Mor about the status of the system, if it is not qualified and "needs another 2,000 hours of development" or if it is a "beta version," Shmulik replies, "It goes live on Monday... That's what it's called... It only goes live on Monday. What will happen after it goes live? If there is a problem, we will fix it. You know." Adv. Mor asks if "later on there will be a need to fix bugs and carry out development completions" and Shmulik replies, "I understand that you need to write something that describes the system... I just don't know what that means? What's the contents of it, but it's okay..." Yonit notes, "It was a reference that Shmulik felt uncomfortable with," and Shmulik explains, "I don't know what it means, accepted standards, etc., I mean, the system is here. I don't, the so-called... I, I said IS AS because I know it from real estate." Uzi explains, "The meaning of IS AS is that the responsibility lies with the buyer," and Tzachi replies, "We took it." Uzi explains again, "The seller sells as it is, and the buyer takes as it is, and he will not have any complaints against the seller" and Tzachi replies, "Okay. It suits us better," and Yonat clarifies, "It doesn't mean that the seller stops taking care of it," and Uzi explains that Shmulik continues to take care of it, "but in his hat as a buyer as a new owner; Not in his hat as a seller," and explains again, "It's clear that this is the AS IS, it means you see a candy on the shelf like this, you take it. You have no claims that it does not taste good to you" (alternate remarks on pp. 1-5 of the transcript).
- The AS IS clause does not negate the claim of deception, in the circumstances of the case.
- First, although Shmulik did not undertake a contractual obligation regarding the quality of the system and the manner in which it was developed, this does not negate his duty to disclose, in the circumstances of the case, for the reasons detailed above, to present to Werber the information that he was aware of regarding the faulty development process of the system, its low quality, and the resulting risk of problems and malfunctions in the launch. This is especially so in light of Froimovich's explicit contractual undertaking that no detail does not disclose that it is misleading or that may cause a reasonable person not to enter into the transaction, as stated in clause 2.2 of the founders' agreement.
- Second, and more than necessary, an analysis of Shmulik's response in the documented conversation regarding the AS-IS stipulation raises significant difficulty and inconvenience, in the circumstances of the case, including against the background of the parties' relationship, gaps in professional knowledge and the timing of entering into the transaction.
However, in a conversation with Adv. Mor, who represented both parties, he explained that the meaning of the AS-IS stipulation is that the risk is on the buyer and that the buyer will not have any claims regarding the quality of the system. However, it is possible to get an impression from the course of the conversation that it was indeed a continuation of a previous conversation between Shmulik Werber, as Yonit testified (p. 67 of the transcript at paras. 6-12), and that Shmulik persuaded Werber to agree to this in a misleading manner. Yonit explains what Shmulik explained to her in their conversation: that describing the system as being fit to go live is not convenient for him because it is not a "shelf product" and that developments and corrections are required, while her understanding, as emerges from the conversation, is that the system is competent. Shmulik does not correct this understanding; It does not retract information it provided earlier, nor does it explicitly clarify that it disclaims any responsibility regarding the software and quality of the system. Nor does he reveal the real reasoning for his position, as the evidence suggests, which is that the system is prone to disaster because new malfunctions are discovered every day. When Adv. Mor asks if the system is not fit and needs more hours of development, or if it is a beta version, Shmulik evades a direct answer and replies, "It goes live only on Monday. What will happen after it goes live? If there is a problem, we will fix it." This is a sophisticated and evasive answer. It indirectly indicates that Shmulik is not willing to commit to the quality of the system because there may be bugs as may be discovered in any software. However, Shmulik knows at this stage that there is an increased risk of malfunctions after the launch as a result of a broken development process and the low quality of the system, as mentioned. Regarding the possibility that the agreement will say that the system was developed according to "accepted standards," Shmulik is naïve and says that he "doesn't know about accepted standards." It is difficult to accept this answer as an honest answer and not as one intended to remove responsibility regarding the quality of the system, despite Shmulik's knowledge that he is running with his eyes wide open for the launch of the venture despite the problems that arise every day. It is also evident that Shmulik is taking advantage of the knowledge gaps between him and Werber, who did not know how to define standards for software development that could ostensibly be defined, as indicated by the expert opinion, such as working with version management, saving changes, a separate development environment, and automated tests.