Entitlement to Compensation - General Considerations Regarding Burdens of Proof
- As is well known, even if the plaintiff has proven a violation that caused him damage, this is not enough. When he does not prove the extent of his damage, his claim must be dismissed in its entirety, since it is not enough to prove the liability component. This rule was established many years ago in many other municipal applications 355/80 Natan Anisimov Ltd. Tirat Bat Sheva Hotel Ltd., IsrSC 35(2) 800,808-809 (1981).
- In the same case, the Honorable Acting President Haim Cohen ruled that when a party to the proceeding proves that the contract with him was fundamentally breached, which entitles him to compensation, and when he proves that he suffered damage, he is thus discharging his duty. "It seems to me that if the injured party proves that he suffered damage, which can be determined in money, even if only by way of an estimate, then he has fulfilled the burden of proof imposed on him with respect to his entitlement, according to section 10 of the Medicines Law. Naturally, damages that are avoided in profits, for example, cannot be accurately calculated, and in any case the rate of loss of profit cannot be accurately proved; And even if the victim brings evidence to prove the extent of such damage, even this evidence is only a calculation of reasonableness or expectation, which are based on hopes and conjectures and noton facts that existed. In other words, the requirement of proof, for the purpose of section 10, is based on the fact of the damage caused by the breach, and on the fact of the evidence of the damage in advance, as stated in M.V.R. ; whereas the amount of compensation, which will be awarded for the damage that has been proven as aforesaid, is a matter for the judge's estimate" (ibid., at p. 804).
However, this approach was disagreed with by the Honorable Judge, as he was described at the time, by Barak.
He ruled that the plaintiff for compensation, on the basis of section 10 of the Drugs Law, must prove - at the required probability level - that he is entitled to the head of the damage claimed by him, and in addition to proving the amount of compensation, which will compensate him for his damage (ibid., at p. 806). And if "the victim-plaintiff fails to prove his damage, he is not entitled to compensation" (ibid., at p. 807). It was further held that "proof of the damage is a necessary condition but not sufficient for determining compensation. Just as the injured party must prove the damage caused to him, so too he has the duty to prove the factual data, from which the compensation, i.e., the monetary value of restoring the situation to its previous state, can be deduced. An injured party does not fulfill his duty to prove the damage, but he must also lay a factual basis for determining the amount of compensation. This last matter should not be left to the judge's assessment" (ibid., at p. 808).
- Of course, where it is not possible to prove the damage to an individual extent, the court will have to demonstrate a willingness to estimate the damage, but even for this purpose it must obtain data that will enable it to do so, and the burden of providing it rests on the compensation claimant. "In those cases, in which - in light of the nature and nature of the damage - it is possible to bring accurate data, the injured-party - the plaintiff must do so, and when he fails to meet this burden, he will not be awarded compensation. On the other hand, in those cases in which - in light of the nature and nature of the damage - it is difficult to prove with accuracy and certainty the extent of the damage and the amount of compensation, this does not preclude the victim's claim, and it is sufficient for him to bring the same data, which can reasonably be brought, while giving the court appropriate discretion to make an estimate to make up the shortfall" (ibid., at p. 809 [emphasis added]).
- The approach of the Honorable Justice Barak became a precedent when the Honorable Justice Y. Cohen joined it in that case. Still, in general, it has already been noted that "judges in the trial courts sometimes prefer to award compensation by way of estimation rather than to completely reject claims for compensation for damage that appears to have been caused - but insufficient evidence has not been brought to prove its magnitude. This tendency will be particularly strong when there is any doubt that the injured party did indeed suffer real damage, and in addition, it seems that the gap between the assessment by way of an estimate and an assessment by way of bringing solid evidence cannot be particularly great" (Shalev and Adar, at pp. 348-349).
- Thus, in order to meet the burden imposed on them, the counter-plaintiffs must present with a reasonable level of certainty the amount of compensation to which they are entitled.
Theformat for determining the compensation due to a franchisee whose franchise contract was unlawfully canceled
- Thus far, the matter has been presented in its entirety, and we must focus our attention on the specific issue that is to be decided, namely the determination of compensation in favor of a franchisee whose franchise contract was unlawfully canceled.
- The manner in which compensation can and should be awarded for loss of profits due to the unlawful cancellation of a franchise was discussed at length by the Honorable Judge, as he was then called, Amit B in the Anglo-Saxon case. It was held that the way to determine the proper compensation is by comparing the profit generated by the franchise owner during the period in which he operated under the relevant brand, and between the profits and revenues generated by him without that brand (ibid., at paragraph 20).
- In the same case, in connection with the litigation in the District Court, it was proposed to perform a calculation based on the capitalization of the cash flow (the DCF (Discounted Cash Flow) method). "According to this method, which is accepted for valuations, the value of the business reflects the present value of the cash flows expected to be received from its operation in the future, and it also includes the value of the business's goodwill. This method has also been recognized in case law for the purpose of valuing shares" (ibid., at paragraph 21).
However, it was held that this method raises great difficulty with regard to compensation for the unlawful cancellation of a franchise, and the court did not adopt it in that case. This is because "in the face of the property that was lost in the form of a brokerage agency under the umbrella of the franchise and the Anglo-Saxon brand, [the franchisee] left in its hands an alternative asset in the form of an independent brokerage agency that continued its activity in Herzliya after the franchise was taken over in the relevant years. A true calculation of the damage caused as a result of the taking of the franchise requires an examination of the profit that Bloom made prior to the cancellation of the franchise by reducing the profit he generated after the cancellation of the franchise. However, this was not done by the experts, and the argument can be heard that it is possible that the brake did not cause any damage as a result of the taking of the concession" (ibid., at paragraph 21).