Legal updates

Preventing the ability to assign a right of claim in torts does not apply in case of mergers and acquisition of a corporation

April 17, 2021

A company's plant was damaged by a flood due to actions of local authorities. Sometime after the flood and regardless thereof, the company was voluntarily liquidated and merged into the activities of another company, which sought compensation from the local authorities for the damage. The local authorities refused to pay damages because the plaintiff company was not the same company to which the damage was caused, and a right of claim in torts is non-alienable.
The Supreme Court held that the acquiring company has a right of action against the authority and the prohibition of alienation of a right of claim in torts is not justified under the circumstances. As a general rule, the law blocks the ability to assign a right to claim for a tortious damage except by virtue of law, in order to prevent cases of commercialization of claims and transfer of a person's tort claim to a company with more financial means, for a reduced amount, while depriving that person of his rights. However, this wide prohibition does not reconcile with the recognition of the possibility of transferring contractual rights or other rights by agreement between the parties, and is certainly not intended to absolve the tortfeasor from its obligation to pay damages. Thus, it is unreasonable to imagine a situation in which the liquidation of a corporation for legitimate commercial reasons irrelated to the tort claim will nullify the right of claim and absolve the tortfeasor from liability. Here, while the company was liquidated by a voluntary liquidation proceedings without receiving the Court’s approval, which may have effected the assignment, a purchase agreement was signed with the acquiring company which transferred all of the company's assets to the purchaser, including, although not explicitly stated, the right of claim against the local authorities. The transfer did not infringe on the rights of third parties and did not grant the acquiring company rights higher than those held by the original company, and therefore there is no apprehension of commercialization of the claim or abuse of the legal process, and there is no justification to prevent the assignment of the right of claim.