Lawsuit Against ADN Directors Dismissed, Businessman Ordered to Pay NIS 3 Million in Costs

Businessman Eliyahu Kanfler will pay legal costs of about NIS 3 million after losing his lawsuit against the directors of ADN Global Equity, in which he invested about a decade ago, Tel Aviv District Court Judge Gershon Guntovnik ruled today (Tuesday). The costs are unusually high and are considered especially steep in the context of Israeli case law, particularly given that Kanfler’s claim amounted to NIS 10 million. ● The Tax Authority demanded NIS 4.6 million from Rafi Agiv. What did the court decide? ● A senior Bank Leumi executive sued the bank over abuse and will pay exceptional costs

In February, Judge Guntovnik dismissed the personal lawsuit Kanfler filed against four ADN directors, including CEO and controlling shareholder Avi Nehemia. The ruling stated that directors will bear personal responsibility for damage their company causes to third parties only in special cases, and that "allowing company officers to be sued easily may lead to a chilling effect." It was also ruled that a personal lawsuit "is not automatic and is by no means required," and that imposing liability "too easily" would harm the principle of the company’s separate legal personality and the corporate veil.

Judge Guntovnik noted that a lawsuit against directors is not obvious and that the plaintiff must "point to appropriate and special circumstances that can open the gate." The court has now decided the issue left open regarding legal costs in the case, and ruled, as noted, that Kanfler will pay the directors he sued a total of about NIS 3 million. "In cases where it ultimately became clear that there was no basis to attribute responsibility to the officeholders, real costs are the order of the day," Guntovnik ruled. He rejected Kanfler’s argument that the directors were not entitled to costs because they had not paid anything from their own pockets, and that their approximately NIS 2 million in expenses were covered by an insurance company. In this context, the court noted that if the burden of expenses always falls on the insurance company, "this is a result that cannot be accepted."

"A Not Simple Challenge"

Kanfler, the controlling shareholder in Elbit Imaging and a former partner in the real estate company Matzlawi, reached a settlement agreement with ADN, which he had sued, but chose to continue and sue the directors personally. The court ruled that he was "made aware that this was a not simple challenge under the circumstances. He insisted on his wish to continue the proceedings, and that is of course his right, but in the end, and since he did not meet the legal conditions for imposing personal liability on the officeholders... he must bear real costs."

In 2016, Kanfler invested in ADN, which was then a public company and held real estate assets used to lease offices in France through a French company it controlled. At that time, ADN was in financial distress, and Kanfler decided to invest 4 million euros in it in exchange for shares in the French company and another asset company, while being entitled to receive 80% of the cash flow from their assets.

But relations between the sides deteriorated, and Kanfler claimed he had been misled, including regarding debts tied to the assets and their weaker performance than was presented in the reports. The sides negotiated a change to the deal’s terms, but according to Kanfler, Nehemia acted in bad faith and simultaneously negotiated with the Dayan Group, negotiations that eventually matured into an agreement with the group and ADN’s notice canceling the agreement with Kanfler.

ADN, for its part, argued that Kanfler was the one who failed to make payments under the agreement, that he tried to force the company to sell its assets to him, and that they were free to negotiate. The sides filed mutual lawsuits and reached a settlement under which Kanfler would get his money back in exchange for returning the shares allocated to him. Despite the settlement, Kanfler continued to sue Nehemia and the directors personally over the damage he allegedly suffered due to breach of contract and negligence.

"A Complex Picture"

The defendants denied that Kanfler had been misled and maintained that he was aware of the company’s problems and of Nehemia’s personal guarantee for its debts. The directors argued that they exercised independent discretion, that they were right to approve the deal with the Dayan Group after Kanfler failed to meet the agreement, and that they acted to improve the situation of a company suffering from severe cash flow distress and prevent its collapse.

As noted, in February Judge Guntovnik dismissed Kanfler’s lawsuit and found that the three directors acted in the company’s best interests. "Their goal was to enable the company to receive the cash flow that was so vital for it. They had to make decisions under urgent time constraints, and they did so after reviewing the data before them. The claim that they acted without exercising independent discretion was not proven. The engagement with the Dayan Group was also made in light of their belief that it was better for the company."

As for Nehemia, the court found that the picture in his case was more complex, since he was the driving force behind the transactions and the dealings with Kanfler, but the claim against him was also dismissed, because most of the representations he made were not misleading. It was determined that even if, on one specific issue, he did mislead and did not properly disclose to Kanfler a dispute with the French asset company, Kanfler chose to proceed with the deal even after learning of it.

Now, in addition to about NIS 2 million the court ordered Kanfler to pay for the three directors’ attorney fees, the judge also ordered him to pay their personal expenses totaling NIS 150,000. The directors were represented by attorneys David Lashem and Shay Saidoff of David Lashem & Co. As for Nehemia, it was ruled that "the lawsuit against him was not baseless," but "most of the claims against him were ultimately dismissed," and therefore he was awarded costs of NIS 800,000 plus VAT.

Kanfler’s attorney: "The mistakes will be corrected on appeal"

Attorney Yedidya Melchior, who represented Kanfler, said in response: "As we already noted in our response to the ruling, the court positively determined that ADN provided Mr. Kanfler with misleading information in order to extract an investment of enormous sums from him. In these circumstances, and when it is clear that the company acted through its directors and its CEO to create that deception, and it was the directors who ensured that money received by the company would not be used to refund Mr. Kanfler, all while those directors were in a conflict of interest, we believed and still believe that the court erred in not holding the directors personally liable for the damage they caused Mr. Kanfler.

"The decision not only to exempt the directors from liability, but also to award them unreasonable sums of legal costs, without examining the expenses as required by law, is only an amplification of the original mistake. We are confident that both mistakes will be corrected in the appeal to be filed soon."

Near Savyon: the real estate opportunity you do not want to miss

Please note: The Globes editorial team strives for diverse, substantive, and respectful discourse in accordance with the ethical code set out in the trust report that guides us. Expressions of violence, racism, incitement, or any other inappropriate discourse are automatically filtered and will not be published on the site.