Legal Updates

‎‎‎‎‎‎‎‎ Frame agreements are subject to a higher duty of good faith to enable flexibility for the parties to manage their relationship

July 24, 2017

A contracting company executed a framework agreement for the execution of the works, which was extended from time to time. As part of the negotiations for the extension of the agreement discounts were agreed and granted but about two months later, all work orders were frozen by exercising a clause in the framework agreement that does not require making any work orders.

The Court held that although the agreement allows not to execute orders, a framework agreement, by virtue of being a 'relations contract', which regulates a relationship between the parties and not a specific transaction, is subject to an increased duty of good faith due to the flexibility required to regulate the relationship for many transactions. Negotiations were held here for the continuation of the relations, in the context of which discounts were given and therefore the agreement could not be canceled. The ordered refund of the discounts given but did not order compensation because the damage caused was not proven and under Israeli law compensation for breach of contract stems from the principle of returning the situation to its previous status and thus does not allow for punitive damages.