Case Number
CA 6370/00
Date Decided
2-17-2002
Decision Type
Appellate
Document Type
Summary
Abstract
Note: The translation of this case only covers portions of the opinions written by Justices Barak and Englard that concern Jewish law.
[This abstract is not part of the Court's opinion and is provided for the reader's convenience. It has been translated from a Hebrew version prepared by Nevo Press Ltd. and is used with its kind permission.]
Facts: The Respondent, a construction company building a residential community in Raanana, issued a private tender soliciting bids from ten contractors, among them the Appellant, for infrastructure work for the project. The contractors were provided plans, specifications and requirements, and a detailed draft of the contract to be signed between the parties. The Appellant submitted a bid and subsequently conducted negotiations with the Respondent that ultimately led to an agreement as to all the conditions, subject to ratification by the Respondent’s board of directors. The board of directors refused to ratify the contract and instead, concluded a contract for the performance of the work with another contractor that had not participated in the tender.
The Appellant brought suit against the Respondent in the District Court, claiming that the parties had signed a binding contract that was breached, or alternatively, that the Respondent’s conduct constituted bad faith in negotiations, and that the Respondent had breached the “supplemental contract” between the parties, concerning the norms for conducting private tenders. The District Court dismissed the suit, ruling that there had never been a binding contract between the parties. It further held that there was no breach of the requirement of good faith in negotiations inasmuch as the Respondent is a private company, and is therefore not under a duty to treat the various bidders equally.
The Appellant’s appeal of that decision was granted by the Supreme Court. A majority of the Court held that although there was no binding contract between the parties, the Respondent’s conduct in the circumstances constituted an absence of good faith in negotiations. The Respondent’s choice not to conclude the contract with the Appellant, and to contract with an offeror who had not participated in the tender, constituted a breach of fair, proper tender procedures. The Court minority was of the opinion that the parties had concluded a binding contractual agreement, under which the winner would be one who had properly submitted a bid in the framework of “the closed private tender”, and that the Respondent had conducted negotiations in bad faith. Accordingly, the case was remanded to the District Court to decide “the appropriate remedies for a lack of good faith in contract negotiations”.
In the District Court (in the second proceeding), the Appellant requested compensation for expected profits (“expectation damages”), and submitted an accountant’s opinion as to the expected profit. The Respondent argued that the law does not allow for expectation damages, and that the Appellant’s remedy is limited to compensation for its negotiation expenses (“reliance damages”).
The District Court held that the source for the remedy for breach of the duty to negotiate in good faith is sec. 12(b) of the Contracts (General Part) Law, 5733-1973 (hereinafter: the Law), which allows only for reliance damages. The court added that if it would be held (on appeal) that expectation damages should be paid, such had not been proven by the Appellant.
In granting the appeal, the Supreme Court ruled:
(Per Barak P.): Sections 12 and 39 of the Law, and their expansion under sec. 61(b), constitute fundamental provisions of the Israeli legal system. They require that the individual act justly and fairly.
(Per Englard J. concurring): A person who does not act in a customary manner and in good faith in contract negotiations may be liable to expectation damages in the framework of his obligation to compensate the other party for the damage he incurred due to the non-conclusion of the agreement. This rule represents an important innovation on the basis of sec. 12(b) of the Contracts (General Part) Law.
Although Justice Englard agreed that it was possible to derive awarding expectation damages from the provisions of sec. 12 of the Law by interpretation, he considered the possibility that expectation damages might not be inherent to sec. 12 of the Law, but rather might be derived from filling a lacuna in the Law in accordance with Foundations of Law, 5740-1980, which directs us to the principles of freedom, justice, equity and peace of Israel's heritage. In this vein, Justice Englard examined sources in Jewish law on the question of good faith in negotiations and the halakhic consequences of repudiating an agreement prior to the performance of kinyan [a juristic act of acquisition]. In the circumstances of the present case, Justice Englard found some halakhic support for awarding reliance damages. However, it would appear that there is halakhic support only for moral sanctions in regard to expectation damages. Justice Englard then raised the question as to whether, in the framework of adopting Jewish law, it would be appropriate for a civil court to “develop” the solution presented by Jewish law, and impose a legal sanction in place of the moral sanction established in religious law. On the assumption of a positive response to this fundamental question, Justice Englard conjectured as to the “interesting” possible result that the rule established by the civil court might then be recognized in Jewish law as a custom or as dina demalkhuta [the law of the land], which would carry obligatory force in the framework of Jewish law itself.
Keywords
Jewish Law
