Legal Updates

When a particular term is not defined in an agreement, previous agreements may be used to complete its definition

February 13, 2022

In 2006 a company hired the services of an attorney to represent it before the tax authorities in a real estate transaction. However, the company sought to pay only for the legal opinion which was used as the base for the tax relief, and not for the actual relief. In 2014, a settlement agreement was executed between the parties, in which it was set that the company would pay the attorney a fee for the final tax relief, but the term “relief” was not defined in the agreement.

The Court accepted the claim and held that the company must pay the attorney a fee of ILS 10.5 million. The starting point in the interpretation of a contract is to trace its subjective purpose, which is derived from the parties' will and is learnt from both its wording and external circumstances. Only in cases where it is not possible to trace the subjective purpose, may the objective purpose of the contract be addressed, which is influenced by, among other things, the principle of good faith and considerations of business efficiency and common sense. Here, the parties drafted the contract concisely and used obscure wording, in a way that does not provide an answer to how the term “tax relief” is to be determined. However, the subjective purpose of the contract can be traced through the previous agreement reached between the parties in 2006, which does include a definition of “tax relief". Therefore, under the definition set in the first agreement the company is to pay the attorney a fee of ILS 10.5 million.