This answer is required in light of the obligation to reduce the damage, and in light of the laws of contracts themselves.
- Victims of the cancellation of the franchise are obligated to reduce their damages, in accordance with section 14 of the Drugs Law. This section deprives the injured party of the breach of contract compensation "that the injured party could, by reasonable means, prevent or reduce." and one of the possible ways to reduce the damage is to continue operating the business that is the subject of the franchise, under a different brand. This method was recognized as appropriate and even desirable in other municipal applications 4232/13 Anglo-Saxon Property Agency Ltd. Eli Blum (published in the databases; 2015; in paragraph 29 of the opinion of the Honorable Judge, as he was then called, a fellow) (hereinafter: the Anglo-Saxon case)).
In fact, it is even preferable from the point of view of Max Stock, which otherwise, when it turns out that the cancellation of the contract by it was done illegally, it will have to compensate the franchisees, and the scope of the compensation will be significantly greater if they do not continue their activities.
- Still, the question arises, how do the non-compete clauses in cancelled agreements affect our case? When we focus our attention on the perspective of contract law, we must remember that not every case in which an agreement is canceled, the stipulations in it that prohibit non-competition are also null and void.
Thus, for example, the Honorable Justice, as he was then called, Sohlberg ruled (in a majority opinion) in Other Municipality Applications 8191/16 Dyalit Ltd. v. Herar (published in the databases; 2019 (hereinafter: the Dialit case) ruled that "one must wonder how the non-competition provision continues to remain in force and bind the parties, where the agreement was cancelled by them? From where do the [non-compete clauses in the agreement] derive their power, when the agreement as a whole is no longer valid? To this, it must be answered that 'the cancellation of a contract due to its breach does not expropriate all the obligations in the contract, but only the initial obligations therein. The secondary obligations included in the contract remain in force even after the breach and after the cancellation of the contract by the injured party as a result of it' [...]. In other words, the cancellation of a contract leads to the cancellation of the obligations that are intended to fulfill the purpose of the engagement between the parties ('primary' charges); obligations that are intended to regulate the legal relationship following the cancellation of the contract ('secondary' charges) - add to the applicability" (ibid., at paragraph 4 of his opinion).
- Thus , the cancellation of an agreement does not automatically lead to the cancellation of the non-compete restrictions therein. But it also cannot be said that in any event, following such a cancellation, these continue to remain in place. Sometimes such a result will cause a serious distortion, and will be unacceptable. The spectrum of cases can be wide, and the circumstances of the matter at hand must be examined.
Thus, in the case of Dyalit, the two parties to the distribution agreement agreed to cancel it, but the agreement of the product owner to cancel the distributor's obligation to non-competition was not substantiated. It is also conceivable that a case in which the franchisee did indeed breach the franchise agreement, and against this background the cancellation of the agreement was lawful. However, in these circumstances, there is great logic in the argument that he will be prohibited from competing with the franchisor, while respecting the non-competition clause in the cancelled agreement; after all, there is no reason why it should be harmed as a result of the concessionaire's infringing conduct. Therefore, if the franchisee was obligated not to compete with the franchisee even after the termination of the contract, or for the duration of the time-allotted contract, there is prima facie no reason for this limitation to continue to remain in place, otherwise the violator would be rewarded; In this regard, too, a decisive approach should not be taken, and the circumstances, the internal logic of the agreements on the agenda, and more should be examined.
- However, our case is different. Here it is the franchisor, Max, that unlawfully cancelled the agreement. It forced the franchisees to stop using the Max Stock brand, without justification. It took away the franchisees, who expected to operate in the industry for a long period of years, and unjustifiably omitted the economic basis for their work. It did so only a few years after the date the franchise was granted. In these circumstances, when it was the grantor of the franchise that breached the agreement, and unlawfully cancelled it, it certainly could not in the same breath prevent the franchisees from continuing to operate in the relevant market under one brand; For even under this scenario, a sinner will be rewarded.
It is possible that the situation would have been different if it had been a franchise contract that set a defined period for its activity, and included a non-competition clause for a certain period of time after the termination of the franchise, and this was unlawfully cancelled close to the date of its expiration. However, as stated, this is not the case before us. The franchisees took care to ensure that it would be difficult to cancel the franchise agreement, and rightly relied on many years of activity in the relevant industry. In a situation where the agreement was unlawfully canceled, close to the beginning of the contractual relationship between the parties, the restrictions on competition are certainly no longer valid.
- I therefore reject Max Stock's claim that the defendants violated the non-compete clauses while continuing their activities under a new brand, after the franchise agreements with them were unlawfully cancelled.
The amount of compensation based on the counterclaim
- The counter-plaintiffs have so far proven that Max Stock breachedthe contracts entered into with them. Therefore, they are entitled to the remedies that the Drug Law makes available to them. And the relevant remedy at issue is the compensation remedy. In this regard, Section 10 of the Medicines Law states:
- The Right to Compensation
The injured party is entitled to compensation for the damage caused to him as a result of the breach and its consequences, and which the violator saw or should have seen in advance, at the time of the conclusion of the contract, as a probable result of the breach
- The counter-plaintiffs, the concessionaires, claim that they are entitled to compensation in the amount of ILS 10 million (which was limited for reasons of fees). In this regard, they rely on the opinion of their expert, Dr. Is it possible to base the defendant's entitlement to compensation on its basis?
The answer is complex. At the end of the day, I found that they were able to establish the defendant by them only partially, and this in relation to the Bat Yam branch and not in relation to the Sderot branch. In order for my position to be presented, it is appropriate to first understand the general law in this matter; as well as the Supreme Court's ruling regarding compensation for loss of profits as a result of the unlawful cancellation of a franchise.