A party to negotiations announced only four hours before the date of signing an agreement to operate a fuel station, that it had not found any partners and therefore withdraws his intention to enter into the agreement. The fuel supplier sought damages of over ILS 1.5 million because during the negotiations there was a clear understanding that the operation of the station would be done by the operator only and not through partners.
The Court partially accepted the claim and held that the withdrawing party will compensate the fuel supplier for the negotiation’s expenses. In negotiations towards the conclusion of a contract, one must act in an acceptable manner and in good faith. Breaching the duty to act in good faith in negotiations entitles the harmed party to seek damages, of any kind, caused by the breach. In a place where the lack of good faith prevented the binding of a contract, the "damage" caused to the harmed party is the loss of this contract and the loss of its future expected profits. Here, the designated operator of the station negotiated in bad faith as he hid from the fuel supplier that the issue of operation would arise or fall on the power to locate partners and by doing so, caused the negotiations to be in vain. However, the drafts included a provision that specifically stated that the agreement is invalid until first approval by the board of directors of the fuel supplier and thus the agreement did not materialize to an obligating document and the fuel supplier is entitled only to reimbursement of the negotiation costs and not entitled to compensation for the lost profits.