Caso Civil (Tel Aviv) 75948-12-20 Shabtai Alon contra Michael Mirilashvili

Judgment

1. I have before me a monetary claim for payment of a total of ILS 50, 000, 000 that the plaintiff claims the defendants owe him for his part in diamond transactions, which will be expanded on later.
2. The case was redirected to my handling in September 2023 in light of the retirement of the previous panel that heard the case.

The plaintiff's claims in the statement of claim in summary

3. According to the plaintiff, Shabtai Alon is a businessman who immigrated from Georgia in the 1970s and previously managed a chain of clinics until his commercial paths intersected with the defendant's life path.

The defendant, Michael Mirilashvili, is a businessman who immigrated to Israel more than a decade ago.  The defendant has enormous personal capital that he accumulated during years of business activity in the CIS countries.  According to the plaintiff, the defendant is considered an oligarch.  The defendant became famous as having accumulated his personal fortune in the gambling business in Russia.  After immigrating to Israel, he began to operate and invest in Israel in the fields of real estate, energy, diamonds, communications and other fields.

The plaintiff and the defendant are cousins.

The defendant Hoshen Argaman Diamonds Ltd.  is a company incorporated in Israel in 2010 and is wholly owned by the defendant.  The company holds a license to engage in the diamond trade.

4. The prosecutor claimed that he came to the aid of the defendant, who was serving an 8-year prison sentence in Russia for the offense of conspiracy to commit the murder of family members of several people suspected of kidnapping his father. According to the plaintiff, upon the defendant's release, he helped him immigrate to Israel in order to begin his rehabilitation as an Israeli citizen.  The plaintiff even assisted the defendant in the process of his rehabilitation from the status of a convicted criminal to a legitimate businessman.  According to him, upon his arrival in Israel, the defendant added him to his business activity and he became his partner, confidant and right-hand man for several years, until the dispute that is the subject of the lawsuit arose between them.
5. The plaintiff claimed that during the year 2009, through the mediation of another person, he was presented with an offer by a person named Thomas Hininashvili (hereinafter: "Thomas"), who was connected to a Russian state-owned diamond company, to finance a huge deal in rough diamonds. The proposal was that through financing in the amount of US$50, 000, 000, Thomas and his partners would purchase rough diamonds at a price significantly lower than their market value, sell them at a profit in Russia, and the financier of the transaction would receive a full refund of the financing in three months plus a premium of approximately US$20, 000, 000 (hereinafter: the "First Transaction").  According to the plaintiff, he presented the transaction to the defendant and he asked to enter into it as a financier and transferred the sum of US$50, 000, 000 through Thomas.
6. According to him, prior to the engagement itself, a meeting was held between him and the defendant and the other parties related to the matter, in which it was agreed, inter alia, that the defendant would pay him initiation and brokerage fees in the sum of US$2, 500, 000, which constitutes 5% of the scope of the investment, in exchange for the full return of the financing and the payment of the premium to the defendant (hereinafter: the "brokerage fees").
7. Six months after the financing was made, Thomas and his partners were unable to sell the diamonds in Russia as planned. The plaintiff claimed that as a result, he and the defendant worked to change the outline of the transaction, so that they would be able to manage the diamond transactions outside of Russia themselves.  It was agreed that the defendant would take ownership of all the diamonds purchased in the framework of the first transaction in exchange for the payment of the financing already paid by it in the amount of US$50, 000, 000 and an additional payment of US$20, 000, 000 to be paid to Thomas and his partners as initiation fees (hereinafter: the "Second Transaction"), and this was indeed the case.  The plaintiff claimed that for the additional work and the efforts involved, the defendant offered him to be his partner in the second transaction, with his share being 10% of the profits from the sale of the diamonds (hereinafter: the "Partnership Agreement").  This is in addition to the brokerage fees to which he was entitled for the first transaction.  In this framework, the plaintiff was required to supervise as a partner the polishing system of the rough diamonds at a diamond polishing factory in St.  Petersburg, Russia, and to fly frequently to Russia.  The plaintiff held the main role as a supervisory partner until the end of the services at the plant in 2012.  According to the plaintiff, during this period, the defendant treated him as his partner for all intents and purposes, and this is how he presented himself to other people involved.
8. The Ottoman Settlement [Old Version] 1916According to the plaintiff, the second transaction was executed as of 2010. According to him, until about the middle of 2014, the activity generated a profit of about $100, 000, 000, even before the marketing and sale of all the diamonds was completed.  According to him, during these years, the defendant made sure to commit to him on many occasions that he would receive the sums due to him, i.e., $2, 500, 000 and 10% of the profits of the venture.  According to the plaintiff, throughout the period, the defendant asked and even persuaded him to wait upon receipt of the funds due to him and leave them within the venture, claiming that they were necessary for additional diamond transactions and to increase business activity in a way that would increase the profits that the plaintiff would enjoy.

12-34-56-78 Chekhov v.  State of Israel, P.D.  51 (2)

9. The plaintiff further claimed that the venture was operated by the defendant, when the person who served as its CEO was his son Yossi Alon (hereinafter: "Yossi"). According to the plaintiff, over time, the defendant denied his promises and rights and refused to pay him what he was owed.
10. The plaintiff claimed that the defendant created artificial conflicts with him and his son Yossi in order to renege on his obligations to them and placed a threat over their heads. According to him, the first time the defendant denied his obligations to him was in 2015 after he caused his son Yossi to leave the company.  The plaintiff continued to demand that the defendant fulfill his obligations, but the defendant continued to deny it and make false claims against him.  Therefore, the lawsuit was filed.
11. The plaintiff claimed that he was entitled to a payment of 2, 500, 000 United States dollars for the brokerage fees. The plaintiff estimated the total profits generated by the defendants in the venture at approximately US$160, 000, 000.  Therefore, according to him, he is entitled in addition to 10% of the amount, i.e.  16, 000, 000 United States dollars.  For the purposes of the fee, he placed the claim at a total of ILS 50, 000, 000.

The defendants' arguments in the statement of defense in summary

12. The defendants argued that the claim should be dismissed as it was baseless. According to them, the presentation of the plaintiff as someone who helped the defendant rehabilitate after he immigrated to Israel, as the defendant's partner and right-hand man, and as someone to whom the defendant owes tens of millions of shekels, is false and misleading.  According to them, it is not for nothing that documents were not attached in support of the prosecution's claims.  They claimed that the plaintiff was a person with a dubious past, a drug addict who repeatedly encountered financial and other difficulties and was unable to lead a normative lifestyle.  According to the defendants, due to the family closeness and in light of the entreaties of the defendant's late father, the defendant supported the plaintiff and helped him get out of various distress that he found himself in.  Thus, the defendant transferred millions of ILS to the plaintiff over the years in order to help him and his family repay their debts that resulted from the collapse of the family business.  The defendant helped the plaintiff's wife to end a criminal proceeding for tax offenses that were discovered following the collapse of the business.  The defendant also assisted the plaintiff in the rehab process and in the rehabilitation attempts, inter alia, by providing his son with a decent job and livelihood.
13. Copied from the prophecyThe defendants rejected the claim of a business partnership. According to them, the defendant is an established businessman, with means and reputation, and if it were not for the family connection, he would not have had any contact with the plaintiff.  According to the statement of defense, in addition to business activity, the defendant engages in philanthropic activity, and has held and continues to hold positions in a number of public organizations.  For example, he serves as vice president of the World Jewish Congress and as a member of its steering committee; He serves as President of the Asian Jewish Congress and a member of the Board of Trustees of Tel Aviv University.  According to them, it was only out of a desire to help his cousin rehabilitate, that the defendant allowed him to deal with matters related to his diamond business.  The plaintiff had no knowledge in the field and his involvement in the defendant's business was intended to provide him with employment that would prevent his deterioration into drugs.  The defendant did not undertake to pay the plaintiff a certain percentage of the profit of the loan transaction that is the subject of the lawsuit or brokerage fees.  According to them, long before the letter of the law, and as part of his attempt to get the plaintiff back on the right path, the defendant gave the plaintiff a sum of $600, 000 as a gift.  This is to the extent that the diamond deal yields profits.  The defendants emphasized that this was not a remuneration, but a gesture of goodwill.  According to them, before the transaction yielded a profit, and instead of receiving the amount, the plaintiff asked to invest in the transaction in Nairobi.  This was despite the high risk it entailed and contrary to the defendant's advice.  The transaction failed and as a result the plaintiff lost the amount invested and remained in debt to the defendant about $700, 000, since the defendant covered the plaintiff's share of the loss.
14. The statement of defense described the defendant's business activity in the field of diamonds. According to the defendants, in 2009 the defendant was approached by a man named Boris Kricheli (hereinafter: "Boris"), who was known to the defendant and presented him with a potential transaction.  The defendant was offered $50 million in financing for the purchase of diamonds from the Russian state-owned diamond company.  After several meetings with Boris and the buyers, a loan deal was signed.  The buyers were supposed to repay the loan from the sale of the diamonds.  According to the defendants, the plaintiff did not initiate the transaction, was not a party to it, and was not promised anything in return.  According to the defendants, the plaintiff was indeed present at the meeting that took place between the defendant and Boris and the purchasers moved on to signing the agreement, but this was only due to the defendant's desire to help him rehabilitate and integrate into the business world.  At that time, the plaintiff would come to the defendant's office, participate in meetings and accompany the defendant as a bystander.  A few months later, it turned out that the buyers had encountered difficulty in selling the diamonds and therefore signed a change in the terms of the transaction with the defendant.  Instead of repaying the loan, it was agreed that the purchasers would transfer to the defendant the amount they received for the diamonds they managed to sell and the diamonds that had not yet been sold in exchange for an additional payment.  According to the defendants, the plaintiff did not initiate the repair, did not become a party to the transaction, and was not promised anything in this regard.  According to them, the defendant was established for the purpose of receiving the diamonds from the purchasers and selling them.  Out of the same desire to provide the plaintiff with employment, the defendant allowed the plaintiff to accompany a gemologist on his trips to Russia, where the work of sorting and polishing the diamonds received from the purchasers was carried out.  According to the defendants, the defendant also did not succeed in selling the diamonds, and to this day there are diamonds that have not been sold.  According to them, the diamond deal did not yield profits but losses.
15. In addition, the defendants claimed the statute of limitations. According to them, since according to the statement of claim, the diamond deal was concluded in 2009, the claim became obsolete in 2016.  They argued for the absurdity of the plaintiff's claim that the defendant first denied his obligations to the plaintiff only in 2015.  According to them, even if it is determined that the cause of action has not become statute of limitations, the claim suffers from a heavy delay in any case.  The defendants claimed that apparently, the purpose of the lawsuit was to serve as a counterweight to the lawsuit that the defendant is expected to file against Yossi, the plaintiff's son, who was discovered to have stolen money and diamonds worth millions of ILS from the defendant.  Following these acts, the defendant filed a lawsuit against him at the Diamond Exchange Arbitration Institute.  After Yossi confessed to the charges against him, a settlement agreement was signed in 2015 in which Yossi undertook to return to the company diamonds he had stolen worth more than $3 million.  Yossi refrained from fulfilling his obligations despite a number of warnings sent to him by the defendant.  Therefore, the lawsuit in question is intended to help him evade paying his debt.
16. As for the criminal proceeding that was conducted against the defendant in Russia, the defendants claimed that the criminal proceeding was mentioned in the statement of claim but in order to present the defendant in a negative light. According to them, this was a proceeding whose motives were political, and the European Court of Human Rights in Strasbourg ruled that the defendant did not receive a fair trial.

The plaintiff's arguments in the reply in summary

17. The plaintiff claimed that the purpose of the statement of defense was to present it in a negative way to the court. He claimed that this conduct was absurd in light of the fact that the defendant was convicted of serious offenses for which he served a long prison sentence of eight years and that he was identified as the head of a criminal organization in the Russian underworld.  The plaintiff resented the false version that he was a junkie and a bankrupt who, out of pity and due to family ties, was recruited by the defendant as a bystander to the diamond transactions.  He also rejected the claim that the diamond deal was a loss-making deal.  He reiterated his claim that he was entitled to a portion of the profits from the second diamond deal.  Among other things, he claimed that Thomas, together with his partner, Mr. Bezalel Kricheli (hereinafter: "Bezalel"), who was supposed to receive financing for the purchase and sale of the diamonds, and finally, after encountering difficulties, sold them to the defendant and the plaintiff, admitted to the plaintiff that he was the one who did everything for the purpose of executing the transaction and that the defendant was making a "show" for him in order not to pay him his share.  He also referred to the defendant's claim in his statement of defense that he had decided to give him a gift in the amount of $600, 000 as long as the diamond deal would yield profits as a gesture of goodwill, and claimed that this would attest to his part in the diamond deal.  The plaintiff rejected the claims of limitation and delay, which he said had no factual and legal basis, and argued that the statute of limitations begins on the day the cause of action was born, the date on which the defendant denied his obligations to him.
18. It should be noted that the parties' arguments in the pleadings were briefly described above. This, inter alia, was given by a decision to split the hearing and in order to avoid unnecessary repetition.  In any event, if necessary, the matter will be expanded later.

The decision to split the hearing

19. As stated above, the case was redirected to September 2023 due to the retirement of the previous panel. Prior to navigating the case, the parties conducted unsuccessful mediation proceedings, after which and in accordance with a procedural arrangement approved on March 6, 2023, they filed multiple motions in preliminary matters.  In addition, they submitted requests to summon multiple witnesses.
20. In my decision of March 3, 2024, I referred to the multiple requests and the large number of witnesses that the parties requested to summon.
21. Thus I wrote that "a review of the various pleadings in connection with the above motions (requests, responses and answers) reveals that the plaintiff wishes to discover and review the accounting documents and various financial data in the possession of the defendants in order to learn about the amount of profit they derived from the second diamond transaction, their attempts to conceal this profit while carrying out illegal activities, in order to refute the defendants' claim that this was a loss-making transaction" (page 2, lines 17-20). The defendants vehemently opposed these discovery requests.
22. Subsequently, I noted that the plaintiff requested to summon 19 witnesses on his behalf, a significant number of whom were supposed to testify to the profitability of the diamond transaction and the techniques used by the defendants to conceal its true profitability, which, according to the plaintiff's method, amounted to $160, 000, 000. On the other hand, the defendants requested to summon 14 witnesses on their behalf, while noting that they reserved their right to request that the list of witnesses be updated.  In addition, I noted the fact that no documents were attached to the statement of claim in support of the plaintiff's claims.  This is in light of the plaintiff's claim that the parties did not put their agreements in writing in light of the relationship of trust and the existing practice in the diamond business.
23. Taking into account the multitude of arguments and witnesses, I determined that there is no justification for clarifying all of the parties' arguments together, since this clarification involves an enormous allocation of resources by both the parties and the court. In addition, I noted that the documents requested by the plaintiff are ostensibly intended to disclose to him financial data of the defendants, which there is no reason to disclose them if it turns out that the plaintiff is not a partner of the defendant as he claims.  Therefore, I ordered the separation of the hearing in accordance with Regulation 76 of the Civil Procedure Regulations.
24. In my decision, I determined that "in the circumstances of the present case, there is room to first discuss the plaintiff's claim that the defendant agreed to pay him 5% of the scope of the investment in the sum of 50, 000, 000 US dollars, i.e., a sum of 2, 500, 000 US dollars as initiation and brokerage fees (paragraph 10 of the statement of claim) and that the defendant offered the plaintiff to be his partner in the second diamond transaction, with the plaintiff's share being 10% of the profits in respect of the sale of the diamonds (paragraph 16 of the statement of claim). Only if and when it is determined that there was indeed such a partnership will there be room to continue to clarify what the profits the defendants derived from the second diamond transaction were.  If this is determined, it can be assumed that there will be no room for the defendants to object to the presentation of certain documents, which should be disclosed to the person who is their partner.  Then it will also be possible to examine the need to hear additional witnesses, including experts.  If the plaintiff's claim is rejected, the case will be closed in any case and the discussion of all the additional issues will become redundant" (page 3, lines 21-29).

And further on, "I order that the hearing be split, so that in the first stage, the plaintiff's claim to his entitlement to receive 5% of the scope of the investment in the sum of 50, 000, 000 US dollars, i.e., a sum of 2, 500, 000 dollars as initiation and brokerage fees as stated in paragraph 10 of the statement of claim, will be discussed.  In addition, his claim for the existence of a partnership at the rate of 10% of the profits in respect of the sale of the diamonds will be discussed as an addition to the consideration in the sum of $2.5 million, all as stated in paragraph 16 of the statement of claim" (page 4, lines 6-10).