Contracts

AAA 9241/09

 

Sheleg Lavan (White Snow) 1986 Ltd

v.

1. Ashkelon Municipality
2. Ram K.R.M. Ltd
3. Tnufa Personnel Services Ltd
4. J.J.A. Maintenance and Services Ltd.

 

The Supreme Court

Sitting as a Court of Appeals for Administrative Affairs

[8 July 2010]

 

Before Justices E.E. Levy, E. Arbel and N. Hendel

 

Appeal of an Administrative Affairs decision of the Beersheba District Court dated 8 November 2009 in AA 357/09, issued by the Honorable President J. Elon.

 

Facts: The respondent, the Ashkelon municipal government, issued a tender for the provision of cleaning services. The tender documents set a minimum bid price in accordance with the exact amount of the wages for cleaning workers as determined in a government circular establishing a national standard for such wages. Respondent 2 submitted the lowest and ultimately winning bid. As part of the tender process, respondent 2 explained its ability to pay the minimum wage while also covering expenses and earning a profit by noting its expectations that a percentage of its workers at any given time would not have acquired enough seniority to entitle them to pension and other benefits; thus, savings with respect to the compensation of its workers would allow the respondent to cover its expenses and earn a minimal profit. The lower court upheld the award of the tender to the respondent, noting that the tender itself had included no requirement regarding the seniority of workers and that the bid was therefore entirely acceptable. The appellant, which had tendered unsuccessfully on the basis of a higher salary cost, appealed.

 

Held: The appeal against the lower court’s decision was allowed in full. There is no ground for distinguishing between the rules governing this matter in a national government context and the rules that apply to local government; recently enacted regulations and government directives make clear that the upholding of workers’ rights is of paramount importance and will be a relevant consideration in government tender decisions, because of the administrative authorities’ obligations vis-à-vis the public. Although it is impossible to predict or to prevent every possible violation of workers’ rights through the tender process, a government authority issuing a tender to contract for services with an external party must nevertheless provide as much forward-looking protection for the contractors’ workers as is possible. Thus, when a bidder has expressly stated a plan to dismiss workers after particularly short periods of time in order to minimize the burden of social benefit payments, the bid cannot be accepted.

 

Appeal allowed.

 

     Legislation cited:

Severance Pay Law, s. 3.

Local Councils Order (a), 5711-1951, s. 192.

Local Councils Order (Regional Councils), 5718-1958, s. 89.

Mandatory Tenders Law, 5752-1992.

Municipalities Ordinance [New Version], 5724-1964, s. 197.

Municipalities Regulations (Tenders), 5748-1987, reg. 11.

 

Supreme Court Case Cited

[1]...... HCJ 10245/07 Israel National Organization of Guarding and Security Companies v. Minister of Justice (2007) (unreported).

 

District Court Cases Cited

[2]       AP (TA) Modi’in Ezrachi Ltd v. Association of Dan Region Municipalities (2008).

[3]       AP (Jerusalem) 1077/06 Koach Otzma Ltd. v. Jewish National Fund/Keren Kayemeth Le’Israel (2007).

[4]       AP (Nazareth) 117/08 Reshef Security [1993] Ltd v. Afula Municipality (2008).

 

Labor Court Cases Cited

[5]       NLC 45/44-3 Kara v. Ofir (1995) (unreported).

[6]       LabA 122/03 Waxman v. ITC 24 Around the Clock (2007) (not yet reported).

[7]       LabA 420/06 Kogen v. Kfir Electronic Security and Protection Ltd (2007) (not yet reported).

 

For the appellant — R. Barak; R. Garber.

For respondent 1 — Y. Avishur.

For respondent 2 — G. Tavur.

For respondent 3 — A. Shur; A. Lazar.

For respondent 4 — A. Kaminetzky.

 

JUDGMENT

 

Justice E.E. Levy

Factual background

1.    In May 2009, respondent 1, the Ashkelon municipality, published a tender for the provision of cleaning services in its offices and in the city’s educational institutions. The tender covered a period of two years with the possibility of an extension for an additional period. The appellant and the respondents were among those that submitted bids for the tender, and respondent 2, Ram K.R.M. Ltd, was awarded the contract.

Section 2 (b)(3) of the tender conditions provided as follows:

‘Bids will be based on the tender documents [including] the “Tender Participant’s Proposal” form which includes the costing of wages for the employer (Appendix A to the Proposal Form).’

Appendix A, which is the Tender Participant’s Proposal form, adds the following:

‘The amount per work-hour [proposed by the participant] will not be less than the minimum amount of NIS 28.64.’

Section 4 of the tender conditions provides that a bid specifying an amount lower than the minimum amount will be disqualified.

The minimum amount is based on a single variable: the cost of the lawful employment of a cleaning worker. The calculation made by the municipality relies on Directive No. 2007-2-41, published by the Ministry of Finance Accountant-General and dated 10 Av 5767 (24 July 2007), entitled “Protection of Rights of Workers Employed by Service Contractors.” The Directive was made binding on the local authorities in Circular No. 460 (December 2007) of the Director-General of the Center for Local Government, as ordered by the Director-General of the Ministry of the Interior.

The appellant proposed to provide the service for NIS 29.34 per work-hour. The party that was awarded the contract, Ram K.R.M., submitted a lower bid, in which it offered the prescribed minimum price. However, since it is presumed that a bid submitted in a tender reflects not only the costs of the wages to be paid to the bidder’s workers, but also additional expenses (here — materials, equipment and supervision costs), as well as a profit, the winning party was asked to explain to the tenders committee how the terms of its bid would allow it to comply with the tender conditions. After a discussion that I see no need to describe at length, the winning party submitted a calculation which indicated that it would be able to comply with the tender conditions, and even to earn a profit – even if it was charging the municipality only the minimum price. The calculation was simple: while the wage components as laid out on the basis of the Accountant-General’s specification related to workers with more than one year of seniority, the winning bidder presumed that a certain percentage of the workers that it would employ would have less seniority than that, and the cost of their employment would therefore be lower. In calculating the costs of the allocations for pensions, which the employer is required to set aside only after six months of employment, the winning party calculated that “20% of the workers are expected not to work for more than half a year” (Pricing Letter dated 16 July 2009, Exhibit G of the appellant’s exhibits). Regarding the cost of severance pay and of seniority-based salary increments, to which a worker with one year or more of seniority is entitled, “the consideration was of [only] 60% of the employees[,] who are expacted to work for more than one year” (ibid.). The National Insurance payments component was also set at a lower rate than that established in the Accountant-General’s directives, based on an assumption that the savings in the above-mentioned salary components would generate savings in relation to the obligatory National Insurance payments related to such components. Based on these calculations, the party that was awarded the tender argued that it could pay the workers their legally mandated wages, and at the same time pay all the expenses involved in the provision of the service and also generate an (admittedly low) profit from the contract with the municipality — a profit of two percent of the value of the transaction.

2.    The Beersheba District Court dismissed the appellant’s argument that the tender should be cancelled in the absence of any legally acceptable estimate and that in any event the winning bid should be disqualified, on the grounds that it reflects either an underpayment of the amounts to be paid to the workers, meaning a violation of their rights; or, alternatively, a financial loss to the party submitting the bid, meaning a deficit bid which it could not fulfill. The District Court held that the “calculation made by the Ram Company regarding the mix of seniorities for the workers that it would employ to carry out the work, as reducing the marginal costs proposed in the context of the pricing, is acceptable, and it is not unrealistic” (third paragraph of the decision). “There is no doubt,” the President wrote, “that it would be preferable for the workers that their employment be long-term. However, this item is not a material condition of the tender — either express or implicit — and the tender’s retroactive expansion so as to include the item as a threshold condition is a contravention of the principles of the law of tenders” (ibid., at para. 5). “The bid price,” the lower court added in its holding, “thus ensures the payments to the employees” (ibid., at para. 4). Regarding the tender itself, the court held that “the appendices establishing the minimum price bid for the cost of average work-hours comply with the required criteria, in light of the nature of the tender — in which the pricing and the costs are comprised, almost exclusively, of the costs of an average work-hour” (ibid., at para. 7).

This is the main issue in the appeal before us, and it appears to me to be obvious that the appeal must be allowed.

The normative framework

3.    Section 197 of the Municipalities Ordinance [New Version], 5724–1964 (like its parallel provisions, s. 192 of the Local Councils Order (a), 5711–1951 and s. 89 of the Local Councils Order (Regional Councils), 5718–1958), establishes that municipalities are required to contract for the execution of work through the issuance of a public tender. The Ordinance, like the Municipal Regulations (Tenders), 5748–1987 — which were enacted pursuant to the Ordinance — does not refer to any obligation to be especially meticulous regarding the rights of the employees of the contractor with whom the municipality enters into a contract. The Mandatory Tenders Law, 5752–1992, which establishes the duty of government ministries and of other public entities to contract through public tenders, also did not include — until recently — any provision in this spirit.

However, the regime that protects the rights of the employees of bidders at public tenders is an integral part of the law of tenders — in theory, and since recently, recently in practice as well. This regime is derived, first and foremost, from the fiduciary duty that the administrative authorities owe to the public (D. Barak-Erez, Administrative Law (2010), at p. 631); from the fact that the objectives in pursuit of which the authorities act are not purely economic (O. Dekel, The Tenders Requirement for Administrative Entities (2001), 49, at p. 293); and from the fact that the activity of these authorities is subject to all aspects of public policy — i.e., that they are subject to all the “basic principles of the legal system” (S. Gavish, Issues in the Law of Public Tenders (1997), at p. 24). It is undisputed that the protective labor laws constitute an essential part of these principles. Thus, the case law also reflects the concept that “when the state contracts with external parties, it is entitled, and even obligated, to do what it can in order to ensure that the protective laws are upheld and that the scope of the violation of the rights of the workers is minimized” (HCJ 10245/07 Israel National Organization of Guarding and Security Companies v. Minister of Justice [1]). And in this respect, the rule applicable to the state is also applicable to the local authorities, whose activities are subject to the same principles of public law.

Alongside this obligation in principle, a number of concrete steps have been taken in recent years to intensify the protection of the rights of the workers of parties bidding in a public tender. In February 2007, the Government adopted Resolution no. 1134, which directs the Ministry of Finance’s Accountant-General to extend the applicability of the labor laws to cover parties providing services to the government in labor-intensive fields, and to establish directives that protect the rights of their workers. At the same time, the Director-General of the Ministry of the Interior and the Director of the Government Companies Authority were ordered to implement these rules within the local authorities and the government companies. Consequently, the Funds and Economy By-laws ([known by their Hebrew acronym as] the Takam), issued by the Accountant-General, which include rules protecting workers’ rights, came to be binding on most public authorities (see also G. Shalev, “Public Tenders After the Mandatory Tenders Law, 5742-1992” 2 Mishpat U’Mimshal (Law and Government) 455 (1995), at p. 457; S. Herzig, Law of Tenders (vol. 2, 2002), at p. 72).

In February 2009, the Mandatory Tenders Regulations, 5753-1993, KT 6750, were amended; the main part of the amendment entered into effect in June 2009. The duty to be meticulous regarding workers’ rights runs through the Regulations like a crimson thread. Thus, for example, a tenders committee is authorized to invalidate bids the acceptance of which would involve a violation of workers’ rights (Regulation 20(d)); a bid submitted by a party that was convicted of a violation of labor laws during the years preceding the tender must be rejected (Regulation 6a(a)); and the matter of diligence regarding workers’ rights is established as one of the criteria to be used in weighing the qualified bids that have been submitted (Regulation 22(a)(6)). The literal language of these Regulations does not bind local authorities, as they cover only those entities that are subject to the Mandatory Tenders Law; however, in the absence of any substantive basis for distinguishing in this matter between government ministries and the local authority, it is only natural that those matters that have not yet been regulated in express language by the legislator will be supplemented by the case law, taking a coherent view of the principles of the public tender.

The fundamental principle –– i.e., that as part of the requirement within the law of tenders that a bid must be examined on the basis of its benefit for the public and its fair and reasonable price, it is also necessary to examine the treatment, within the framework of the bid, of the rights of the workers who will be employed thereby –– has already found expression in the rulings of the administrative tribunals of the lower courts. In a recent case, Judge M. Rubinstein of the Tel Aviv-Jaffa District Court aptly described the matter as follows:

‘A reasonable decision by a tenders committee can lead to the selection of a bid which is not the cheapest, but which considers additional matters beyond the price criterion. The bidder’s ability to ensure the rights of its workers in the framework of the project which is the subject of the tender could be [one such] additional consideration. This consideration is different from considerations such as the bidder’s experience, training, reliability, etc., since it does not relate to the customer’s ability to provide the services that are being requested through the tender, and instead refers to the interest of a third party — the bidder’s workers — who are not technically a part of the contractual relationship between the parties. Although this consideration does not pertain, on its face, to the relationship between the customer and the bidder, there has been a clear tendency in recent years, both on the part of government entities and on the part of the courts, to insist that tenders for the provision of services to public entities also ensure the rights of the workers of the providers of those services’ (AP (TA) 1705/07 Modi’in Ezrachi Ltd v. Association of Dan Region Municipalities [2], at para. 12).

Public tenders as a platform for the violation of workers’ rights

4.    The juridical approach described here developed against a background in which violations are committed — a reality that unfortunately has been the norm for many years in service industries such as security and cleaning, and which has penetrated to the heart of public service as the number of contracts with external contractors has increased. A major characteristic of contracts of this type is the buffer zone that they create between the direct employer and the worker, which reduces the “visibility” of the latter as well as his negotiating power and the knowledge that is made available to him, and which opens a very wide door to a diminution of the worker’s rights. “The hiring of manpower services”, writes Dr. Omer Dekel, “has long since become an easy way to bypass the statutory constraints regarding minimum wages, the requirement to provide social conditions to workers, etc.” (Dekel, The Tenders Requirement for Administrative Entities, supra, at p. 371, n. 42). A clinical study conducted several years ago at the Hebrew University of Jerusalem observed this phenomenon at close range:

‘Service contractors work for profit, and it cannot be presumed that they are willing to finance the gap between the cost of providing the service and the price they ask for their services . . . The workers, who are the weakest link in the chain, are the ones who generally pay the price for the low bid [in the tender]. In a field project that documented the employment terms of forty-six contract workers at government ministries (especially cleaning workers), there were very high rates of violations of protective rights with respect to almost all the issues about which the workers were questioned. Most of the workers (almost forty workers out of forty-six) reported that they do not receive the pension payments to which they are entitled pursuant to the Expansion Orders relating to the cleaning industry. A similar number of workers reported that they do not receive payment for holidays, and the same was true regarding payment for overtime and for sick days. Twenty-eight workers (out of thirty-six who answered the question) reported that they do not receive an annual vacation; thirty-one workers (out of forty-three) reported that they are not paid convalescence payments. Most of the workers reported a high number of violations that are committed concurrently. Similar findings were reached through field checks regarding the violation of the rights of security workers employed through contractors . . . The deficit tender method has become an “incubator” for violative employment’ (A. Benish and R.Tsarfatie, “When Labor Becomes a Commodity Again: A Critical Examination of Abnormally Low Bids in the Procurement of Employment Services”, 1 Maa’sei Mishpat 93 (2008), at p. 98 (emphases added)).   

A glimpse into the manner in which these phenomena occur in practice was provided at a meeting of the Knesset’s Labor, Welfare and Health Committee on 22 May 2005. The subject of the meeting was the situation of workers in labor-intensive services, and one service contractor testified about a practice which is common among many employers:

‘I can tell you that because of the current state of the market, I automatically do not pay for workers’ social benefits, [and I do this] in order to survive. [Only] if a worker asks for such, I will not refuse, and this is the highest level of fairness being practiced in my market . . . I must pay the minimum wage plus National Insurance and vacation pay, then I fire [the worker] after seven or eight months, and I am not required to pay towards a pension, convalescence or severance pay for him,. . .’

The Law of Tenders as a Preventative Measure

5.    Various mechanisms, from several areas of law, come to mind — mechanisms which can reduce these violations of the labor laws. Some of them are invoked after the violation has occurred, and are based on ex post considerations. These include, inter alia, various supervisory measures that the issuer of the tender can implement vis-à-vis the party that is awarded the contract. They also include the labor laws that are available to a worker who wishes to defend his rights, and the principles of administrative law, pursuant to which complaints may be submitted to a government authority that is not fulfilling its public obligations. By their nature, these ex post measures are more precise in their treatment of a violation that has already taken place, as they can take into consideration, inter alia, the nature of the violation, its circumstances and its intensity. However, their power as a preventative measure, the main point of which is to deter the violator, is limited. To the extent that the matter depends on a party issuing the tender, it is doubtful that such a party would be motivated to reopen a contract that it has already found to be preferable in terms of its price, and the replacement of which, or the enforcement of its specific terms, entails a complicated and expensive process. Regarding a worker whose interests have been violated, reality demonstrates that his access to information regarding his rights will be limited, and his willingness to pursue those rights of which he is aware will be even less.

6.    Nevertheless, the law of tenders seeks to examine a possible violation of workers’ rights from a forward-looking perspective (ex ante) and to prevent the violation before it takes place. Naturally, the manner in which the law is applied is derived from the fact that at the preliminary stage, the details of a particular violation which has not yet occurred cannot be known — and all that can be done is to prescribe a general framework that will reduce the chances of its occurrence. Such a framework, included as an integral part of the tender conditions with which all bidders must comply, is certainly not an exact one. For example, a tender issuer who wishes to reduce the risk of a violation of the rights of female employees, and to ensure that bidders will comply with their obligations under the laws that protect women at work, can choose to require that bidders demonstrate that they are capable of honoring, meticulously, the special rights granted to working women. This is an option even when it is not known whether any women will actually be employed in the work under tender, or what percentage of all the workers may in fact be women. Obviously, the estimation component of every such measure detracts from that measure’s ability to totally prevent all future violations. But a prospective view makes a unique contribution to the combined effort to reduce the risk of a violation of the workers’ rights. It thus appears that the prevention of a violation at an early stage is more efficient, not only in terms of the principles of labor law, but also with regard to the additional objectives of the tender process. I strongly support the statement that “the state, in the role of customer, is the most effective means of preventing this phenomenon [of the diminution of workers’ rights] (Benish & Tsarfatie, “When Labor Becomes a Commodity Again”, supra, at p. 104).

The unique aspect of public tender law is that it stands at a legal junction, at which basic elements of various legal fields meet. Administrative and economic efficiency, morality, public ethics, the observance of freedom of contract in its broader sense, diligent observance of the principle of equality — including equality of opportunity — are some of the principles that meet within the law of tenders (O. Dekel, Tenders (vol. A, 2004), at p. 92; O. Dekel, “The Purposes of the Tender: Equality is not the Main Point,” in Y. Dotan, A. Bendor, eds., Y. Zamir Volume on Law, Government and Society (2005), 441, at p. 474). In my view, the realization of protective labor law is one of the goals of the law of tenders, alongside the other objectives of this particular field of law.

The basic principles of labor law — a degree of social security for the worker

7.    The protective labor laws also have several objectives. One of them is to ensure a certain degree of social security for the worker is one of them. The essence of this objective is to establish that when a worker is unable to work, he will be able, for a certain period of time, to continue to support himself. A worker who becomes ill is entitled to sick pay. A female worker who has given birth is entitled to maternity leave. A worker who has been dismissed is entitled to severance pay, and the purpose of such pay is to provide a means of support for the worker while he looks for alternative work. A worker who is either on convalescence leave or in a period of convalescence will continue to receive a salary even without actually being at his place of employment. Some of these social rights result from the connection between the employee and his place of work. A dedicated worker, who is sufficiently connected to the workplace to allow the employer to feel secure with respect to his ability to keep the business going, is entitled to the same level of security with respect to his own ability to earn a living. One indication of the existence of an established employment relationship is the seniority accumulated by a worker at the place of work. The labor laws therefore establish that a worker whose connection to the employer is severed after a few months will be treated differently from one who has worked at a single place of employment for a period of a year or more.

However, this concept, together with its accompanying logic, might do more harm than good. An employer, who benefits from the worker’s labor, is nevertheless liable to terminate the employment relationship if, according to the employer’s calculation, the financial profit that he derives from the worker is less than the cost of the social payments that he will be required to make for the worker over time. This situation is not generally the lot of well-placed workers who carry substantial market power. But it is very common in relation to workers whose position is weak, and whose professional skills can be provided by replacement workers with less seniority andwho have not yet accumulated any rights. Workers in the labor-intensive service industries, such as the cleaning industry, are workers of this type. It is therefore not surprising that some employers of cleaning workers habitually terminate the employment relationship with their workers before the first year of employment has ended, in order to increase the financial profit that they can produce. In relation to the submission of bids for a public tender for cleaning services, in which the profit margins are in any event very low, the concern that such a process will be followed increases drastically.

8.    Market forces cannot provide a response to this issue. Regulatory action is required. A number of tools have been developed within the field of labor law to deal with such situations. Thus, the law does not recognize the legitimacy of a termination of an employment relationship when there is a basis for concluding that the reason for the termination was avoidance of an obligation to pay for social benefits. Section 3 of the Severance Pay Law, 5723-1953 establishes a presumption according to which “a dismissal shortly before the end of the first year of employment will be considered — unless proven otherwise — as resulting from the intention to avoid the obligation to pay severance pay, and such a dismissal will not adversely affect the right to severance pay.” The case law has added that this provision is to be implemented on a substantive level, meaning that even if a worker’s dismissal did not occur close to the end of the first year, but did take place against a background indicating an intention to avoid payment of social benefits, the employer will not be exempt from liability for the said payment (NLC 45/44-3 Kara v. Ofir [5], at para. 11; LabA 122/03 Waxman v. ITC 24 Around the Clock [6]; Y. Luvotsky, Concluding Employment Relationships (2004), at pp. 3-9). Similarly, it has been held the employment of a worker for a period which is limited, not because of the needs of the actual job, but because of an intention to prevent the worker from accumulating seniority, cannot serve to deny the worker his entitlement (LabA 420/06 Kogen v. Kfir Electronic Security and Protection Ltd [7], at para. 12(b)).

9. These are, as stated, ex post measures, designed to deal with the deliberate evasion of obligations to workers, after the employers have already made attempts to engage in such evasion. But they suggest a general principle of law — that the employer’s termination of an employment relationship, when the reason for such is the avoidance of the realization of the employee’s rights, will not be recognized. An implication of this rule, when it is viewed from the perspective of the law of tenders, is that a bidder may not, in attempting to make his bid the preferable one, rely on the dismissal of a worker or on any other limitation of a worker’s rights.

A tender issuer who wishes to safeguard the rights of the workers of the winning bidder can use a variety of measures (see, for example, Dekel, Tenders (vol. A), supra, at p. 414). One of these is the measure used in the present case, which is the establishment of a minimum price that reflects the proper cost of the employment of workers, as a part of the tender conditions themselves. This measure, being a preventative measure which is adopted in advance, cannot be absolutely precise and cannot respond, from the outset, to every possible violation. By its nature, it will focus on the establishment of threshold requirements that are designed to deal with the source of wrongful conduct on the part of employers. Because a key aspect of the harm that is done to the workers is the phenomenon of dismissal before the end of a year of employment, there is good reason to calculate the cost of the employment of workers on the basis of the wage components of workers who have been employed for over a year. Of course, this measure cannot ensure that no violation will occur. Nevertheless, it can reflect the position of the public authority issuing the tender that it will not accept a diminishment of the workers’ rights; furthermore, it may be assumed that a bidder who has made a commitment from the outset to a price that properly reflects the transaction will be able, in the end, to comply with the tender conditions, and that such a bidder’s incentives to violate his workers’ rights in order to win the tender and to execute it will be reduced. This is similar to the rationale underlying the invalidation of a deficit bid, regarding which there is a concern that ultimately the winner will encounter difficulty in complying with the tender conditions (S. Herzig, Law of Tenders (vol. 1, 2001) at p. 217; O. Dekel, Tenders (vol. B, 2006), at p. 123). Nevertheless, I would strongly emphasize that the approach whereby workers’ rights should be protected through the tender itself does not draw its main strength from the benefit derived from ensuring the tender’s implementation according to the terms included in the winning bid. Instead, it stands independently, as one of a number of objectives that the law of tenders seeks to realize.

The tender conditions and the preparation of an estimate

10.  The above discussion clearly indicates that the establishment of a minimum price, based only on the cost of the employment and ignoring the cost of other components of the tender such as other expenses and profit, will not achieve the above-mentioned objective. It, too, generates the concern that if a bid indicating the threshold price is not a deficit bid, it will necessarily involve a violation of the workers’ rights. A tender with conditions such as these essentially calls for a violation of basic elements of labor law, or alternatively, of the principle of efficiency. It is therefore impossible to allow it to stand. A minimum price mechanism is not, as I have already noted, the only tool, or a necessary tool, for protecting the workers’ rights, but if the authority has chosen to use it, it must make certain that the mechanism provides true protection, and it must certainly ensure that the minimum price mechanism itself is not the cause of the future violation that the authority seeks to prevent.

11. The natural place for the above-mentioned cost elements is in the estimate that the local authority issuing the tender is required by law to formulate, in compliance with its obligation pursuant to Regulation 11 of the Municipalities Regulations (Tenders). This regulation requires that the authority deposit in the tender box, in advance, a “detailed estimate of expenses or income involved in the proposed contract”. According to its purpose, the estimate serves as a measurement for objective assessment, against which all the qualified bids that have been submitted are measured (Dekel, Tenders (vol. A), supra, at p. 385). It must include a specification of all the expected cost elements, against which the tenders committee will measure the cost elements in the bids. It is presumed that the estimate expresses the proper value of the contractual relationship, but this presumption can be refuted when it is proved that the amount in the estimate is unreasonable (ibid.). The result of an unreasonable estimate will vary depending on the circumstances (Herzig, Law of Tenders, supra, at p. 220). However, I see no need to discuss the matter at length, since I believe that it is a basic principle that the estimate does not replace the substantive conditions of the tender. It is nothing more than a helpful tool to be used by the tender issuer in formulating the conditions and in examining the bids. But it is therefore clear that even a reasonable estimate, which has been properly prepared, cannot compensate for a defect in the tender conditions.

The tender in this case

12.  In my view, this case involves a bid that was submitted on a deficit basis or that violates the workers’ rights. Such a bid should not have been accorded preference, because the bidder, by virtue of the price tendered, indicates that it will encounter difficulty in fulfilling the tender conditions and in realizing its objectives. According to the bid that was tendered, the profit for the party winning the tender was dependent on the realization of several assumptions regarding the composition of the future work force that the contractor would employ. Respondent 2 was unable to explain — either to the tenders committee in the context of a clarification that it conducted, or in its response to this appeal — the basis for the belief that these assumptions would be realized. The matter works against them in two ways: either these were theoretical assumptions that cannot serve as a basis for winning the tender — regarding which it has been said that “in such cases, it is not sufficient to rely on estimations and unfounded assumptions made by the companies submitting bids in the tender, assumptions regarding the future that are difficult to check, to monitor and to ascertain that they have indeed come to fruition” (AP (Jerusalem) 1077/06 Koach Otzma Ltd. v. Jewish National Fund/Keren Kayemeth Le’Israel [3], per Judge Y. Tzur, at para. 22); or respondent 2’s estimation is based on a future intention regarding the employment of its workers which is inconsistent with the principles of labor law. Regarding such intentions, it has been written that “the tenders committee ought not to confirm [a bid] which is neither ethical nor worthy, in that the [bidder’s] intention to violate the conditions of its workers’ employment is made evident in advance (AP (Nazareth) 117/08 Reshef Security [1993] Ltd v. Afula Municipality [4], per Justice B. Arbel at para. 55). Either way, this bid cannot be deemed legitimate, and in any event it should not have been preferred over the bids tendered by other bidders.

13.  However, it was not only the winning bid that was seriously defective, but also the tender itself. The minimum price set did not take into consideration the additional cost elements and the profit, and in this way, respondent 1 essentially invited the bidders to submit unacceptable bids. Presumably, if the municipality had included, as required, an estimate based on all the cost components of the tender, the tenders committee would have easily noted the defect. This did not happen, and in any event the defect cannot be corrected, even if a different bid had been chosen instead of the winning bid.

In light of this, I suggest that we allow the appeal, and declare the tender to be void, and in any event disqualify the winning bid. I further suggest that we order each of respondents 1 and 2 to pay the appellant’s attorneys’ fees in the amount of NIS 20,000 and to pay to respondents 3 and 4 the amount of NIS 10,000.

 

Justice E. Arbel

I agree.

 

Justice N. Hendel

1.    I agree with the conclusion that my colleague Justice E. Levy has reached, although on a narrower basis.

The phenomenon noted by my colleague Justice E. Levy — a violation of the workers’ rights by the contracting companies, by way of a tender conducted by a public authority — is indeed harsh, and requires correction. The routine dismissal of workers after a short period of time, with the objective of withholding various benefits from such workers, is inconsistent with the function of a public authority. The latter must serve as an example and honor the rights of its workers in practice. The situation must be changed. The issue of which body is responsible for effecting this change — or more precisely, how the task should be divided between the judicial authority and the legislative authority — is a separate question.

The difficulty involved in accepting this appellant's argument is the following: the calculation of the payment for a work-hour used by respondent 2, who won the tender, is based on the assumption that 40% of all workers to be employed in executing the tender project will work for less than one year. This data is found in the pricing sheet of respondent 2’s bid (see page 2 of the corrected calculation). As the material indicates, the one year seniority period has clear financial consequences. Nevertheless, the payment offered by respondent 2 for one work-hour meets the minimum threshold of the tender. Employing workers for more than one year is not a condition of the tender, nor is it a statutory requirement. The question thus arises as to whether accepting the appellant's argument would be an expression of the ideal law, as opposed to the existing law. In other words, do the facts of this case and its circumstances allow for the court to intervene in the tender proceedings? The answer to these questions must be determined according to the reasonableness of the manner in which the authority — respondent 1, the Ashkelon municipality (hereinafter: “the municipality”) — conducted the tender.

2.    In its briefs and in its pleadings, the municipality stresses that the “calculation of the cost of wages to the employer for a work-hour, attached to the bidder’s form as Appendix A . . . has been prepared in accordance with Circular No. 460 (December 2007) of the Director-General of the Center for Local Government, entitled ‘Protection of the Rights of Workers Employed Through Service Contractors’, which provides that the local authorities must implement the Accountant-General’s guidelines when it enters into contractual relationships with service contractors. Attached to the Director-General’s circular is the Accountant-General’s guideline, including the ‘Price Schedule Reflecting the Employer’s Cost per Work-hour with Respect to Cleaning Workers’”. Thus, in establishing a wage per work-hour of NIS 28.64, the municipality acted on the basis of the provisions of the Director-General’s circular. This was the basis for the calculation. However, this amount did not include various additions that the bidder should have taken into consideration, such as: equipment, materials, various expenses, and of course profit.

Despite the above, or more accurately, because of the above, once respondent 2 had tendered a bid that included a work-hour wage of NIS 28.64 — the tender’s minimum requirement — the municipality acted reasonably in its decision to demand that respondent 2 clarify that part of the calculation. This was also necessary in order to ascertain that the bid was not a deficit bid. Respondent 2 and an additional bidder were invited to appear before the tenders committee. This clarification process was not formal of course, but was instead directed at checking the matter in a substantive manner. The municipality acted in a similar fashion in deciding not to accept the first calculation presented by respondent 2. Under the circumstances of the case, the municipality acted correctly when it allowed respondent 2 to present an additional calculation. However, this calculation made clear that respondent 2 had assumed that 40% of the workers would not be employed for more than one year.

3.    Given the municipality’s public function, the explanation provided should have set off a warning bell. A public authority is not subject to the same rule as a private business. The authority is bound by public norms; it is a normative body. Profit is of less importance vis-à-vis the objectives and trends that it must adopt and promote. When the data were presented, it became clear that respondent 2 intended to limit the seniority of the workers who would be hired, such that some of them would work for less than one year and some (20%) would work for even less than half a year (a period which also has a certain significance). This result is incompatible with the public authority’s duty to the public. It is not even consistent with the Director-General’s circular. It is a calculation which can adversely affect almost one half of the potential workers. In light of this, it should be noted that the contract period, according to the tender, is two years, with an option to continue for an additional two years.

This point became clear through a discussion of the matter before the tenders committee. I do not wish to establish a general duty or quasi-duty regarding the employment of workers for a particular period of time. In the context of this case, it is sufficient to point to the original sin of this particular tender process. It is true that the municipality established a work-hour wage based on the provisions of the Director-General’s circular, which also referred to an increased wage based on seniority. However, it adopted the wage as it was presented in that circular, without taking into consideration the fact that the winner of this tender would be required to make additional payments for various expenses. Thus, a situation developed in which the municipality made it possible, through the tender, for bidders to bid unrealistic offers that could only be realized through a contraction of the workers’ conditions. This result, on its face, is unreasonable and contravenes the mandate given to the public authority to conduct its affairs. The obvious conclusion is therefore that the tender must be nullified.

4. In summation, I concur, as stated, in the result reached by my colleague, Justice E.E. Levy.

 

Decided as per Justice E.E. Levy.

 

26 Tammuz 5770

8 July 2010

 

 

C.A. 461/62

 

               

ZIM ISRAEL NAVIGATION CO. LTD. and Another

v.

SHOSHANA (ROSA) MAZIAR

 

 

 

In the Supreme Court sitting as a Court of Civil Appeal

June 26, 1963

Before Silberg J., Landau J. and Witkon J.

 

 

 

Contract - validity of exemption clause in ship-passenger ticket – public policy.

 

               

During a voyage between Marseilles and Haifa, the respondent fell ill, apparently from food she had eaten on board, and for three months after arriving in Israel suffered from a stomach infection. She sued the ship owners and the ship's chef for negligence. The appellants pleaded in defence inter alia the exemption clause relieving them from liability which appeared in the passenger ticket sold to the respondent. The District Court found for the respondent on the ground that res ipsa loquitur and held that the exemption clause was null and void.

 

Held. As between the English approach which was cautious in annulling exemption clauses outright, balancing public policy against the freedom of contract, and the American approach which struck down such clauses either because of the absence of real voluntary consent to their inclusion or because of public policy, the latter was to be followed. In so doing Israeli law would not be adopting some alien "creature" but applying in the area of law principles of Jewish ethics which prized human life and well-being highly and giving the concept of public policy a specific Jewish content. All this was warranted by local statutory provision which made contracts contrary to public order and morality unlawful. Generally, the matter raised the whole question of standard contracts and called for legislative regulation.

 

Per Witkon J., it was questionable whether the invalidation of exemption clauses would raise the standard of care expected from the parties concerned in any significant manner. It would be better to impose absolute liability, regardless of fault, and leave it to carriers to cover themselves by insurance. That would also spread the cost among the travelling public at large and ensure that persons injured by some mishap were not left remedyless.

 

Israel cases referred to:

 

(1)          C.A. 136/56 - Slavko Fox v. Ilan & Etzioni Ltd. (1957) 11 P.D. 358

(2)          C.A. 99/59 - "Shoham" Maritime Services Ltd. v. Ephrayim and Alfreda Feiner (1960) 14 P.D. 1451.

 

English cases referred to:

 

(3)          Redhead v. Midland Rly Co. (1869) 20 L.T. 628.

(4)          Luddit v. Ginger Cove Airways (1947) 1 All E.R. 328: (1947) A.C. 233.

(5)          Peek v. Directors etc. of N. Staffordshire Rly. Co. 11 E.R. 1109 (1863).

(6)          Thompson v. London, Midland and Scottish Rly. Co. (1930) 1 K.B. 41.

(7)          Gibaud v. Great Eastern Rly. Co. (1920) 3 K.B. 689.

(8)          Adler v. Dickinson (1954) 3 All E.R. 397;(1955) 1 Q.B. 158.

(9)          Beaumont-Thomas v. Blue Star Line Ltd. (1939) 3 All E.R. 127.

(10)        Sze Hai Tong Bank Ltd v. Rambler Cycle Co. Ltd. (1959) 3 All E.R. 182; (1959) A.C. 576.

(11) J. Spurting Ltd. v. Bradshaw (1936) 2 All E.R. 121.

(12) Printing etc. Co. v. Sampson (1875) 32 L.T. 354.

 

American cases referred to:

 

(13) The Kensington 183 U.S. 263 (1902).

(14) Baltimore & Ohio Southwestern Rly. Co. v. Voigt 176 U.S. 498 (1900).

(15) New York C.R. Co. v. Lockwood 21 L. ed 627.

(16) Oceanic Steam Navigation Co. v. Corcoran 9 F (2nd) 724 (1925).

 

G. Gordon for the appellant.

P. Maoz for the respondent.

 

SILBERG J.                           This is an appeal against a judgment of the Tel Aviv-Yaffo District Court ordering the appellants to pay the respondent a sum of IL 720 together with interest and costs for injuries sustained by her on a voyage from Marseilles to Haifa.

 

2. It seems that the parties would have reached a settlement but for the baneful fact that the ticket which the respondent bought from the first appellant, a shipping company, contains an exemption clause releasing the company and its employees from all responsibility for injury to the respondent, financial and physical, and the learned judge in an interim judgment declared this clause to be null and void as offending against public order or morality in accordance with section 64(1) of the Ottoman Civil Procedure Law. Hence the keen struggle which Zim has waged against the judgment that requires it to pay the trivial sum above-mentioned.

 

                Let us therefore first examine this important basic question and then, if we find that the exemption clause is in fact unable to exempt, turn to the facts as found by the learned judge regarding the actual negligence of the two appellants.

               

3. Upon deciphering the faulty Hebrew of the exemption clause, we gather that the company and its employees is not to be responsible for any evil that may befall a passenger, be it death, physical injury or financial loss, even if caused by an act of one of the ship's crew and all the more so if "only" the result of negligence. The company declares in the clause that it does not give "any condition of liability or guarantee" regarding "the religious purity, grade, condition, quality or quantity of any food, beverage or medicine" which the passenger might take. That is to say, not only may the food be bad but even any medicine administered to a passenger to counteract the bad food may also be bad. The clear meaning of the entire clause is that a passenger, affected in his body or property by the adventures of a voyage in one of the company's ships, can have no recourse to any law or court.

 

                The question is whether effect should be given to such a draconian clause.

               

4. The legal validity of exemption clauses in contracts of carriage has been discussed in the English decisions at length. The result has been that the strictness with which the matter was originally treated has given place to a more lenient approach. The responsibility of a general (as against a private) carrier and in particular a general carrier of goods (as against a carrier of passengers) was at one time very severe indeed; it covered all injurious events apart from those due to force majeure or enemy action: Readhead v. Midland Rly. Co. (3); Luddit v. Ginger Coote Airways (4). The larger companies therefore began to seek for some "medicament" against the ills of statute and case law, and with the assistance of the wise counsel of erudite lawyers introduced into their contracts of carriage and bills of lading exemption clauses, usually in illegible small print. By such puny-lettered clauses a company would take itself out of the statute and free itself as it desired from the legal responsibility which might threaten it from careless or negligent treatment of the object of the contract. The prospective customer stood helpless and impotent in the face of these clauses. Normally he was not even aware of their presence or had not read them at all and even if he had, did not understand them since few can plumb the mysteries of legal terminology. And should it wondrously happen that the clause was plain and he had read and understood it, there was no option but to accept it since the only alternative was to forgo the journey or the consignment of the goods.

 

5. The attitude of the English courts towards exemption clauses was at first suspicious and cautious. Exactly a hundred years ago in the famous decision of the Court of the Exchequer in Peek v. North Staffordshire Rly. Co. (5) Blackburn J. said that although according to the cases decided between 1832 and 1854 a carrier could make a contract exempting him from all responsibility for damage even if caused by the gross negligence or fraud of his servants, the (Canal Traffic) Act of 1854 changed the situation. The purpose of this Act was to prevent companies "from evading altogether the salutory policy of the common law." ... For this reason he denied validity to an exemption clause which in his opinion was not "just and reasonable". The House of Lords - for various reasons which we need not enter into here - in a majority judgment set aside the decision of the Court of Exchequer but each of the judges supported the view that the conditions of an exemption clause must be just and reasonable, otherwise no benefit can be derived from it.

 

6. Even some 75 years later echoes are still heard in the courts of the doctrine which continues to disregard justness or reasonableness. Thus for instance in Thompson v. London, Midland and Scottish Rly. Co. (6) Lord Lawrence expressed the view that if an exemption clause in a railway ticket is unreasonable, the passenger would not be bound by it. Sankey J. agreed with this view and announced that if the document referred to "imposed such unreasonable conditions that nobody could contemplate that they exist", the passenger would not be deemed bound by them (at pp. 390, 391).

 

                Sankey J.'s observation gives some little opening to the necessity for reasonableness. An unreasonable condition is a "hidden" undisclosed condition and the exemption it accords does not bind the passenger.

               

                A similar notion, but still not very clear, was developed in Gibaud v. Great Eastern Rly. Co. (7) in which Bray J. said:

               

"Every contract is voidable by fraud, and if the condition is so irrelevant or extravagant that the party tendering the ticket must have known that the party receiving it could never have intended to be bound by such a condition, then I should say that the assent of the party receiving the ticket was obtained by fraud, and he would not be bound."

 

But a few lines below he went on to add:

 

"In my opinion, once it is found that a party has expressly or by his conduct assented to the condition, he is bound by these conditions ... and it is no answer to say that they are unreasonable, unless he can prove that his assent has been obtained by fraud."

 

                This is essentially inconsistent. On the one hand, every unreasonable condition is ipso facto a condition obtained by deceit and fraud. On the other hand, the defence of unreasonableness cannot be raised unless deceit and fraud is proved. I wonder whether these two propositions can exist side by side.

               

7. But these ideas which combine unreasonableness and "hiddenness" had their effect and ultimately destroyed the whole doctrine of reasonableness. This doctrine presented in such an attractive form by Blackburn J. in the first Peek decision - that the use of unreasonable exemption clauses frustrates and defeats "the salutory policy of the common law" - became increasingly blurred until it vanished without trace. It was so closely swathed that it ceased to breathe. For if the emphasis is upon the cognitive knowledge of the person purchasing a ticket, then formal reference on the face of the ticket, in red ink, to what is contained in one or another of the "small print" conditions is sufficient to evidence the actual or constructive knowledge of the purchaser so as to render the exemption clause valid, whatever its reasonableness or justness.

 

                This is what Lord Denning said in his new and novel judgment in Adler v. Dickson (8). There a ship passenger was seriously injured by falling off the gangway from a height of 16 feet upon reembarking in Trieste. She sued the ship's master and boatswain and not the shipowners themselves, fearing the effect of an exemption clause in her ticket. One of the defences was that if the shipowners' employees were made personally liable to pay damages, the very purpose of the exemption clause would be defeated.

 

"I pause to say that, if a way round has been found, it would not shock me in the least. I am much more shocked by the extreme width of the exemption clause which exempts the company from all liability whatsoever to the passengers. It exempts the company from liability for any acts, default or negligence of their servants in any circumstances whatsoever, which includes, I suppose, their wilful misconduct. And this exemption is imposed on the passenger by a ticket which is said to constitute a contract but which she has no real opportunity of accepting or rejecting. It is a standard printed form on which the company insist and from which they would not depart, I suppose, in favour of any individual passenger. The effect of it is that, if the passenger is to travel at all, she must travel at her own risk. She is not even given the option of travelling at the company's risk on paying a higher fare. She pays the highest fare, first class, and yet has no remedy against the company for negligence. Nearly one hundred years ago Blackburn J., in a memorable judgment, said that a condition exempting a carrier wholly from liability for the neglect and default of their servants was unreasonable... . I think so too."

 

These incisive observations of a foremost judge such as Lord Denning would lead us to expect that like Blackburn J. he would also pronounce the exemption clause null and void. A contractual condition, shocking in its wickedness, is not worthy of solemn statutory warrant, for can we truly desire that the curse of "in the place of justice, wickedness exists" (Eccl. 3:16) should befall us? But Lord Denning thought otherwise since he regarded himself bound by the recent English case law in the matter. And so he continued

 

"Nevertheless, no matter how unreasonable it is , the law permits a carrier by special contract to impose such a condition: see Luddit v. Ginger Coote Airways Ltd. (4): except in those cases where Parliament has intervened to prevent it. Parliament has not so intervened in the case of carriers by sea (emphasis added). The steamship company are, therefore, entitled to the protection of these clauses, as indeed this court held in Beaumont-Thomas v. Blue Star Line Ltd. (9)."

 

It should be noted that in Luddit the journey was not by sea but by air, but sea and air are the same thing, neither being land. But the very distinction between land travel on the one side and air and sea travel on the other is not very logical. Can we draw any conclusions from the fact that in Blackburn J's time no one dreamed of jet airplanes such as the Boeing 707? It is true that section 7 of the 1854 Act, on which Blackburn J. relied, deals with land carriers, but the idea which that judge culled from it against unreasonable exemption clauses for "... marring the salutory development (that is, the progress) of the common law" is a general moral idea. And if that is so, it applies in equal measure to all forms of carriage, since what difference is there between them? I would almost say that those who follow the Blackburn doctrine are prepared to apply it also to contracts which are not contracts of carriage at all, witness the example of unreasonableness given by Sankey J. in Thompson (6) (at 44).

 

8. The English judges have apparently felt uncomfortable with a punctilious use of extreme exemption clauses; they shocked Lord Denning and he therefore tried to sweeten the pill by another "help¬mate" by a personal touch and extending appreciably the well-known qualification of fundamental breach: Sze Hai Tong Bank Ltd. v. Rambler Cycle Co. Ltd. (10).

 

                In that case a bicycle manufacturer sent its products by steamship to Singapore for sale to its regular customers there. The bill of lading was made out to the order of the seller and indicated the name and address of the prospective buyer. The bill of lading stated that the responsibility of the carrier would cease absolutely after the goods were discharged from the ship. The goods were discharged but the carrier's agents released them not to the seller or to its order under the bill of lading but to the buyer without receiving the price on an indemnity given to the carriers by the buyers' bank. In an action between the bank and the manufacturer arising out of the indemnity the question arose whether the carrier was liable to the manufacturer for the loss in view of the exemption clause in the bill of lading. Lord Denning answered this question in the affirmative. saying

 

"If the exemption clause, on its true construction, absolved the shipping company from an act such as that, it seems that, by parity of reasoning, they would have been absolved if they had given the goods away to some passer-by or had burnt them or thrown them into the sea. If it had been suggested to the parties that the condition exempted the shipping company in such a case. they would both have said: 'Of course not'. There is, therefore, an implied limitation on the clause, which cuts down the extreme width of it; and, as a matter of construction, their Lordships decline to attribute to it the unreasonable effect contended for. But their Lordships go further. If such an extreme width were given to the exemption clause, it would run counter to the main object and intent of the contract. For the contract, as it seems to their Lordships, has, as one of its main objects, the proper delivery of the goods by the shipping company, 'unto order or his or their assigns', against production of the bill of lading. It would defeat this object entirely if the shipping company was at liberty, at its own will and pleasure, to deliver the goods to somebody else, to someone not entitled at all, without being liable for the consequences. The clause must, therefore, be limited and modified to the extent necessary to enable effect to be given to the main object and intent of the contract."

 

The great and broadening novelty of this judgment is the construction of "implied conditions" which reduce the excessive scope of the exemption clause (cf. Spurling v. Bradshaw (11) at pp. 124-25).

 

                Without criticising Lord Denning for containing the jungle of wild exemption clauses, it seems to me, however, that it is at least possible to apply the idea to those clauses also which exempt a carrier for bodily injuries, since is it not possible to "infiltrate" here as well some implied condition to the effect that a carrier assumes the obligation to carry the passenger to his desired destination in hale and hearty condition? The loss of a limb at sea defeats the main purpose of a passenger ticket no less than the delivery to another of goods after discharge defeats the main object of the bill of lading.

               

 9. The approach of the American courts co this question is different. American case law is far more audacious. It does not maintain the plaintive conservative view marked by the lip service of moral indignation on the one hand and resignation co the existing situation on the ocher. The prevailing view in American case law has for a very long time been that a clause exempting a carrier from all liability for his own acts and those of his agents and servants is null and void, either because it lacks in truth the element of willing agreement or because it is contrary to public policy.

 

                Appellants' counsel submitted that the laurel for this liberal doctrine rests on the American legislature and not the courts, but it is not so. In the United States things took the opposite course, the case law preceded legislation and section 1 of the Harter Act of 1893 which makes it unlawful for a carrier to insert in a bill of lading any clause exempting him from liability for damage arising out of negligence, fault or omission (and if inserted, makes it null and void) merely put the statutory seal on a very wide¬spread principle already existing.

               

                Moreover, legislation not only did not give birth to the case law but also did not affect or narrow it (except as expressly provided therein), witness the fact that wherever one cannot rely on the Harter Act because it does not regulate the matter - for instance, in connection with personal injuries co passengers - the courts have applied the much broader pre-Harter rule.

               

"It is settled in the courts of the United States that exemptions limiting carriers from responsibility for the negligence of themselves or their servants are both unjust and unreasonable, and will be deemed as wanting in the element of voluntary assent; and, besides, that such conditions are in conflict with public policy. This doctrine was announced so long ago, and has been so frequently reiterated, that it is elementary... .

 

True it is that by the act of ... 1893 ... known as the Harter Act ... the general rule just above stated was modified so as to exempt vessels, when engaged in the classes of carriage coming within the terms of the statute, from liability for negligence in certain particulars. But while this statute changed the general rule in cases which the Act embraced, it left such rule in all other cases unimpaired. Indeed, in view of the well-settled nature of the general rule at the time the statute was adopted, it must result that legislative approval was by clear implication given to the general rule as then existing in all cases where it was not changed" (The Kensington (13) at pp. 268-69).

 

10.          Why did American Common law "rebel" against its begetter, English Common law, and what ideological basis was there for this change of position? There were two reasons: first, the exceeding concern of American judges for human life and personal safety; second, the profound abhorrence of the social phenomenon of the grinding down of the small man by the large corporations. These are not vague fancies or empty phrases. The ideas they emody are clearly formulated in a Supreme Court judgment at the outset of the present century: Baltimore & Ohio S.W. Co. v. Voigt (14).

 

                This case concerned a passenger injured in a railway accident. The victim was an express messenger who frequently travelled between Cincinnati and St. Louis as an official of the express company, accompanying express parcels, under special contract between the company and the railway. One of the terms of his employment was that he would waive - and indeed did waive - every claim against the railway for injury sustained by him whilst accompanying parcels. The question was whether he should be regarded as a "passenger" in respect of the general rule that treats as a nullity any condition exempting a carrier from liability for injury caused to passengers. In the course of the hearing, the Court explained the scope and reasons of the general rule.

               

                Because of the inherent importance of the ideas voiced in this judgment, it is proper to cite from it in extenso. Justice Shiras brings to light the differences between the English and American judiciary over exemption clauses of carriers. He mentions, on one side, a number of American judgments (of inferior courts) which propound the nullity of such clauses on account of public policy; and then he cites, on the other side, the dictum of Sir George Jessel, that rejects the public policy of avoiding the clauses in favour of "the paramount public policy" of freedom of contract (Printing ... Co. v. Sampson (12) at p.465). Justice Shiras proceeds to ask what principles the American judges chose in dealing with the cases before them.

               

"They were mainly two. First, the importance which the law justly attaches to human life and personal safety, and which forbids the relaxation of care in the transportation of passengers which might be occasioned by stipulations relieving the carrier from responsibility. This principle was thus stated by Mr. Justice Bradley in the opinion of the court in the case of New York C.R. Co. v. Lockwood (15):

 

'In regulating the public establishment of common carriers, the great object of the law was to secure the utmost care and diligence in the performance of their important duties - an object essential to the welfare of every civilized community. Hence the common law rule which charged the common carrier as an insurer. Why charge him as such? Plainly, for the purpose of raising the most stringent motive for the exercise of carefulness and fidelity in his trust. In regard to passengers the highest degree of carefulness and diligence is expressly exacted.'

 

The second fundamental proposition relied on to nullify contracts to relieve common carriers from liability for losses or injuries caused by their negligence is based on the position of advantage which is possessed by companies exercising the business of common carriers over those who are compelled to deal with them. And again we may properly quote a passage from the opinion in the Lockwood Case as a forcible statement of the situation:

 

'The carrier and his customer do not stand on a footing of equality. The latter is only one individual of a million. He cannot afford to haggle, or stand out and seek redress in the courts. His business will not admit such a course. He prefers, rather, to accept any bill of lading, or sign any paper the carrier presents: often, indeed, without knowing what the one or the other contains. In most cases he has no alternative but to do this or abandon his business... .

 

If the customer had any real freedom of choice, if he had a reasonable or practicable alternative, and if the employment of the carrier were not a public act, charging him with the duty of accommodating the public in the line of his employment, then, if the customer chose to assume the risk of negligence, it could with more reason be said to be his private affair, and no concern of the public. But the condition of things is entirely different, and especially so under the modified arrangements which the carrying trade has assumed. The business is almost concentrated in a few powerful corporations, whose position in the body politic enables them to control it.... These circumstances furnish an additional argument, if any were needed, to show that the conditions imposed by common carriers ought not to be adverse (to say the least) to the dictates of public policy and morality.' "

 

                This is indeed a powerfully expressed description - uncommon in any legal literature - of the small man's dependency, standing, as he does, powerless before the mighty machine of profit which crushes him into the dust. Justice Shiras, adopting these ideas, thus formulates accordingly the policy of American case law:

               

"1. That exemption claimed by carriers must be reasonable and just, otherwise they will be regarded as extorted from the customers by duress of circumstances, and therefore not binding.

2. That all attempts of carriers, by general notices or special contracts, to escape from liability for losses to shippers, or injuries to passengers, resulting from want of care or faithfulness, cannot be regarded as reasonable and just, but as contrary to a sound public policy, and therefore invalid" (at pp. 505-507).

 

                In another judgment, the Circuit Court of Appeals in New York (Oceanic Steam Navigation Co. v. Corcoran (16) at 732) cites with approval Shearman and Redfield on Negligence (6th ed.) vol. 2, para. 505c:

               

"In the federal courts, and in Connecticut, Indiana, Wisconsin, Iowa, Missouri, Texas, Utah, Virginia, Michigan, Vermont and other states it is held that such a contract (exempting from liability) as to any degree of negligence is void, at least against a passenger giving any compensation for his journey, because it tends to cheapen human life, and to remove the most efficient guarantee which the Common law has given to society against destruction of its members by negligence... . The state has an interest of the highest degree in the preservation of its citizens' lives, and experience demonstrates that there is no practical safeguard against the destruction of those lives by negligence, except in private actions by the persons injured, or their representatives. The protection thus afforded to the individual is therefore of such value to the state that it should not allow it to be waived."

 

                The theme which runs through all these judgments like a scarlet thread is the vital social need of protecting human life and well-being.

               

11. We have surveyed the English and American case law on the problem before us and seen the basic differences in their moral approach. The question is which path should Israeli judges pursue: are we to follow English case law which in its rigidity holds that the contract must prevail or are we to adopt - at least as regards injury to a person's life or health - the more liberal rule of American case law?

 

                It seems to me that we must take up the American rule because in doing so we are not choosing an alien creature but drawing legal conclusions from fundamentals very deeply rooted in Jewish consciousness.

               

                Should we then be asked how we can legitimize forming our own outlook on a rule which has its source in Turkish legislation, the answer is that whilst the rule that a contract can be set aside for being contrary to public policy is derived from section 64(1) of the Ottoman Civil Procedure Law, what that public policy is must be gathered from our own ethical and cultural conceptions since no other source exists for that.

               

12. Judaism has always extolled and glorified the high value of human life. The Jewish religion is not a philosophical system of opinions and beliefs but a way of life and a way for living "which if a man do, he shall live by them" (Len. 18:5), "live by them and not die by them" (Yoma 85b). The verses are innumerable which stress the causal nexus between the Torah and life: "keep my commandments and live" (Prov. 4:4): "he is just, he shall surely live" (Ezek. 18:9): "who is the man that desireth life..." (Ps. 34:13) and so on.

 

                Clearly Judaism has not regarded life as the supreme value. There are ends which go beyond it and ideals which exceed it, for the sake of which we should - indeed are commanded - to sacrifice life. Myriads of Jews have given their lives in sanctification of the Holy Name in all places and at all times. But in the ordered framework of social life, according to the priorities of the Jewish religion, life is the most sanctified of possessions ousting any other sacred value, including without a doubt the sanctity of contracts. "There is nothing that comes before the saving of life except only idolatry, incest and bloodshed" (Ketubot 19a); "For (the Sabbath) is holy unto you - it is committed into your hands, not you into its hands" (Yoma 85b).

 

                There is nothing in Jewish ethics which is more abominated than the taking of life. King David was punished for that reason: "But God said unto me, 'Thou shalt not build a house for My name, because thou art a man of war and hast shed blood' " (1 Chron. 28:3). "A Sanhedrin that effects an execution once in seven years is branded a destructive tribunal" (Makot 7a). And also in the prophetic visions of Isaiah and Micah of eternal and universal peace, "nation shall not lift up sword against nation, neither shall they learn war any more" (Isa. 2:4: Micah 4:3) are filled with deep revulsion and aversion to the shedding of blood.

               

                It is not easy to mint from these lofty concepts the coinage of actual law but when the decisive question in arriving at some legal conclusion is a question of philosophical outlook - what is "good" and what is "bad", what promotes the public weal and what impairs it - we may and indeed must draw precisely upon our ancient sources for these alone truly reflect the basic outlook of the entire Jewish people.

               

                The voice that calls from the depths of these sources tells us not to commerce in human life, not to act lightly in safeguarding it, for life is of the highest value, not ours to play with. The sanctity of contracts, or the sanctity of the principle of freedom of contract, has its proper place in the order of things but of far greater sanctity is that of life. No weapon that is formed against it shall prosper, and every tongue that shall arise against it in judgment you shall condemn, to paraphrase Isaiah 54:17.

               

13. The conclusion to be drawn from all the foregoing with regard to the case before us is that an exemption clause in the ticket which the respondent bought from the appellant company is null and void, as being contrary to public policy in the sense of section 64(1) of the Ottoman Civil Procedure Law. It is superfluous to emphasise that injury to life and injury to health are the same within the contemplation of the concepts that have their part in this context.

 

                I have not overlooked that rule in Jewish law, "if one said, 'put out my eye, cut off my arm, break my leg' ... on the understanding that the other would be exempt, the latter is nevertheless liable" (Baba Kama 92a], but I have not applied it in this judgment because having regard to the reason assigned to it by Maimonides (Hilkhot Hovel uMazik, V, 11) and the Shulhan Arukh Hoshen Mishpat (421:12) I have grave doubts whether it reflects the idea of prejudice to public policy within the meaning of section 64(1) as above.

               

14. There remains the second and last question of whether the appellants were guilty of negligence in the injury sustained by the respondent. My answer is that they were. The respondent embarked on the "Theodor Herzl" for the journey from France to Israel in good health. The following day after eating the food served to her, she felt unwell, began to vomit and to have diarrhoea. Upon arriving in this country she went down with a stomach infection that lasted some three months. Such physical hurt was caused apparently by the tainted food she had received on board, and the learned judge rightly applied the rule of res ipsa loquitur. Hence, since the appellants did not succeed to rebut the presumption, the company is vicariously liable and the ship's chef (the second appellant) directly liable. The negligence of these two appellants lies in serving tainted food which the respondent ate whilst on board the ship.

 

                In my opinion therefore the appeal should be dismissed.

               

LANDAU J. I agree.

 

                In Fox v. Ilan & Etzioni (1), dealing with restraint of trade, I drew attention to section 64(1) of the Ottoman Civil Procedure Law and mentioned article 6 of the French Civil Code, from which the provision prohibiting contracts that are contrary to public order and morality is drawn. This statutory provision of ours, as well as article 46 of the Palestine Order in Council, 1922, relieves us from the necessity of turning to English case law regarding public policy. When I went on there to express the opinion that it might be more correct to interpret section 64(1) in accordance with French jurisprudence, I did not mean to say that we should adopt the substance of French law in the matter but that we should define the general boundaries of the concept of public order and fill it with content of our own.

 

                French legal scholars construe the term "public order" in article 6 of the Civil Code in broad general terms, in the spirit of the basic concepts on which the entire legal system is based. This approach is fundamentally different from the conservative approach which treats the categories of public policy as being closed, so that creative power has been taken from the courts and there is nothing to add to what earlier courts up to a century ago laid down in the matter. According to the broad French approach, the source of these concepts lies not only in the realm of positive law but also in basic ideas of justice and morality and in the ever-varying needs of the social and economic system: see D. Lloyd, Public Policy, pp. 117 ff. That does not mean that the courts may intervene as they please in contractual relations according to the private view of the judge of what is good and useful in contemplation of these principles but must faithfully interpret them in the light of the opinion common to the enlightened public of which he is a part.

               

                My honourable friend, Silberg J., uncovered the deep roots of the Jewish view about the sanctity of life and all that stems from that. Such a view is not exclusively ours but is common to all other civilized peoples. This is what Josserand, Cour de Droit Civil Positif Francais (1930) vol. I, para. 475, has to say about contractual conditions which exempt from liability for injury caused by negligence:

               

"In my opinion the test must be sought in the nature of the injury; a distinction must be made between injury to persons and injury to property.

 

For injury to persons, it is essential to repair the wrong: physical personality is above private contracts, just as are a person's good name and repute. We cannot confer on another the right to kill us, to injure us or to defame us without punishment."

 

So also Ripert, Droit Maritime (4th ed.) vol. 2, para. 2004, p. 891, cited by the learned judge:

 

"It is in fact possible to lay down that public order prohibits also involuntary injury to a person's physical well-being. What is involved is no longer a matter of financial relations between two people. Monetary compensation is but the lesser of two evils and cannot make up for the damage sustained. Hence the prohibition of the cause of such damage needs to be absolute, not to be evaded by any voluntary act."

 

For the relevant French literature and case law. see also the interesting note by I. Englard in (1961) HaPraklit 219.

 

                I see no need to decide whether moral repugnance to endangering life and health is sufficient to invalidate any condition which a person may voluntarily take upon himself that offends against these values. When, however, a condition of this kind appears in a standard contract, as in the present case, where in fact the passenger has no choice, it must be set aside for being contrary to public order. The reasons for that are convincingly explained by the American judges cited by Silberg J. There is no occasion, in my view, for distinguishing in this matter between serious and minor injury to physical well-being, since every attempt to do so will involve prescribing finely drawn tests, the bounds of which do not lend themselves to clear definition. Nor do I see sufficient reason to distinguish between ordinary and gross negligence, as suggested in the alternative by appellants' counsel.

               

                Nothing in section 55(c)(1) of the Civil Wrongs Ordinance, 1944, is inconsistent with what I have said. That section, which deals with contributory negligence, was taken from section 1(1) of the English Act of 1945 but only preserves the general rule regarding conditions which negative liability in torts; it is not, however, intended to deny the possibility of negating such liability always and in all circumstances by contractual condition.

               

                The conclusion we have reached sits well with the decision of this Court in Shoham v. Feiner (2) which concerned a condition similar to the present one in a claim for repair to damage to property.

               

                Appellants' counsel submitted that to impose liability in tort upon the first appellant as a ship company would lay too heavy a burden upon it since it is not covered against such risks by its general insurance policies. But that is insufficient to justify exempting the appellant from all liability for physical damage caused by it or its employees' negligence. It would be better for the appellant to cover itself against risks such as these and to add the cost of the insurance to the price of the ticket, than to place upon the passenger the concern to insure himself, or leave him without compensation for any physical damage he may sustain.

 

                After writing these lines I read the instructive judgment of my honourable friend, Witkon J., and I wish to express my agreement with his balanced analysis of the various factors affecting the problem before us.

 

WITKON J. It is with much hesitation that I have also come to the conclusion that no validity attaches to the condition exempting the appellant from all liability for the physical injury which its employees have wrongly occasioned the respondent.

 

                I have no intention of placing in doubt our powers to set such a condition aside. I find strong foundation both in section 64(1) of the Ottoman Civil Procedure Law and in article 46 of the Palestine Order in Council, 1922, for the rule that an Israeli court may certainly invalidate a contractual term which in its opinion conflicts with the public good. Even without such statutory provisions I would not contend that the court must give effect and recognition to every harmful and unfair term to which the parties have agreed. For instance, a condition which exempts from liability for killing or wilful wounding, it is unnecessary to say, no court will recognize. And it is also clear beyond all doubt that in adopting this principle - whether from England or from France or as axiomatic of our very judicial functions - we are not dependent upon English or French scholars in deciding what in our contemplation is valid and what invalid from the viewpoint of the public welfare. A condition which is valid in England - will not for that reason alone presumptively be valid with us. As my honourable friend, Landau J., said, we must give our own content to the framework of public order.

               

                When, however, we come to weigh the considerations for or against invalidating any given condition, we immediately become aware that we are faced with a problem that is a cause of concern the world over. The American courts - so my honourable friend, Silberg J., demonstrated in his comprehensive survey - have annulled such a condition and we learn from Landau J. that French legal scholars have trod the same path. In  England as well people are in fact unhappy about conditions in standard contracts which exempt a carrier in a monopoly position from all liability for the physical injuries of his passengers. The sharp complaints voiced by Lord Denning in Adler v. Dickson (8) bear witness to that, and this case is also the source of the rule that the condition will not hold in the event of a breach going to the foundations of a contract. Thus we see that this flinching revulsion is universal, as are also the considerations which demand invalidation of the condition. The starting point of those who would set it aside is undoubtedly their concern for the security of the person who is in need of a public service, that neither his life nor his health should be at the whim of the carrier. Further, such a person also merits protection of the law against exploitation of his weakness, since the two parties are not in the same bargaining position.

 

                The first of these considerations - the sanctity of life - is not disputed and I would say that it is so well-known that it does not call for evidence. Everywhere, irrespective of religion or nationality, human life is regarded as a treasured possession to be guarded at all costs. It is a universal heritage, certainly among the Jewish people, as was shown by Silberg J. in his judgment. The trouble is, however, that this supreme consideration is not the only one which we must bear in mind. Were it possible to be guided solely by the concept which was so warmly expressed by Silberg J., we would arrive at some far-reaching conclusions which he himself does not support. We would have to annul every condition which limits a person's liability to compensate another for negligent physical injury irrespective of the circumstances in which the condition was stipulated, of the party making it and the mutual relationship of the parties concerned. The private carrier - as distinct from the public carrier - indeed everyone who agrees to render a service during which he may err and cause bodily harm to the other, would be prevented from agreeing with the latter to limit his liability. Such a result would certainly not meet with approval. Hence to arrive at a balanced outcome we must weigh all the considerations that pertain to the matter. As in most problems of law and of life in general, it is not the choice between the good and the bad which makes decision difficult. The difficulty lies in the choice between different considerations all of which are good and worthy of attention but inconsistent among themselves and in respect of which we must determine an order of priority. In the present case I have not found the task a simple one.

               

                Doubts over whether it is indeed desirable to annul the given condition stem in the first place from the leading rule that a person has full contractual freedom to ensure rights for himself and to waive rights, all as he pleases. In our own times, this rule may have lost some of its pre¬eminence but in my opinion, subject to certain limitations, this freedom is still a treasured possession and a necessary institution in the life of society. Moreover, if interference with freedom of contract is effected not by way of legislation but judicially, confidence in the law will be shaken. For the rule is that stipulation is permitted in civil law and denial thereof is adverse to the sanctity of contracts.

               

                For that reason, even if we were to say that every exemption clause of the kind in question is likely to render life and health a matter of free-for-all - and I do not join in this extreme view - there is in my opinion still no room to annul, because only of "the sanctity of life", every such condition contractually agreed upon by two individuals in the same position and of the same mind. To annul it, another factor is required, and indeed we are told that a contract between equal parties is unlike one between a powerful public or quasi-public body and a private person - "the small man" - who is in need of some essential commodity or service and is compelled to yield. Here occurs the well-known problem of standard contracts which will in the future occupy the attention also of our legislature. But here also I have reservations and I would not hasten to condemn all standard contracts. They appear to me called for by the realities of life, the outcome of the trend to standardisation that prevails in all areas of the economy. At all events, the courts do not generally incline to assume power to set aside such contracts when it is proved to their satisfaction that the conditions and fiats were brought to the notice of the customer. If need exists to control these contracts, the view is that it is a matter for the legislature (see per Cohn J. in Shoham v. Feiner (2) at p. 1454). Only thus can a supplier submit the reasonableness of his conditions to review, before contracting with his customers; and the proposer of the bill now before the Knesset in the matter has done well to choose this course. Here I wish to sum up by saying that if it is possible at all to regard the case before us as one in which the court may annul a condition agreed upon by the parties, that can only be because of the conjunction of two factors: firstly the contents of the condition are undersirable ethically and socially, and secondly it was stipulated in a contract in which the party at the disadvantage was not free to contest it. In this manner we have restricted the conclusion we have reached in the present case to standard contracts.

 

                Even the combination of these considerations still does not meet all my doubts. We must ask ourselves what is the reason for, what is the significance of, setting aside the exemption clause. Do we thus in truth enhance the degree of care taken by the appellant and all its employees and agents? I am not at all sure of that. The presumption is that a person will not treat another's life lightly. I would think that a person is careful or careless with another (and even with himself) according to his nature, his temperament and his ethical and intellectual standards, but the knowledge that he has to pay - or not to pay - damages for his negligent acts (in contrast to anticipating criminal conviction) has almost no effect in reinforcing - or weakening - his standard of care. If that is so in the case of the direct liability of a person, it is all the more so in the case of his servants and agents. It is common today to treat with doubt every principle of fault as a basis of liability in damages for injury arising out of the use of automobiles. Better, it is said, to proceed on the principle of absolute liability and the reason is that it is not to be presumed that the tortfeasor or victim will be less careful if he knows that in any case the victim will receive compensation, whether the injury was caused by the negligence of the one or of the other or without the negligence of either of them. Just as the expectation of having to pay damages even without fault by the tortfeasor does not render him more indifferent to another's life and health, it may also be assumed that the expectation of being exempted in the event of negligence will not increase his indifference. It is not therefore to be said that annulling the exemption will self-evidently encourage carefulness where before there was scorn, but the result - here as where absolute liability is imposed on car owners

- will be to spread the risk over the whole population by way of insurance.

 

                That in effect is the problem before us. What is displeasing in a case such as the present is that a person injured through negligence is without financial remedy, for remedy is denied him in consequence of the contractual condition which he accepted without having any choice in the matter. If we say that we cannot tolerate such a situation and that the exemption is not to be given effect, it is as if we said that the carrier must insure himself against this risk, and doubtlessly he will effect such insurance at the expense of the passenger by increasing the cost of the service. Theoretically, such compulsory insurance could also be imposed directly on the passenger, but clearly compulsory insurance effected by the carrier is more practical and reasonable. Nevertheless, is it in fact desirable and just to spread the risk of the individual among all passengers? That also will increase prices of commodities and services. One or other passenger may say to us, perhaps justly, that he wants no favours and is prepared to take the risk without paying any supplement to his fare. I can imagine many services, both in the transport area and in other areas, where it would be justified for the supplier to exempt himself from liability for negligent injury to customers and reasonable on the part of the customer to exempt him from this liability and take the risk without any insurance cover. Perhaps our case is such a case.

 

                My learned friends think that in point of public policy it would be better to compel the carrier to bear liability and ensure that the injured passenger receives her compensation. I am ready to join in this conclusion - even if not without hesitation - out of the consideration that what is involved is an essential mass service generally carried out without mishap. The straits of the injured individual, left without remedy, may be hard and in the result offend against the feeling of justice. On the other hand to spread the risk among all passengers cannot involve very large expenditure and the price for the service need not go up appreciably. If the "decree" we issue against carriers and passengers generally is that they shall not abandon the injured individual to his plight, they can bear up under it. Accordingly on balance of the considerations it seems to me also that the law should incline in favour of the respondent. In the result I also agree to dismiss the appeal.

               

Appeal dismissed

Judgment given on June 26, 1963.

 

 

 

 

 

Appeal allowed by majority opinion (Vice-President A. Barak, Justice D. Levin), Justice E. Mazza dissenting.

6 Nissan 5755.

6 April 1995.

 

 

 

 

 

 

 

 

 

 

Appeal allowed.

29 Shevat 5766.

27 February 2006.

C.A. 337/62

           

 

GUNTER-GIDEON RIEZENFELD

v.

ROSA JACOBSON AND OTHERS

 

 

In the Supreme Court sitting as a Court of Civil Appeal

[May 15, 1963]

Before Olshan P., Silberg J., Berinson J., Witkon J and Cohn J.

 

 

Contract - Conditional promise of marriage - Breach of promise - Agreement immoral and contrary to public policy

 

   The appellant, a married man, and the respondent formed a liaison with the intention that they would marry on the appellant obtaining a divorce from his wife. Soon after he acquired an apartment out of his own money and had it registered in the respondent's name. It was understood, however, that the apartment did not belong to the respondent, its registration in her name being a token of their mutual affection, and that if they did not marry, the apartment would be transferred back into the name of the appellant. Subsequently they fell out and the respondent barred him access to the apartment. The appellant sued for a declaration that the apartment was his and an order for possession. The respondent defended by pleading that his claim was based on agreement which was immoral and contrary to public policy. Her defence succeeded in the District Court: hence this appeal.

Held (Olshan P. and Silberg J. dissenting),

(1) Whilst the law in England regarding breach of promise by an already married person is based on the sacramental nature of marriage - although modified in recent times - in the Jewish law of marriage and divorce the position is different, marriage being not a status but a contractual tie, even of a most solemn kind, which may always be dissolved by agreement. Consequently (per Cohn J.) an agreement with another woman, during the subsistence of an existing marriage, does not offend against public order or morality. Alternatively (per Witkon J.) where the existing marriage has virtually collapsed, a promise to marry another will not have the dire effects which are implied by an appeal to public policy and morality.

 

(2) The agreement as to future marriage must be distinguished from the agreement over the apartment. Whatever may be said about the first. there is in respect of the latter - which in many respects was in the given circumstances extraneous to the promise of marriage - the conflicting but equally important principle of the sanctity of contracts. In any event, no justand desirable result can be reached unless that agreement is given the benefit of the doubt.

 

Per Silberg J.

                In the moral conception of Jews everywhere extra-marital sexual relations are improper and vile because they undermine the purity of family life. The agreement over the apartment was here inseparably bound up with the promise of marriage and was therefore immoral.

           

            Israel cases referred co:

           

1.         C.A. 136/56 - Slavko Fouks v Elon & Erzioni Ltd. (1957) 11 P. 358.

2.     C.A. 127/62 - "Yahad" Workers and Meat Transporters Cooperative of Haifa. Ltd. v Zvi Shimansky (1962) 16 P.D. 2341.

3.         C.A. 110/53 - Harry Jacobs v Yaakov Karroz (1955) 9 P.D. 1401.

4.     C.A. 191/51 - Leib Skornik v. Miriam Skornik (1954) 8 P.D. Selected Judgments, Vol. II, 327.

           

English cases referred co:

 

5.         Spiers v Hunt (1908) 1 K.B. 720.

6.         Wilson v Carnley (1908) 1 K.B. 729.

7.         Skipp v Kelly (1926) 42 T.L.R. 258.

8.         Fender v. Mildmay (1937) 3 All.E.R. 402: (1938) A.C. 1.

9.         Jones v Randall (1774) 98 E.R. 954.

10.       Pearce v Brooks (1886) 14 L.T. 288.

11        Upfill v. Wright (1911) 1 K.B. 506.

12.       Shaw v D.P.P. (1961) 2 All E.R. 446.

13.       Holman v Johnson (1775) 98 E.R. 1120.

 

American cases referred co:

 

14.       Smythe v Evans 70 N.E. 906.

15.       McManus v. Fulton 67 ALR 690 (1929).

 

Dr. S. Wolf for the appellant.

M. Ben-Dror for the respondents.

 

COHN J.                     This appeal is well-founded. The first respondent is the registered proprietor of a one room apartment on the fourth floor of a house at 4 Yodfat Street, Tel Aviv (Plot 41, Block 6954) and the holder of 410 ordinary shares in Havazelet Yodfat Limited in the name of which company the house is registered. The appellant asks for a declaration that the apartment and shares are his, an order that the apartment and shares be registered in his name, an order that the respondent yield up possession of the apartment and an order that certain chattels which the respondent received from him be returned or payment therefor made. The District Court dismissed the appellant's action. Hence this appeal.

 

            The necessary facts are very simple indeed and actually not in dispute between the parties. The apartment was acquired out of the appellant's funds and was intended to be the residence of both the appellant and respondent. From the time of its registration in June 1958 in the respondent's name until August 1958 the parties lived there as man and wife, although the appellant was then married to another woman and resided in his former home. In August 1958. (as the learned judge says in his judgment) the respondent changed "the lock of the apartment and locked its doors to the appellant." On the evidence before him, in particular that of the parties themselves, the learned judge found that they intended to get married after the appellant had succeeded in divorcing his wife; and further that the respondent "did not think of the apartment as her separately acquired property but regarded its registration in her name as an expression of the appellant's trust and affection, and even said that she would retransfer it if the marriage did not take place. She said that both before the registration, when it did not occur to her that her bond with the appellant might be broken, and afterwards, when it was already more or less clear to the parties that they were not going to marry."

           

            In these circumstances the respondent pleads - and this is the only plea which the learned judge found proper to consider - that the appellant's action must fail, since it is based on an agreement which offends against public morality and public policy, as stated in section 64(1)of the Ottoman Civil Procedure Law. The offence against public morality and public policy consists, it seems, of joining by immediate intercourse and future marriage with another woman whilst marriage with one's lawful wife is still valid and in effect. This plea found favour with the learned judge but he was vague about it and did not explain in his judgment the considerations which led him to his conclusion (apart from a lengthy quotation from a book by one Lloyd regarding the considerations to be taken into account in such a case as the present). Since he found the parties' agreement to be illegal, he refused "to entertain a claim arising out of its breach".

           

            At first I asked myself whether the appellant's action arose only out of a breach of the respondent's agreement to marry him or also out of a breach of an agreement under which she consented to live with him as man and wife even before marriage. Assuming for the moment that such two     agreements are illegal and not enforceable by the courts either specifically or by way of damages, is the appellant actually claiming performance or damages for their breach? Not in the least. I suspect that not a little of the confusion which has occurred in this case is due to the way of the respondent's Defence was framed - repeatedly it refers to "the agreement referred to in paragraph 2 of the Statement of Claim"- and from the negligent manner in which the Statement of Claim is formulated. Paragraph 2 of the latter states that the appellant acquired the apartment in question "in the expectation of marriage" with the respondent and on "the express condition, in agreement with the (respondent), that if for any reason the marriage between the parties should not take place, the registration would be cancelled". In so far as there is any plea of an agreement here, it is not an agreement to marry or to live together without marriage but only one for the return of the apartment in the particular event of the marriage between the parties not taking place. And if the parties' agreement that they should enter into marriage after the appellant divorced his wife is illegal and unenforceable, then law and morality have been fully satisfied by the respondent not performing the agreement. But in her rightly omitting to do so, the condition stipulating the return of the apartment to the appellant has been met. Why should the court then not compel her to do that?

 

            Be that as it may, even assuming that what is involved is a claim arising out of "an agreement between a man and a woman to live together unmarried and a mutual promise to get married whilst one of them is married (to another) and the court has not decreed any divorce", in the words of the learned judge, in my view, such an agreement does not in Israeli law offend against public morality or public policy and it bears no taint of illegality.

           

            Before, however, dealing with Israeli law, I must pause to consider English law on which the parties in this case relied. The English courts have held that a claim in damages for breach of promise to marry after the promissor's wife has died will not be heard (Spiers v. Hunt (5) and Wilson v Carnley (6)). They have also refused to award a woman damages for breach of promise, when given whilst she was married to another man (Skipp v Kelly (7)). In so far as public policy obliges observance of the principle that spouses should abide by their obligations to one another, as English marriage law lays down, all are agreed that such a policy is not consonant with the implementation of any agreement that may  undermine marriage. But in as far as public policy is invoked to avoid an agreement because of extraneous fears lying outside marriage law itself, the prevailing rule today in England as well is that no public policy requires nullification of the agreement. This is what Lord Atkin said in Fender v Mildmay (8) (at pp. 409-10) in speaking of the reasons why the courts refuse to award compensation to women who are promised marriage after the death of a living lawful wife

 

"The judges appear to have thought that a promise made in such circumstances tended to cause immoral relations. They may be right. Speaking for myself, I really do not know whether that result would follow as a rule. I can only say that, if the lady yields to a promise with such an indefinite date, she is probably of a yielding disposition, and it would appear difficult to predicate that immorality is either facilitated or accelerated by the promise. As to the suggestion that such a promise is bad, because it tends to induce the husband to murder his wife, I reject this ground altogether. Alderson B. ... classes such objections as ridiculous. They appear to afford another instance of the horrid suspicions to which high-minded men are sometimes prone."

 

            In that case the House of Lords was dealing with a promise of marriage after the defendant-husband had already obtained a decree nisi of divorce from his first wife. The majority held that in these circumstances the promise of marriage was of effect and awarded damages for its breach. The reason was that at that point in the marital relationship prevailing English marriage law no longer required the married couple to live together, and since the test for applying the rule of public policy was maintaining observance of that law, there was no occasion to apply it when the spouses themselves were under no duty in that respect. As Lord Atkin put it (ibid. at pp. 410-11):

           

"In these circumstances, what possible effect can a promise to marry a third person have by way of interference with matrimonial obligations? There is no single duty which is being observed by either to the other, and it appears to me merely fanciful to suggest that the public interests are in any respect being impaired. If a respectable man, whose wife has fled with the lodger, leaving the children in his charge, engages himself to another respectable person, to marry her as soon as he is free, no public interests suffer. In my opinion, they benefit. Similarly in the converse case of a wife whose husband is living with another woman, of whose child he is the father. Does either of these persons still owe any kind of duty to love or cherish the other spouse ... or any duty which ... will be impaired by a promise to marry a third person when free? From the point of view of law, it ought to be remembered ... that, by legislation, it has been established that it is not contrary to public policy that married persons should obtain a divorce, and not contrary to public policy that, immediately after final divorce, either of them should marry ... I must confess it appears lamentable that the law should set its ban upon promises made to do a lawful act by persons who, in the interval between the promise and the fulfilment, do nothing, and are not induced by the promise to do anything, contrary to public policy. I dismiss with indignation the idea that public policy is to be involved, on the ground that such promises tend to immorality."

 

            The minority view was that for centuries a promise of marriage made during the subsistence of a previous marriage has been deemed to be contrary to morality as well as to all the hallowed ideas of religion in England and there was no occasion even today to depart from this important rule. As long as a marriage subsists, in theory as in practice, a promise to marry another woman will not be enforced by the courts. Lord Russell of Killowen said in the above case (at p. 417)

           

            "(W)hen England was a Catholic country, matrimony was a sacrament, conferred upon themselves by the spouses. This sacramental nature of marriage, the holy state of matrimony, was the basis of the civil law of Europe with regard to it. When, in the reign of Elizabeth, England abandoned the old faith and became a Protestant country, matrimony ceased ... to be ranked among the sacraments ... The status of marriage became the product or result of a contract between the parties. But the obligations resulting from the status, the importance to a civilized community of its maintenance, remained almost unimpaired. Until the first Divorce Act, in 1857, the marriage tie was indissoluble except by legislation... The question now arises whether, as a result of that Act, and subsequent divorce legislation, there has come about such an alteration in the public view of the status of marriage, its obligations, and the importance of its maintenance, that, without any offence to public policy or public opinion, a spouse may validly contract to marry another ..."

 

And (at p. 422)

 

"As I see in this case, there is here no question of inventing a new rule of public policy. It is only an illustration of an old rule applied to new facts ... The institution of marriage has long been on a slippery slope. What was once a holy state, enduring for the joint lives of the spouses, is steadily assuming the characteristics of a contract of a tenancy at will. For myself, I am glad that the opinion which I have formed of the law which is applicable to this case is consistent with the view that the obligations of married people do not cease, in the eyes of the law, until, in the eyes of the same law, they cease to be married...."

 

            I have quoted at length in order to show, not only how far leading English lawyers (like Lord Atkin) also labour over the understanding and reality of a public policy of age-old tradition, but principally that this public policy derives from features peculiar to English marriage law and that the odour of Catholic sacrament pervades it. For ourselves, it has already been decided that, in respect of public morality public order mentioned in section 64 aforesaid resort to the English criteria of public policy not required ("Yahad" v Shimansky (2)). If that is generally so, even in matters in which there are no basic differences of approach between us and the English, it is all the more so in matters concerning the marriage of Jews contracted under Jewish religious law, the nature and features of which are to be found in the confines of Jewish tradition.

           

            Indeed, it seems to me that we do not have to look beyond the applicable substantive law for the public morality in matters of the marriage of Jews. If from the viewpoint of such substantive law no defect or flaw mars an agreement or promise of marriage after an existing marriage is dissolved, then the inevitable conclusion is that such agreement or promise also does not impair public morality and public order.

           

            The Mishnah (Kiddushin III, 5) expressly states

           

"If (a man) says to a woman 'Behold, be thou betrothed to me after I become a proselyte' or 'after thou becomest a proselyte'...or 'after thy husband dies' or 'after thy sister (i.e. his existing wife) dies'...she is not betrothed. Similarly, if (a man) says to his neighbour' If thy wife bears a female, let her be betrothed to me', she is not betrothed. If (however) his neighbour's wife was pregnant. the child being discernible. his words are valid. and if she bears a female. she is betrothed."

 

            The reason why in the instances given the betrothal is not valid is, in the words of Rashi (Kidd. 62a). because "things which have not yet come into existence are involved and it does not lie in his power to betroth the woman." The Gemora gives a further reason, that of public policy. not to create "evil feeling" in the mind of the husband or sister. as the case may be (Ibid 63a). But nowhere is it mentioned or suggested that betrothal of woman when her husband dies or divorces her is morally bad either in law or in religion. Some of the Tannaim have held that in all the instances set out in the Mishnah, whilst the man cannot effectively betroth the woman at that instance, she is so betrothed the moment the given condition is satisfied (see the views of R. Meir and R. Judah Ha-Nasi, Ibid. 63a). It is in fact a leading rule of law that a conditional betrothal will come into effect upon the condition being fulfilled, whether it was the man or the woman who stipulated the condition (Manimonides, Hilkhot Ishut IV, 1). It is not our concern to elaborate on the law relating to conditions. It is enough to observe that substantively every condition is effective. Even the stipulation of what is physically impossible or contrary to biblical prescription, although initially void, will not disqualify the betrothal. A stipulation that betrothal should not take effect until a certain event occurs - that the father consents or another woman agrees, for instance - is lawful and valid and the betrothal will become effective on fulfilment of the conditions (ibid, VII,1) since the condition is not contrary to any prescript of the Torah nor impossible to perform (cf. ibid, VI, 12).

           

            It follows that

"So long as it is not a matter of religious prohibition but depending on another's mind, since the latter may be persuaded by being offered money, the condition is effective." (Bet Yosef to Tur Even Ha-Ezer, 38].

 

            Moreover, in contemplation of Jewish law the divorce is not affected, witness the many divorces arising from doubt. In addition also a temporary betrothal may ab initio be entered into even if only for a matter of days (Yevamot 37b: Even Ha Ezer 2 : 10) although the rabbis did not welcome marriage with an intention to divorce, not made known to the woman. Originally, divorce lay entirely within the husband's power (Gittin 90a) but since the ban of Rabbenu Gershon the woman's consent is essential. Far from such consent being not forbidden or invalid, it is altogether desirable.

 

            Unlike English Common Law, Jewish law does not confer on spouses the "status" of marriage which, once entry thereinto has been decided upon and solemnized, cannot be abandoned except by legislation or divine decree. Marriage in Jewish law is a contractual tie, although of a most solemn kind, between a man and a woman which, if they so wish, they can enter into and, if they so wish. may dissolve and terminate. Where a consenting couple so desire, the only task of the courts is to supervise and carry into effect the entry into marriage or its dissolution. In this very difference of Jewish law from Christian marriage law lies its greatness and, if you will, its modernity, not the rigidity of status but freedom of contract, not the incontestable determination of status but the right of spouses to choose in their discretion between marriage and divorce.

           

            Consequently an agreement to marry cannot be injurious to public morality or public order merely because its implementation is made conditional upon obtaining the consent of the spouse of one of the parties to be divorced. Again in the words of Lord Atkin (at p. 413),

           

"I do not myself understand a doctrine of public policy which is founded merely on a statement that one contract is inconsistent with, or incompatible with, another. I venture to say that the doctrine is meaningless, unless the impugned contract leads, or is likely to lead, to injurious action, and I have pointed out that this cannot be predicated of these contracts, in the circumstances in which they are made. The whole notion of any danger to public interests seems to me fanciful and unreal. For these reasons, I think that public policy demands that these contracts should be enforced..."

 

I fully agree.

Accordingly the learned judge erred in refusing to hear the appellant's action.

            The learned judge said, and not incidentally, that he had no power to order the respondent to yield up possession of the apartment. It is not so: since the action was in respect of ownership and not of use or possession alone, it does not come under section 28(3) of the Courts Law, 1957.*

           

            Regarding the claim for the chattels, the learned judge notes that many of these have in the meantime been returned to the appellant but he comes to no decision about the remaining goods which have not yet been returned (except for the watch, the claim for which was dismissed).

           

            There is no appeal before us against the dismissal of the action for return of the sums paid to the respondent for keeping house.

            I would grant the appeal.

           

SILBERG J.               With great respect, I disagree with the judgment of my learned colleague, Cohn J. In my opinion, the appeal should be dismissed, although without costs, because of the large part also played by the first respondent in this immoral agreement.

 

2. What happened is that the appellant, husband and father, became tired of his lawful wife and wished to divorce her. Over a long time the wife, rightly or not, refused her consent to a divorce, and he cast his eyes on another woman, a divorcee with a child, the first respondent.

 

            Relations between the appellant and respondent grew stronger and closer, they began to have sexual relations, and ultimately at the end of summer 1957 the appellant bought an apartment in Tel Aviv to live undisturbed with his mistress until the "redeeming" divorce eventuated and they could marry lawfully. Sexual relations were had during the day and not at night, since to have, so to speak, the best of both worlds, the appellant continued to reside in the apartment jointly owned by himself and his lawful wife in Holon. Every evening he slept there without being intimate with his wife in case that would harm the divorce suit he had presented to the Tel Aviv Rabbinical Court in August 1957. For the same reason, as we shall see, he also kept from his wife the fact that he had bought an apartment in Tel Aviv.

           

            The parties differ as to precisely when they began to have sexual relations but both admit that they had such relations: the respondent even became pregnant by the appellant and had an abortion paid for by him.

           

3. In August 1958, about two months after the appellant had registered the apartment in the name of the respondent, the latter began to become estranged from the appellant, after having decided that she could no longer expect her lover's divorce. She proceeded to act with great effect by simply changing the lock of the apartment and barring him access to it. I will not go into the details of the cooling of their relationship but merely note a curious fact which the learned judge found to be the last straw that broke the camel's back:

 

"He put in" she said in evidence, "a very large table which almost fills the room. The table was for a miniature railway. That's his hobby. We had first agreed that after the wedding he would put such a table on to the balcony but not in my room. It hurt that he did not ask me" and so on. The witness Klinger said "I remember that the incident which led to the break in the parties' relationship was in connectionwith the plaintiff's hobby, a miniature railway."

 

            To complete the picture, let me add that the appellant divorced his wife at the end of 1960 and married another woman in 1961. The respondent herself married the second respondent in 1959 and took him into the apartment bought by the appellant. She divorced the second respondent after the action was commenced and for that reason the latter has no longer any standing or interest in the subject matter of the appeal before us.

           

4. A few weeks after the relationship between them was broken off, the appellant commenced an action against the respondent in the Tel Aviv-Yaffo District Court. His main claim was for a declaration that ownership of the apartment was his. He argued that the registration of the apartment was made on the express condition that if for any reason she did not marry him, she would vacate the apartment and transfer it back to him. The respondent's defence was inter alia that the agreement on which the appellant relied was unlawful and could not serve as a cause of civil action. The learned judge regarded this as the only plea he needed to consider and he accepted it and dismissed the claim. The appellant is appealing against the judgment.

 

5. Two questions present themselves to us in this appeal, (a) was the parties' agreement, when the apartment was registered in the respondent's name, lawful or unlawful: (b) if it was unlawful how does that unlawfulness affect the appellant's claim.

 

            I shall begin by saying - what is known to all - that the terms "illegal" or "immoral" are identical twins, which have been used simultaneously and dealt with together in English case law for close on 200 years. Every immoral contract is illegal in every sense and aspect of that notion - Jones v Randall (9). Pearce v Brooks (10). Upfill v Wright (11). Shaw v D.P.P. (12). We can therefore abandon the term "illegal" altogether and examine the case before us from the standpoint of its morality or lack of morality.

 

6. In my opinion the agreement between the appellant and respondent over the registration of the apartment was absolutely immoral. And it was so, whether the consideration for the apartment was the sexual relations between parties for months before registration or the intended lawful marriage upon the appellant divorcing his first wife, and all the more so if both served as the consideration.

 

7. As to the first alternative, there is not one iota of doubt in my mind that in the moral conception of Jews in Israel and abroad extra-marital sexual relations are improper and vile, whether with a prostitute or with a concubine even of the highest rank. Purity of family life has always occupied a prominent place among Jews, and relations with a prostitute or a concubine do not safeguard the family. Observe how Jews normally behave. Does concubinage figure in the life of the Jewish people in the cities of Israel or elsewhere? How many such pairings can we find? It is true that family morals have somewhat declined in modern times and pairings of this kind are not frowned upon quite as they were in past generations but no one can say that the stigma attaching to extra-marital relations has been completely removed. Even those who indulge in such relations cannot rid themselves of the uncomfortable pangs of conscience and the feelings of aversion which frequently visit them.

 

            I do not believe that the progress of mankind lies along the route of freedom from the restraints of the marital bond. Only when children grow on trees will such salvation take place. As long as the child needs its mother's breast and the mother a companion to help her in the difficult task of rearing offspring, the family will not cease and pass from the world. Human society cannot exist without vigil once over its primary cell, the family. Concubinage and "free love" - free to cease - cannot take the place of lawful marriage for they are evanescent, they are overtaken by "a miniature railway" and replaced by a change of locks, as we have well seen in the present case.

           

 8. The fact that the Israeli legislature recognizes the existence of "the reputed spouse" does not attest to the moral rehabilitation of concubinage. The safeguards which a number of laws provide for such a spouse are financial and nothing more, compensation for the material sacrifice made to the other during the subsistence of their relationship. I venture to assert, although I have no evidence, that the legislature mainly had in mind the female "reputed spouse", who is usually the victim of the male instigator. "It is the way of a man to go in search of a woman but it is not the way of a woman to go in search of a man "(Kidd. 2B). Only for fear of being suspected of sexual discrimination did the legislature extend the safeguard to the male "reputed spouse"; to this day we have not heard of a claim made in court by such a male.

 

9. As for the second alternative, a promise of future marriage was in fact the consideration here for the registration of the apartment. I think that an agreement of this kind, when one party is still married to another spouse, is also immoral. I am close to saying that in certain respects it undermines the foundations of family life even more. A little "arithmetic" helps to demonstrate the point. If Reuven the husband of Leah is permitted to engage himself to marry Rachel after divorcing Leah, then by the same token, logically and equitably, he may, whilst still married to Leah, engage to marry Bilhah after divorcing Rachel and to marry Zilpah after he divorces Bilhah. In other words, he may arrange for a kind of "alternate harem" of a number of women as absolute "re-insurance" against some breakdown in his sexual life. And precisely the same thing may be done also by a married woman, for why should she be worse off? Such agreements, even if restricted to one alternative spouse, clearly take from marriage its monogamous character and return it to the age of polygamy which has been forbidden to Jews for over nine centuries or to the age of polyandry which is regarded immoral by all peoples other than primitive tribes in Tibet, the Himalayas or Sumatra.

 

            Conditional engagement with another woman cannot but widen the yawning rift between a man and his lawful wife, as the present case demonstrates. The appellant ceased to have relations with his wife in January 1975. He made the acquaintance of the respondent in May-June of that year and soon afterwards in August, took divorce proceedings. His dual residence in Tel Aviv and Holon, his concealment of his mistress's apartment, was that not done to forestall the financial claims of his wife?  Can such conduct be termed "moral"? I can hardly imagine how such a triangular marriage is other than tainted.

 

            Whilst under Israeli law marriage is not a sacrament. it nevertheless has no place for libertine and licentious behaviour or for "marital" liaisons behind the back or against the wishes of an existing spouse. That is what I suggested above when I said that a married man's conditional engagement with another woman is from one aspect far less moral than the cohabitation of unmarried people.

           

            I have therefore reached the conclusion that the agreement between the appellant and the respondent is immoral in every respect and therefore unlawful.

           

10. I now approach the second question, the effect which the immoral agreement has upon the claim for retransfer of the apartment.

 

            The basic rule a propos unlawful contracts is ex turpi causa non oritur actio and the complementary in pari delicto melior est conditio defendentis. The result is that when both parties are equally "at fault", the plaintiff cannot rely either on an illegal contract in order to enforce it or on its illegality in order to avoid it. Ipso facto the defendant must succeed, even though, as Lord Mansfield said in Holman v Johnson (13) (at p. 120):

           

"The objection that a contract is immoral or illegal...sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff by accident, if I may so say. The principle of public policy is thus: ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, of the transgression of a positive law of this country, there the Court says he has no right to be assisted. It is upon that ground the Court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault, fortior est conditio defendentis."

 

            Similar observations have been voiced by American judges. Where a person seeks the enforcement of a contract which is contrary to the public benefit or one prohibited by public law, the court will refuse its assistance to either party but leave things as they are; in refusing assistance The court does not act in favour of one of the parties or in order to preserve the rights claimed by him but out of its respect and regard for public welfare and the laws of the country: Smythe v Evans (14) cited in McManus v Fulton (15) at p. 698 and Salimond Williams, The Law of Contracts (2nd ed.) pp. 345-46, illustrates the rule as follows:

           

"If, for example, in an illegal contract for the sale of goods the seller were to deliver the goods and sue for the price, the buyer would be entitled to plead that the contract was illegal and void. So if the buyer had paid the price in advance and the seller refused to deliver the goods, the seller would be similarly entitled to the same plea. But if the seller, not being able to get the price, were to sue the buyer for return of the goods, the buyer could plead that they were delivered to him under a contract of sale; and the only reply of the plaintiff would be that the contract could not be relied on by the buyer because it was illegal and therefore void. But this reply is excluded by the rule in question. The plaintiff will not be permitted to establish his claim by any such replication, for it amounts to a reliance on the illegality of a transaction to which he is a party."

 

11. The conclusion that emerges from the foregoing is that in the present instance the plaintiff cannot succeed in his claim, since in order to do so he must necessarily rely on the conditions he stipulated on making the agreement and that agreement was in every possible respect invalid, as I have explained. I also feel that "it sounds ill", as Lord Mansfield pointed out, that one party at fault (the male plaintiff) should suffer loss, whilst the other party at fault (the female defendant) should reap gain. I am aware of the criticism levelled against the above rule by scholars, among them J.K. Grodecki, "In pari delicto" (1958) 71 L.Q.R. 265 ff., but what is to be done? English case law has not changed its position on illegal contracts. Elsewhere (in Jacobs v Kartoz (3)) I referred to the opposite position taken by Jewish law on "sinful" contracts and I pointed out the interesting distinctions which Jewish law draws. In my opinion, it would be right for the Israeli legislature to adopt in this area the recognized principles of Jewish law. So long, however, as it does not, and we continue along the path hewn by English Common Law, we have no choice - notwithstanding its bitter aftertaste and its ill-sounding effect

- but to follow English case law as set out above.

 

12. Accordingly, in my opinion, the appeal should be dismissed. I would not impose costs on the appellant because of the respondent's complicity in the immoral agreement.

 

WITKON J.                I have had the opportunity of reading the judgments of my honourable brethren, Silberg J. and Cohn J., and I join in the conclusions of Cohn J., although I am not at one with him in all his reasons.

 

            The learned judge who heard the case in the District Court, saw two grounds for holding that the parties' agreement was immoral and void. First, it was, in his opinion, an agreement to have extra-marital sexual relations. Secondly, the agreement involved a promise of marriage whilst one of the parties was married to another. Silberg J. relied on these two reasons for the invalidity of the agreement.

           

            In my respectful opinion, the first ground is irrelevant. It is true that the apartment in question served the parties for having intercourse; they lived there as husband and wife for several months. But the apartment - or more precisely the shares representing its ownership - were not registered in the respondent's name for that purpose. Registration was effected out of the parties' wish to make for themselves a common home on their lawful marriage after dissolution of the appellant's existing marriage. There is no reason to assume that the appellant agreed to register the apartment in the name of his lover for the purpose of intercourse alone. For that purpose he might have allowed her to live there as a licensee at will instead of as owner. It follows that in order to succeed in his claim to ownership of the apartment, the appellant has no need to rely on any agreement to have extra-marital relations. This detail- like many other "piquant" details concerning the couple's life in the apartment - is immaterial to the claim itself, and we may or, as it appears to me must, ignore it.

 

            There remains the second and important ground for invalidating the agreement. It raises a serious social problem which has exercised many people in other countries as well. But before I deal with it, I wish to dissociate myself from the view of Cohn J. that even if the agreement is found to be immoral and contrary to public policy, that is not enough to defeat the appellant's claim. In Cohn J.'s opinion, this claim does not depend on the fulfilment of the immoral promise of marriage but on its revocation; when the respondent refused to marry the appellant the sting was removed from any agreement between them and the latter had to retransfer the property she groundlessly occupied. It seems to me, with all respect, that the parties' agreement to enter into marriage is the basis for the cause of action, without which it does not arise. Just as the court would not entertain the woman's claim for damages for breach of promise (if invalid as such), so the man will not be heard to plead that the woman's breach of the agreement to marry has removed all foundation for the registration of the apartment in her name.

           

            Accordingly, the question is whether the agreement on which registration of the property in the respondent's name was based is an immoral agreement and contrary to public policy because at the time it was made one of the parties was married to another. This question Silberg J. answered affirmatively and Cohn J. negatively, and both in their abundant learning brought support from Jewish law. I take no part in this debate on the Halakhah, not only because I hesitate to intervene between such outstanding scholars but because I cannot believe that public opinion is reflected in the law and rules relating to conditional betrothal, Halitzah and conversion. The vast majority of our people does not find in such rules any inspiration regarding the problem confronting us here. If the ordinary reasonable person were asked or the views of the progressive public consulted as to the "morality" of the given agreement, we would receive, not surprisingly, a number of differing and contradictory answers, as various as those that would be forthcoming on this delicate subject among other people and in other countries. These answers and opinions would reflect the outlook of the person questioned, his education, his temperament and character, his entire spiritual and intellectual make-up. The notion of betrothal and conditional betrothal is unlike the notion of a promise of marriage that occupies us here. A man who promises to marry a woman, in the modern understanding, does not betroth her, and the effect of the promise or of its breach is unlike that of betrothal. Hence, whatever the source inspiring a modern Israeli in his view on the instant question, the rule cited by Cohn J. will not, in my opinion, provide the answer.

 

            Furthermore, when the question - which is in truth more sociological than legal - is put to us, we as judges are enjoined to give expression and effect not to our private views but to what appears to us to reflect public opinion, and that means the opinion of the progressive and enlightened section of the public of our time and place. That public may possibly have its own outlook, not identical with that of other peoples, and it need not be said that in such event we would only be guided by the viewpoint of our public. But it seems to me that our public wishes to regard itself as part of the family of enlightened nations and share with them those values which mould the thinking of the entire civilized world. I think therefore that only rarely will any gap be revealed between our people's outlook on such values and the outlook common in other communities in the world. I have already said about the institution of marriage (in Skornik v Skornik (4) at p. 180) that it is of a universal character and that betrothal under Jewish law is not exceptional. I would hesitate to find among the ideas common among us something specific which does not accord with those universal notions.

           

            That is shown by the differences between my learned brethren. Both treat of the significance of the marriage institution as it appears to them in the light of the rules of Jewish law and both arrive at contrary conclusions. My learned brother, Cohn J., finds in the lenient approach of Jewish law an indication that marriage is not to be regarded as a sacrament but as a contract like any other which can be revoked at the wish of the parties without particular difficulty. It seems to me, with all respect, that this is not the entire picture and that one must not overlook (among other things) all the stringencies of Jewish law regarding dissolution of the marriage tie when one side - mainly the man - does not consent to the delivery of a bill of divorce. Moreover, although it is true that Jewish law does not make it difficult for spouses to part, when the marriage has broken down and they agree to be divorced, I would not infer from this that Jewish law manifests an approach to the marriage institution different from that common in other countries. On the one hand, in most countries, including those where the population is largely of the Catholic religion which denies divorce, civil divorce is recognized and the courts do not obstruct but assist in loosening the ties of marriage when the spouses are united in their desire to separate, and a solution is found to the problem presented by children. On the other hand, even among those people who do not lay stress on the "sanctity" of marriage the institution is not treated lightly; and it is also regarded among them as a condition of high significance, created by formal ceremony with attending moral (if not religious) rights and obligations that penetrate every corner of life. If that is to be called "a contract" - and even the English employ this term innumerable times in connection with the marriage covenant - it is a contract sui generis. Nonetheless I do not think that a comparison of our marriage laws with those current in England (or in other countries where monogamy prevails and divorce is available) will bring us closer to a solution of our problem. The same basic premise obtains, that in moral and social contemplation marriage is an institution with roots deeply implanted in man's consciousness, the lynch pin of human society.

 

            But the trouble is that this positive approach to the marriage institution, which we share without difference of principle with other civilized people, does not suffice to give an unambiguous answer to our question, as is clear from the varying views that have emerged among us, a situation in which English judges have also found themselves when considering the perplexities of the matter, to which I shall soon turn. The question, it will be recalled, is whether it is immoral for a married person to make an agreement with another, with the intention of marriage to that person, after dissolution of his existing marriage. The question of "morality" is not a question of "pure" law. The judge who must decide finds himself in a difficult position. As I have already said, the task of the judge is to represent progressive public opinion but he does not possess the tools to ascertain it for certain. In truth it must be said that there may indeed be differences of opinion on the question, and it is not impossible that one or the other approach is necessarily more or less "moral". It seems to me that the source of the bewilderment lies in two matters. The first is that it is difficult to affirm or disaffirm an agreement of this kind in abstracto; not in every instance and in all circumstances can it be found morally defective. Secondly, whoever disallows an agreement for its immorality must do so at the expense of another worthy principle, pacta sunt servanda. The party who relies on a defect in his promise in order to rid himself of it does not do so out of pure motives. In most cases the "guilty" party is found to benefit. The rule that the court must avoid enforcing defective agreements operates generally in favour of such a party and enables him to add wrongdoing to his "guilt". Hence the doubt about the fairness of the rule as a whole and the tendency of the courts today to limit its application.

 

            When the question arose in 1936-37 in England in Fender v Mildmay (8) - a claim for damages for breach of promise given whilst the defendant was still married to another woman - counsel for the plaintiff did not deny the existence of the rule, that such a promise is contrary to public policy, but he argued, successfully, that the rule is inapplicable where the promissor has already obtained a decree nisi in a suit for divorce. The rule that a woman who has been promised marriage by a married man cannot sue for breach of promise (unless she was unaware that he was married) appears in all the textbooks on English Contract law (see, e.g. Cheshire & Fifoot, the Law of Contract (1960) 310). It has also been received in the United States (see Williston on Contracts, vol. 6, para. 1743). In fact, however, the rule is not very old. An agreement of this kind is not found among those agreements that impair marriage, listed in Stephens Commentaries (ed. E. Jenks. 1908) vol. 2, p. 92, or in Anson's Law of Contract (1906) p. 223. In 1908, however, two cases came before the courts, in which a person was sued for breach of promise to marry after the death of his wife and in both the action was dismissed: Spiers v Hunt (5) and Wilson v Carnley (6). The judges gave different reasons. Some thought that such a promise would encourage sexual relations between a man and his fiancee or even arouse in him a desire to kill his wife. Others thought that such a promise was incompatible with the duty of faithfulness existing between spouses.

           

            When Fender v Mildmay (8) came before the House of Lords in 1937, some of the judges regarded it as being without precedent (so Lord Wright at p. 423); the difference between this case and those mentioned above was that here the promise was to marry not after the death of the wife but after divorce and the promise was made when a decree nisi had already been granted. Opinion was divided among all the judges who heard the case. Hawke J. and the majority in the Court of Appeal did not find it proper to depart from the rule laid down in Wilson v Carnley (6), whilst to most of the Lords the fact that the promise was made after the decree nisi so distinguished the cases. As I have indicated, that fact was enough for the majority to treat the promise lawful and valid; everything else they said was obiter. But if we examine the reasons given by the majority, principally Lord Atkin, it is clear that they were not satisfied with the rule itself. Unhesitatingly they rejected the reason for invalidating a promise of this type, that it tended to encourage sexual relations or might move the man to kill his wife. On the other hand, they did not doubt the fact that as long as consortium between married couples existed, betrothal to another must necessarily impair the marriage tie, the moral ideal inherent in it and the legal duty of mutual love and faithfulness. However, in the view of the majority, after the grant of a decree nisi, the cohabitation of the spouses was no longer a reality.

 

            This limitation - that the spouses' relations after a decree nisi are changed - does not rest on any ground other than a realistic approach to the problem of broken marriages, when all hope of restoring marital harmony has gone. The defect, if at all, of a promise of marriage to another at this point was considered by Lord Atkin vis-a-vis the danger of offending against the principle that a person must observe his obligations, and he found that the latter is to be preferred. He thought that after a decree nisi there is no longer, in the vast majority of cases, anything that might be saved. Again, the clear implication of his observations is that it is not the decree nisi which is the decisive turning point in the spouses' life but the deterioration of their relationship which led them to seek divorce. Nothing remains of the marriage, so Lord Atkin infers, except its outward trappings and he denies altogether a rule of public policy which impugns an agreement for the reason alone that it is inconsistent with another agreement. It is apposite to stress here the view of the minority judges, mainly Lord Russell. He analyses the then current English divorce law and shows most persuasively that in fact no difference exists in situation before and after a decree nisi. Apart from the duty of consortium, the mutual obligations of the spouses do not change; an act of adultery occurring between decree nisi and decree absolute remains an act of adultery with all its legal consequences. Lord Russell emphasizes indeed the fact that the majority arrived at the view they took not because of any special importance attaching to the decree nisi but for more general reasons, the source of which was their willingness to recognize a new ground for defeating agreements for "public policy" reasons and to come to the assistance of a person who has broken his promise when it is clear that at the time he made it nothing remained of the marriage bond except its external form. Lord Wright in-fact admits (at p. 433) that many of his arguments would apply even where the spouses have only separated, the more so after a divorce petition has been presented, but he did not think that any certainty of result flowed from these preliminary stages and that the situation only really crystallized upon the grant of a decree nisi.

 

            In this country divorce is not decreed by two stages, nisi and absolute. The learned District Court judge expressed the interesting view that the position in England after decree nisi and before decree absolute is similar to that in Israel after Decree of divorce and before delivery of the bill of divorce. In my opinion, this comparison cannot be drawn. In the present case it was found as a fact that marital harmony between the spouses had not existed for many years. Although when the appellant promised to marry the respondent, he had not even petitioned for divorce, such a petition had already been pending for a year when in 1958 the apartment was registered in the respondent's name. At this point alone, it seems to me, is it important for us to decide our attitude on the validity or invalidity of the parties' agreement. If we follow the realistic approach taken by Lord Atkin, as I understand his judgment, I would say that at this point the relations between the appellant and his wife had been shaken to their foundations and there no longer remained between them that bond of mutual love and faithfulness that could still be affected by his engagement with the respondent.

           

            I have indeed been exercised by the question but have finally reached the conclusion that on an ultimate balancing of the pros and cons there is insufficient reason to invalidate the agreement. The English rule, as I have tried to show, does not rest on firm foundations and foremost judges have levelled objections at it. I favour their approach for its honesty and its adherence to reality. In bitter reality not every marriage fares well and when it reaches a crisis, it is difficult to speak seriously of the bonds of love and faithfulness between the spouses, which do not tolerate engagement with another after they have been severed. With this, I do not intend to justify the promise of a married person to marry another after obtaining a divorce. In most, if not all, cases there is reason for "faulting" the agreement. Good sense would demand that the existing marriage be brought to an end before the new engagement is entered into. But in so saying I am still very far from voiding the promise as something immoral and therefore illegal. So to do is only possible by sacrificing the doctrine of the sanctity of contract. It appears to me that this would be too high a price for the purpose, the value of which is not free of doubt. As is well known, a desirable and just result is for the most part not attained by avoiding the agreement. In such a situation, the rule that "the agreement should benefit from the doubt" is operative. Accordingly I am also of the opinion that the appeal should be allowed.

 

 

OLSHAN P.               I am of same mind as Witkon J. that our concern here is not with an agreement for extra-marital relations. That was not the purpose for which the apartment was registered in the respondent's name. Likewise I concur with the reservations of Witkon J. about the view of Cohn J. that even if the agreement is found to be immoral and contrary to public policy, that would not defeat the appellant's claim. The apartment was registered in the respondent's name with the appellant's consent in accordance with the agreement between them. The appellant sought to cancel that registration because the respondent had broken the agreement, in other words, in reliance on an implied term of the agreement that upon a breach by the respondent she would have to retransfer the property. If the agreement were illegal, the appellant's claim would be defeated.

 

   I have wrestled with the question whether the agreement should be regarded as being illegal. I could not close my eyes to the weighty reasons for granting the appeal but in the end the balance came down on the side of the conclusion reached by Silberg J.

           

            I will mention one of many reasons.

           

            Not infrequently in marital relations it may occur when the wind of change affects, one of the spouses and disrupts domestic harmony and divorce proceedings are even commenced, that reconciliation may take place - either under the influence of the rabbinical judges or of members of the family and the like. An agreement, however, of the present kind may prevent such a possibility, since it creates a situation where the husband who made the agreement can no longer resile. In other words, the husband had engaged with another to destroy his marriage bond with his wife. In this regard, the agreement widens the breach between the spouses and may undermine their family life - an institution recognized by society as one of the foundations of social existence. I do not think that such an agreement is in accord with existing public morality.

 

BERINSON J. I join in the opinion of my learned friend. Witkon J., and for the reasons he has given this appeal should be granted.

 

Appeal granted (Olshan P. and Silberg J. dissenting)

Judgment given on May 15, 1963.

LCA 4716/04

Hotels.com

v

1.       Zuz Tourism Ltd

2.       Hotels Online Ltd (formal respondent)

 

 

The Supreme Court sitting as the Court of Civil Appeals

[7 September 2005]

Before Vice-President M. Cheshin and Justices A. Grunis, E. Arbel

 

Application for leave to appeal the decision of the Jerusalem District Court (Judge M. Drori) on 4 April 2004 in CApp (Jer) 1929/02.

 

Facts: The applicant and the first respondent entered into an exclusive marketing agreement in February 2000. This agreement contained an arbitration clause stating that disputes between the parties would be resolved by arbitration which shall take place in Texas. In June 2002, the first respondent filed an action in Israel against the applicant and the second respondent, on the grounds that the second respondent was marketing the services of the applicant contrary to the agreement. The applicant filed a motion for a stay of proceedings on account of the arbitration clause in the agreement. The District Court denied the application, and the applicant applied for leave to appeal the District Court’s decision. The application was heard as an appeal.

 

The main question before the Supreme Court was whether the joinder of the second respondent, who was not a party to the agreement containing the arbitration clause, justified refusing a stay of proceedings on the ground that otherwise the litigation would be split between two proceedings. Under Israeli law, the court has discretion to refuse a stay of proceedings in such a case with regard to domestic arbitration agreements. The question before the court was whether the court had such discretion in a case of an international arbitration agreement that is subject to an international convention. The parties agreed that the arbitration clause was subject to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958. This convention, known also as the New-York convention, was ratified by Israel in 1959.

 

Held: The Israeli court does not have the same discretion to stay proceedings under s. 6 of the Arbitration Law regarding an international arbitration agreement as it does under s. 5 of the Arbitration Law regarding a domestic arbitration agreement. Under s. 6 of the Arbitration Law together with art. 2(3) of the New York Convention, the court is required to stay proceedings unless it finds that the arbitration agreement ‘is null and void, inoperative or incapable of being performed.’ It cannot refuse a stay of proceedings on additional discretionary grounds. The existence of a litigant who is not a party to the arbitration agreement does not make the agreement ‘null and void, inoperative or incapable of being performed.’ Consequently, the court is required to order a stay of proceedings in such circumstances.

 

Application granted. Appeal allowed.

 

Legislation cited:

Arbitration Law, 5728-1968, ss. 5, 6.

 

Israeli Supreme Court cases cited:

[1]  CA 6796/97 Yaakov Berg & Sons (Furniture) Ltd v. Berg East Importers Ltd [2000] IsrSC 54(1) 697.

[2]  LA 201/85 Nitzanei Oz Workers Cooperative Agricultural Settlement Ltd v. Balhassan [1985] IsrSC 39(3) 136.

[3]  LCA 985/93 Alrina Investment Corporation v. Barki Feta Humphries (Israel) Ltd [1994] IsrSC 48(1) 397.

[4]  CA 307/71 Unico Reutman Public Works Co. Ltd v. Shimshon Insurance Co. Ltd [1972] IsrSC 26(1) 368.

[5]  CA 4601/02 Rada Electronic Industries Ltd v. Bodstray Co. Ltd [2004] IsrSC 58(2) 465.

[6]  LCA 1407/94 Mediterranean Shipping Co. S.A. v. Crédit Lyonnais (Suisse) S.A. [1994] IsrSC 48(5) 122.

[7]  CA 778/03 Inter-Lab Ltd v. Israel Bio Engineering Project [2003] IsrSC 57(5) 769.

 

Israeli District Court cases cited:

[8]  CC (TA) 842/87 General Electric Corp. of New York v. Migdal Insurance Co. Ltd (unreported).

[9]  CApp (Hf) 213/99 Egnatia Shipping Limited v. Israel Discount Bank Ltd (unreported).

[10]  CA (TA) 3060/03 University of Leicester v. Cohen (unreported).

 

American cases cited:

[11]  Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974).

[12]  Mitsubishi Motors Corporation. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985).

[13]  Riley v. Kingsley Underwriting Agencies Ltd., 969 F. 2d 953 (1992).

[14]  Intergen N.V. v. Grina, 344 F. 3d 134 (2003).

 

Canadian cases cited:

[15]  City of Prince George v. A.L. Sims & Sons Ltd. (1995) 61 B.C.A.C. 254 (B.C.C.A.).

[16]  BWV Investments Ltd. v. Saskferco Products Inc. [1995] 119 D.L.R. (4th) 577 (Sask. C.A.).

[17]  Kaverit Steel and Crane Ltd. v. Kone Corp. (1992) 120 A.R. 346.

 

English cases cited:

[18]  Lonrho Ltd v. Shell Petroleum Company Ltd, unreported decision of High Court of Justice, Chancery Division, on 31 January 1978; see Yearbook, Commercial Arbitration, vol. IV–1979, 320.

[19]  Etri Fans Ltd v. NMB (UK) Ltd [1987] 2 All ER 763.

 

For the applicant — E.A. Naschitz.

For the respondents — D. Eidelaman, R. Preiss.

 

 

JUDGMENT

 

 

Justice A. Grunis

1.    This is an application for leave to appeal the decision of the Jerusalem District Court of 4 April 2004 (the honourable Judge M. Drori), in which the applicant’s motion for stay of proceedings in an action filed by the first respondent against the applicant and against the second respondent, was denied.

The factual background

2.    The applicant (hereafter — hotels.com) is a foreign company registered in the United States. Its business is marketing tourism services, and especially hotel rooms, on the Internet. It should be noted that the former name of hotels.com was Hotel Reservations Network Inc. The first respondent (hereafter — Zuz) and the second respondent (hereafter — Hotels Online) are Israeli companies that do business in the field of tourism. On 29 February 2000, hotels.com and Zuz entered into an agreement in which it was stated that Zuz would market in Israel the tourism services offered by hotels.com, in return for a certain commission (hereafter — the agreement). Clause 11 of the agreement includes an arbitration clause, according to which disputes between the parties with regard to the agreement shall be decided within the framework of an arbitration proceeding, which will take place in the State of Texas in the United States (hereafter — the arbitration clause). Because of the importance of the arbitration clause for our purposes, we shall cite it in full:

‘The parties agree that any dispute under this agreement will be subject to binding arbitration under the commercial rules of the American Arbitration Association. The arbitration shall be conducted in Dallas County, Texas, before neutral arbitrators.’

The agreement does not include an express provision with regard to the law governing the agreement or the arbitration proceeding, but refers to the rules of the American Arbitration Association. In clause 12 of the agreement, it is stated that the Internet site that Zuz will maintain under the agreement shall be the only site in Israel in the Hebrew language through which hotels.com will market its services during the term of the agreement:

‘Zuz Tourism Ltd will be the only Internet site in Hebrew in Israel that we will sign on to integrate with per length of contract [sic[. This is from date of signed contract 29.2.00.’

3.    According to Zuz, it discovered in May 2002 that the services of hotels.com were being marketed on the Internet site of Hotels Online. Consequently, on 10 June 2002 Zuz filed an action in the Jerusalem District Court against hotels.com and against Hotels Online, in which it petitioned for declaratory relief that the aforesaid marketing activity constitutes a breach of the agreement. Zuz also petitioned for the relief of specific enforcement and for a permanent injunction prohibiting the marketing of the services of hotels.com on any Internet site other than that of Zuz. On the same day, Zuz also applied for temporary relief according to which, inter alia, the marketing of the services of hotels.com on the Internet site of Hotels Online be prohibited. For its part, hotels.com filed an application for a stay of proceedings on account of the arbitration clause in the agreement. On 4 April 2004, the District Court denied both the application for temporary reliefs and the application for a stay of proceedings. In the decision it was stated that a stay of proceedings against hotels.com was likely to result in an undesirable procedural split, in view of the fact that Hotels Online was not a party to the arbitration clause and thus no stay of proceedings could be ordered with regard to it. This split and the concern that conflicting findings would be reached in the two different proceedings, led to the decision of the District Court not to grant the application for a stay of proceedings. Admittedly, the lower court emphasized that the relevant provision of law in this case was s. 6 of the Arbitration Law, 5728-1968 (hereafter — the Arbitration Law or the law). This is because of the application of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958, enacted in New York in 1958. Notwithstanding, it was held that, like s. 5 of the Arbitration Law, s. 6 of the law also gave the court discretion not to stay the proceedings in cases like this one. The application for leave to appeal is directed against the denial of the application for a stay of proceedings. Within the application, hotels.com also requested a stay of proceedings against Hotels Online. In August 2004, after the application for leave to appeal was filed, hotels.com applied to the American Arbitration Association in the United States with a request to file an action against Zuz under the arbitration clause (hereafter — the arbitration request). On 19 September 2004, the District Court gave temporary relief, according to which hotels.com was prohibited from continuing the arbitration proceedings in the United States. On 14 October 2004, this court (Justice Y. Türkel) issued an order that the aforesaid relief would remain in force until the decision was given in the application for leave to appeal, and that Zuz’s action would be stayed until then. We decided to hear the application as if leave had been granted and an appeal had been filed pursuant to the leave granted.

The legal framework

4.    The rule is that consent to submit any matter to arbitration does not negate the subject-matter jurisdiction of the court to hear the matter (CA 6796/97 Yaakov Berg & Sons (Furniture) Ltd v. Berg East Importers Ltd [1], at p. 706; LA 201/85 Nitzanei Oz Workers Cooperative Agricultural Settlement Ltd v. Balhassan [2], at p. 139). Notwithstanding, when an action is filed in court on a matter that was the subject of an arbitration agreement, the court has the power to stay the proceedings in the action. Thereby, a breach of the arbitration agreement is prevented. The main provision of the law that governs the issue of a stay of proceedings is found in s. 5 of the Arbitration Law:

‘5. (a) If an action is filed in court with regard to a dispute that it was agreed to submit to arbitration, and a litigant who is a party to the arbitration agreement applies to stay the proceedings in the action, the court shall stay the proceedings between the parties to the agreement, provided that the applicant was willing to do everything necessary to carry out the arbitration and continue it, and he is still prepared to do so.

(b) An application for a stay of proceedings may be filed in a statement of defence or in another way, but not later than the day on which the applicant first argued on the merits of the matter in the action.

(c) The court may refuse to stay the proceedings if it finds a special reason why the dispute should not be adjudicated in arbitration.’

Thus we see that when the conditions included in the section are fulfilled, the court will, as a rule, stay the proceedings between the parties to the arbitration agreement, unless it finds that there is a special reason why the dispute should not be adjudicated in arbitration. When considering whether to order a stay of proceedings in the action, the court may take various considerations into account (for a discussion of these considerations, see S. Ottolenghi, Arbitration — Law and Procedure (third extended edition, 1991), at pp. 126-145). In this context, the question arises as to how the court should act in cases where an application to stay proceedings is filed by some of the defendants who are a party to an arbitration agreement with the plaintiff, when there are other defendants who are not a party to this agreement. The question arises because it is not possible to compel someone who is not a party to the arbitration agreement to take part in the arbitration proceeding. Therefore, granting the application to stay the proceedings in such a case will lead to a split in the proceedings: the dispute between the plaintiff and the defendants who are party to the arbitration agreement will be adjudicated within the framework of an arbitration proceeding, whereas the dispute between the plaintiff and the other defendants (those who are not parties to the arbitration agreement) will be adjudicated before the court. Such a split may lead to conflicting conclusions and findings and is also not desirable for practical reasons. On the other hand, denying the application for a stay of proceedings will allow the breach of the contractual consent between the parties to the arbitration agreement. In the case law of this court, it is possible to find traces of different approaches with regard to this issue. In a decision from 1993 that addressed this issue, it was held, by a majority, that the court should examine the existence of two conditions (which were named ‘the two-stage test’): (a) is the joinder to the action of the defendant who is not a party to the arbitration agreement a genuine one, meaning that it was not done in order to evade the obligation to settle the dispute within the framework of arbitration (procedural necessity); (b) does holding the proceedings within one framework, without a split, constitute a condition for the plaintiff being able to obtain effective relief (substantive necessity). If the court is persuaded that both of the aforesaid questions should be answered in the affirmative, then there exists a special reason not to order a stay of the proceedings (the majority opinion in LCA 985/93 Alrina Investment Corporation v. Barki Feta Humphries (Israel) Ltd [3]; for another approach, see the minority opinion of Justice M. Cheshin in Alrina Investment Corporation v. Barki Feta Humphries (Israel) Ltd [3] and also CA 307/71 Unico Reutman Public Works Co. Ltd v. Shimshon Insurance Co. Ltd [4]; for a similar problem with regard to an exclusionary forum selection clause, see CA 4601/02 Rada Electronic Industries Ltd v. Bodstray Co. Ltd [5], at pp. 478-479).

5.    An additional provision concerning a stay of proceedings on account of an arbitration agreement is found in s. 6 of the Arbitration Law:

‘If an action is filed in court with regard to a dispute that it was agreed to submit to arbitration, and the arbitration is subject to an international convention to which Israel is a party, and the convention contains provisions concerning a stay of proceedings, the court shall exercise its power under section 5 in accordance with those provisions and subject thereto’ (emphasis added).

As can be seen from the wording of the aforementioned section, it does not apply to every case of an application for a stay of proceedings based on the existence of an arbitration agreement. Its application is limited merely to those cases where the arbitration is subject to an international convention to which Israel is a party, and that convention contains provisions concerning a stay of proceedings. With regard to such cases, the section provides that the power of the court vis-à-vis the issue of a stay of proceedings, as set out in s. 5, shall be exercised in accordance with the provisions of the convention and subject thereto. In other words, s. 6 of the law refers to the provisions of the convention concerning a stay of proceedings, and grants them preferential status to the provision of s. 5 of the Arbitration Law.

6.    In our case, there is no dispute between the parties that the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (hereafter — the convention or the New York Convention) applies to the arbitration clause. This convention, which was enacted in New York in 1958, was intended to replace the Geneva Protocol on Arbitration Clauses, 1923 (Treaties 4, p. 67) (hereafter — the Geneva Protocol). The convention was ratified by Israel in 1959 (the text of the convention was published in Treaties 10, p. 1). The relevant provision for our purposes is art. 2 of the convention:

‘Article II

1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.

2. The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.

3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed’ (emphases added).

From the wording of art. 2(3) of the convention it can be seen that the court is required to order the referral of the parties to an arbitration proceeding, unless one of the three exceptions is satisfied: the arbitration agreement is null and void, inoperative or incapable of being performed.

The scope of the dispute

7.    Zuz filed its action both against hotels.com and against Hotels Online. The agreement between Zuz and hotels.com includes an arbitration clause, according to which disputes concerning the agreement will be decided within the framework of an arbitration proceeding that will take place in the State of Texas in the United States. On the other hand, there is no arbitration agreement between Zuz and Hotels Online. The lower court reached the conclusion that the joinder of Hotels Online to the action satisfied the two-stage test adopted in Alrina Investment Corporation v. Barki Feta Humphries (Israel) Ltd [3]. In this respect, it was held that the procedural necessity of joining Hotels Online to the action arose from the fact that it was the party that allegedly violated the exclusive right granted to Zuz under the agreement. The lower court also held that splitting the proceedings — in such a way that the dispute between Zuz and hotels.com would be adjudicated in an arbitration proceeding in the United States, whereas the dispute between Zuz and Hotels Online would be adjudicated before the courts in Israel — may lead to conflicting determinations and thereby prejudice Zuz’s right to obtain effective relief. We are prepared to assume, without ruling on this issue, that the District Court was right in determining that there is both a procedural necessity and a substantive necessity for joining Hotels Online to Zuz’s action. Had the only provision of law relevant to our case been the one in s. 5 of the law, then in view of the aforesaid assumption and on the basis of the case law rule laid down in the majority opinion in Alrina Investment Corporation v. Barki Feta Humphries (Israel) Ltd [3], it would apparently be necessary to reach the conclusion that there is no basis for staying the proceedings against hotels.com. However, in the case before us the provisions included in s. 6 of the law and in art. 2(3) of the convention apply. Consequently, according to s. 6 of the law, the court is required to determine the issue of stay of proceedings in accordance with the provisions of the convention. The question that arises in our case is therefore as follows: in cases where s. 6 of the law and art. 2(3) of the convention apply, is the court competent to refrain from staying proceedings because of the joinder of a defendant who is not a party to the arbitration agreement? In order to answer this question, we are required to consider two secondary questions that are interrelated: first, do the three exceptions included in art. 2(3) of the convention constitute a closed list? In other words, is the court compelled to stay the proceedings in every case where none of the three aforesaid exceptions apply? Second, does the fact that there is a defendant who is not a party to the arbitration agreement fall within one of the three exceptions in art. 2(3) of the convention? Let us now turn to consider these issues.

The scope of discretion given to the court under s. 6 of the law together with art. 2(3) of the convention

8.    The question of the scope of discretion given to the court under s. 6 of the law together with art 2(3) of the convention was considered in the judgment of LCA 1407/94 Mediterranean Shipping Co. S.A. v. Crédit Lyonnais (Suisse) S.A. [6]. According to the approach of Justice M. Cheshin, the referral of the parties to arbitration under the aforesaid provisions is an obligatory referral. This means that when the conditions set out in s. 6 of the law and in art. 2(3) of the convention are satisfied, the court is compelled to stay the proceedings and refer the parties to an arbitration proceeding, unless one of the exceptions set out in art. 2(3) of the convention applies (ibid. [6], at pp. 129-132). On the other hand, Justice T. Strasberg-Cohen questioned ‘whether the interpretation that denies the court discretion is the only possible and proper one’ (ibid. [6], at p. 128). Since it was not necessary to rule on that issue within the framework of those proceedings, she left undecided the question whether the list of exceptions in art. 2(3) of the convention constitutes a closed list (ibid. [6], at pp. 127-128). It should also be noted that there are conflicting decisions of the District Courts on this issue (see CC (TA) 842/87 General Electric Corp. of New York v. Migdal Insurance Co. Ltd [8]; CApp (Hf) 213/99 Egnatia Shipping Limited v. Israel Discount Bank Ltd [9]; for a different approach, see CA (TA) 3060/03 University of Leicester v. Cohen [10]).

9.    In order to establish the scope of the court’s discretion under s. 6 of the law in conjunction with art. 2(3) of the convention, let us first turn to the language of these provisions. Section 6 of the law provides that the power of the court under s. 5 of the law — which deals, as aforesaid, with stay of proceedings — shall be exercised in accordance with and subject to the provisions of the convention governing the arbitration (para. 5 supra). Article 2(3) of the convention provides in mandatory language that the court ‘shall… refer’ the litigants to arbitration, unless one of the three exceptions listed in the article is satisfied (para. 6 supra). It would appear that the manner in which the two provisions are worded leads to the conclusion that if one of the three exceptions mentioned in art. 2(3) of the convention is not satisfied, then as a rule the court is required to order a stay of the proceedings. It should be noted that art. 4 of the Geneva Protocol, which includes a similar provision to the one in art. 2(3) of the convention, is also worded in a way that compels the court to refer the dispute to arbitration when the conditions set out therein are satisfied. Moreover, it appears that, according to the wording of the two aforesaid provisions, a situation in which there is a litigant who is not a party to the arbitration agreement does not fall within any of the three exceptions in art. 2(3) of the convention. As I shall clarify later, I am of the opinion that considerations concerning the purpose of s. 6 of the Arbitration Law and of art. 2(3) of the convention lead to a similar conclusion.

10. One of the main purposes of the convention is effective enforcement of international arbitration agreements, by means of setting uniform standards according to which such agreements will be enforced (A.J. van den Berg, The New York Arbitration Convention of 1958 — Towards a Uniform Judicial Interpretation (1981), at p. 4; regarding the importance of giving a uniform interpretation to the convention, see van den Berg at pp. 1-6). The concern that was expressed in this regard is that courts of the states that are parties to the convention will be deterred from sending local defendants to litigate within the framework of an arbitration proceeding in a foreign state, and for that reason will tend to refrain from honouring international arbitration agreements (see Scherk v. Alberto-Culver Co. [11], at footnote 15, and the references cited there). Such a situation is likely to cause substantial difficulty in achieving certainty, which is an essential component in the realm of international commerce. It is also likely to provide an incentive for parties to turn to the courts in their own country, in order to bring about a situation in which the dispute is adjudicated in the forum that is preferable to them. This ‘competition’ may result in conflicting decisions of courts in different countries, thereby increasing uncertainty and creating an undesirable situation. The aforesaid reasons led the United States Supreme Court to distinguish between international arbitration agreements, at least those that concern the commercial sphere, and arbitration agreements that do not have an international aspect. It was held that there are situations where international arbitration agreements should be honoured, even in cases where there would be no basis for honouring identical domestic arbitration agreements (Scherk v. Alberto-Culver Co. [11]; Mitsubishi Motors Corporation. v. Soler Chrysler-Plymouth, Inc. [12]). Against this background, let us now turn to examine comparative law in so far as it concerns the interpretation of art. 2(3) of the convention.

11. It would appear that there is a real similarity in the way in which art. 2(3) of the convention has been interpreted in many of the common law countries. The rule that has been laid down in this respect is that the clause is of a binding character. This means that if none of the three exceptions mentioned in the article apply, the court is required to stay the proceedings and refer the parties to an arbitration proceeding, without exercising any discretion in the matter (van den Berg, The New York Arbitration Convention of 1958 — Towards a Uniform Judicial Interpretation, supra, at pp. 135-137). The aforesaid rule is followed, inter alia, in the United States (Riley v. Kingsley Underwriting Agencies Ltd. [13]; Intergen N.V. v. Grina [14]), Canada (City of Prince George v. A.L. Sims & Sons Ltd. [15]; BWV Investments Ltd. v. Saskferco Products Inc. [16]) and England (Lonrho Ltd v. Shell Petroleum Company Ltd [18]). We should also point out that until the enactment of the Arbitration Act 1996, there existed in England a clear distinction, for the purposes of the issue of stay of proceedings, between domestic arbitration agreements and international arbitration agreements. Whereas with regard to domestic arbitration agreements the court had discretion not to order a stay of proceedings, with regard to international arbitration agreements the courts were obliged to order a stay of proceedings, unless one of the exceptions mentioned in the convention was satisfied. In 1996 the law was changed and now the English courts do not have discretion on the question of stay of proceedings even with regard to domestic arbitration agreements (D. Sutton and J. Gill, Russell on Arbitration (twenty-second edition, 2003), at pp. 18-19; with regard to the rule in England before the 1996 amendment, see M.J. Mustill and S.C. Boyd, Commercial Arbitration (second edition, 1989) at pp. 462-483).

Moreover, in addition to the rule that art. 2(3) of the convention is of a binding character, it has been held that a situation in which one or more of the defendants is not a party to the arbitration agreement does not fall within any of the three exceptions in art. 2(3) of the convention. In other words, the existence of a litigant who is not a party to the arbitration agreement does not make the arbitration agreement that exists between all or some of the other litigants null and void, inoperative or incapable of being performed. Therefore, in a situation of this kind, the court is obliged to order a stay of proceedings with regard to those litigants who are party to the arbitration agreement (Yearbook, Commercial Arbitration, vol. XXVIII–2003, 637-639; van den Berg, The New York Arbitration Convention of 1958 — Towards a Uniform Judicial Interpretation, supra, at pp. 161-168). This rule is followed, inter alia, in Canada (Kaverit Steel and Crane Ltd. v. Kone Corp. [17]; City of Prince George v. A.L. Sims & Sons Ltd. [15]) and in England (Lonrho Ltd v. Shell Petroleum Company Ltd [18]).

12. We see that considerations of certainty and the fear of international arbitration agreements not being honoured due to a preference for local litigants' interests, have led foreign courts to adopt an interpretational approach that restricts the scope of discretion with regard to a stay of proceedings vis-à-vis international arbitration agreements. In this respect, we should mention two additional considerations that are unique to the situation in which one of the litigants is not a party to the arbitration agreement: first, a significant number of arbitration agreements that stipulate to the holding of an arbitration in a foreign state also include a clause that applies the law of that state (or another foreign law) to the matter. If a stay of proceedings is not given with regard to such agreements because of the existence of an additional defendant who is not a party to the arbitration agreement, a question is likely to arise with regard to the law that should be applied to the dispute between the plaintiff and the defendant who is a party to the arbitration agreement. If we say that the court in Israel is required to apply the foreign law, then there will occur a split of a different kind to the one we mentioned: the dispute between the plaintiff and the defendant who is a party to the arbitration agreement will be decided according to the foreign law, whereas the dispute between the plaintiff and the defendant who is not a party to the arbitration agreement will be decided according to Israeli law. In such a situation there is a concern that conflicting decisions will be made, and therefore the justification underlying the refusal to stay proceedings is significantly weakened. On the other hand, if we rule that the whole matter should be decided in accordance with Israeli law, we shall find ourselves significantly changing the material rights of the parties to the arbitration agreement, in addition to giving judicial approval to the breach of the arbitration agreement. This increases the fear of uncertainty with regard to international arbitration agreements (for a discussion of this issue with regard to internal arbitration agreements, see the minority opinion of Justice M. Cheshin in Alrina Investment Corporation v. Barki Feta Humphries (Israel) Ltd [3], at pp. 406-408). Admittedly, in this case there is no express provision in the agreement concerning the applicable law, but we should remember that our ruling articulates a general principle. Moreover, Zuz does not claim that Israeli law governs the agreement. Even if the claim had been made, it would have been difficult to accept it. Agreeing to hold the arbitration in Texas certainly does not imply that Israeli law is applicable. Second, refraining from staying proceedings despite the existence of an international arbitration agreement, for the reason that one or more of the defendants are not party to the arbitration agreement, may create an additional difficulty. Admittedly, as a result of declining to stay the proceedings, a split of the case will be avoided, in the sense that the plaintiff’s action against the defendant who is a party to the arbitration agreement — which should have been adjudicated within the framework of arbitration — will be decided together with the action against the defendant who is not a party to that agreement. However, this cannot prevent the defendant who is a party to the arbitration agreement from acting under the agreement and filing an action with regard to precisely the same matter before the arbitrator in the foreign country. This is what hotels.com has done in the case before us. The result would be that the dispute between the parties to the arbitration agreement would be split and heard before two different tribunals: the action of the one party will be heard by the courts in Israel, whereas the action of the other party will be decided by the arbitrator abroad. It thus follows that refraining from staying the proceedings, albeit preventing a split in one respect, creates a split of the proceedings in another respect, with all that this implies. In order to prevent this new split, the court in Israel will be required to issue an injunction against the defendant who is a party to the arbitration agreement, prohibiting him from continuing his action before the arbitrator and compelling him to litigate also as a plaintiff before the courts in Israel. This would result in another significant departure from the contractual consent between the parties to the arbitration agreement (with regard to an injunction restraining foreign proceedings, see CA 778/03 Inter-Lab Ltd v. Israel Bio Engineering Project [7]).

13. I am of the opinion that the aforementioned considerations lead to the conclusion that the court’s scope of discretion under s. 6 of the law, together with art. 2(3) of the convention, is significantly narrower than its scope of discretion under s. 5 of the law. When dealing with arbitration that is governed by the convention and the relevant requirements in s. 6 of the law and art. 2(3) of the convention (such as the requirement that the stay of proceedings has been requested by a litigant who is a party to the arbitration agreement) are satisfied, as a rule the court is required to order a stay of proceedings unless one of the three exceptions in the aforesaid art. 2(3) exists (for support for this position, see Ottolenghi, at pp. 150-156; for a discussion of the question of the existence of the requirements listed in s. 6 of the law and in art. 2(3) of the convention, cf. Mediterranean Shipping Co. S.A. v. Crédit Lyonnais (Suisse) S.A. [6]). This result is consistent with the language of the law and with the language of the convention. It is also consistent with one of the main purposes of art. 2(3) of the convention: promoting legal certainty with regard to international arbitration agreements, by removing the concern that courts in the various countries will tend to prefer the interests of the local litigant, and therefore will refrain from honouring international arbitration agreements that stipulate to legal proceedings in a foreign country. I am prepared to assume that there may be exceptional cases in which the court may refuse to stay proceedings, even if none of the aforesaid three exceptions is satisfied. However, these cases will be rare (cf. Etri Fans Ltd v. NMB (UK) Ltd [1987] 2 All ER 763). It should be emphasized that our decision in these proceedings concerns only arbitrations that are governed by the New York Convention. It is possible that in certain cases another international convention will apply. As stated above, s. 6 of the law provides that when the arbitration is governed by an international convention to which Israel is a party, and the convention includes provisions concerning a stay of proceedings, the court shall exercise its authority under s. 5 of the law ‘in accordance with those provisions and subject thereto’.

14. Indeed, no one disputes that there are weighty reasons that support a refusal to stay proceedings in cases where some of the litigants are not parties to the arbitration agreement, at least in certain circumstances (for details of the reasons, see the minority opinion of Justice M. Cheshin in Alrina Investment Corporation v. Barki Feta Humphries (Israel) Ltd [3], at p. 405). These reasons are what led the majority in Alrina Investment Corporation v. Barki Feta Humphries (Israel) Ltd [3] to the conclusion that within the framework of s. 5 of the law, the court may, in circumstances of this kind, refuse to stay proceedings notwithstanding the existence of an arbitration agreement, provided that the two-stage test is satisfied (see para. 4 supra). In any case, it should be remembered that we are concerned with arbitration agreements that are subject to the convention, and are therefore governed by s. 6 of the law, and not with domestic arbitration agreements, which are governed by s. 5 of the law. With regard to international arbitration agreements it should be held that the fact that there is a litigant who is not a party to the arbitration agreement does not fall within any of the three exceptions in art. 2(3) of the convention. In other words, this circumstance does not constitute, as a rule, a reason for the court to refuse to order a stay of proceedings, in so far as arbitration agreements that fall within the scope of s. 6 of the law are concerned. The District Court therefore erred in refusing to stay the proceedings for the reason that Hotels Online, which is one of the defendants in Zuz’s action, is not a party to the arbitration clause.

Additional arguments

15. In its response to the application for leave to appeal, Zuz raises additional arguments that do not concern the question of the interpretation of s. 6 of the law and art. 2(3) of the convention, which we have discussed up to this point. I shall address two of these arguments, which require consideration. According to Zuz, hotels.com acted in bad faith when it submitted the arbitration request in the United States. As aforesaid, this request was submitted in August 2004, after the lower court gave its decision and after the application for leave to appeal was filed before us. Despite this, within the arbitration request hotels.com refrained from mentioning the existence of the proceedings taking place in Israel, including the decision of the District Court. According to the argument, the aforesaid manner of conduct is sufficient to lead to the denial of the application of hotels.com. Admittedly, in certain circumstances the appeals court may take into account events that took place after the decision of the lower court was issued. I am also prepared to assume that the duty of good faith extends also to proceedings under ss. 5 and 6 of the law (see the opinion of President M. Shamgar in Mediterranean Shipping Co. S.A. v. Crédit Lyonnais (Suisse) S.A. [6], at p. 127). Notwithstanding, I cannot accept Zuz’s argument. The subject of the District Court’s decision is the application for a stay of proceedings in an action filed by Zuz, on the grounds that there is an arbitration clause. The decision does not deal with a future action of hotels.com against Zuz. All that was held in the decision is that there is no basis for a stay of proceedings with regard to the action of Zuz against hotels.com. Since this is the case, it cannot be said that the arbitration request filed by hotels.com in the United States is tainted by bad faith. Admittedly, within the arbitration request, hotels.com should have mentioned the proceedings that are taking place in Israel and the decision of the lower court. However, I am of the opinion that the failure to mention this fact does not, in and of itself, justify denying the appeal. I will further add that the concern of a split in the litigation between two different tribunals, which has occurred de facto in this case, is one of the reasons that led me to the conclusion concerning the proper interpretation of s. 6 of the law and art. 2(3) of the convention (see para. 12 supra).

16. Another issue raised by Zuz in the proceeding before us concerns the position of hotels.com with regard to the validity of the agreement. According to Zuz, during the proceeding in the lower court hotels.com tried to advance contradictory arguments: on the one hand, it argued that the arbitration clause in the agreement should be honoured, and on the other hand it refused to admit entering into the agreement. According to Zuz, in these circumstances we should apply the rule determined in Mediterranean Shipping Co. S.A. v. Crédit Lyonnais (Suisse) S.A. [6] and refuse to stay the proceedings. This argument should also be rejected. An inspection of the pleadings filed in the lower court shows that hotels.com did not deny the existence of the agreement, and certainly did not do so expressly. The fact that hotels.com does not deny entering into the agreement is also apparent from the proceeding before us. In any case, the fact that hotels.com itself filed an arbitration request based on the arbitration clause in the agreement shows that it is not seeking to deny entering into this agreement.

17. The result is that the appeal is allowed, and the decision of the District Court, insofar as it concerns the issue of a stay of proceedings, is nullified. The proceedings in Zuz’s action against hotels.com are stayed. Consequently, the temporary relief granted by the District Court on 19 September 2004, is set aside. There is no basis for ordering, within this proceeding, a stay of proceedings against Hotels Online, which is not a party to the agreement. Zuz is liable, with regard to both proceedings, for the legal fees of hotels.com in a sum of NIS 60,000 and for court costs.

 

 

Vice-President M. Cheshin

I agree.

 

 

Justice E. Arbel

I agree with the comprehensive opinion of my colleague Justice A. Grunis and like him I recognize the importance of effective enforcement of international arbitration agreements by adopting uniform and clear rules that will allow the enforcement and implementation of such agreements, including in circumstances where one or more of the litigants is not a party to the arbitration agreement.

 

 

Application granted. Appeal allowed.

3 Elul 5765.

7 September 2005.

 

 

H.C.J 316/63

           

           

GAZIT & SHEHEM BLDG. LTD.

v.

PORTS AUTHORITY and others

 

 

In the Supreme Court sitting as the High Court of  Justice

[January 23, 1964]

Before Sussman J.,. Landau J. and Manny J.

 

Public tenders - fair competition and equal terms - undisclosed matters - desire to save public funds.

 

Whilst the second respondent was building a wharf in Kishon harbour, the first respondent issued a tender for the erection of a warehouse in the same place. The second respondent competed in the tender but its bid was not the lowest. Because, however, of the desire to have the job finished for the coming citrus marketing season and because of the difficulties apprehended if two different contractors worked on the site at the same time, the work was awarded to the second respondent after negotiations for a reduction of the price. Only the second respondent of all those competing knew of the urgency for carrying out the work. The petitioner whose bid was the lowest challenged the award.

 

Held (1) The purpose of a public tender is on the one hand to obtain as many bids as possible from among which the most appropriate one can be chosen and on the other hand to give an opportunity for fair competition on equal terms to all participants.

 

(2) A contract is not to be awarded on grounds not obvious from the nature of things and undisclosed in the tender. Matters which are withheld create from the outset a situation of inequality.

 

(3) It is not proper to issue a tender with the intention of afterwards negotiating a reduction in price with one or other bidder. A bid is to be accepted or rejected as it stands. The desire to save public funds may well be bona fide but that is not the only element in conducting public tenders.

 

Israel cases referred to:

 

(1)   H.C. 292/61 - Bet-Ariza Rehovot Ltd. and others v. Minister of Agriculture and others (1962) 16 P.D. 20.

(2)   H.C. 273/60 - B. Givstein and another v. Mayor, Council and Inhabitants of Rishon-le-Zion and another (1961) 15 P.D. 916.

(3)   H.C. 25/63 - Uniko Roitman Ltd. v. Local Council of Kiryat Ono and another (1963) 17 P.D. 1208.

(4)   H.C. 117/63 - A. Zalof v. Mayor, Council and Inhabitants of Kfar Saba and another (1963) 17 P.D. 1278.

(5)   H.C. 210/52 - Rehitei LaKol and another v. Minister of Commerce and Industry and another (1952) 6 P.D. 795.

 

I. Nahshatan for the petitioner

Z. Terlo, Deputy State Attorney, for the first respondent.

R. Nabat for the second respondent.

 

SUSSMAN J. A wharf is in the course of being built in the Kishon area which is under the control of the first respondent. The work was given by the first respondent to the Ports and Foreign Work Co., which is a part of Solel Boneh Ltd. This company is closely linked with the second respondent. Although separate legal entities, the activities of the two companies in Israel are in practice combined and the work in question is being mainly carried out by the personnel and with the equipment of the second respondent.

 

            By notice in the newspaper "Ha-Aretz" of 18 August 1963 the first respondent informed contractors of its intention to publish "a tender for the building of a warehouse of 5,000 square metres adjoining a new wharf (on the north side) which is now being built in the Kishon area of Haifa port" and invited contractors interested in being included in the list of participants in the tender to apply and receive approval of their inclusion. The petitioning company, a building contracting company, which was at its request included in the list, received from the first respondent the information it required to prepare its bid, including technical specifications, and duly put in its bid. The second respondent also submitted a bid and in addition three other bids were received by the first respondent.

           

2. Under clause 7(e) of the Practice regarding Tenders, laid down by the first respondent, it may "enter into a contract without tender if the contract is connected with any one of the following activities: ... (e) in every case ... where the Director of the Authority decides that the circumstances require that execution of the work should be negotiated and not put out on tender." Hence to give out the work on tender is not compulsory. The Director, however, decided not to allot the work to any given contractor by negotiation and accordingly a tender was issued. In accordance with clauses 9 and 20(c) of the said Practice, the tender was to be in the form of "open competition", that is, by publication in two daily newspapers and by personal notice to at least three contractors.

 

3. On 25 October 1963, the offers received were opened by the Central Tenders Committee of the first respondent. It emerged that the lowest bid came to IL 720,790.20 and the highest to IL 1,287,983.40. The identity of the bidders was not then disclosed to the Committee. The Committee decided to pass the offers over to the engineering division and resolved that at its next meeting it would decide who had won the contract and when the work was to begin. In view of this, a technical committee met, which made the following recommendation to the Tenders Committee:

 

"The cheapest bid is that of Competitor No. 3, then comes the bid of Competitor No. 5 and thirdly in the amount of the bid Competitor No. 1.

 

The difference between the three offers is within 4% approximately. On the other hand it is very important to commence putting up the warehouse at the same time as the wharf is built. It appears to us that a decision should be made only after the names of the competitors are ascertained and in the event that the work is given to Competitor No. 3 it should be required to sign an express undertaking not to make any demands over excavation, locksmith and electrical work."

 

The technical committee also did not know who were the participants in the tender.

 

            On 14 November 1963, the Tenders Committee met again, with the recommendation of the technical committee before it. The Committee ascertained at this meeting that the cheapest bid had been submitted by the petitioner, whereas the price proposed by the second respondent was IL 739,339.05. Another bid was for IL 753,909.75. The Committee resolved "to accept the offer of Solel Boneh (that is, the second respondent) provided the company agreed to a reduction of 2.5%". The resolution went on to give the following reason.

 

"Reason: Solel Boneh Ltd. is at present engaged in building wharfs in Kishon harbour. The entry of a second contractor into an area where another is already active necessitates coordination and adjustment of work. In this case that would cause a four months' delay in commencement and since the building work will take 10 months, the warehouse will not be ready by April 1964/65."

 

4. Subsequently, Mr. Laskov (the Director of the Ports Authority) got into touch with the second respondent which agreed to a reduction of 2%. As a consequence, the Central Tenders Committee resolved on 24 November 1963 to give the work to the second respondent. The next day, 25 November 1963, an order was sent to the second respondent to commence work and work in fact commenced on 3 December 1963.

Later, on 10 December 1963, a contract was signed between the two respondents.

 

5. On 12 December 1963 the petitioner applied to this Court for an order nisi and the following day an order issued from the Court, calling upon the respondents to show cause why the said contract should not be set aside and the work not be awarded to the petitioner which had made the lowest bid. Along with the order the Court directed that in the meantime the work should cease until after trial.

 

6. In his affidavit on behalf of the second respondent in answer to the order nisi, Mr. Yaakov Porat, one of its directors, states in clause 7(3):

 

"After learning that the intention was that the work should begin at once in coordination with the main work (the wharf of Kishon harbour) and we could thus save money, we agreed to reduce our bid but only by 2%, and we informed Mr. Laskov accordingly so that he could pass on our amended offer to the Committee."

 

The affidavit also states in clause 6(b)(2)

 

"The said work - erection of the warehouse - must be done in the same area as the main work is being done. A contractor doing the two at the same time can do both and each with greater efficiency, speed and coordination than two contractors, however capable they might be."

 

As we know the Committee approved the bid at its meeting of 24 November 1963.

 

            By virtue of rule 16(a) of the Rules of Procedure in the High Court of Justice we found fit to allow cross-examination on the affidavits in order to do justice in the matter, but Mr. Porat was injured in a traffic accident and could not appear in court. In his place another director of the second respondent, Mr. Tzutzka, was examined by counsel for the petitioner and he confirmed that when the second respondent sent in its bid, it knew that if successful it could commence the work of building the warehouse immediately. It should be added here that the contract fixed a period of "10 calendar months from the day it was decided to commence work". Thus, the date of commencing and of completing the work was left to the bidder; it was, however, clear to the second respondent that if it obtained the work the first respondent would order it to be commenced at once. Petitioner's counsel showed that Mr. Porat's assertion in clause 7(3) of his affidavit cited above contradicted the evidence of Mr. Tzutzka, the former saying that the second respondent only learned of the intention to commence work at once during the conversation with Mr. Laskov after the tender was opened. The question whether or not this is a contradiction no longer needs to be resolved. It is reasonable to assume that the advantage mentioned in clause 6(b)(2) of Mr. Porat's affidavit, that as a contractor already working at the site the second respondent could carry out the two jobs, "both and each of them with greater efficiency, speed and coordination than two contractors", was known in advance by the second respondent. The commencement of the work, however, was not made conditional only upon the readiness of the contractor but mainly on the instructions given by the tenderer, and in this respect Mr. Natan Kaplan testified in his affidavit on behalf of the first respondent that there was no possibility of allowing two contractors to work simultaneously on the site. Therefore, he said, "no company could commence before the wharf was built", meaning obviously no company other than the second respondent which was already engaged in building the wharf, "and this we knew when the tender was published". The wharf was to be finished by 15 March 1964, which meant that no other contractor could commence before 15 March 1964, and, as I have said, Mr. Tzutzka, a director of the second respondent, also knew that his company would receive instructions to commence work at once and would not need to wait until the wharf was finished, provided only it won the contract.

 

            It is reasonable to assume that in negotiating with the second respondent Mr. Laskov emphasised this fact and used it as a reason for reducing the price, and that Mt. Porat's statement in his affidavit is so to be understood.

           

            In spite, however, of the advantage of carrying the two sets of work at the same time, which enabled the second respondent to save on expenses, its offer was not the lowest.

           

7. In clause 11 of the petition, the petitioner sets out its criticisms of the tender. It submits inter alia that the first respondent preferred on the face of it the second respondent "without any justification and not in accordance with the standards of law and equity but out of extraneous considerations, invalid and arbitrary, and out of unfair preference and discrimination" and that "it had made up its mind to hand over the building of the warehouse to the second respondent even before it had published the tender and only published that in order to do its ostensible duty."

 

            We agree with the submission of the Deputy State Attorney that these matters were not proved. These is not an iota of evidence that the tender was a sham. We also agree with the submission of counsel for the second respondent that this conduct was not exceptional. We believe what the declarant on its behalf, Mr. Porat, said, that it knew nothing about the existence of the petitioner and that its existence first came to its knowledge when it read in a newspaper that an order nisi had issued from this Court. Notwithstanding all this, we are of the opinion that the tender does not comply with principles laid down by this Court regarding public authority tenders and must be treated as invalid.

           

8. As I have said, the second respondent had the initial advantage that if it won the contract it could carry out the job, or more correctly the two jobs, "with greater efficiency, speed and coordination than two contractors" and with a saving of costs. Thus far all seems to be fine. since the difference in performance capacity between two competing contractors is not a flaw.

 

            But the first respondent had the intention, not disclosed in the tender, of instructing the second respondent to commence work immediately, which it would not do with any other contractor until March 1964 and make it impossible to finish the work until 15 January 1965, that is ten months after the wharf was finished. Here we come to the matter which was undisclosed to the participants in the tender: the first respondent vitally needed the wharf to be finished, even if incompletely without gates and doors, by October 1964, since otherwise it would be unable to use the structure to market the season's citrus fruit. A building delay would involve the first respondent in losses, estimated by Mr. Kaplan at IL 1,833 a day. Hence the first respondent decided that even if the job done by the second respondent cost more, the loss arising out of delay in erecting the warehouse would be avoided, and as long as the cost outbalanced the loss, the second respondent was preferable to any other contractor.

           

9. The consideration that there was already a contractor on the site with equipment and workers, who could finish the job at an earlier date than any other contractor is certainly a material consideration and there is nothing wrong with it. All the more so when the presence of two contractors working at the same time, each with their own equipment and workers, was likely to create disputes and problems, as Mr. Kaplan explained in evidence before us. For this reason we should not criticize the first respondent had it seen fit therefore to forgo a tender and contract with the second respondent without tender on the basis of clause 7(e) of the Practice. But had it done so, it would presumably have been unable to fix a competitive price and would perhaps have had to pay more to the second respondent. In parenthesis, it is to be observed that before publishing the tender the first respondent estimated the building costs at IL 823,316.50 and as a result of competitive pressure it also obtained a reduction of 2% on the bid made by the second respondent, which was already more than IL 80,000 less than the estimate. The first respondent thus saved public funds, and there is no foundation for the argument that it did not act in good faith. Its intentions were desirable and fair. We also believe the first respondent, that had the difference between the bid of the second respondent and the lowest bid been greater than it was, it would not have been given the job but the lowest bid would have been accepted in view of the fact that the loss entailed by delay in erecting the warehouse till after the commencement of the season of October 1964, would be balanced by the saving in the costs of the building.

 

10. We are prepared to agree with the submission of the Deputy State Attorney that the petitioner as well knew, or should have known, that the second respondent had the said initial advantage, that by already being on the site it was in a better position to carry out the work. The participants in the tender visited the place and the representatives of the petitioner also saw that the wharf was in the course of building. As experts they could not but understand and know what others knew, that a contractor doing other work near to the site would be at an advantage. The petitioner indeed competed in these circumstances with open eyes. But the ability of a competitor to do the work is one thing, and the considerations of the tenderer in choosing a contractor is another. As regards the first, it is natural that one's capacity should differ from another's and nothing rests on that. But all who join in a tender are entitled that the choice between those competing should not fall to be decided by matters not in the nature of things and undisclosed in the terms of the tender. Secret conditions create at once lack of equality between competitors, whilst a contractor submitting his offer and joining in a tender expends money in preparation and expects that he is par inter pares.

 

            The petitioner was not par inter pares. Although the contractor building the wharf would save on expenses by also erecting the warehouse, the petitioner still made a lower bid. The first respondent was interested in having the warehouse ready by 15 October 1974 and for it that was determinative. But nothing was said about that in the tender nor was the petitioner aware of it. The petitioner was prepared to carry out the work during such time as another contractor continued building the wharf. The first respondent was afraid of disturbances in the latter and since these fears were not imaginary its wishes are to be honoured, since if the contract were not awarded to the second respondent work could not commence until that was finished. For this reason the second respondent was instructed to begin at once and the decision went in its favour, but no other bidder was entitled to that, although he was not restrained from carrying out the work because of the presence of another contractor on the site. It follows that every other bidder was disqualified from the start unless his bid was so much smaller as to compensate for the prospective loss resulting from putting off the warehouse from October 1964 until January 1965.

 

11. The purpose of a tender, as this Court ruled in Bet-Ariza Rehovot Ltd. v. Minister of Agriculture (1), is twofold: from the standpoint of the person issuing the tender it is to obtain as many bids as possible from amongst which to choose the most convenient and most appropriate; from the standpoint of the contractors it is that "the tender gives them the opportunity to get the proposed job in fair competition and under conditions of equality."

 

            The first respondent's tender failed in respect of the second purpose. Its interest in having the work completed by October 1964 was of decisive importance and not only was that not disclosed in the tender but a period of ten months was laid down from a date it would decide upon and the fact that the second respondent would be instructed to commence at once whilst any other contractor would only do so after the warehouse was finished was not mentioned. By suppressing this important fact from those participating in the tender - apart from the second respondent which knew, as I have said, that it would be allowed to begin at once - the first respondent was in breach of the principles of equality on which every fair tender is founded. Had the other contractors known of the first respondent's hidden intention, they could have competed more effectively with the second respondent; they could have made bids which because of the difference of cost between them and the second respondent might have gained them the contract even though they did not begin building at once. And it is not impossible that because of this absence of equality, the other contractors might have chosen not to compete in the tender.

           

12. In Givstein v. Rishon-le-Zion (2) this Court nullified a tender drawn up by a public authority because, whilst under the tender it had to chose the most convenient bid within the terms of the tender, it had decided to have regard also to an offer which it had already received outside the tender. Such an act, the Court held, offended the rule of equality in tenders. Although in the present case the first respondent did not deal with any offer outside the tender, it drew up the tender in the knowledge that, when it came to examine the bids put in, it would decide according to a consideration which gave one bidder an advantage. That bidder knew about this but the rest did not. Even if this consideration was valid - and we have already expressed the opinion that the first respondent cannot be said to have acted maliciously and in bad faith - the result was invalid because in fact it led to discrimination and preference. Any one making a bid in response to the tender was entitled to expect that in general the lowest bid would be accepted. Here, on the other hand, the lowest bid would not have been successful unless the difference between it and that of the second respondent would render delay in the commencement of the work worthwhile. In the words of this Court in Uniko Roitman Ltd. v. Kiryat Ono (3) the effect was that "competition among the bidders was not conducted within bounds known to all of them, which they had to keep in mind". And nothing turns on the fact that in that case, the tender suffered from many defects whereas here there is only one ground for disqualifying it.

 

13. We have asked ourselves whether the first respondent could have drafted the terms of the tender it published in such a manner that on the one side disclosed the decisive facts on which it intended to accept a bid and on the other would not deter contractors from participating in the tender and competing with the second respondent when they read that the first respondent wished the warehouse to be finished by October 1964 and that they would not be allowed to commence the work until the wharf was completed. One thing certainly could have been published, that completion of the building by October 1964 was vital for the purposes of the first respondent. As for the date of commencement - as against the necessity to finish by the date mentioned - the first respondent might possibly have maintained equality had it asked for alternative bids based, for instance, on a six or seven or ten month period for the job, provided the warehouse was finished by the date mentioned. We have said "possibly" because we cannot determine what minimum period was required for carrying out the work but, be that as it may, the lack of possibility to issue a fair tender cannot justify an unfair one; it can only justify for objective reasons giving the work to a contractor, capable of doing it, not by way of tender.

 

14. The petitioner voiced another objection to the tender proceedings. It complained that as a result of the decision of the Tenders Committee of 14 November 1963, the Director of the first respondent got into touch with the second respondent, as mentioned in paragraphs 3 and 4 above, and negotiated with it behind the backs of the others. To justify this the first respondent relies on rule 47 of the Practice which prescribes that

 

"Where the Tenders Committee decides to give the work not to the lowest bidder, the chairman of the Committee shall conduct negotiations with the bidder to whom the work has been given for reducing the price bid and adjusting it to the lowest bid."

 

We are afraid that rule 47 creates a difficulty which the Deputy State Attorney did not succeed for all his ability to dispel. If the Committee decided "to give the work not to the lowest bidder", it is difficult to understand what use there is in conducting negotiations "with the bidder to whom the work has been given". Why should this bidder, to whom the work has already been given, agree to lower his price? It is superfluous to say that it is unprecedented to issue a tender in order afterwards to bargain about it with one or another bidder.

 

            In fact the Committee at that meeting only came to a "conditional decision". The condition was actually not fulfilled since the second respondent agreed to a reduction of 2% and not 2.5% asked of it. We assume that had the Director of the first respondent not obtained this reduction in the negotiations he conducted, the Committee at its next meeting would have given the work to the petitioner because its bid was the lowest. There was no final decision not to give it the work. Although the hands of the first respondent were tied since it was interested in the second respondent's bid because it could begin at once, the first respondent had got itself into this difficulty by not disclosing the matter at once in the tender. For this reason the proceedings were invalid, as it was in Zalof v. Kfar Saba (4). There, as here, "(the respondent) did not expressly say 'yea' or 'nay' " but "chose (the second respondent) as the only bidder with whom to negotiate, clearly by intending to obtain a reduction in price. Thus it offended against the principle of equality of opportunity and assurance of fair competition among the various bidders which are the foundation of public tenders" (at 1278). In Rehitei Hakol v. Minister of Commerce and Industry (5) this Court had already held (at 799) that negotiations with one bidder on a matter unbeknown to the others would disqualify a tender.

 

15. With regard also to the negotiations with the second respondent we have no doubt that the first respondent intended saving public funds and that attests to its good faith, but good faith alone, as we know, is not the sole basis on which to conduct a tender. Here the original sin was that because of the factor concealed by the tenderer, the true conditions of competition were unknown to all the competitors. When the bids were received and the second respondent did not make the lowest bid, the first respondent hesitated from paying it - because the work could be carried out more efficiently and perhaps more cheaply - more than that asked by any other bidder and felt itself bound to enter into negotiations. The first respondent's motive was proper and found justification in rule 47 of the Practice. But we are doubtful how rule 47 can be reconciled with the principle of tendering, that a bid is accepted or rejected as it is and no negotiations are conducted.

 

            The cumulative effect of these two defects in the tendering process is that the first respondent used the bids as a means of reducing the demand of one bidder without revealing to the others that because of two considerations - the need to finish the building by October 1964 and the unwillingness to have two contractors on the site - the matter would not be dealt with on the basis of equality among the bids made.

           

16. Having found the tendering process imperfect, the question arises whether to direct the first respondent to give the work of building the warehouse to the petitioner in accordance with its bid.

 

            Counsel for the second respondent stressed that the second respondent had already begun working and expended money in connection therewith. He also submits that no faulty behaviour attaches to his client. We agree to this submission but not for this reason alone can the contract made with it remain in effect. Prima facie invalidation of the tender compels the conclusion that the contract is to be cancelled and that it be given to one entitled to get the job in accordance with the tender, since otherwise there would be no point in this Court intervening in the matter.

           

            Another reason moving this Court to refrain from passing on the contract may be that the contractor who was wrongfully successful has already carried out part of the work. Indeed in Zalof (4), unlike here, a very considerable part of the work had already been done. The value of what has already been done by the second respondent until stopped by the interlocutory order does not, according to Mr. Kaplan's estimate, amount to more than IL 4,000 - "not including organisation". As against the value of the whole tender which is over IL 700.000. this is a paltry sum and the second respondent can be compensated by the first respondent if it so claims. The very day when instructions were given to the second respondent to commence work, the petitioner turned to the first respondent asking why the contract had not been awarded to it. On the petitioner's part there was no delay.

 

            The only doubt in our minds does not concern the rights of the second respondent but the public interest. Since we do not presume to compel the first respondent to allow the work to begin before 15 March 1964 when the second respondent leaves the port, is not the public prejudiced by the fact that the warehouse will not be ready for marketing citrus at the beginning of the season? This Court, needless to say, is enjoined to safeguard vital public interests before which private rights must sometimes yield.

           

            Having reached this conclusion, we invited counsel to find out whether the petitioner is ready to complete the building work by 15 October 1964. Petitioner's counsel informed us today, after consulting with his client, that the petitioner is prepared to do so provided that the first respondent instructs it to commence immediately on 15 March 1964 and that the site will be vacant and made available by that date. The idea is that the petitioner can already now, forthwith upon receiving the order for the job, make the necessary preparations for carrying it out but will not go onto site at the port until 15 March 1964, and will finish on 15 October 1964.

           

            Accordingly we make the order nisi absolute and direct the first respondent to give the work to the petitioner in accordance with the conditions of the tender, subject to the dates for beginning and finishing the work is amended as above.

           

            Order nisi made absolute.

            Judgment given on January 23, 1964.

CA 3912/90

Eximin SA, a Belgian corporation

v.

Itel Style Ferarri Textiles and Shoes Ltd

 

The Supreme Court sitting as the Court of Civil Appeal

[22 August 1993]

Before President M. Shamgar and Justices E. Goldberg, Y. Malz

 

Appeal on the judgment of the Tel-Aviv-Jaffa District Court (Justice H. Ben-Atto) on 12 August 1990 in Civil File 2093/86.

 

Facts: the appellant bought 3,000 pairs of denim boots from the respondent for a customer of the appellant in the United States. The boots had a pocket on which a letter ‘V’ was sewn. When the boots reached the United States, they were detained in customs because the design violated a trade mark registered in the United States.

The issue in dispute was: who was responsible for ignoring the question of whether the design involved a breach of a registered trade mark?

 

Held: (Majority opinion — President M. Shamgar, Justice Y. Malz) Since both parties knew of the possibility that there might be a registered trade mark, and neither investigated the matter, both parties acted with a lack of good faith. Consequently, liability for the damage should be allocated between the parties.

(Minority opinion — Justice E. Goldberg) Since the appellant (the importer) asked for a change in the boots’ design because of customs problems, the respondent (the manufacturer) was entitled to rely upon the appellant knowing United States law and taking the necessary precautions to ensure it was not infringed. Therefore no lack of good faith should be imputed to the respondent, and full liability for the violation of the trade mark should rest with the appellant.

 

Appeal allowed in part, by majority opinion.

 

Legislation cited:

Contracts (General Part) Law, 5733-1973, ss. 12, 39, 61(b).

Contracts (Remedies for Breach of Contract), 5731-1970, ss. 10, 14(a).

Sale (International Sale of Goods) Law, 5731-1971, Schedule, ss. 1, 52, 52(a), 82, 88.

Sale Law, 5728-1968, ss. 6, 18.

 

Israeli Supreme Court cases cited:

[1]      CA 815/80 Harlow and Jones GMBH v. Adders Building Materials Ltd [1983] IsrSC 37(4) 225.

[2]      FH 36/84 Teichner v. Air France Airlines [1987] IsrSC 41(1) 589.

[3]      CA 338/73 Parcel 677 Block 6133 Co. Ltd v. Cohen [1975] IsrSC 29(1) 365.

[4]      CA 144/87 State of Israel v. Engineer Faber Building Co. [1991] IsrSC 45(3) 769.

[5]      HCJ 59/80 Beer-Sheba Public Transport Services Ltd v. National Labour Court [1981] IsrSC 35(1) 828.

[6]      CA 825/79 Sherbet Brothers Building Co. Ltd v. Schwartzbord [1982] IsrSC 36(4) 197.

[7]      CA 804/80 Sidaar Tanker Corp. v. Eilat-Ashkelon Pipeline Co. Ltd [1985] IsrSC 39(1) 398.

[8]      CA 158/77 Rabinai v. Man Shaked Ltd (in liquidation) [1979] IsrSC 33(2) 281.

[9]      CA 789/82 Ezra v. Mugrabi [1983] IsrSC 37(4) 565.

[10]    CA 714/87 Sher v. Cohen [1989] IsrSC 43(3) 159.

 

For the petitioner — A. Brumer.

For the respondent — D. Blum.

 

 

 

JUDGMENT

 

President M. Shamgar

     1. (a) This is an appeal on a judgment of the Tel-Aviv District Court, which dismissed the appellant’s claim for restitution and damages.

(b) The relevant facts, as determined by the trial court, are as follows: the appellant, a Belgian company, bought from the respondent, an Israeli company, 3,000 pairs of denim boots, for a customer of the appellant in the United States. The boots were of a special design that was popular at that time: the boot appears to be part of the trousers with a pocket on which the shape of the letter ‘V’ is sewn. The respondent manufactured boots like these, before the appellant contacted it, for the local market, and it manufactured boots like these also for export, inter alia to Germany.

The appellant sent the customer six different designs, and it approved one of these designs, with two changes: removing the ‘forza’ mark that was sewn on the design and replacing the neolyte sole with a leather sole. The respondent manufactured the entire quantity of boots in accordance with the order, sent the goods to the United States and received the full price, which was guaranteed by documentary credit.

When the goods reached the United States, it turned out, allegedly, that the design violated a trade mark registered in the United States, and the consignment was therefore detained in customs.

(c) The appellant sued for restitution of the price of the goods, arguing that the transaction failed through the fault of the manufacturer. At a preliminary hearing, the parties accepted a proposal of the court to minimize the damage. The appellant removed the ‘V’ mark from the boots and the customer in the United States bought them at a reduced price. Consequently, the claim was reduced to the difference in the price that represented the appellant’s loss. The trial court ruled that the responsibility for ignoring the breach of the trade mark registered in the United States lay, in this case, with the appellant, and it dismissed the action.

This is the subject of the appeal before us.

2.    The parties raised different and diverse arguments in this appeal, some of which in the abstract, relating to the nature of the transaction and its significance with regard to determining liability, and others in the concrete, relating to the specific relationship that developed between the parties. We will consider the arguments in the order they were raised.

3.    The nature of the transaction and its significance for determining liability between the parties

(a) Article 1 of the schedule to the Sale (International Sale of Goods) Law, 5731-1971 (hereafter — ‘the International Sale of Goods Law’), provides:

‘1. The present Law shall apply to contracts of sale of goods entered into by parties whose places of business are in the territories of different States, in each of the following cases:

(a) where the contract involves the sale of goods which are at the time of the conclusion of the contract in the course of carriage or will be carried from the territory of one State to the territory of another;

(b) where the acts constituting the offer and the acceptance have been effected in the territories of different States;

(c) where delivery of the goods is to be made in the territory of a State other than that within whose territory the acts constituting the offer and the acceptance have been effected.

2.            Where a party to the contract does not have a place of business, reference shall be made to his habitual residence.

3.            The application of the present Law shall not depend on the nationality of the parties.

4.            In the case of contracts by correspondence, offer and acceptance shall be considered to have been effected in the territory of the same State only if the letters, telegrams or other documentary communications which contain them have been sent and received in the territory of that State.

5.            For the purpose of determining whether the parties have their places of business or habitual residences in “different States”, any two or more States shall not be considered to be “different States” if a valid declaration to that effect made under Article 2 of the Convention dated the 1st day of July 1964 relating to an Uniform Law on the International Sale of Goods is in force in respect of them.’

The appellant argues that this law applies to the present case. As the respondent does not contest its applicability, I will assume that the said law does indeed apply. I will add that the International Sale of Goods Law reflects customary international law with regard to sale transactions between countries, even though changes have occurred in customary international law since its enactment: in 1980, the United Nations Convention on Contracts for the International Sale of Goods (hereafter — ‘the Vienna Convention’) was ratified in Vienna, and this in practice replaced the Convention relating to an Uniform Law on the International Sale of Goods that was signed in the Hague in 1964, to which the law referred. I will address the changes that have been made since the law’s enactment, in so far as this is necessary.

(b) Article 52 of the said Schedule provides:

‘1. Where the goods are subject to a right or claim of a third person, the buyer, unless he agreed to take the goods subject to such right or claim, shall notify the seller of such right or claim. Unless the seller already knows thereof, and requests that the goods should be freed therefrom within a reasonable time or that other goods free from all rights and claims of third persons be delivered to him by the seller.

2.            If the seller complies with a request made under paragraph l of this Article and the buyer nevertheless suffers a loss, the buyer may claim damages in accordance with Article 82.

3.            If the seller fails to comply with a request made under paragraph l of this Article and a fundamental breach of the contract results thereby, the buyer may declare the contract avoided and claim damages in accordance with Articles 84 to 87. If the buyer does not declare the contract avoided or if there is no fundamental breach of the contract, the buyer shall have the right to claim damages in accordance with Article 82.

4.            The buyer shall lose his right to declare the contract avoided if he fails to act in accordance with paragraph l of this Article within a reasonable time from the moment when he became aware or ought to have become aware of the right or claim of the third person in respect of the goods.’

This section is similar to section 18 of the Sale Law, 5728-1968, which provides:

‘(a) The vendor shall deliver the item sold free of every charge, attachment or other third-party right.

(b) The vendor shall notify the purchaser immediately of any claim of rights in respect of the item sold, of which he knew, or should have known, before delivery of the item sold.’

The appellant argues that article 52 applies also to a trade mark right held by a third party. In his work ‘The Sale Law, 5728-1968’, in A Commentary on the Law of Contracts, The Harry Sacher Institute for Research on Legislation and Comparative Law, G. Tedeschi ed., 1972, at p. 98, Professor Z. Zeltner points out (with regard to section 18 of the Sale Law) that:

‘The expression “other third-party right” includes, apparently, patent and trade mark rights held by a third party.’

E. Zamir, in ‘The Sale Law, 5728-1968’ Interpretation of the Law of Contracts (the Harry Sacher Institute for Research on Legislation and Comparative Law, G. Tedeschi, ed., 1987), at p. 374, also points out (with regard to section 18) that:

‘The third party’s right does not need to be in the sale item itself. If, for example, the sale item or the transfer thereof to the purchaser involves a breach of an intellectual property right, such as a patent, copyright or trade mark, this is also a breach of section 18(a) in the relationship between the vendor and the purchaser.’

See also footnote 73.

For a comparison of the provisions of contractual legislation and the provisions of the International Sale of Goods Law, see CA 815/80 Harlow and Jones GMBH v. Adders Building Materials Ltd [1], at p. 230.

(c) A more specific provision to this effect may be found in Article 42 of the Vienna Convention:

‘Article 42

(1) The seller must deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware, provided that the right or claim is based on industrial property or other intellectual property:

(a) Under the law of the State where the goods will be resold or otherwise used, if it was contemplated by the parties at the time of the conclusion of the contract that the goods would be resold or otherwise used in that State; or

(b) In any other case, under the law of the State where the buyer has his place of business.

(2) The obligation of the seller under the preceding paragraph does not extend to cases where:

(a) At the time of the conclusion of the contract the buyer knew or could not have been unaware of the right of claim; or

(b) The right or claim results from the seller’s compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer.’

See also section 2-312(3) of the American Uniform Commercial Code (U.C.C.):

‘2-312 Warranty of Title and Against Infringement; Buyer’s Obligation Against Infringement.

(1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that:

(a) The title conveyed shall be good, and its transfer rightful; and

(b) The goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.

(2) A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances which give the buyer reasons to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.

(3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of a rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of the compliance with the specifications.’

With regard to German Law see: N.M. Galston, International Sales: The United Nations Convention on Contracts for the International Sale of Goods, New York, 1984, at p. 633.

 (d) The accepted interpretation of these provisions is that the seller’s duty to transfer unencumbered ownership also includes the duty to transfer ownership unencumbered by rights such as trade mark rights vested in a third party. This interpretation prima facie supports the appellant’s position.

(e) Attention must be paid to the limitations that appear in the same art. 42 of the Vienna Convention. These are also stated in case-law relating to the other aforementioned sections. In other words, art. 42 is a kind of miniature codification of the qualifications that have been developed over the years with regard to the seller’s duty to transfer ownership free of any third-party claims. Its provisions can therefore also be of assistance, by way of analogy, in the case before us. This is also in keeping with the desire to unify the law, as held in FH 36/84 Teichner v. Air France Airlines [2], at p. 611:

‘National distinctiveness, which is a valuable asset within the confines of a particular legal system, may have problematic results when an event — such as an international flight — transcends borders and becomes involved with several legal systems. This is the reasons for the trend of unification in extensive spheres of law, primarily those relating to international transport and commerce…’

It should be noted that the international norm, in this case, agrees with, and integrates into, the national norm.

Thus, as in the provision of art. 42(1) of the Vienna Convention, the seller will be liable only for a right of which he knew or of which he could not have been unaware (where a standard close to knowledge is intended). See J. Honnold, Uniform Law for International Sales, Deventer, 2nd ed., 1991, at p. 350; this assumes that we are speaking of such a right in the State where the product will be sold (provided, of course, that this State was determined in the contract between the parties) or in any other case, in the buyer’s State.

Similar to the provisions of art. 42(2) of the Vienna Convention, the seller shall be exempt from liability if the buyer knew or could not have been unaware of the right, or if the infringement of the right derives from compliance with specific instructions of the purchaser. It should however be noted that we are referring to conditions that the buyer asked the seller to fulfil, and not conditions left to the seller’s discretion. With regard to conditions left to the seller’s discretion, opinion is divided as to who should be held liable for the infringement of the right (see Galston, supra, at pp. 34-36, and with regard to section 2‑312(3) of the U.C.C., see also J.J. White & R.S. Summers, Handbook of the Law under the Uniform Commercial Code, St. Paul, 2nd ed., 1980, at p. 364). In cases dealing with liability for infringement of a third party right,  the buyer is required to notify the seller within a reasonable time of discovering the infringement, and the notice must state the nature of the right. However the seller may not raise the argument that he was not notified of the infringement if he knew of it.

It should be noted that the parties may contract out of these provisions in the contract between them, whether expressly or by implication.

The question that arises in this case is, therefore, whether there was a restriction to the seller’s liability, or, alternatively, whether it can be inferred from the behaviour of the parties before making the contract that they wanted to restrict the seller’s liability.

(f) It is not disputed that that both the appellant and the respondent knew that the goods were intended to be sent to the United States. Moreover, both of them could not have been unaware of the possibility that a registered trade mark existed. The trade mark is registered by the American company ‘Levis’. This company is not a small, unknown company. This company’s goods are marketed around the world and any sensible person ought to have assumed that such a company would register a trade mark for its products, at least in its country of origin, which is the United States. This assumption is especially valid with regard to the appellant and the respondent, both of which are companies that do business in this field and are aware of its special characteristics. We cannot accept a claim by either of them that it did not know or could not have known about the existence of this registered trade mark. With regard to the respondent, this knowledge can also be inferred from the testimony of Mr Ben-Vered, who confirmed that the respondent knew that denim manufacturers normally register trade marks for their products, and the respondent did its best to make sure it did not infringe them. This is the case, to a greater degree, with regard to the appellant’s customer, who is resident in the United States and does business there in selling products of this kind. It is true that he did not do business directly with the respondent, but only with the appellant, but the appellant cannot claim that its customer did not need to inform it about a registered trade mark. This argument was not even made, and in any case it concerns the relationship between the appellant and the customer, who is not a party in this proceeding. In so far as this appeal is concerned, the appellant acted for the customer, and the knowledge imputed to the customer may also be imputed to the appellant, particularly in view of the customer’s active involvement in the actual transaction.

It transpires, therefore, that, prima facie, the seller’s liability is limited, since the buyer was also aware of the problem with the goods. We will discuss the significance of this qualification for the purpose of determining liability below, but first let us examine the intention of the parties, on the basis of the contract made between them and their behaviour before signing it.

(g) The appellant approached the respondent with a request that it manufacture for it boots of the kind described. I am prepared to assume, in the appellant’s favour, that it chose a design from among those in the possession of the respondent, without submitting any design of its own, since the facts show that six similar designs were sent to the customer in the United States. Sending the designs also makes it clear that the question whether the appellant brought this design to the respondent or not is insignificant. The customer certainly should have known about the existence of a registered trade mark. At least he should have suspected this, and this gave rise to a duty to look into the matter before approving one of the designs. Moreover, not only did the customer approve one of the designs, but he also asked for changes to be made to it. The nature of this request shows the customer’s familiarity with the laws of his country of residence. From the moment that the customer did this, the respondent was entitled to assume that prima facie there was no problem whatsoever with the goods. We say prima facie because in the case of a company like Levis, the respondent should indubitably have suspected the existence of a registered trade mark. What is more, the appellant is correct in arguing that the respondent should have assumed no more than that the buyer examined the fitness of the product’s design merely for his own needs, without examining whether it complied with the law in the United States.

It transpires that even from the behaviour of the parties before signing the contract we can infer that the purchaser accepted, if only in part, the risk that the goods did not comply with certain requirements under American law. In this respect it may be added that the trial court even made a finding of fact, that under United States law the importer-buyer could have obtained permission from the ‘Levis’ company to import these boots. Nonetheless, I am not prepared to accept the unequivocal conclusion of the trial court that the exporter-seller was entitled to rely absolutely on the importer making the necessary preparations, from his point of view, for receiving the goods in the United States. As the party familiar with the special nature of the business and as the party who in principle is supposed to be liable for a breach of a registered trade mark in such a case, it should have ascertained whether the importer acted properly, or, at least, it should have raised the question.

(h) In order to remove all doubt, I will point out that the question whether the transaction was a F.O.B. transaction or a C.I.F. transaction is insignificant. The dispute between the parties relates to a preliminary stage of execution, and the question of liability for infringement of a registered trade mark is not contingent on the type of carriage transaction. The proof of this is that the various sections, whether in the International Sale of Goods Law or in the international conventions, do not refer to this at all.

4.    Determination of liability of the exporter-seller and the importer-buyer

(a) The result of the above is that there is prima facie a qualification to the liability of the seller-exporter; at the least, the behaviour of the parties shows that it is not necessarily the seller who should bear the liability. On the other hand, it appears that the full liability should not be imposed on the buyer-importer.

The parties’ behaviour shows that they did not trouble to cooperate with one another. The parties disagreed about the responsibility for carrying out various actions, and instead of sitting down and resolving the differences, each of them acted, apparently, as he saw fit, ignoring the damage that was likely to be caused and assuming that the other party would be liable for it. Each of the parties, in fact, foresaw the damage but did not trouble to clarify the risk of its happening to the other party, nor did it trouble to disclose it to the other and prevent the damage, even though it was clearly able to do so. Albeit the lack of cooperation (or lack of disclosure) of the type that existed here does not exempt the party who must carry out an action from its duty, but the question is whether it is not sufficient to grant him a partial defence.

(b) The behaviour of each of the parties, as described, amounts to lack of good faith in performing the contract (s. 39 of the Contracts (General Part) Law, 5733-1973 (hereafter — ‘the Contracts Law’), and also s. 6 of the Sale Law), and perhaps even to lack of good faith at the negotiation stage (s. 12 of the Contracts Law). The remarks of Prof. G. Shalev in her book, The Laws of Contracts, Din, 1990, at p. 43, are most pertinent in this respect:

‘The golden path in implementing the principle of good faith is found in a balance between the ethical basis for the principle and the requirements of trade. Following this path dictates proper behaviour in conducting business. The principle of good faith symbolises an abandonment, to some extent, of individualism and egoism, but it does not dictate absolute altruism… the general requirement to act in good faith should therefore be seen as a balanced requirement of consideration for the other party and cooperation with him, for the realization of the purpose of the contract.’

In order to remove doubt, we will point out that the provisions of the Contracts Law also apply to the case before us, if not directly, then by virtue of section 61(b) of the Contracts Law.

Both sides acted in bad faith. This is in fact consistent with the two aspects of the principle of good faith. On the one hand, we are talking about a cumulative requirement, which imposes an additional obligation to the express obligations under the contract, namely the obligation to act in good faith. This requirement is relevant to the duty of the seller-exporter to inform the importer-buyer, even though he knew, for example, that the latter would be liable (in view of the said qualifications). On the other hand, this is also a moderating provision, which in the appropriate case allows a deviation from the requirement to carry out the contract perfectly. This description is relevant to the duty of the importer-buyer, not to sit by idly, even though he assumed, for example, that the exporter-seller would be liable. Prof. G. Shalev says of this in The Laws of Contracts, at pp. 43-44:

‘The joining effect of the principle of good faith is reflected in all those cases in which it was held that the debtor must carry out his existing obligations in good faith, or in which an additional obligation was imposed upon him. The moderating effect of the principle of good faith is reflected in those cases where this principle allows a deviation from perfect performance of the obligation, provided that the performance and the deviation therefrom were done in good faith. In practice, this moderating effect is reflected in transferring the obligation to act in good faith from the debtor to the creditor under the contract, and it is equivalent to the requirement to exercise good faith with regard to rights arising from the contract.’

See in this regard also what was said in CA 338/73 Parcel 677 Block 6133 Co. Ltd v. Cohen [3], at p. 369, about s. 6 of the Sale Law:

‘We will consider here the two aspects of section 6. One aspect is the performance of a contract by the debtor party, who is liable to carry it out in good faith and in accordance with accepted practices. The legislator could not have been referring to the accepted practices among swindlers; rather the debtor must act in accordance with the accepted practices in fair negotiations. The second aspect of that section is the extent of the right of a party claiming a right under the contract; he too is subject to the same rule, which means that the entitled party may not pounce on a word in the contract and abuse it; rather he must exercise that right given to him in accordance with accepted practices among people who conduct their business in good faith and honestly. It should be emphasized that the legislator used the words ‘an obligation that arises’ and ‘a right that arises from a contract’, and significance should be attached to this. These obligations which are stated in s. 6 are additional obligations and rights that are added to what is stated in the contract, and they should be regarded as if they were expressly written in the contract’ (emphasis added).

Prof. M. Mautner says in his book, The Decline of Formalism and the Rise of Values in Israeli Law, Ma’agalei Da’at, 1993, at pp. 58-59:

‘The operation of section 39 is based on the assumption that the legal relationship between two persons is governed by a certain norm, whether contractual or otherwise, which creates an obligation and a right between the parties. Section 39 governs this norm, by expanding the scope of the debtor’s obligation or by limiting the scope of the creditor’s right. The duty imposed in the section is therefore an altruistic duty. The term ‘altruism’ is generally used to describe a situation where a person does not act out of a desire to promote his own interests, but his action is based on an intention to promote the interests of another. Altruism is the opposite of egoism, which in essence is acting while regarding the interests of each individual in society as invariably distinct from those of others. A party who is subjected to the duty of good faith must therefore adopt altruistic behaviour, which means he must act to protect the interests of the other party, beyond what is stipulated in the norm that governs his relationship with that party.’

Incidentally, Prof. Mautner also sought to characterize the duty of a litigant to act in good faith as an altruistic obligation, which means he must act to protect the interests of the other party, beyond what is stipulated in the norm that governs his relationship with that party.

The said duties are also expressed in the laws of international sale, as reflected in article 52 of the Schedule of the International Sale of Goods Law and in article 42 of the Vienna Convention. By virtue of these sections, the first and main duty is the duty of the exporter (the seller) to transfer the right to the importer (the buyer) free of any third-party rights. The other duty is the duty of the importer, if he is aware of such a right, to act himself so that the transaction is not frustrated, or at least to inform the exporter of the difficulty that is likely to arise, so that the latter may act accordingly. Similarly, the exporter too must inform the importer, if he thinks that a difficulty is likely to arise, particularly if he can assume that there is a qualification of his liability. These provisions are admittedly not stated expressly in the said articles, but they undoubtedly arise from them and are required by the very existence of a relationship whose purpose is cooperation between the buyer and the seller for the success of the business relationship between them.

Failure to comply with the requirement of good faith amounts to a breach of contract, and since in our case each of the parties lacked good faith, we are speaking of reciprocal breaches of the contract (see Shalev, The Laws of Contracts, at p. 65). The breach of each of the parties contributed ultimately to the breach made by the other party which resulted in the damage. It can also be viewed as a breach that contributed directly to the damage.

As stated above, the duty of disclosure may already have arisen at the negotiation stage, but as long as it was not carried out, the duty remains, and so if it was also not carried out at the contractual stage, the lack of good faith amounts to a breach. This was held also in CA 144/87 State of Israel v. Engineer Faber Building Co. [4], at p. 778:

‘The duty to act in good faith can also take the form of a duty of a party to the contract to disclose important facts during the contractual period… The question of the existence of such a duty and of its scope naturally vary from case to case… The duty of disclosure during the contractual period exists — or more precisely continues to exist — whenever the duty of disclosure was not carried out by a party at the pre-contractual stage, and the necessity of the disclosure continues to exist also during the contractual stage, and the degree of necessity is such that failure to comply with it amounts to behaving unfairly and not in accordance with accepted practices and in good faith.’

In any case, the question is what is the consequence of a lack of good faith that amounts to a breach by both parties.

(c) Article 82 of the Schedule of the International Sale of Goods Law provides:

‘Where the contract is not avoided, damages for a breach of contract by one party shall consist of a sum equal to the loss, including loss of profit, suffered by the other party. Such damages shall not exceed the loss which the party in breach ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters which then were known or ought to have been known to him, as a possible consequence of the breach of the contract’ (emphasis added).

Similarly, art. 74 of the Vienna Convention provides:

‘Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.’

In Israel, s. 10 of the Contracts (Remedies for Breach of Contract) Law, 5731-1970 (hereafter — ‘the Remedies Law’), provides:

‘The injured party is entitled to damages for the damage caused to him as a result of the breach and its consequences which the party in breach foresaw, or should have foreseen, at the time the contract was made, as a probable consequence of the breach’ (emphasis added).

The idea underlying the principle of causality is that the person in breach is liable for the damage resulting from his action. Therefore, if two persons caused the damage, neither should be preferred to the other, but the liability should be divided between them so that each shall be liable for his share of the damage.

(d) The finding that each party should be liable for the damage for which he is responsible is also consistent with the requirement to mitigate the damage.

Article 88 of the Schedule of the International Sale of Goods Law provides:

‘The party who relies on a breach of the contract shall adopt all reasonable measures to mitigate the loss resulting from the breach. If he fails to adopt such measures, the party in breach may claim a reduction in the damages.’

Similarly, section 77 of the Vienna Convention provides:

‘A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.’

Similarly s. 14(a) of the Remedies Law states:

‘The party in breach is not liable for damages under sections 10, 12 and 13 for damage that the injured party could have prevented or mitigated by reasonable measures.’

These sections effectively limit the entitlement of the injured party to damages and constitute an incentive for the injured party to act to prevent and reduce his damage. However, the rule concerning the mitigation of damage comes into effect only after the breach, whereas we are concerned with the ‘mitigation of damage’ at stages preceding the breach or at stage of the breach itself. The use of s. 10 of the Remedies Law (or art. 82 of the Schedule to the International Sale of Goods Law) to achieve this purpose will preserve coherence and contribute to the integrity of the system. For why should we only hold the injured party liable to prevent his damage ex post facto, if he can easily do this ab initio? We used the word ‘easily’, since we are not talking about actual prevention but about not acting to create or to increase his damage. This applies a fortiori to our case, where the injured party is also in breach.

(e) It is true that the court tends to attribute unequivocal and absolute implications to a lack of good faith. Thus, a party’s lack of good faith may deprive him of a remedy or confer a remedy on the other party. In this respect Justice Barak states (in HCJ 59/80 Beer-Sheba Public Transport Services Ltd v. National Labour Court [5], at pp. 838-839):

‘Sometimes the result of non-compliance with a duty is the payment of damages or specific performance. Sometimes the result is that the party in breach is refused compensation or enforcement. Sometimes the result of the breach is that the other party is empowered to do certain acts within the sphere of the contract which otherwise would have been deemed a breach, or that the party in breach is denied a power given to him under the provisions of the contract. Sometimes the result is merely that the action done in breach of the duty has no effect and is invalid…’

The same has also been held with regard to improper behaviour that did not necessarily amount to a lack of good faith. CA 825/79 Sherbet Brothers Building Co. Ltd v. Schwartzbord [6] concerned a memorandum for the sale of land. The parties agreed they would prepare a detailed contract after they agreed the payment terms. But the buyer was evasive and on two occasions did not come to meetings arranged by the parties for preparing the formal contract, which led the seller to believe that the purchaser wished to withdraw from the transaction. Although the law did not regard the buyer’s behaviour as amounting to a withdrawal from the transaction, and the memorandum remained valid, Justice D. Levin nonetheless ruled that the buyer’s claim for damages should be dismissed in full, in view of her behaviour:

‘Although the appellant did not formally cancel the memorandum, and she cannot be blamed for its non-realization, we cannot ignore the fact that her behaviour, as described above, contributed to the complication that ultimately led to this litigation. The transaction was in its initial stages, and on the determined facts, the appellant had not yet altered her situation as a result of the contract. In these circumstances I do not see what damage she can claim, and what justification there is for finding in her favour and awarding her any real damages’ (ibid., at p. 210).

It should be noted that in the other cases described, only one of the parties acted in bad faith or negligently, whereas in the present case, both parties lacked good faith.

Moreover, if it is possible to deny a remedy completely in cases like the aforesaid, then a partial denial of damages is even more possible, and as I shall show below, it is also desirable.

(f) As stated, the accepted premise is that contractual liability is absolute liability, in the sense that it usually arises in full force irrespective of the nature of the breach, the intentions of the party in breach or other circumstances. But even if we accept this premise, it does not mean that we cannot take into account the lack of good faith of both parties to the contract. Both parties in this case are tainted by this behaviour.

(g) It was pointed out in CA 804/80 Sidaar Tanker Corp. v. Eilat-Ashkelon Pipeline Co. Ltd [7], at p. 426, that:

‘There is no a priori jurisprudential understanding of the term “absolute liability”. Its meaning varies with the context in which it appears and the purpose that it is intended to serve.’

With respect to the method of examining the nature of absolute liability, we must refer to the statutory provision (the internal examination), in order to determine whether we can derive the purpose of the absolute liability from it. In this way we can also examine the applicability of defences such as a lack of good faith (of both parties, as in this case) to this provision. We must also consider general legal principles (the external examination). Accordingly, what will determine whether a lack of good faith can be imputed to a party to a contract who is prima facie entitled to compensation for damage resulting from a lack of good faith on the part of the other party, is the purpose of the law: in our case, this means the International Sale of Goods Law and general legal principles.

 (h) The purpose of the International Sale of Goods Law is in effect to establish a standard contract that shall be deemed to be adopted by the parties, unless they make a stipulation to the contrary. The purpose of this contract is to allow the parties to realize their wishes to the maximum, while allocating between them the various risks involved in the transaction. The premise of the law is that the responsibility for performing a particular act in a transaction should be imposed on the party that can perform it in the best possible way.

Performance in the best possible way means, inter alia, performance at the lowest cost, since the presumption in this kind of commercial transaction is that the parties wish to derive the maximum benefit from the transaction. Therefore, the International Sale of Goods Law will not impose liability for doing a particular act on a party that may perhaps be able to do it well, if this will involve a considerable expense that may even negate the benefit that the parties will derive from the transaction itself.

Allocating the risks allows each of the parties to act in the knowledge that the other party will act in a manner consistent with the purposes of the transaction. In other words, the law gives both parties the possibility of reliance, which is one of the main aims running throughout the law of contract.

 (i)   Does achieving the purposes of the law depend upon the existence of absolute liability? Quite the contrary. Like any contract or transaction, the sale transaction is also based on a desire for cooperation between the parties, assuming, of course, that the cooperation will benefit each of them, and both of them jointly. There is no reason to assume that this cooperation ends with making the contract, and in our case upon reaching an agreement whose essence is the applying the International Sale of Goods Law to the relationship between the parties. As stated above, even a duty of disclosure that is not discharged at the pre-contractual stage remains in force at the contractual stage. It is only reasonable that along their joint path the parties will encounter various problems that require some flexibility and even a deviation from what was originally determined. Without doubt, cooperation will also be needed in the future. One aspect of this cooperation is the recognition that damage may be caused to one of the parties as a result of lack of good faith by both parties. ‘Cooperation’ in such a case is reflected in the allocation of liability for damages between the two — an allocation made after the event, which may in fact encourage cooperation from the outset.

(j)    This determination does not conflict with the parties’ reliance, since a party to a transaction who knows of a particular problem involved in it (and in our case it has been proved that both parties could have known) and does not raise it with the other party, knowing that such an act may in fact lead to frustration of the transaction, cannot claim that he relied upon the other party investigating the matter. This very argument contains a large degree of lack of good faith (see also: Dr A. Porat, Allocation of Liability in the Law of Contract (Doctoral Thesis), 1989, 88).

Moreover, it is possible that the very allocation of liability will strengthen the reliance of the two parties to the transaction, for when they know that each of them is under a duty to help the other to act — to a reasonable degree, naturally — their faith in the performance of the transaction will be strengthened and their reliance will be increased. We can also refer in this respect to the remarks of Dr Porat, Allocation of Liability in the Law of Contract, at p. 90:

‘... when the contract obliges both parties to perform somewhat complex obligations towards one another, rather than, for example, the mere payment of money. In such circumstances, each party knows that he is often likely to encounter difficulties in performance, from which the other party can help him to extricate himself easily. If, in his understanding of the legal position, the other party is not obliged to help him even when it does not require an investment of resources, then his confidence in his own ability to perform the contract will be diminished. In any event, his confidence that he will receive, or that he is entitled to receive, the counter-performance of the other party will diminish. If however, in his understanding of the legal position, the other party must help him to a reasonable degree, his confidence in his own performance will increase, while at the same time his confidence that he will receive counter-performance will also increase, and as a result his ability to rely on the contract will increase.’

Prof. Mautner, supra, writes, at p 57:

‘Because it is intended to guarantee the fulfilment of the reasonable expectations of the parties from their legal relationship, the duty of good faith in section 39 is the legal expression of the sociological concept of “trust”. A number of sociologists regard the concept of “trust” as a key concept for understanding the way in which modern society functions. It can be stated simply that trust exists where the individual can assume that another individual or institution, whose behaviour is liable to influence him, will act in a way that can reasonably be expected of persons or institutions of that type… The trust is needed where the activity requires reliance on another, without real knowledge of the details and manner in which he acts… Sociologists who have dealt with this concept think that the degree to which we need to rely on trust has increased greatly in modern times, when many of our actions require reliance on the behaviour of many people, and understanding their ways of acting requires expertise that we do not have. Not only are they beyond our control; we do not even know them. Indeed, these sociologists assume that in the absence of trust in interpersonal relationships and in the absence of trust in the proper function of institutions, the order of modern society will collapse, to be replaced by utter chaos and a regression to a primitive era of self-reliance.

… I believe that there is a firm bond between the concept of trust and the legal concept of good faith. The idea underlying the two concepts is identical: the basis for the sociological concept of trust is the possibility that each individual may rely on the fulfilment of his reasonable expectations of other individuals and institutions to behave as required by their position or function. The basis for the legal concept of good faith is the possibility that each individual may rely on the fulfilment of his reasonable expectations of the legal relationship which he has with another, even if this expectation is not completely protected by the specific legal norm that defines the relationship.’

(k) To the same extent, the determination above does not affect the basic allocation of risks between the parties. The International Sale of Goods Law does not anticipate a situation where both parties can efficiently and cheaply avoid a difficulty that arose subsequently. A risk of this kind is not defined in the law, and consequently there is no initial allocation for it. A subsequent allocation, in accordance with the lack of good faith of each of the two parties, does not therefore conflict with the initial allocation (see also Dr Porat, Allocation of Liability in the Law of Contract, at p. 93).

 (l)   There is of course no doubt that the allocation of liability in our case is consistent with ideas of morality, justice and prevention of unjust enrichment that are the source of Israeli law in general, and the law of contract (including sales contracts) in particular. Where two parties cause damage, it is neither fair nor moral for one party to be liable for the full damages of the other. Why should a party to a contract be entitled to full compensation for damage caused also by his own foolish behaviour and lack of good faith? Moreover, allocating the liability between them will encourage good faith or care on the part of the two parties to the transaction. Recognizing a lack of good faith of a party to a contract does not prejudice the morally binding force of the other party’s promise (in this respect, see: P.S. Atiyah, Promises, Morals and Law, Oxford, 1981). In reply to the question whether a specific promise is also considered to include the element of the consent included therein being irrevocable and therefore morally binding, we can also take into account the lack of good faith of the party to whom the question was addressed (see also: Porat, supra, at p. 122).

Similarly, this recognition does not prejudice the autonomy of the individual’s will and the idea of trust, which underlie the need to keep promises (see in this respect: C. Fried, Contract as Promise, Cambridge, 1981). A person interested in furthering his desire by placing himself in the hands of others to make a mutual profit is not interested in subjecting himself to the arbitrariness of the other party, so that the latter may both contribute to a breach and still insist upon full compliance with the promise. There is no moral value in this. The desire to create relationships of trust between people also does not justify a party contributing to a breach of a promise and insisting, nonetheless, upon full performance thereof. We should emphasize that recognizing the lack of good faith of both parties does not mean that the promisor is released from his promise, nor that it is legitimate to breach a promise. The idea behind it is merely the determination of reduced sanctions because of the lack of good faith of the party who was given the promise. In this respect it should be noted that Israeli law tends to read implied terms and conditions into contracts, which are mainly based, inter alia, on good faith.

In a similar context Dr Porat, supra, at p. 107, says:

‘External intervention in the contents of the contract, whether direct or indirect, both by virtue of a specific statutory provision and by virtue of a provision of a law that gives the court broad discretion, emphasizes the fact that the modern contract should not be regarded as a formal instrument for allocating risk and planning for the future. The external intervention is sometimes not specifically anticipated; this is so where it is done by virtue of general provisions of law, which must be given meaning in accordance with the circumstances or considerations of legal policy. In this way, a price is paid in a decrease in security and certainty, reliance is adversely affected and legal principles are not always clear and obvious. Recognizing a defence of contributory negligence in these circumstances is merely the addition of another external criterion, which is not always consistent with the expectations of the two parties, and the reasons for its existence are first and foremost morality, justice and fairness.’

We can only add that if intervention is possible in a case of a contract written by the parties themselves, how much more so in a case of a contract whose contents are determined by a law and with regard to which it can be assumed that the principles of fairness are the central pillars of the legal system that led to its legislation.

(m) In a situation like the one before us, where in practice both parties contributed by their behaviour to the damage, allocating the liability is the desired result. The plaintiff can no longer claim that he was entitled to rely upon the performance of the other party, since the defendant has an equal right to say this. Similarly, the plaintiff cannot rely on arguments concerning the moral aspect of keeping promises. There is also no difficulty in applying the doctrine, for just as the defendant’s liability for the plaintiff’s damage will be determined, so too will the plaintiff’s liability for the defendant’s damage be determined. Any other ruling would lead to an absurd, since as each of the parties is in breach, we should prima facie impose on each of them absolute liability for the damage caused by the breach to the other party.

The fitting solution in circumstances like these is to allocate liability between the parties. In this respect Dr Porat, supra, at p. 212, says:

‘We are dealing with two sets of behaviour, at the same level, with identical characteristics, where neither has any advantage over the other. The equality described above almost cries out, for reasons of justice and fairness, for equal treatment of the plaintiff and the defendant, i.e., an allocation of responsibility. It is impossible to determine who should be preferred. This is even a situation which would lead to a vicious cycle of claims without any solution.

Any solution, other than an allocation of liability, would be arbitrary and, for that reason, unjust.’

(n) This ruling has an additional advantage in that it unites the principles for compensation in the law of torts and the law of contract. The appeal before us is an example of a case that lies on the borderline between the two fields. This borderline must inevitably be blurred in the appropriate case.

In fact, each of the parties could have argued that the other was negligent or, to be more precise, made a negligent misrepresentation. The compensation claimed would be for damage caused unlawfully. There is no real reason to apply different principles of compensation in the two cases.

There is also no doubt that a case of this sort is particularly suited for an allocation of liability. What reason is there for establishing a different liability in accordance with the drafting of the statement of claim? On the contrary, this would divert the consideration of the case from substantive issues to merely technical issues regarding the nature of the grounds set out in the statement of claim, thereby emphasizing what is trivial instead of what is important (see Porat, supra, at p. 115).

(o) It is interesting to note that in similar cases the court has recognized, even if only tacitly, the possibility of allocating contractual damage in accordance with the degree of culpability of the two parties. This is so in cases where the court considered the revaluation of the contractual price. The court tended to justify the revaluation, or not making a revaluation, inter alia with reasoning relating to the relative culpability of the two parties. In the words of Justice Barak in CA 158/77 Rabinai v. Man Shaked Ltd (in liquidation) [8], at pp. 291-292:

‘In principle, a court asked to make an order of specific performance has three options: the court can refrain from granting the order; it can make an order of specific performance as stated in the contract; it can make an order of specific performance with instructions to revalue the price… In CA 277/57, the court refused… to make an order of specific performance with regard to a contract for the sale of land... where the buyer had delayed in performing it, during which time the price had fallen to less than a fifteenth of the original price. The court adopted the same approach… when it refused to make an order of specific performance with regard to the contract for the sale of land… (emphasizing) that it did so in view of the special circumstances of the case, in which the buyer had shown inflexibility, a fact that reduced the degree of the deliberate refusal of the seller to transfer the asset. In a number of judgments, this court has made an order of specific performance and refused to revalue the price… while emphasizing the deliberate behaviour of the seller, who not only breached the contract but also put off the buyer repeatedly and intentionally refused to honour the contract that he had made... Finally, in a number of cases, this court has made an order of specific performance while partially revaluating the price… Recently… we ordered specific performance of a contract for the sale of an apartment, which the seller had deliberately breached, and it gave instructions that part of the price would be paid with linkage to the increase in the consumer price index’ (emphasis and parentheses added).

This was also the case in CA 789/82 Ezra v. Mugrabi [9], at p. 574, where Justice Bejski held:

‘… in enforcing a contract, the consideration or balance of the consideration payable is revalued as of the date of enforcement… the same applies with regard to restitution in the case of a breach of contract… subject to the court's discretion regarding the degree of revaluation… taking into account the circumstances relating to the nature of the breach, the behaviour of the person in breach, and the circumstances that should be taken into account for this purpose’ (emphasis added).

See also: M. Hork, ‘Adjustment of the Contractual Price’, 8 Iyunei Mishpat, 1981, 88, at p. 112.

(p) Before concluding, I will mention that if we were discussing the breach of the duty of good faith at the negotiation stage, it would have been easier to recognize the doctrine of allocation of liability, since s. 12 does not originate exclusively from the law of contracts, as Prof. D. Friedman and Prof. N. Cohen point out in their book, Contracts, Aviram, vol. 1, 1991, at p. 636:

‘The difficulty existing in a contractual claim does not arise with respect to improper behaviour at the negotiation stage, in view of the fact that the claim is not contractual and in view of the tortious nature of s. 12. This position is consistent with our general approach whereby the section can be supplemented by means of the principles embodied in the Torts Ordinance.’

See also CA 714/87 Sher v. Cohen [10], at p. 164.

However, since it appears to me that the situation before us must be classified as part of the performance stage, since we are concerned with an obligation that derives from the contract (an obligation to transfer ownership free of any right of a third party), I therefore think it correct to examine the incorporation of the allocation of liability into that material. Undoubtedly, the readiness to recognize the allocation of liability at the negotiation stage also supports the need to incorporate this doctrine also at the stage of performance of the contract, in all its stages. We should emphasize once more that since the lack of cooperation and the absence of disclosure in our case originated in the pre-contractual stage, it is easier to apply the accepted principles at this stage to them.

(q) I have determined that in this case we should recognize the allocation of liability between the parties. All that remains is to determine how this allocation is to be made.

There are three possible methods:

(1) An allocation by comparing the degree of bad faith attaching to each of the parties.

(2) An allocation by comparing the causal contribution of each of the parties to the damage.

(3) An allocation that combines the degree of bad faith with the causal contribution to the damage (Porat, supra, at p. 314).

In the case before us, where we are concerned with a situation of mutual lack of good faith, we must compare both the causal contribution of each party to the damage and the degree of lack of good faith of each of them.

Finally, in the circumstances of the case, it seems to me that the correct allocation between the parties is the equal allocation.

5. The result is that the appeal should be allowed, albeit in part. The exporter-seller will be liable for 50% of the damage and the importer-buyer will be liable for the remaining 50%.

In the circumstances, each of the two parties shall pay costs to the State Treasury in a sum of 6,000 NIS.

 

 

Justice Y. Malz

I agree.

 

 

Justice E. Goldberg

I agree with President Shamgar’s remarks that both the appellant and the respondent ‘could not have been unaware of the possibility that a registered trade mark existed,’ for the reasons that he gives in his opinion. If so, the respondent’s behaviour cannot be deemed to be tainted by a lack of good faith, for the appellant had the same knowledge as the respondent. The lack of cooperation between the parties also cannot be deemed a lack of good faith, when each of them also knew of the danger that the anticipated damage existed and did not need the other party in order to discover this danger.

The buyer’s demand of the seller, under art. 52(1) of the Schedule to the Sale (International Sale of Goods) Law, that ‘other goods free from all rights and claims of third persons be delivered to him by the seller’ is based on the fact that the buyer did not agree ‘to take the goods subject to such right or claim’ (emphasis added). Such an agreement does not need to be expressly stated, and it may be inferred from the circumstances.

In our case, the learned judge determined that:

‘The manufacturer knew that the plaintiff had examined the sample in the United States and received the customer’s consent. This examination resulted in two special changes being ordered, of which at least one — the replacement of the soles — relates to customs problems. In this situation, a representation was made to the manufacturer that the party making the order knew the laws of the country of destination and the duties it imposed on him thereunder, and that he had complied with these obligations as an importer… the manufacturer was permitted to rely on the importer making the necessary preparations, from his point of view, for receiving the goods in the United States.’

What emerges from the remarks of the trial court is that the appellant, who, as stated, knew that there was a possibility that a registered trade mark existed, also knew the laws of the country of destination, and therefore it can be regarded as having agreed to assume the risk involved therein. If it turned a blind eye, this does not justify allocating the liability between it and the respondent.

I would therefore dismiss the appeal.

 

 

Appeal allowed in part, by majority opinion (President M. Shamgar and Justice Y. Malz), Justice E. Goldberg dissenting.

22 August 1993.

 

 

HCJ 721/94

El-Al Israel Airlines Ltd

v.

1. Jonathan Danielowitz

2. National Labour Court

 

The Supreme Court sitting as the High Court of Justice

[30 November 1994]

Before Vice-President A. Barak and Justices Y. Kedmi, D. Dorner

 

Petition to the Supreme Court sitting as the High Court of Justice.

 

Facts: The first respondent, who is employed by El-Al as a flight attendant, has a stable relationship with another man. Under a collective agreement, El-Al gives every permanent employee a free aeroplane ticket, every year, for that employee and his/her spouse (husband or wife). Under a collective arrangement, a free ticket is also given to a companion recognized publicly as the employee’s husband/wife. The first respondent asked El-Al to give him a free ticket for his companion, but his request was denied.

 

Held: (Majority opinion — Vice-President A. Barak, Justice D. Dorner) Not giving the respondent a free ticket for his same-sex companion amounted to discrimination, since a distinction on the basis of the difference between a heterosexual and a homosexual relationship is unjustified in the context of employee benefits.

(Minority opinion — Justice Y. Kedmi) Linguistically, only a heterosexual couple can be called a ‘couple’; the concept of the ‘couple’ linguistically only applies to an union of male and female that can, conceptually, have children. Therefore a distinction between a same-sex companion and an opposite-sex companion is a distinction between persons who are fundamentally unequal, and this does not amount to discrimination.

 

Petition denied, by majority opinion (Vice-President M. Shamgar and Justice D. Dorner), Justice Y. Kedmi dissenting.

 

Legislation cited:

Basic Law: Human Dignity and Liberty, 5752-1992, ss. 7, 8.

Contracts (General Part) Law, 5733-1973, ss. 14, 31.

Criminal Law Ordinance, 1936, s. 152(2).

Employment Service Law, 5719-1959, s. 42.

Equal Employment Opportunities Law, 5748-1988, ss. 2, 2(a) 2(c).

Equal Employment Opportunities Law (Amendment), 5752-1992.

Equal Remuneration for Female and Male Employees Law, 5724-1964.

Equal Retirement Age for Female and Male Employees Law, 5747-1987.

Government Corporations Law, 5735-1975, s. 18A.

National Insurance Law [Consolidated Version], 5728-1968, s. 8.

Penal Law, 5737-1977, s. 351(3).

Penal Law (Amendment no. 22), 5748-1988.

Women’s Equal Rights Law, 5711-1951, s. 1.

 

Israeli Supreme Court cases cited:

[1]      FH 13/84 Levy v. Chairman of Knesset Finance Committee [1987] IsrSC 41(4) 291.

[2]      HCJ 98/69 Bergman v. Minister of Finance [1969] IsrSC 23(1) 693; IsrSJ 8 13.

[3]      EA 2/88 Ben-Shalom v. Central Elections Committee for Twelfth Knesset [1989] IsrSC 43(4) 221.

[4]      HCJ 114/78 Burkan v. Minister of Finance [1978] IsrSC 32(2) 800.

[5]      HCJ 453/94 Israel Women’s Network v. Government of Israel [1994] IsrSC 48(5) 501; [1992-4] IsrLR 150.

[6]      HCJ 953/87 Poraz v. Mayor of Tel-Aviv-Jaffa [1988] IsrSC 42(2) 309.

[7]      HCJ 104/87 Nevo v. National Labour Court [1990] IsrSC 44(4) 749; IsrSJ 10 136.

[8]      HCJ 507/81 Abu Hatzira MK v. Attorney-General [1981] IsrSC 35(4) 561.

[9]      HCJ 301/63 Streit v. Chief Rabbi [1964] IsrSC 18(1) 598.

[10]    HCJ 693/91 Efrat v. Director of Population Registry at Ministry of Interior [1993] IsrSC 47(1) 749.

[11]    HCJ 1000/92 Bavli v. Great Rabbinical Court [1994] IsrSC 48(2) 221.

[12]    HCJ 5394/92 Hoppert v. ‘Yad VaShem’ Holocaust Martyrs and Heroes Memorial Authority [1994] IsrSC 48(3) 353.

[13]    HCJ 246/81 Derech Eretz Association v. Broadcasting Authority [1981] IsrSC 35(4) 1; IsrSJ 8 21.

[14]    HCJ 141/82 Rubinstein v. Knesset Speaker [1983] IsrSC 37(3) 141; IsrSJ 8 60.

[15]    HCJ 5688/92 Wechselbaum v. Minister of Defence [1993] IsrSC 47(2) 812.

[16]    FH 10/69 Boronovski v. Chief Rabbis [1971] IsrSC 25(1) 7.

[17]    HCJ 30/55 Committee for Protection of Expropriated Nazareth Land v. Minister of Finance [1955] IsrSC 9 1261.

[18]    CrimA 112/50 Yosipof v. Attorney-General [1951] IsrSC 5 481; IsrSJ 1 174.

[19]    HCJ 153/87 Shakdiel v. Minister of Religious Affairs [1988] IsrSC 42(2) 221; IsrSJ 8 186.

[20]    CrimA 224/63 Ben-Ami v. Attorney-General [1964] IsrSC 18(3) 225.

[21]    HCJ 720/82 Elitzur Religious Sports Association, Nahariyah Branch v. Nahariyah Municipality [1983] IsrSC 37(3) 17.

[22]    HCJ 4169/93 — unreported.

[23]    HCJ 410/76 Herut v. National Labour Court [1977] IsrSC 31(3) 124.

 

Israel National Labour Court cases cited:

[24]    NLC 33/25-3 Flight Attendants Association v. Hazin [1973] 4 IsrNLC 365.

[25]    NLC 44/85-0 – unreported.

 

American cases cited:

[26]    Welsh v. United States 398 U.S. 333 (1970).

[27]    Califano v. Westcott 443 U.S. 76 (1979).

[28]    Boutilier v. Immigration Service 387 U.S. 118 (1967).

[29]    Nemetz v. Immigration & Naturalization Service 647 F. 2d 432 (1981).

[30]    Braschi v. Stahl Associates Co. 544 N.Y. Supp. 2d 784 (1989).

[31]    Yorkshire Towers Co. v. Harpster 510 N.Y. Supp. 2d 976 (1986).

[32]    Two Associates v. Brown 502 N.Y. S. 2d 604 (1986).

[33]    E. 10th St. Assoc. v. Estate of Goldstein 552 N.Y. Supp. 2d 257 (1990).

 

English cases cited:

[34]    Dyson Holdings Ltd v. Fox [1975] 3 All E.R. 1030 (CA).

 

European Court of Human Rights cases cited:

[35]    Norris Case 142 Eur. Ct. H. R. (Ser. A) (1988).

[36]    Modinos v. Cyprus Case 259 Eur. Ct. H. R. (Ser. A) (1993).

 

Canadian cases cited:

[37]    Schachter v. Canada (1992) 93 D.L.R. (4th) 1.

[38]    R. v. Turpin [1989] 1 S.C.R. 1296.

[39]    Vriend v. Alberta (1994) 6 W.W.R. 414.

[40]    Egan v. Canada (1993) 103 D.L.R. (4th) 336.

[41]    Haig v. Canada (1992) 94 D.L.R. (4th) 1.

[42]    Layland v. Ontario (Consumer Protection & Commercial Relations) (1993) 104 D.L.R. (4th) 214.

[43]    Canada (A.G.) v. Mossop [1993] 1 S.C.R. 554.

 

Jewish Law sources cited:

[44]       Genesis 1, 27; 1, 28; 2 24; 5 2; 6 19.

 

For the petitioner — Y. Winder, A. Ben-Israel

For the first respondent — S. Donevitz, O. Kalmaro

 

 

JUDGMENT

 

 

Vice-President A. Barak

A collective agreement and a collective arrangement confer a benefit on a ‘spouse’ (husband or wife) or a ‘companion recognized as a husband/wife’ of an employee. Is this benefit conferred also on an employee’s same-sex companion? That is the question before the court in this petition.

The facts and the litigation before the Labour Court

1.    The first respondent (the respondent) works as a flight attendant for the petitioner (the El-Al company). Under the collective agreement, every (permanent) employee is entitled to receive free (or discounted) aeroplane tickets for himself and his ‘spouse (husband/wife)’ once a year. Under a collective arrangement (entitled ‘professional guidelines’), aeroplane tickets (as of 1 January 1986) are given to ‘a companion recognized as the husband/wife of an employee of the company if the couple live together in a joint household as husband and wife in every respect, but they are unable to marry lawfully.’

2.    The respondent applied (on 21 January 1988) to the petitioner with a request to recognize his male companion as his ‘companion’ for the purpose of receiving an annual free or discounted aeroplane ticket. In his request, the respondent explains that he has a stable and long-term relationship (since 1979) with another man. The relationship involves, inter alia, running a joint household and cohabiting in a private apartment purchased jointly. The respondent’s request was refused.

3.    The respondent applied to the Regional Labour Court. He asked the court to declare him entitled to receive free or discounted aeroplane tickets for his male companion, just as El-Al gives these to its employees’ spouses. According to a procedural agreement, it was agreed that the court would first consider the underlying question whether an El-Al employee is entitled to a free or discounted ticket for a same-sex ‘companion’. On this question, the Regional Labour Court (Justice Lubotsky and public representatives Ozeri and Pinchas) held that the provision of the collective agreement (which confers the right to the benefit on a ‘spouse’) does not confer a right on a companion of an employee, and this does not involve improper discrimination. However, the provision of the collective arrangement conferring a benefit on persons recognized as a couple (despite their being unable to marry lawfully) but not conferring the same benefit on a same-sex couple (who are also unable to marry lawfully) is a discriminatory provision. This discrimination is prohibited by the provisions of the Equal Employment Opportunities Law, 1988. Under the provisions of this law (in s. 2) — as amended in the Equal Employment Opportunities (Amendment) Law, 1992 — an employer may not discriminate against any of his employees in their conditions of employment ‘on the basis of sex, sexual orientation, personal status or their being parents.’ Because of this prohibited discrimination, the discriminatory provision in the collective arrangement was disqualified. By virtue of the procedural agreement, the Regional Labour Court went on to consider whether the respondent in fact cohabits with his companion.

4.    El-Al appealed to the National Labour Court. The National Labour Court (President M. Goldberg, Vice-President S. Adler, Justice Y. Eliasof and public representatives R. Ben-Yisrael, Abrahamovitz, Friedman and Galin) dismissed the appeal.[*] It was held that the respondent does not fall into the category of those entitled to a discount under the collective agreement, since the expression ‘spouse (husband/wife)’ does not include a same-sex companion. It also held that the respondent does not fall into the category of ‘persons recognized as the husband/wife of an employee’ in the collective arrangement, since a recognized companion, in the context of the collective arrangement, does not include same-sex companions. Notwithstanding, the court held that this position constitutes improper discrimination on the basis of sexual orientation, contrary to the principle of equality set out in the Equal Employment Opportunities Law, as amended in 1992. This improper discrimination, contrary to provisions of the law, gives the respondent (as of 2 January 1992) a right to demand for himself the benefit that was not conferred on him for discriminatory reasons.

5.    The petition before us is directed against the decision of the National Labour Court. El-Al (the petitioner) asks for a ruling that its refusal to give the respondent an aeroplane ticket for his companion does not constitute improper discrimination under the Equal Employment Opportunities Law as amended in 1992. El-Al’s contention is that this law — in the 1992 amendment — added an additional type of prohibited discrimination (‘sexual orientation’) but it did not confer rights to receive benefits that an employee was not previously entitled to receive. The respondent argued before us that there is no reason why we should intervene in the National Labour Court’s judgment, which ruled that a cause of action based on discrimination was created by the Equal Employment Opportunities Law, justifying giving aeroplane tickets for the respondent’s companion as of the date when the law was amended (on 2 January 1992).

The interpretive construction

6.    The respondent (the flight attendant, the employee) may base his argument to receive the benefit (a free or discounted ticket) for his companion on two legal constructions. According to the first construction, his right is founded on the collective agreement that gives benefits to ‘a spouse (husband/wife)’ and on the collective arrangement that gives a benefit to ‘a person recognized as the husband/wife of an employee.’ According to this construction, the term ‘spouse’ (in the collective agreement) and the term ‘recognized companion’ (in the collective arrangement) should be interpreted according to their purpose to include also a spouse of the same sex and a recognized companion of the same sex. The respondent’s right to receive the benefit is contractual, and it is founded on the text of the collective agreement and the collective arrangement, just like the respondent’s right to receive the benefit for himself. This legal model is interpretive in nature. It is intrinsic to the actual text. In this the respondent’s right to receive benefits — for his companion and for himself — derives from the legal meaning of the contractual text that is chosen from among its various linguistic meanings. Naturally this right accrues to the employee when the conditions entitling him to it are fulfilled.

7.    The interpretive construction was rejected by the Labour Courts. They held that the (legal) meaning of the term ‘spouse (husband/wife)’ in the collective agreement does not include same-sex companions. The National Labour Court pointed out that —

‘In the case before us, the parties to the collective agreement expressly showed that they did not mean a same-sex companion. The collective agreement says “spouse (husband and wife)”. The words “husband and wife” attached to the term spouse show that the parties used the term spouse in its narrow sense. It follows that this expression in the collective agreement does not include recognized companions and same-sex companions who are indisputably not “husband and wife”.’*

With regard to the term ‘person recognized as a husband/wife’ in the collective arrangement, the National Labour Court held that this does not include persons of the same sex who cohabit. The National Labour Court pointed out that the ‘term “recognized companion” does not appear by itself, but it is accompanied by the words “as husband/wife”.’* This use of language shows ‘that the intention of the drafter was not to include persons of the same sex.’*

The statutory construction

8.    A second legal construction is also available to the respondent. This construction starts with the premise that the contractual right to receive a benefit is conferred only on a companion who is not the same sex as the employee. According to this construction, the contractual arrangement (the product of the interpretive construction) is a discriminatory arrangement that is contrary to the Equal Employment Opportunities Law (as amended in 1992). The remedy given to the respondent as a result of this discrimination is not to nullify the contractual arrangement — a remedy that he did not request at all — but to make a (judicial) order based on the provisions of the law to correct the discrimination. The respondent will therefore be entitled to the benefit for his companion by combining the discriminatory contractual provision with the corrective statutory provision. This construction is not interpretative. It is extrinsic to the actual text. Its existence derives from the combination of (A’s) contractual right and the statutory mandate to prevent discrimination (against B). The resulting right of the employee arises on the day that the statutory prohibition against discrimination on grounds of sexual orientation came into force (i.e., on 2 January 1992). It may be called a statutory (or extrinsic) construction. The National Labour Court accepted this construction, and this is what El-Al is attacking before us. Analyzing this legal model must be done in two stages: first, whether the contractual arrangement (the product of the interpretive construction) is (improperly) discriminatory because of sexual orientation; second, what remedy should be given to an employee who has been the victim of (improper) discrimination on the basis of sexual orientation?

9.    The respondent did not reargue the interpretive construction before us. Indeed, this construction — which, as stated, was rejected by the National Labour Court — is complex (cf., with regard to the term ‘spouse’, FH 13/84 Levy v. Chairman of the Knesset Finance Committee [1]; see also C. A. Bowman, B. Cornish, ‘A More Perfect Union: A Legal and Social Analysis of Domestic Partnership Ordinances,’ 92 Colum. L. Rev. (1992) 1164; R. Elbin, ‘Domestic Partnership Recognition in the Workplace: Equitable Employee Benefits for Gay Couples (and Others),’ 51 Ohio St. L. J. (1990) 1067). We would have been compelled to decide this, had the respondent insisted on his (contractual) right to receive a benefit from the date when these (contractual) rights were created. As we have seen, the respondent accepts the decision of the National Labour Court that his right is based on the argument of discrimination on the basis of sexual orientation, relying on the amendment (of 2 January 1992) to the Equal Employment Opportunities Law. As a result, we do not need to consider the interpretive construction. I therefore presume — without deciding the issue — that the respondent does not have a (contractual) right under the collective agreement and the collective arrangement to receive the benefit for his companion. On this basis, I will now examine the statutory construction, with its two questions (is discrimination present; what is the proper remedy). I shall begin with the first question.

The right to equality and its violation

10. Equality is a fundamental value in Israeli law. ‘It is the heart and soul of our whole constitutional regime’ (Justice Landau in HCJ 98/69 Bergman v. Finance Minister [2], at p. 698 {18}) and ‘it is part of the essence and character of the State of Israel’ (Vice-President Justice Elon in EA 2/88 Ben-Shalom v. Central Election Committee for the Twelfth Knesset [3], at p. 272). ‘…The rule that one may not discriminate against persons on the basis of race, sex, nationality, ethnicity, country of origin, religion, beliefs or social status is a fundamental constitutional principle which is counted among our fundamental jurisprudential perspectives and constitutes an integral part of these’ (Justice Shamgar in HCJ 114/78, Motion 451, 510/78 Burkan v. Minister of Finance [4], at p. 806). Considerations of justice and fairness underlie the principle of equality. ‘The principle of equality… has long been recognized in our law as one of the principles of justice and fairness…’ (Justice Mazza in HCJ 453/94 Israel Women’s Network v. Government of Israel [5], at p. 521 {150}). Equality is a central element of the social contract upon which society is based (see HCJ 953/87 Poraz v. Mayor of Tel-Aviv-Jaffa; Labour Party in Tel-Aviv-Jaffa Municipality v. Tel-Aviv-Jaffa Municipal Council [6], at p. 332). Indeed —

‘Discrimination is a plague that fosters a feeling of unfairness and frustration. It harms the sense of belonging and constructive motivation to participate in, and contribute to, social life. A society that practices discrimination is not a healthy society, nor can a state in which discrimination is practised be called a civilized state’ (Justice Bach in HCJ 104/87 Nevo v. National Labour Court [7], at p. 760 {150}).

11. The principle of equality is entrenched in Israel in a number of normative structures. First, it is a principle of case-law — the product of  ‘Israeli common law’ — that has been recognized and developed by the courts in Israel. This principle reflects on the (objective) intention of every piece of legislation and acts as a criterion for its interpretation. ‘The fundamental principle, which constitutes a legislative goal for all the acts of the legislature, is the principle that everyone is equal before the law… legislation should therefore be presumed and interpreted as intending to achieve this purpose, not to undermine it.’ (HCJ 507/81 Abu Hatzira MK v. Attorney-General [8], at p. 585. See also HCJ 301/63 Streit v. Chief Rabbi [9], at p. 612). The case-law principle of equality reflects on the law’s ‘fundamental concepts’ (such as reasonableness, justice, equality and public policy) and constitutes a normative element in establishing the scope of their application (see HCJ 693/91 Efrat v. Director of Population Register at Interior Ministry [10]). A discriminatory collective agreement may therefore be contrary to public policy and be disqualified as a result (see Nevo v. National Labour Court [7] and L.C.J. 3-25/33 Flight Attendants’ Committee v. Hazin [24]). The case-law principle of equality is a normative basis for recognizing the right of equality as a human right in Israel. It leads to the formulation of case-law rules based on it — such as the rule of spouses’ joint property ownership (see HCJ 1000/92 Bavli v. Great Rabbinical Court [11]).

12. Second, the principle of equality is incorporated in Israeli legislation. This began with Israel’s Declaration of Independence, which provides that the State of Israel shall treat its citizens equally ‘irrespective of religion, race or sex’. It continued in legislation that creates equality in specific relationships. Thus, for instance, the Women’s Equal Rights Law, 1951, provides that ‘women and men shall be subject to the same law for every legal act...’ (s. 1). The Employment Service Law, 1959, prohibits discrimination by the Employment Service when referring a person for employment (s. 42). The Equal Remuneration for Female and Male Employees Law, 5724-1964, aims to ensure equality in employees’ salaries. Special legislation is intended to allow corrective preferential treatment for women (see section 18A of the Government Corporations Law, 1975). Another law — which is the relevant one in this case and which we will discuss separately — is the Equal Employment Opportunities Law. This development culminated in the enactment of the Basic Law: Human Dignity and Liberty, which entrenched equality as a super-legislative constitutional right, within the framework of human dignity:

‘Today the principle of equality can be entrenched in the Basic Law: Human Dignity and Liberty. Such entrenchment implies the elevation of the principle of equality to a constitutional, super-legislative normative status’ (per Justice Or in HCJ 5394/92 Hoppert v. ‘Yad VaShem’ Holocaust Martyrs and Heroes Memorial Authority [12], at p. 362).

13. Needless to say, equality does not confer an absolute right. The human right of equality — like every other human right — is a relative right. The principle of ‘equality is not an absolute but a relative principle’ (per Justice Or in Hoppert v. ‘Yad VaShem’ Holocaust Martyrs and Heroes Memorial Authority [12], at p. 361); the limits of extending the principle of equality are determined by an (internal) balance between the whole spectrum of human rights and by the public interest (see A. Rubinstein, The Constitutional Law of the State of Israel, Shoken, 4th edition, 1991, at pp. 199, 299). The right to equality may be restricted by virtue of other appropriate values (see HCJ 246/81 Derech Eretz Association v. Broadcasting Authority [13], at p. 13 {32}, and cf. s. 8 of the Basic Law: Human Dignity and Liberty). Indeed, sometimes equality is not completely protected. Equality may be lawfully restricted if this is consistent with the values of the State of Israel, is for a proper purpose and if equality is not restricted more than necessary.

14. The factual premise is that people are different from one another. ‘...No person is completely identical to another’ (Justice S. Levin in HCJ 141/82 Rubinstein v. Knesset Speaker [14], at p. 148 {67}). Every person is a world in himself. Society is based on people who are different from one another. Only the worst dictatorships try to eradicate these differences. Moreover, the presumption behind the Basic Law: Human Dignity and Liberty is that every person is free to develop physically and spiritually as he sees fit (see HCJ 5688/92 Wechselbaum v. Minister of Defence [15]). This underlying freedom is the basis for the principle of equality. It means equality before the law and the law being impartial to the differences between people. It means equality in applying freedom. It means equality in opportunities. This equality presumes a normative arrangement that is applied uniformly to all individuals, irrespective of the factual difference between them. However, the principle of equality does not presume only one rule for everyone. Indeed, the principle of equality does not rule out different rules for different people. The principle of equality demands that the existence of a rule that treats people differently is justified by the nature and substance of the issue. The principle of equality therefore presumes the existence of objective reasons that justify a difference (a distinction, dissimilarity). Discrimination — which is the opposite of equality — exists therefore in those situations where a different law for people who are (de facto) different from one another is based on reasons that are insufficient to justify a distinction between them in a free and democratic society. In Justice Or’s words, discrimination is ‘different treatment without an objective justification’ (Hoppert v. ‘Yad VaShem’ Holocaust Martyrs and Heroes Memorial Authority [12], at p. 360). President Agranat discussed this and pointed out:

‘The principle of equality, which is merely the opposite of discrimination and which, for reasons of justice and fairness, the law of every democratic country aspires to achieve, means that people must be treated equally for a particular purpose, when no real differences that are relevant to this purpose exist between them. If they are not treated equally, we have a case of discrimination. However, if the difference or differences between different people are relevant for the purpose under discussion, it is a permitted distinction to treat them differently for that purpose, provided that those differences justify this. In this context, the concept of “equality” therefore means  “relevant equality”, and it requires, with regard to the purpose under discussion, “equality of treatment” for those persons in this state. By contrast, it will be a permitted distinction if the different treatment of different persons derives from their being, for the purpose of the treatment, in a state of relevant inequality, just as it will be discrimination if it derives from their being in a state of inequality that is not relevant to the purpose of the treatment’ (FH 10/69 Boronovski v. Chief Rabbis [16], at p. 35).

Therefore a particular law will create discrimination when two individuals, who are different from one another (factual inequality), are treated differently by the law, even though the factual difference between them does not justify different treatment in the circumstances. Discrimination is therefore based on the factors of arbitrariness, injustice and unreasonableness. Justice Witkon discussed this and pointed out:

‘What is discrimination? Not every distinction between different groups of people is called “discrimination”; the concept of discrimination includes the idea of unfairness in treating equals unequally’ (HCJ 30/55 Committee for Protection of Expropriated Nazareth Lands v. Minister of Finance [17], at p. 1265).

Discrimination — which, as stated, is the opposite of equality — means unfair, unjust and arbitrary treatment (see CrimA 112/50 Yosipof v. Attorney-General [18], at p. 490 {183}).

15. As we have seen, the contractual regime at El-Al gives a male or female employee a right to receive a benefit (a free or discounted aeroplane ticket) for a wife or husband or recognized companion (male or female), provided that they are of the other sex. Does this constitute discrimination against a companion of the same sex? As we have seen, the test for equal and discriminatory treatment is the question whether the difference in sex is relevant to the issue. This relevance is examined on the criteria of arbitrariness, fairness and justice. The basis for giving a benefit to an employee for a spouse or a recognized companion lies in the attitude that there are reasons for giving a benefit — such as an aeroplane ticket — to an employee for the person with whom he lives and shares a common household, from whom he is separated when he leaves on his flights and to whom he returns when he finishes his work. This is the criterion that both a spouse and a recognized companion have in common. The purpose of the benefit is not to strengthen the institution of marriage. Indeed, El-Al gives the benefit to an employee living with a recognized companion, even when that recognized companion is lawfully married to someone else. The idea underlying the giving of the benefits is therefore cohabitation for a certain period (specified in the collective arrangement), which is evidence of a firm social unit based on a life of sharing. In this context, it seems clear to me that denying a same-sex companion this benefit amounts to discrimination and a violation of equality. Indeed, the only reason for denying the benefit to a same-sex companion is sexual orientation. There is no other reason. This difference is not at all relevant to the issue before us (supporting a firm social unit, based on a life of sharing). In the case before us, we are dealing with a distinction that is arbitrary and unfair: is parting from a same-sex companion easier than parting from a companion of the opposite sex? Is living together for persons of the same sex different, with regard to the relationship of sharing and harmony and running the social unit, from this life of sharing for heterosexual couples?

16. One might argue that a life of sharing and harmony between persons of opposite sexes (whether as husband and wife or as recognized companions) is so different in its character from a life of sharing and harmony between persons of the same sex that any legal regime giving a benefit to the former relationship does not discriminate against the latter relationship. Although this argument seems to me problematic, I am prepared to reserve judgment, since the question that we must ask is not whether one relationship (a life of sharing and harmony between persons of opposite sexes) is different on any criteria from the other relationship (a life of sharing and harmony between persons of the same sex). As stated, I am prepared to assume that in various social contexts this difference does indeed exist. The question that we must ask is whether the difference in the relationship is relevant to the issue before us. The ‘issue before us’ is the social unit, the life of sharing and harmony that justify, in El-Al’s opinion, giving a benefit to a (permanent) employee in the form of an aeroplane ticket which will enable him to take with him the person with whom he cohabits. In this respect, the difference between a life of sharing between persons of different sexes and a life of sharing between persons of the same sex is clear and blatant discrimination.

Discrimination on the basis of sexual orientation

17. We have seen, therefore, that giving a benefit to a (permanent) employee for a spouse or recognized companion of the opposite sex and not giving the same benefit for a same-sex companion amounts to a violation of equality. What is the nature of this discrimination? Indeed, all discrimination is prohibited, but among the different kinds of discrimination there are varying degrees. The severity of the discrimination is determined by the severity of the violation of the principle of equality. Thus, for example, we consider discrimination on the basis of race, religion, nationality, language, ethnic group and age to be particularly serious. In this framework, the Israeli legal system attaches great importance to the need to guarantee equality between the sexes and to prevent discrimination on the basis of sex (see HCJ 153/87 Shakdiel v. Minister of Religious Affairs [19]; Poraz v. Mayor of Tel-Aviv-Jaffa [6]). It may be said that the discrimination in the appeal before us is based on improper considerations of sex. Conversely, it may be argued that discrimination on the basis of sex does not exist, since the same benefit is conferred on (permanent) male and female employees. This argument, in itself, does not strike me as convincing. However I do not need to decide the issue, since there can, I think, be no doubt that the discrimination in this case is based on the ‘sexual orientation’ of the (permanent) employee. This discrimination — against homosexuals and lesbians — is improper. It is contrary to equality. This emerges clearly from the provisions of the Equal Employment Opportunities Law. This law, as amended in the Equal Employment Opportunities Law (Amendment), states (in s. 2):

‘(a) An employer shall not discriminate between his employees, or between candidates for employment on the basis of their sex, sexual orientation, personal status or their being parents with respect to any of the following:

(1)  giving employment;

(2)  conditions of employment;

(3)  promotion in employment;

(4)  training or professional studies;

(5)  dismissal or severance pay.

(b) For the purposes of subsection (a), making irrelevant conditions shall also be regarded as discrimination.

(c) Discrimination shall not exist under this section when it is required by the character or nature of the job or position.’

In explaining the provision about the prohibition of discrimination on the basis of sexual orientation, the chairwoman of the Labour and Welfare Committee, Mrs O. Namir, pointed out:

‘I hope that adopting the proposed law will contribute towards treating men and women equally, regardless of their sexual orientation, allowing them to live according to their sexual orientation as equal citizens in every respect, and affording them the legal protection enjoyed by every other group.’

This provision does not deny the differences between human beings. These differences are natural. This provision states that the different sexual orientation of persons shall not be relevant in employment, unless this is required by the nature of the job. Indeed, with regard to conditions of employment, the employer must be impartial to his employees’ sexual orientations. He must determine the conditions of employment only in view of the criteria required by the nature of the job. Therefore if a benefit is conferred on an employee having a long-term and permanent relationship with a woman, that benefit should be conferred on an employee who has a long-term and permanent relationship with another man. Thereby the employer implements the principle of equality. Thereby he is prevented from invading the privacy of the employee (cf. s. 7 of the Basic Law: Human Dignity and Liberty). Conferring a benefit on a permanent employee for his recognized companion and not conferring it on a permanent employee for a same-sex companion (who complies with all the requirements of a recognized companion apart from the requirement of sex) amounts to discrimination in conditions of employment because of sexual orientation. This discrimination is prohibited. Consider A, a permanent employee of El-Al, who shares his life for several years with a woman B. They cohabit and run a common household (as required by El-Al for complying with the conditions of a recognized companion). A is entitled to an aeroplane ticket for B. Now consider A who lives in the same way with a man C. They too cohabit and run a common household. A is not entitled to an aeroplane ticket for C. How can this difference be explained? Does the one carry out his job as an employee differently from the other? The only explanation lies in A’s sexual orientation. This amounts to discrimination in conditions of employment because of sexual orientation. No explanation has been given that might justify this discriminatory treatment. There is nothing characterizing the nature of the job or the position that justifies this unequal treatment (see s. 2(c) of the Equal Employment Opportunities Law). To be sure, it is possible that El-Al thinks that a (permanent) employee who lives with a (same-sex) companion behaves ‘improperly’. It is possible that someone at El-Al thinks that this joint lifestyle should not be encouraged. We need not examine this argument on an ethical level. Whether or not we agree with it, it does not amount to a justification that negates the existence of the discrimination. Indeed, the discrimination is not determined merely by the will and intention of the person creating the discriminatory norm. It is determined by the effect that it has in practice (see Nevo v. National Labour Court [7], at p. 759; Bavli v. Great Rabbinical Court [11]). Occasionally we can justify a violation of equality — which, as we have seen, is not an absolute but a relative right — on the basis of a proper purpose. Such grounds must be very substantial and relevant. A very great weight rests on someone who tries to discharge this burden. In the case before us, the burden has not been discharged. No attempt has even been made to discharge it. All that we have heard is that same-sex companions who cohabit are not like companions of different sexes who cohabit. Thereby they indicated to us the difference that exists between the different situations. In doing so they did not negate the discrimination, and they certainly did not point to a proper purpose that might justify it (see M. N. Cameli, ‘Extending Family Benefits to Gay Men and Lesbian Women,’ 68 Chi-Kent L. Rev. (1992-93) 447.

The remedy for a violation of the right to equality

18. I have therefore reached the conclusion that the legal regime created by the collective agreement and the collective arrangement, with regard to the benefit conferred on an employee to receive a (free or discounted) aeroplane ticker for a spouse or recognized companion (of the opposite sex), discriminates against an employee living with a same-sex companion. Now we must turn to the second question requiring a decision, namely the remedy to which an employee who has suffered discrimination is entitled. Case-law has established that a discriminatory contractual regime may support a claim that the provision in the contract is contrary to public policy and is therefore invalid (see Flight Attendants Association v. Hazin [24]). This invalidity may cause the whole contract to be invalid. In most cases, there is no reason to invalidate the whole contract, and it is sufficient to invalidate the illegal part by severing it from the lawful part (see ss. 14 and 31 of the Contracts (General Part) Law, 1973). Thus, for instance, in Nevo v. National Labour Court [7] the contractual regime provided that the ‘retirement age for a pension is 65 for men and 60 for women’ (ibid. at p. 753). The Supreme Court held that this amounts to discrimination against women. It was held that the proper remedy — which the petitioner sought in that case — is striking out the invalid part. The result is that the part of the employment agreement providing that ‘the retirement age for a pension is 65’ remained valid. The Court thereby used a technique of severance. This technique is not possible in the case before us. Indeed, had the collective agreement and collective arrangement provided that a permanent employee is entitled to a benefit for whoever is his companion, except a companion of the same sex, it would have been possible to strike down the limiting provision, and so re-establish equality. But the contractual text in our case is different. It does not allow operating on the body of the text and severing the healthy part from the unhealthy part. What, then, is the remedy to which the petitioner is entitled?

19. As we have seen, a possible remedy is voidance of the contractual arrangement regarding the benefit. The result, from the respondent’s perspective, will be a case of ‘Let me die with the Philistines’ (Judges 16, 30): the respondent will not receive a benefit, but neither will recognized companions of the opposite sex. This outcome is not reasonable in the circumstances. Why should recognized companions of opposite sexes suffer a material loss? What wrong have they done? The National Labour Court rightly pointed out that the petitioner himself did not seek this remedy.

20. The appropriate remedy in this situation is to confer the benefit also on same-sex cohabitees. This remedy is recognized in the comparative literature. It was developed mainly in the case of laws that are contrary to the principle of equality laid down in a constitution. In American constitutional literature it is called the  ‘extension’ of the existing text. In Canadian constitutional literature it is called ‘reading into an arrangement’ or ‘reconstruction’ of the text. These terms are not accurate ones. The judge does not change the existing text, nor does he reconstruct it nor add to it. The judge does not do anything to the existing text. What the court does is different. It determines that as long as the existing text remains as it is — and as stated the judge does not do anything to it — similar benefits must be given to an additional group that is not mentioned in the text. Conferring this benefit derives directly from the principle of equality, which is a normative principle to which the text is subservient and to which it must conform. It can be seen then that the court does not implant an additional organ into the body of the text infected by improper discrimination. The court determines, however, that by virtue of the principle of equality — as long as the discriminatory contractual arrangement remains unchanged — a relief of conferring a benefit also on the victims of discrimination is required in order to remove the discrimination.

21. As we have seen, this relief is recognized by American constitutional law. In the case of Welsh v. United States (1970) [26] a statute exempted a person from military service because he was opposed to war for reasons of religion or faith. The petitioner asked for an exemption for reasons of conscience. A number of judges held that the exemption for reasons of religion or faith extends also to an exemption for reasons of conscience. Justice Harlan, however, disagreed. In his view, an exemption for reasons of conscience was not included in the statute. In this the statute violated the provisions of the Constitution. The proper remedy, in the judge’s opinion, was not nullifying the exemption for reasons of religion or faith but granting an exemption, based on the Constitution itself, for reasons of conscience. Justice Harlan writes, on page 361:

‘Where a statute is defective because of underinclusion there exist two remedial alternatives; a court may either declare it a nullity and order that its benefits not extend to the class that the legislature intended to benefit, or it may extend the coverage of the statute to include those who are aggrieved by exclusion…’

He continues at p. 364:

‘While the necessary remedial operation, extension, is more analogous to a graft than amputation, I think the boundaries of permissible choice may properly be considered by the legislative pronouncement on severability.’

Since that case, American courts tend to grant this remedy (see R. Bader-Ginsburg, ‘Some Thoughts on Judicial Authority to Repair Unconstitutional Legislation’ 28 Clev. St. L. Rev. (1979) 301; B. K. Miller, ‘Constitutional Remedies for Underinclusive Statutes: A Critical Appraisal of Heckler v. Mathens,’ 20 Harv. C.R.-C.L.L. Rev. (1985) 79. This remedy appears to the court natural and appropriate and preferable to nullification. One of the cases involved a statute that gave assistance to needy families. The statute provided, inter alia, that the support would be given to a family where the mother did not work and the father had worked previously but was now unemployed. A family where the father did not work and the mother had worked previously but was now unemployed was not included among the recipients of the support. The court held that the statute unlawfully discriminated against families where the father did not work whereas the mother had worked but was now unemployed. Against this background arose the problem of the remedy: whether to nullify the support for the family that was entitled (because of the discrimination inherent in the arrangement) or to extend the application of the statute to a family that was not included in it. It was held that the family which was the victim of discrimination should be added (Califano v. Westcott (1979) [27]).

22. The Supreme Court of Canada has a similar approach. It often tends to ‘read in’ to the statute provisions that will negate the unconstitutional nature of the statute. Justice Lamer wrote in Schachter v. Canada (1992) [37], at p. 12:

‘…extension by way of reading in is closely akin to the practice of severance. The difference is the manner in which the extent of the inconsistency is defined. In the usual case of severance, the inconsistency is defined as something improperly included in the statute which can be severed and struck down. In the case of reading in, the inconsistency is defined as what the statute wrongly excludes rather than what it wrongly includes. Where the inconsistency is defined as what the statute excludes, the logical result of declaring inoperative that inconsistency may be to include the excluded group within the statutory scheme. This has the effect of extending the reach of the statute by way of reading in rather than reading down.’

23. These remedies are appropriate in the constitutional sphere. They promote the purpose underlying the constitutional arrangement. They make it unnecessary to nullify legislation. The use of this remedy is not mechanical. We must consider in each case whether extension is possible. We must examine whether it is simple to implement, and whether it does not involve excessive intervention in the legislative fabric. We must consider the budgetary ramifications. Indeed, a benefit conferred by law to a marginal group does not justify granting a constitutional remedy by extending the remedy to a large and significant group. Neither should we adopt this technique to impose obligations on sectors of the population in whose favour the law has discriminated by not imposing these obligations on them.

24. These remedies — which were developed in the constitutional sphere — can be applied in the field of collective agreements and collective arrangements. They create a contractual regime that is subject to a supreme normative principle of equality. This principle derives its supremacy (with respect to collective agreements and arrangements) from the Equal Employment Opportunities Law. This principle of equality applies — by virtue of the express provisions of the Equal Employment Opportunities Law — also in private law. It is not merely a principle of public law. It obliges every employer not to discriminate against any of his employees in the fields of private law. Indeed, with regard to the prohibition of discrimination because of sexual orientation — just as with regard to other kinds of discrimination — the law establishes a mandate that obliges the employer. By virtue of this normative mandate — which is of supreme status with regard to collective agreements and arrangements — the employer is forbidden to discriminate against any of his employees with regard to conditions of employment. When a contractual arrangement drawn up by him involves prohibited discrimination, the contract is tainted with illegality. It may be voided by virtue of the provisions relating to invalid contracts. To prevent it being voided, we may demand — as an alternative remedy — that the employer refrains from the prohibited discrimination. This is achieved by compelling the employer to confer the benefit on the employee who is the victim of the discrimination. This does not change the agreement between the parties. We do not thereby read into the contract what is not there. We thereby merely remove the discrimination and comply with the normative mandate not to discriminate. Indeed, the basic fact is the discriminatory contractual arrangement. The contents of this are determined by the parties to the contract, and they control it and can change it. As long as the discriminatory contractual arrangement remains unchanged, the supreme normative mandate — which derives from cogent law — exists alongside it and compels the employer to act with equality. Indeed, just as by virtue of the normative supremacy of the constitution (or the entrenched Basic Law) the scope of applicability of a provision of a law may be extended, so too can the normative power of the law extend the scope of applicability of provisions in a collective agreement or a collective arrangement. By virtue of this normative supremacy, the contractual regime must modify itself to comply with the principle of equality (in our case, the prohibition against discrimination in conditions of employment because of sexual orientation). This modification does not require cancelling the existing contractual arrangement. This modification is achieved by conferring a benefit — which originates not in the contractual arrangement but in the principle of equality that extends the contractual arrangement to equivalent situations — on the class that is the victim of discrimination. This extension is suitable for the contractual model. It adds a small group of beneficiaries and does not therefore impose a significant budgetary burden. Justice is done, and justice is seen to be done.

The petition is denied. The case is remanded to the District Labour Court, as stated in the judgment of the National Labour Court. The petitioner shall pay the costs of the first respondent in a total amount of 10,000 NIS.

 

 

Justice Y. Kedmi

The question we must decide in this case is: does the concept ‘spouse’ used in the employment agreements include same-sex companions or not? My esteemed colleague, the Vice-President, answered this in the affirmative. Unfortunately, I cannot agree with that conclusion. The following are my main reasons:

1.    ‘Spouse’: the conceptual significance in the social sphere

(a) The linguistic concept of spouses, who together form a ‘family’, expresses, in the social sphere, an union of two individuals of opposite sexes to form a ‘couple’; a ‘couple’, in this context, has since the origin of man until the present represented a joining of two individuals of opposite sexes. This is the case here and throughout the world, and the Book of Books gives decisive proof of this: ‘And God created man in His image, in the image of God He created him; male and female He created them’ (Genesis 1, 27 [44]).

This is the case with man and it is the case with the animals, and the story of Noah’s ark leaves no doubt about this: ‘You shall bring two of each into the ark to preserve with you; they shall be male and female’ (Genesis 6, 19 [44]).

There is of course nothing to prevent the term ‘couple’ expressing a ‘quantity’ of two individuals; but we are not dealing here with the quantitative meaning of the concept but with its substantive meaning in the social sphere.

To give the concept ‘couple’, in the context discussed here, a different meaning from the linguistic meaning that it has always had is impossible. ‘A different meaning’ of this concept would deprive it of its essence; once again we are not speaking of a ‘couple’ that builds a family, incorporating a ‘husband’ and a ‘wife’, but a ‘couple’ that expresses a ‘quantity’ of two individuals who have come together, whatever their sex is.

In Hebrew the concepts of ‘husband’ and ‘wife’ are inseparably associated with the concept of ‘family’; you cannot have a ‘family’ unless two companions of different sexes are its basis (‘a heterosexual couple’).

(b) The relationship that turns two individuals — of opposite sexes — into a ‘couple’, in its linguistic-social meaning, is characterized by the decision of the two to have a joint lifestyle; ‘joint’, in this context, inter alia and especially, expresses family life whose primary purpose — and from a conceptual viewpoint it is impossible otherwise — is to bring children into the world: ‘And God blessed them, and God said to them: be fruitful and multiply and fill the earth…’ (Genesis 1, 28 [44]).

Thus it is no coincidence that the concept ‘couple’ is, in Hebrew, derived from the root meaning ‘intercourse’; the ‘couple’ and ‘intercourse’ are one, and only where these exist can we speak of a ‘family’.

Admittedly not every couple is ‘capable’ — or wishes — to bring children into the world, and not every ‘couple’ becomes such in order to bring children into the world. But these ‘exceptions’ in this context cannot undermine the fundamental conceptual meaning of the concept ‘couple’; therefore a precondition for two people being a ‘couple’ is that they are of different sexes.

(c) The heterosexual ‘couple’ is what creates the basic family unit; and, as stated, there is no ‘family’ in the social meaning of the word, unless a heterosexual couple forms the basis of it.

It is indeed possible to change the meaning of basic concepts such as ‘couple’ and ‘family’. However the change must primarily be a conceptual change of basic epistemological meanings; the language that has existed from ancient times does not recognize a ‘couple’ and a ‘family’ that are not heterosexual, except as an exceptional phenomenon that requires a descriptive supplement alongside the use of these concepts, which lose their original meaning where we do not refer to a joining of the two sexes.

(d) It is indeed possible for ‘two persons’ of the same sex to adopt for themselves external characteristics that describe a ‘couple’ and a ‘family’ as stated, and to imitate — in so far as they can — the behaviour pattern of ‘spouses’ and even to establish in practice a ‘family’. But they do not become a ‘couple’ and a ‘family’ in the fundamental meaning of these terms in our language; and language is, in the end, the mirror that reflects our society.

In order for two people to become a ‘couple’ that establishes a ‘family’, in the conceptual-epistemological meaning of our language — and it is a common language that forms the basis of our existence as a society — it is an essential and necessary condition that the two individuals who comprise a ‘couple’ come from opposite sexes.

In this regard, it is irrelevant that two individuals of the same sex, who join into a ‘couple’, do so because their natural sexual orientation does not allow them to be ‘spouses’ in the conceptual sense accepted in our language, namely that of persons of the opposite sex. It is not the ‘capacity’ to be a spouse, in the said basic epistemological meaning, that matters, but the sex of the partner. The criterion for two persons to be a ‘couple’ — according to the epistemological meaning of the concept — does not lie in the lifestyle led by the two persons but, primarily, in their being of different sexes.

(e) The aforesaid should not be regarded as a position deriving from a conservative religious outlook: religion did not dictate the meaning of the concept ‘couple’ in the epistemological sphere, but life itself dictated it; and the reality that reflects life is what lies at the basis of the expression ‘couple’ and this is what gave it the aforesaid meaning in the social sphere.

(f) It should be emphasized:

(1) The concept ‘couple’ — whose components are a ‘husband’ and ‘wife’ — is not necessarily connected with the institution of marriage. Use can be made of the concept ‘couple’ both with regard to a ‘married couple’ and an ‘unmarried couple’, so long as the joining of the spouses makes them a ‘couple’ within the meaning set out above.

(2) There is nothing to prevent adjectives being added to the concept ‘couple’ in its basic social meaning, such as married and unmarried; the adjective ‘married’ does not affect the basic meaning of the concept ‘spouse’ which expresses, in the context under discussion, two individuals of opposite sexes forming a social unit, based on sexual collaboration, whose nature is determined by its original purpose.

(3) In consequence — and more will be said about this below — there is no reason why ‘recognized companions’ should not be regarded as ‘spouses’, since they comply with the basic condition of an union of two persons of different sexes into a family unit, within the basic meaning of this expression as aforesaid. Recognized companions are not a ‘married’ couple but they do constitute a ‘couple’ and a ‘family’; as such, there is no fundamental conceptual difficulty in applying to them legal arrangements prescribed for a ‘married’ couple, and treating them, socially and linguistically, as a ‘couple’ in every respect.

(4) In these circumstances, in the language of human beings — all human beings — the word ‘couple’, in a social context, expresses an union of two individuals of opposite sexes, for a ‘joint life’ in the primary meaning of the word as aforesaid; and if we wish to change the meaning of the concept, we must do so, first and foremost, in the sphere of the basic linguistic concepts of our language and determining this change, expressly, in legislation relating to this issue. Without an express determination, the law gives expression to the linguistic meaning of the concepts to which it refers, unless it states the contrary.

The law speaks in human language, since it is intended for human beings; wherever we wish to deviate from human language and speak in the ‘language of the law’ — this should be done in accordance with an express, clear and unambiguous provision of the legislator. In the present context, this must be a provision that deliberately changes the linguistic significance of the term ‘couple’ in the social context and gives this concept, for the purpose under discussion, another meaning, materially different from its meaning in current usage.

2.    Marriage and the institution of recognized spouses

(a) As a rule, wherever we speak of a ‘couple’ — in the social sphere — the initial impression created in the conscience of the listener or the reader is one of a ‘married’ couple; for ‘marriage’ is what grants legal — and social — recognition to the joint life of the ‘spouses’ as a family unit, in the aforesaid primary meaning.

(b) However, as stated, it is not the external, formal framework of marriage that gives a ‘couple’ its traditional, literal meaning as aforesaid: a ‘couple’ in the sense discussed here, may be ‘married’ or ‘unmarried’, but it must always be a ‘couple’; and you do not have a ‘couple’ in the meaning discussed here unless the two individuals who form it are of opposite sexes. Linguistically, there is no ‘other’ couple in the social sphere; and language is what underlies human communication, and it is the means whereby people express their thoughts.

So marriage, as a legal institution, does not give the linguistic term ‘couple’ its content and conceptual meaning; it merely adds to it social recognition as a family unit in the community, and grants the two individuals forming it — the man and the woman — rights and duties in the legal sphere.

(c) For this reason — and this too has already been said — wherever a ‘couple’ complies with the basic definition of the concept — namely, wherever we are speaking about an union of two individuals of different sexes for a joint lifestyle as a family unit within the meaning set out above — there is no logical difficulty in regarding them as a ‘married couple’ for the purpose of duties and rights that the law prescribes for a ‘married’ couple; regarding the two as a ‘couple’ forms the basis whereby the law confers rights and imposes duties on a married couple.

By contrast, wherever we are speaking of two persons who have joined together for a joint lifestyle as a ‘pair’ that is not a ‘couple’ within the aforesaid basic linguistic sense, logic does not allow us to regard them from a legal viewpoint as if they were a ‘couple’, because they constitute something ‘else’. The ‘married’ couple and ‘recognized companions’ are a ‘couple’, whereas two persons who have joined for a joint lifestyle and are of the same sex are not a ‘couple’ but a ‘pair of friends’.

3.    The collective agreement and the collective arrangement

(a) Now let us turn from the general to the particular. The collective agreement, whose provision we are interpreting, speaks of a ‘spouse (husband/wife)’ (emphasis added); the term ‘spouse’ should be given the traditional linguistic meaning, whereby it refers to individuals of different sexes forming a ‘couple’ as set out above.

The addition ‘husband/wife’ is not intended to tell us that we are referring to spouses of different sexes, since for this we do not need any addition, and use of the term ‘spouse’ is sufficient. The addition is intended to clarify that this agreement refers to spouses who are married to one another, for they alone are called ‘husband’ and ‘wife’; the supplementary addition in the collective arrangement referring to a ‘companion recognized as a husband/wife’ proves that this is indeed the case. Had it not been for this supplement, the words ‘husband/wife’ in the collective agreement could have been interpreted as restricting ‘spouse’ to a ‘married’ couple only, and it would have been necessary to clarify that they are referring also to a ‘couple’ that is not married but which is merely recognized publicly as such.

(b) The addition of ‘recognized companion’ in the collective arrangement does not break away from the framework provided in the collective agreement: both refer to a ‘couple’ and ‘spouses’ in the basic social meaning of the concept ‘couple’, as aforesaid; distinguishing between ‘couples’ on the basis of marriage has more than a hint of discrimination. A married couple and an unmarried couple are fundamentally ‘equal’, in so far as the meaning of the concept ‘couple’ is concerned; distinguishing between them on the basis of ‘marriage’, which merely constitutes a formal, external mark of the framework of their joint lifestyle as a ‘couple’, amounts to improper ‘discrimination’ and not a permitted ‘distinction’. This is sufficient to justify the supplement in the collective arrangement, which intends to prevent improper and forbidden discrimination between ‘couples’.

(c) By contrast, introducing a pair made up of two individuals of the same sex (‘a same-sex couple’) into the said provisions of the agreement and the arrangement amounts to planting a foreign type of plant — something that is not a ‘couple’ — in a field that contains only couples, whether married or unmarried.

A same-sex ‘couple’ is not a ‘couple’ within its basic linguistic meaning, and it should, in my opinion, be referred to, linguistically, as a ‘pair’; the argument that it is a victim of discrimination in comparison with other ‘couples’ is unfounded: the married and unmarried couples are couples, and distinguishing between them constitutes discrimination, whereas the ‘pair’ is not a ‘couple’, and distinguishing between it and a ‘couple’ (married or merely publicly recognized) is not discrimination. So long as the linguistic and social meaning of the concept ‘couple’ is unchanged, a ‘pair’ will not become a ‘couple’: the latter ‘combine into one’ (‘Wherefore a man shall leave his father and mother, and shall cleave to his wife, and they shall become one flesh,’ Genesis 2, 24 [44]), whereas the former will always remain two.

4.    The interpretive aspect

(a) The means of communication between human beings is language, and a precondition for understanding between persons having a discussion is that the words, expressions and concepts that form the language have a stable linguistic meaning.

(b) As stated, the law speaks to human beings in human language: and the word is, first and foremost, the basis for interpretation of its provisions. The concepts ‘couple’ and ‘spouses’ and the linguistic relationship between them and ‘family’ are primarily linguistic concepts, whose meaning — in so far as the social sphere is concerned — is, as stated above, an union of two individuals of opposite sexes to share their lives in a family unit, when this sharing is characterized, inter alia, by intimacy designed, conceptually, to ensure the continuation of life.

(c) The same is true of interpretation of the law, and likewise with regard to interpretation of a legal document: a ‘couple’ requires the union of two individuals of opposite sexes; this is true even when the two are incapable in practice or unwilling — for whatever reason — to be intimate for the purpose of ensuring the continuation of life.

(d) Indeed, one of the fundamental rules of statutory interpretation is that the law is interpreted in order to achieve the purpose for which it was legislated; mutatis mutandis, a legal document is interpreted so as to achieve the intention of the parties to it.

Where the language is clear, we would fail in our duty if we were to deviate from the agreed linguistic meaning by which people plan their lives, and give the concepts used by the law or the agreement a different meaning from the one that they have in the world of language.

5.    The Equal Employment Opportunities Law – discrimination

(a) I wholeheartedly agree with the illuminating remarks of my esteemed colleague — the Vice-President — with regard to the significance of the principle of equality and the duty to realize and apply it.

However, as my esteemed colleague noted — when citing Boronovski v. Chief Rabbis [16] and Committee for Protection of Expropriated Nazareth Lands v. Minister of Finance [17] — you cannot violate the principle of equality unless you have ‘equals’; where you have persons who are not equal, treating them differently compared with others who are different from them should not be regarded as improper discrimination, but merely as a permissible distinction.

(b) My esteemed colleague found that same-sex couples are ‘equal’ to heterosexual couples; from here, it was naturally easy to reach a conclusion of ‘discrimination’ between the two types of ‘couples’, where one is entitled to a benefit and the other is not.

I do not accept this position. In my opinion — following what I have said until now — we are dealing with two ‘couples’ that are completely different in nature; the one — the heterosexual (whether married or unmarried) — is a ‘couple’, whereas the other — the homosexual — is merely a ‘pair’; therefore conferring a benefit on the one does not constitute discrimination when not conferring the benefit on the other.

(c) The common denominator that makes the two ‘couples’ — the homosexual and the heterosexual — ‘equals’ for the purpose of the principle of equality, lies, according to my esteemed colleague, in the fact that the characteristic marks of the joint lifestyle of the two are equal; both run a common household, both form a family unit, and both live within a social framework based on a life of sharing and harmony; prima facie, they only differ from one another in one external-formal factor, which is merely that the homosexual couple cannot marry.

My esteemed colleague adds: ‘the inability to marry’ is a factor that also distinguishes married spouses from ‘publicly recognized’ companions; and this distinguishing factor did not prevent a total comparison between the latter and the married spouses.

(d) According to my thinking, a sharing and harmonious relationship — as pointed out by my esteemed colleague — is insufficient to make a homosexual couple a ‘couple’ within the meaning that this concept has in our language in the context discussed here, because it lacks an element essential to ‘being a couple’, namely that the spouses must be of opposite sexes. The formal ‘inability’ to marry — by a formal marriage — does not put the homosexual couple in the same category as the heterosexual ‘publicly recognized’ unmarried couple; the latter is a ‘couple’ within the linguistic meaning of this concept, whereas the former is not.

The distinction between the heterosexual couple — including ‘publicly recognized companions’ — and the homosexual couple is based on the fundamental nature of the concept ‘couple’; the first is a ‘couple’ because it is comprised, as stated, of two individuals of opposite sexes, whereas the second is otherwise; the fact that the homosexual spouses maintain a social framework ‘similar’ in its external characteristics to that of the heterosexual couple — the natural family unit — does not make them a heterosexual couple.

As stated, an essential factor — which is an indispensable condition in this context — for converting two individuals enjoying a life of sharing and harmony into a ‘couple’, within the meaning of the term in the Hebrew language, lies in them being ‘of one flesh’ and their being able — conceptually — to fulfil the precept of ‘being fruitful and multiplying’. The ‘married’ couple and the ‘publicly recognized’ couple meet this basic requirement, and they are therefore ‘equal’ for the purpose of examining an allegation of discrimination; whereas the homosexual couple, which does not meet the said basic requirement, is different from them in the said respect.

(e) My esteemed colleague is aware of a substantive difference that distinguishes, conceptually, between the two ‘couples’ as stated, but according to his approach this difference has no implication for the case before us; this is because in his opinion El-Al decided to confer a benefit on its employees ‘in the form of an aeroplane ticket enabling the employee to take with him the person with whom he shares his life’ (emphasis added), and for this purpose there is no difference between the two couples.

Even this narrow and restrictive approach to the problem before us does not, unfortunately, enable me to agree with my colleague. Admittedly we are concerned with the interpretation of El-Al’s decision. However, this decision does not speak of granting an aeroplane ticket to a person who ‘lives together with the employee’ (emphasis added) but to ‘the employee’s spouse’ (emphasis added); the linguistic difference between the two speaks for itself. As I have already stated, in my opinion the concept ‘couple’ in our language — in the social sphere considered here — expresses the union of two individuals who share their lives, which makes them physically into ‘one flesh’ in the primary sense of the expression; ‘He created them male and female… and He called their name man…’ (Genesis 5, 2 [44]); whereas the union of two individuals that ab initio cannot, physically, become ‘one flesh’ as stated, and who conceptually cannot achieve the said purpose, creates a couple quantitatively (since there are two), but not qualitatively (since the two cannot become one, within the framework of the commandment of being fruitful and multiplying).

(f) In my opinion, all we have before us is the language of the collective agreement — and in the supplement found in the collective arrangement — namely: ‘spouse (husband/wife)’ in the agreement, and ‘the person publicly recognized as husband/wife of the company’s employee’ in the arrangement; I do not think that we may read instead of these: ‘whoever lives together with the employee’ and even not ‘whoever forms a family unit with the employee’.

We are not dealing with a ‘life of sharing’ or a ‘family unit’, but with spouses within the basic conceptual meaning that this concept has in our language; these are always heterosexual, as long as language does not change its meaning.

5.    With regard to the allegation of discrimination between a ‘homosexual couple’ and a ‘heterosexual’ couple, there is no place in my opinion for considerations of social justice; the distinction between these two does not lie in the employees’ sexual orientation, but in the distinction between a ‘couple’ and a ‘family’ and those who do not constitute either a ‘couple’ or a ‘family’, within the meaning given to these terms in our language. Even single employees — whether ‘heterosexual’ or ‘homosexual’ — have close friends with whom they would like to spend their vacation abroad; yet no-one claims that they are discriminated against in that they are refused the benefit merely because they do not commit themselves to a formal framework of ‘a joint lifestyle’ with those friends.

El-Al saw fit to confer a benefit on ‘spouses’ that constitute a ‘family’ within the meaning thereof in the language which we use to communicate with one another; this does not constitute discrimination on the basis of ‘sexual orientation’, since we do not regard the homosexual spouses as included in the linguistic concepts ‘couple’ and ‘family’. We have here a distinction between a ‘spouse’ and someone ‘who is not a spouse’, and it may be argued that from a sociological and social viewpoint there is discrimination between ‘couples’ and those who are not ‘couples’; however, discrimination on a basis of ‘sexual orientation’ is not present here.

6.    More regarding the distinction between ‘couples’

(a) Heterosexual couples share a complete mutual commitment to sharing and stability, each to the other and both to the framework of the couple, in all spheres of life. The law gives validity to this commitment, since society, as such, has a profound interest in preserving the framework of the couple — which forms the basis of the organizational structure of human society — and ensuring its stability.

Society has adopted in this respect the approach that regards spouses becoming ‘one flesh’ — that is capable, conceptually, of achieving the mission of ‘being fruitful and multiplying’ — as a condition for making two people who unite for a life of sharing into a ‘couple’; language expresses this with the meaning it attaches to ‘couple’ and ‘family’. At the same time, society created rules to give a seal of social recognition to the framework of the ‘couple’, and it protects it and intervenes when a couple wishes to dissolve the framework, and it even seeks to prevent the dissolution whenever possible.

The said protection and intervention are achieved with legal tools; and the law — following language, which reflects social consensus — attaches the said meaning to ‘couple’ and ‘family’, but not to the homosexual couple.

(b) The recognition of the heterosexual couple that is ‘publicly recognized’ as a ‘couple’, even though it does not have all the legal guarantees of mutual commitment and stability, derives from the existence of the basic social requirements for the existence of a ‘couple’ — namely, an union of two individuals of opposite sexes as ‘one flesh’, who are able, conceptually, to ensure reproduction — and when these exist, there is no social justification for ignoring the de facto existence of the family unit and the spouses comprising it; on the contrary, it must ensure that the mutual commitment and stability of the unit are protected, even without the formal status of marriage.

The rules granting ‘mutual benefits’ to publicly-recognized heterosexual couples just like to married couples — in the circumstances provided by law — are based on a desire to give expression to the mutual commitment and ensure the stability of the family unit created by the publicly recognized ‘couple’, not necessarily by formally entering into the institution of marriage.

(c) This case of the homosexual couple is different: on the one hand, the substantive condition of different sexes is not met, and without this, one cannot speak physically of ‘one flesh’ and conceptually of reproduction and continuation of life, and therefore it does not constitute the same fundamental unit that lies at the basis of the organizational structure of human society; on the other, the partners do not have the same mutual commitment to the stability and continuity of the partnership that might induce society to recognize them as a ‘special’ couple and fit them in alongside the ‘typical’ couple at the basis of the social structure.

When society reaches the conclusion that a homosexual unit should also serve as a basic ‘unit’ of the social structure alongside the heterosexual couple, and when it determines rules for its creation, formal recognition of its existence and the guarantee of the mutual commitment between its constituents to partnership and stability, then the linguistic-conceptual meaning of the term ‘couple’ and ‘family’ in this context will change, and the homosexual couple will be included in the new linguistic framework alongside the heterosexual couple.

But as long as there is no such social consensus, the homosexual couple is not included within the framework of a ‘couple’ in our language, and it is not recognized as one of our society’s nuclear units; consequently its formation, the mutual commitment of its constituents to the partnership and its stability, and the rights and duties of those involved in it are naturally not regulated by our law.

(d) The change required here is therefore a basic conceptual change in our social outlook regarding the substance of the basic social unit, counted among the elements of our society’s organizational basis. The expression of what appears to be ‘tolerance’ towards exceptional cases and an attempt to prevent apparent social discrimination against those exceptional cases on the basis of what is exceptional about them cannot replace the fundamental conceptual change necessary for equating the homosexual couple with the heterosexual couple.

7.    Different conceptual attitudes in different cases

(a) According to my approach, there is no reason to attach an ‘independent’ and different meaning to the concepts ‘couple’ and ‘spouse’ in different contexts of sharing lives in society. I do not accept the approach that says that these concepts should be examined separately in the field of labour relations, in the field of social legislation, in the field of residency and citizenship, in the field of property law and obligations, in the field of taxation, etc..

In my opinion, as stated, in current circumstances, from the linguistic-social viewpoint, the words ‘couple’ and ‘spouse’ have only one conceptual meaning, namely two individuals of opposite sexes who have united into a framework of a joint life, which is based on the physical ability to become ‘one flesh’ and the conceptual ability to fulfil the commandment of being fruitful and multiplying; the removal of this two-fold characteristic from the framework of the definition of the concept ‘couple’ amounts to a nullification of the meaning that this concept has in the language of consensus that we use as an organized society.

(b) Destroying the linguistic-conceptual meaning in one sphere naturally leads to departing from it in other spheres, and the social framework built on an existing agreed meaning is undermined. The term ‘couple’, in this context, will lose its conceptual meaning in our language, and the focus of this meaning, which today derives from the heterosexuality of the spouses, will become a personal decision to have a life of quasi-family sharing at a particular time, where the sex of the spouses will be left to one side. There is nothing to prevent this result being reached, if it is deemed correct to go in this direction. However, this must be done by giving a ‘different’ meaning to the linguistic concept ‘couple’; this is not for us to do, but for whoever is authorized to change the Hebrew language, even if only in the legal sphere.

(c) Let me not be misunderstood: my approach does not seek to challenge the increasingly prevalent social recognition of the sexual orientation of individuals who wish to build their lives with persons of the same sex, nor do I wish to place obstacles in the path of those individuals to prevent their self-fulfilment in accordance with their orientations. All that I want is to refrain from the destruction of a conceptual ‘barrier’, linguistic chaos and communication that suffers from ‘misunderstandings’, by deviating so sharply from the meaning of basic concepts, which are the foundation of society and facilitate its operation in the way that we currently live.

For generations the concept ‘couple’ has been used in the social context to express a heterosexual couple. It was used in this way both orally and in writing, and it was used in this way in determining social arrangements and legal norms. If we try to introduce a change in this matter, this ought to be done in a straightforward way and not in a roundabout fashion; for we are dealing with human language, and we are obliged to respect it and protect the stability of its contents.

8.    Summary

(a) A ‘heterosexual’ couple — whether married or unmarried — is a ‘couple’ within the conceptual meaning of the word, whereas a ‘homosexual’ couple is not.

(b) For this reason, we are not dealing conceptually with ‘equal’ couples, and therefore the distinction made between the heterosexual couple and the homosexual couple is merely a ‘distinction’, and not ‘discrimination’.

(c) There is no basis for partial and limited recognition of the institution of the ‘homosexual’ couple; yes — with regard to labour agreements; no — in other areas, such as taxation, personal status, citizenship, giving testimony, etc..

A change in the meaning of the concept of ‘spouse’ must be general and all-encompassing, and it ought to be done in a way that everyone is aware of the new meaning given to it and its ramifications.

(d) An employer may offer a ‘benefit’ only to heterosexual couples without being guilty of discrimination, because the homosexual couple is not a ‘couple’, and the distinction between employees who are ‘spouses’, in the said basic linguistic sense, and employees who are not, is a ‘distinction’ and not ‘discrimination’.

(e) The discrimination that the respondent alleges in this case, is merely an ‘appearance of discrimination’, and it derives from what clearly appears to be ‘social injustice’. However, every distinction in distributing benefits to employees involves ‘social injustice’; the principle of equality as a defence against discrimination was not intended to address this.

Were my opinion accepted, the petition would be granted and the judgment of the National Labour Court’s decision would be reversed.

 

 

Justice D. Dorner

1.    The French philosopher, Michel Foucault, discussed the influence of social norms — reflecting what is accepted, ‘normal’, and what changes from time to time and from society to society — on the application of transcendental and formal laws (legal norms).

‘…le pouvoir de la Norme… est venu s’ajouter à d’autres pouvoirs en les obligeant à de nouvelles délimitations; celui de la Loi… et du Texte…

…le pouvoir de la norme fonctionne facilement a l’intérieur d’un système de l’égalité formelle, puisque a l’intérieur… la règle, il introduit… des différences individuelles’ (M. Foucault, Surveiller et Punir (1975) 186).

In translation:

‘… the power of social norms joins with other forces — the law and the text — and imposes on them new limitations…

… the power of social norms acts well within a system of formal equality, since it introduces… individual differences into… the rules.’

It seems to me that we cannot decide the petition before us without referring to the changes that have taken place with regard to social norms in Israel respecting homosexuality.

2. The respondent demanded that the petitioner recognize the man with whom he shares his life as a ‘spouse’ for whom he is entitled to receive an aeroplane ticket as of 1989, by virtue of the collective agreement. The Labour Court accepted the claim on the basis of the Equal Employment Opportunities Law (Amendment). The law, which came into effect on 2 January 1992, added to s. 2(a) of the Equal Employment Opportunities Law (hereafter — ‘the Equal Opportunities Law’) a prohibition against discrimination against employees because of their sexual orientation. The Labour Court held that the law changed the existing law and gave the respondent a right that he did not have before it was enacted, and that therefore he is entitled to receive the aeroplane tickets from the date that the amendment came into effect.

My colleague, Vice-President Barak, presumed — in the absence of any contrary argument by the respondent — that the respondent’s right does not derive from the collective arrangement itself. In Justice Barak’s opinion, the respondent’s right derives from the amendment, which reflects the principle of equality and the prohibition of discrimination against employees on the grounds of their sexual orientation.

My colleague, Justice Kedmi, is of the opinion that the expression ‘spouse’ cannot be given a different meaning in different laws. In his view, this expression has only one meaning: a man and a woman who unite for a joint life. This definition is accepted both from a linguistic viewpoint and a social viewpoint. It follows that without an express provision in the law that a same-sex life-partner is a ‘spouse’, a life-partner of the same-sex should not be given the benefits to which a ‘spouses’ is entitled on the basis of a provision prohibiting discrimination against the employee himself because of his sexual orientation.

3.    I agree with the result reached by the Vice-President. However, in my opinion, the respondent’s right does not derive only from the Equal Opportunities Law, but also derives from the general principle of equality that has, for some time, been a part of our labour law.

In my view, the original version of the Equal Opportunities Law reflected the principle of equality but did not establish it. Thus, for instance, in Nevo v. National Labour Court [7], a provision that provided a different retirement age for men and women was disqualified on the basis of the principle of equality. This disqualification was based on the legal position prior to the Equal Retirement Age for Female and Male Employees Law, 5747-1987, which made the retirement age the same for women and men, while preserving the right of women employees to early retirement. Cf. also the remarks of Justice Mazza in Israel Women’s Network v. Government of Israel [5], at pp. 521-522 {150}.

Similarly, the amendment also did not change the existing law about equal rights for homosexuals, but merely gave expression to them. Consequently, had the respondent insisted on his original claim to receive the benefits for his spouse since May 1989, which was before the enactment of the amendment, I would have granted his request. Conversely, if not for the development of social norms in Israel which no longer totally oppose homosexual relations, it is possible that the Equal Opportunities Law would have been interpreted narrowly, similarly to the interpretation of my colleague, Justice Kedmi, which would not give the respondent the benefits that he claimed.

4.    The principle of equality does not operate in a social vacuum. The question whether a certain case involves discrimination between equals, or whether it merely involves different treatment of different people, is decided on the basis of the accepted social outlooks. Justice Wilson discussed this in the Canadian case of R. v. Turpin (1989) [38], at p. 1331:

‘In determining whether there is discrimination on grounds relating to personal characteristics of the individual or group, it is important to look… to the larger social, political, and legal context…

Accordingly, it is only by examining the larger context that a court can determine whether differential treatment results in inequality.’

See also the remarks of Lord Denning in Dyson Holdings Ltd v. Fox (1975) [34], at p. 1033.

5.    In the past, intimate relations between members of the same sex — relations that are considered a sin by all the monotheistic religions — constituted a criminal offence. Legitimacy was also given outside the criminal law to a distinction based on sexual orientation. Homosexuals (including lesbians) were fired from their jobs, were not accepted for positions requiring a security clearance, and were forbidden to raise their children. In the United States they were classified as psychopaths and were not allowed to immigrate into that country (The Editors of the Harvard Law Review, Sexual Orientation and the Law, 1990, at pp. 44, 65, 119, 132, 139, 150, 153).

This treatment has changed gradually. Legal literature criticized the definition of homosexual relations as a criminal offence, as well as discrimination against homosexuals in all areas of life, including areas of employment (R.A. Posner, Sex and Reason, Cambridge, 1992, at p. 308). Movements advocating the equality of rights for homosexuals were established. The trend today — which began in the seventies — is a liberal treatment of the sexual orientation of an individual, which is considered to be his private matter.

These changes in social outlook were given expression in law in the Western world, and homosexual couples have achieved equality, in accordance with the social norms in each country.

6.    In European countries, there is no longer a criminal prohibition of homosexual relations. Legislation in the field of public law and labour relations in France, Denmark, Sweden and Norway prohibits discrimination because of sexual orientation. Laws in Sweden, Holland and Norway equate the rights and duties of homosexual couples with the rights and duties of heterosexual couples, including tax benefits and property division arrangements upon separation. The law in Sweden also recognizes the right of inheritance of a homosexual spouse (see L.R. Helfer, ‘Lesbian and Gay Rights as Human Rights: Strategies for a United Europe’ 32 Va. J. of Int’l L., 1991-92, 157, 168). Homosexuals have achieved the most recognition in Denmark. The law in that country allows ‘marriage’ between two persons of the same sex by registering their life-partnership relationship. This registration entitles homosexual spouses to social rights granted to married couples (M.H. Pedersen, ‘Denmark: Homosexual Marriages and New Rules Regarding Separation and Divorce’ 30 Jour. of Family L., 1991-92, 289).

Article 8 of the European Convention for the Protection of Human Rights also provides protection for homosexual relationships as part of the protection given to the right to privacy (see decisions of the European Court of Human Rights in the Norris Case (1988) [35]; and Modinos v. Cyprus (1993) [36]). Recently, a proposal was made to amend the Convention to expressly prohibits discrimination of any kind because of sexual orientation (Draft Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms).

7.    Article 15(1) of the Canadian Charter of Rights and Freedoms, which is a part of the Constitution Act, provides protection for the right of every person to equality. In case-law this section has been interpreted as prohibiting discrimination on the basis of sexual orientation (Vriend v. Alberta (1994) [39]; Egan v. Canada (1993) [40]; Haig v. Canada (1992) [41]). By contrast, claims of homosexual couples for rights conferred on married couples were rejected. It was held that, since the purpose of marriage is raising children, the different treatment of the homosexual couple is not a breach of the charter (Haig [41], at p. 340; Layland v. Ontario (Consumer & Commercial Relations) (1993) [42], at p. 231).

8.    In the United States the change has been more moderate. In some States there is still a criminal prohibition — which is not enforced — against having homosexual relations. As recently as 1967, the United States Supreme Court held that, since the homosexual has a psychopathic personality, as defined in the Immigration and Naturalization Act, his immigration into the United States was prohibited, and he was liable to immediate deportation (Boutilier v. Immigration Service (1967) [28]). Six years later, however, in 1973, the American Psychiatric Association rejected the definition of homosexuality as a psychiatric disorder, and, in 1981, the rule in Boutilier [28] was reversed. It was held that because homosexuality is not a psychiatric disorder, it does not indicate bad character, and therefore it does not constitute grounds for rejecting a naturalization request (Nemetz v. Immigration & Naturalization Service (1981) [29]).

During the 1980s, 139 judicial districts (States and local authorities) enacted laws prohibiting discrimination on the basis of sexual orientation in employment, housing and education (Note: ‘Constitutional Limits on Anti-Gay Rights Initiatives’ 106 Harv. L. Rev. (1992-93) 1905, 1923-25). The municipal laws of 12 municipalities allowed homosexual couples to register at the municipality as domestic partners, for the purpose of receiving social rights given to families (Bowman and Cornish, supra, at p. 1168).

At the same time, the courts in several States have recognized the rights of a same-sex spouse on the basis of the ‘functional test’. According to this standard, recognition of the homosexual couple depends on the purpose of the law conferring rights on a ‘family’ or ‘spouse’. The homosexual spouse will enjoy the rights conferred by law, if this is consistent with the law’s purpose.

Thus, for instance, the New York State Court of Appeals recognized the life-companion of a deceased tenant as a protected tenant by virtue of his being the spouse of the deceased. It was held that, in view of the purpose of the tenant protection law, the difference between a heterosexual couple and a homosexual couple is irrelevant. If the life-companion were not recognized as the spouse, the purpose of the law would be frustrated, in that a remote relation would be entitled to the accommodation, whereas the person who shared his life with the deceased would be expelled from the apartment where he had lived for years (Braschi v. Stahl Associates Co. (1989) [30], at pp. 788-789; see also Yorkshire Towers Co. v. Harpster (1986) [31]; Two Associates v. Brown (1986) [32]; E. 10th St. Assoc. v. Estate of Goldstein (1990) [33]).

The accepted outlook in the United States was summarized in the article of Bowman and Cornish, supra, at pp. 1175-77, as follows:

‘… there is a general tendency to look at the characteristics of the particular relationship to determine whether it qualifies as a family for the purposes of the particular statutory scheme, especially when a statute uses a term such as “family”, “spouse”, or “parent” without defining it.

…

… Courts have identified certain elements as indicia of a “family-like” relationship, including financial commitment, exclusivity of the relationship, the reliance members place on each other, the length of the relationship, and the presentation of the relationship to the outside.’

9.    The law in Israel regarding homosexuals reflects the social changes that have occurred over the years.

Male homosexual relations were, in the past, included in the offence of deviations from nature, an offence punishable by 10 years’ imprisonment (section 351(3) of the Penal Law, 5737-1977, which was a new version of section 152(2) of the Criminal Law Ordinance, 1936, enacted by the Mandate). This prohibition was never enforced. As early as the year 1963, in CrimA 224/63 Ben-Ami v. Attorney-General [20], at p. 238, the court held that this offence has no basis in our present reality. Speaking for the court, Justice H. Cohn said:

‘Unnatural sexual relations, and homosexual relations, when done in private between consenting adults, are not acts involving moral turpitude, nor do they indicate that the persons who do them are criminals deserving of punishment. These are offences that we inherited from ancient systems and past generations and they have no place in the criminal law of a modern state… ‘Nature’, as such, no longer needs the protection of the criminal law. What needs, and is therefore entitled to, their protection are the human body and human dignity and liberty… one of the basic rights of the citizen is that the State will not interfere in the private life and his behaviour behind closed doors…’

Nonetheless, for many years the offence remained the law and was not repealed. Even in 1980, when the draft Penal Law (Amendment no. 14), 5740-1980 — which, according to its explanatory notes, was intended to replace the provisions of the Mandatory law with legislation suitable to the reality of our times — was tabled in the Knesset, it was suggested that the prohibition against homosexuality remain. Notwithstanding, it was proposed that the punishment for this offence be reduced to one year’s imprisonment. The explanatory notes said: ‘The question whether in our time there is a justification for the interference of the criminal law in sexual acts done between consenting adults in private is a controversial one’ (ibid., at p. 392).

This proposal did not reach the Knesset, and the criminal prohibition was repealed eight years later in the Penal Law (Amendment no. 22), 5748-1988.

This formal repeal reflects the current position of Israeli society that the law (as opposed to religion) should be indifferent to the sexual orientation of a person, so long as he does not harm anyone. There is widespread consensus that homosexuals should not be restricted or subject to discrimination (Rubinstein, The Constitutional Law of the State of Israel, supra, at p. 334). The amendment to the Equal Opportunities Law reflects this approach. M. Virshowski MK referred to this during the debate proposing the law at first reading:

‘… with this we are in fact establishing the rules accepted today in the enlightened world and allowing people to live in accordance with their sexual orientations, and not to suffer for them or be oppressed because of them’ (Knesset Proceedings 119, 1991, at p. 1034).

10. In our case, it is clear that there is a difference between a homosexual couple and a heterosexual couple. However, a ‘difference’ justifying different treatment must be relevant (Boronovski v. Chief Rabbis [16], at p. 35; HCJ 720/82 Elitzur Religious Sports Association, Nahariyah Branch v. Nahariyah Municipality [21], at p. 21; HCJ 4169/93 [22]).

The proper test is therefore to consider the relevance of the sexual orientation to the benefit conferred on the spouse. The functional test meets this requirement. According to this test, no distinction should be made between homosexual couples and heterosexual couples, if the spousal relationship between the spouses of the same sex meets the criteria that realize the purpose for which the right or benefit is conferred. By contrast, when the sexual orientation is relevant to realizing the purpose of the benefit, for instance if the purpose is to encourage having children, withholding the benefit from a same-sex spouse will not constitute discrimination. Justice L’Heureux-Dubé discussed this distinction in the judgment of the Canadian Supreme Court in Canada (A.G.) v. Mossop (1993) [43], at p. 560:

‘… “family status” may have varied meanings depending on the context or purpose for which the definition is desired… the Tribunal concluded that the potential scope of the term “family status” is broad enough that it does not prima facie exclude same-sex couples. In making this finding, the Tribunal used the proper interpretational approach, considered the purpose of the Act and the values at the base of the protection of families.’

Cf. also NLC 54/85-0 [25]. In that case it was held that a recognized partner is exempt from paying insurance premiums under s. 8 of the National Insurance Law [Consolidated Version], 5728-1968, exempting ‘a married woman whose husband is insured’ from making insurance premiums. Justice Goldberg, who wrote the judgment, explained that in view of the purpose of the law to place a recognized partner on an equal footing with the ‘lawful wife’, and in view of the definition in the law of the expression ‘his wife’ including a ‘recognized partner’, the recognized partner must also be regarded as a ‘married woman’.

11. Public authorities are first and foremost subject to the principle of equality, but this principle also applies in the field of labour relations in general (see, for instance, S. Almog, ‘A Guide to Labour Law’ The Employee’s Guide, 1994, 35-36). The employer’s contractual freedom retreats when faced with the employee’s right to equality (Flight Attendants Association v. Hazin [24]; HCJ 410/76 Herut v. National Labour Court in Jerusalem [23]; Nevo v. National Labour Court [7], ibid.). The legislation prohibiting discrimination in labour relations reflects this principle, but did not create it. See also F. Raday, ‘The “Privatization of Human Rights” and the Misuse of Power’ 23 Mishpatim, 1994, at pp. 21, 41.

12. In our case, the aeroplane ticket was not meant for a spouse who is married to the employee, and in any event the purpose of the benefit was not to encourage a lifestyle within a traditional family framework. The benefit is given to the employee for the spouse with whom he shares his life de facto. Indeed, although the petitioner did not intend the arrangement to apply to same-sex spouses, the sex of the spouse is not relevant to the purpose of giving the benefit.

Benefits for a spouse are a significant part of employees’ salaries. Professor Elbin’s calculations found that in the United States 27% of employees’ salary is made up of benefits (in his article, supra, at pp. 1068-1069).

In Israel, benefits (including ‘related conditions’) may lead even to the doubling of the salary (see the monthly periodical Calculation, M. Katzin, ed., October 1994, 50). A significant part of these benefits — such as pension plans and life insurance — are given for the spouse, including the recognized partner, and to deny benefits to a spouse with whom a homosexual lives is tantamount to reducing his salary. Consequently, denying these benefits is discrimination against the employee himself. Professor Elbin said of this:

‘Unable to marry, gay couples are generally excluded from the benefits afforded married couples in our society, including benefits commonly accorded spouses in employee and public benefit programs. For gay employees, the result is total compensation lower than that of other married co-workers performing the same job.

Domestic partner provisions lessen the economic discrimination that results from the ban on same-sex marriage.

…

… An employer who does not offer domestic partner benefits is, in fact, paying less in total compensation than he should be because employees with domestic partners are not being compensated equitably’ (supra, at 1068-69, 1082).

In the case before us, denying the benefit to the respondent would lead to a reduction of his salary in the amount of the price of the ticket, and there is no justification for this.

For these reasons, I agree that the petition should be denied.

 

 

Petition denied, by majority opinion (Vice-President A. Barak and Justice D. Dorner), Justice Y. Kedmi dissenting.

30 November 1994.

 

 

 

[*]                 NLC 3-160/53 El-Al Airlines v. Danielowitz IsrLC 26 339.

*                 Ibid., p. 349.

 

 

LCA 5103/95

CA 6119/95

CA 6120/95

1.  Tova Deshet

2.  Lili Rachmani

3.  Simcha Morad

v.

1.  Shalom Eliyahu

2.  David Eliyahu

3.  Avraham Eliyahu

4.  Tova Eviger

5.  Janet Icot

6.  Adv. Haim Givati (Formal Respondent)

 

 

The Supreme Court Sitting as a Court of Civil Appeals

[May 16, 1999]

Before Deputy President S. Levin and Justices E. Mazza, Y. Türkel

 

Facts: The deceased left a will devising his estate to his sons, to be distributed among them only after the death of their mother. The sons renounced their gift under the will and, together with their mother and sister (who had not been provided for in the will), sought to inherit their intestate share by law. The executrices of the will objected.

Held: Justice Levin, with Justice Turkel concurring, held that the sons’ renunciation was clearly designed to frustrate the condition set by the will for their inheritance, namely that they would inherit only after their mother’s death. As a legal act, renunciation is subject to the good faith requirements and public policy considerations set by the Contract Law and other laws external to the Inheritance Law. The sons’ renunciation was done with a lack of good faith or contrary to public policy and is therefore invalid. Justice Mazza held that the law does not recognize an intent to disinherit an heir unless such intent is clearly and unambiguously stated in the will (distinction between exclusion and disinheritance). A beneficiary has a right to renounce, and an heir has a right to benefit from such renunciation. Because the testator did not expressly state his intention to disinherit his wife and daughter, they had a right to inherit following the renunciation.

 

Appeals granted by majority opinion, against the dissenting opinion of Justice E. Mazza.

           

 

Basic Laws Cited:

Basic Law: Human Dignity and Liberty, ss. 3, 8.

 

Israeli Legislation Cited:

Inheritance Law, 1965, ss. 1, 2, 4, 6, 6(a), 6(b), 15, 17, 41, 42, 42(a), 43, 49, 50, 51(d), 54, 54(a), 67.

Contract (General Part) Law, 1973, ss. 39, 61(b).

 

Israeli Supreme Court Cases Cited:

[1] LCA 3154/94 Asi v. Asi, IsrSC 49(2) 250.

[2] CA 765/87 Chesler v. The Estate of Ofel Mendel Israel, decd., IsrSC 43(3) 81.

[3] CA 4372/91 Sitin v. Sitin, IsrSC 49(2) 120.

[4] CA 245/85 Engelman v. Klein, IsrSC 43(1) 772.

[5] CA 2698/92 Yona v. Edelman, IsrSC 48(3) 275.

[6] CA 202/85 Kleina-Bik v. Goldberg, IsrSC 41(2) 757.

[7] CA 122/86 Shapir v. Klivensky, IsrSC 44(1) 738.

[8] CA 119/89 Turner v. Turner, IsrSC 45(2) 81.

[9] CA 1212/91 Keren LIBI v. Binstock, IsrSC 48(3) 705.

[10] CA 724/87 Calpha (Gold) v. Gold, IsrSC 48(1) 22.

[11] CA 196/85 Rosenfeld v. Salant, IsrSC 39(4) 550.

[12] CA 449/88 Oferi v. Perlman, IsrSC 45(1) 600.

[13] CA 8034/95 Maor – Petroleum Company v. John, IsrSC 52(4) 97.

 

Israeli District Court Cases Cited:

[14] CC (CC) 1310/91 The Trustee-in-Bankruptcy for Shmuel Avni v. The Estate of Rachel Avni, decd. [unreported].

[15] PC (CC) 3056/67 Yemini, In the Matter of the Will of Binyamin (Ben Yehoshua), decd. [unreported].

 

English Court Cases Cited:

[16] Banks v. Goodfellow (1870) 5 Q.B. 549.

[17] In re Wynn, decd. v. Goodfellow 1 W.L.R. 237 (Ch. D.).

 

Canadian Court Cases Cited:

[18] Re Jacques (1985) 16 D.L.R. (4th) 472.

 

Israeli Books Cited:

 

[19] 1 S. Shilo, Perush Lichok Hayerusha, 1965 [Interpretation of Inheritance Law] (1992).

 

Israeli Articles Cited:

[20] P. Shifman, Histalkut Mitzavaa-al-tnai Lishem Akifat Hatnai [Renunciation of a Conditional Will for the Sake of Circumventing the Condition], 23 Mishpatim 527 (1994).

[21] G. Tedeschi, Vitur al Hayerusha Vachalifot [Waiver of Succession and The Alternatives], 34 Hapraklit 5 (1981-1982).

 

Foreign Books Cited:

[22] A.R. Mellows, The Law of Succession (5th ed. 1993).

[23] J.S. Barlow et al., Wills, Administration and Taxation: A Practical Guide (6th ed. 1994).

[24] H.S. Theobald, On Wills (15th ed. 1993).

[25] 1 W.J. Williams, On Wills (7th ed. 1995).

 

Foreign Articles Cited:

[24] J.A. Heaton, The Intestate Claims of Heirs Excluded by Will: Should ‘Negative Wills’ Be Enforced? 52 U. Chi. L. Rev. (1985) 177.

 

Jewish Law Sources Cited:

[A] Responsa Rosh, Rule 78:3.

 

JUDGMENT

Deputy President, S. Levin

 

The Facts

 

1. The deceased, Obadiah (Abdallah) Abraham Ezra Eliyahu, passed away on August 8, 1987. He was survived by his wife, three sons, and one daughter. The deceased left a witnessed will dated January 13, 1987, stating that it was being made pursuant to the Inheritance Law, 1965. The will also stated that it was “also made in accordance with all the requirements of Jewish religious law.” Under clause 3 of the will, the deceased left all his possessions “without exception” and “subject to the following provisions” to his sons. Clause 4 of the will stated:

 

4. I hereby expressly and unambiguously provide that my aforementioned sons shall receive their aforesaid share in my estate, only after the death of (my wife), and under no circumstances before such time.

 

In clause 5 of the will, the deceased wrote that “[t]o this end” he appoints appellants in CA 6119/95, Mrs. Tova Deshet and Lili Rachmani, to act as the estate executrices “prior to its distribution between my aforementioned sons and after the death of their mother as aforesaid.” The estate executrices were released from the obligation to provide any bond and were meant to receive payment in return for their duties as determined by the court.

After the death of the deceased, the sons filed notices of renunciation according to which they renounced all their rights “which originated in the will only.”

2. Appellants, the estate executrices, petitioned for probate. PC (PAPP) 85/93. The sons submitted opposition to the probate. PC (PAPP) 86/93. At the same time, the sons filed a motion for an inheritance order in respect of the estate of the deceased. The motion named the deceased’s wife and children as the lawful heirs of the deceased. PC (PAPP) 394/93. The wife’s affidavit of renunciation was attached to the motion. According to this affidavit, the wife renounced 3/40 of her share of the estate in favor of each of her children. The deceased’s sister, Mrs. Simcha Morad, also requested an inheritance order. Her motion named Mrs. Morad and her sister, Mrs. Haviva Katan, as the sole heirs of the deceased (PC (PAPP) 338/93), arguing that the sons had renounced their share of the estate, and the deceased had disinherited the wife and the daughter from the estate. The sons submitted opposition to her motion. PAPP 916/93 in PC 338/93. The daughter also submitted a motion requesting a declaration that, following the sons’ renunciation, she and the wife were the heirs by law or, in the alternative, were entitled to inherit together with the sons. PAPP 1809/94; PAPP 142/94. All the actions and motions were consolidated.

The Be’er Sheva District Court ruled that the sons’ renunciation was valid. As a result of this renunciation, the Court held that the provisions of the will were void, including the provision that delayed bequeathing the rights in the estate until after the wife’s demise. The will should not be construed in a manner that would disinherit the wife and the daughter from the estate. The estate should be distributed among the wife and the four children of the deceased, in light of the wife’s renunciation. In this manner, each of the deceased’s heirs would receive one fifth of the estate.

The estate executrices objected to the District Court’s judgment by submitting a motion for leave to appeal (LCA 5103/95) and an appeal (CA 6119/95). The deceased sister also filed an appeal. CA 6120/95. All these actions argued, in essence, that the sons’ renunciation was invalid. At the very least, it was alleged, the renunciation could not nullify the provisions of the will, under which the sons would not inherit their share of the estate while the wife was still alive. The estate should therefore be administered by appellants.

Provisions of Law and Issues in Dispute

3. We will first cite the relevant provisions of the law, then analyze the substantive issues in dispute between the parties.

Section 1 of the Inheritance Law, 1965, sets forth the principle of the immediate transfer of an estate. It provides:

“Upon a person’s death his estate passes to his heirs.”

Section 2 stipulates:

            “The heirs may inherit either by law or under a will.”

Section 6 of the law states as follows:

            “6 (a) After the testator’s death and as long as the estate has not been distributed, an heir may renounce all or some of his part of the estate, or all or some of a legacy to which he is entitled under a will…

            (b) If a person renounced his part of the estate, then – to the extent that he renounced it – he is deemed never to have been an heir; renunciation cannot be in favor of any other person, except in favor of the testator’s spouse, children or sibling.

(c) Renunciation by a minor or by a person declared legally incompetent requires the Court’s approval.

(d) A conditional renunciation is void.

Section 15 of the law provides that “[i]f a person was disqualified from inheriting, or if he renounced his part of the estate, other than in favor of the testator’s spouse, children or sibling, then his part shall be added to the other heirs in proportion to their parts.”

Section 43 of the law determines as follows:

            43 (a) The testator may prescribe that an heir inherit when a condition has been met or at a certain time.

            (b) If the condition was not met or the time had not arrived before the testator’s death, then the estate shall be administered by an estate executor until the condition is met or until the time arrives or until it becomes clear that the condition can no longer be met …

            (c) If the testator did not prescribe who shall inherit when it becomes clear that the condition can no longer be met, then the heirs by law shall inherit.

Section 50 provides that if a will’s beneficiary renounces what is due to him or her other than in favor of the testator’s spouse, child, or sibling, and if the testator did not name another beneficiary who would take his or her place, then the testamentary provision in his or her favor becomes void. Section 54 of the law provides that a will is to be interpreted according to the testator’s presumed intention. It further determines that where a will is subject to different interpretations, “the interpretation that renders it effective shall prevail over that which renders it void.”

It appears to me that there are three main issues in dispute between the parties. First, according to existing law, may the heirs renounce their share of the estate under the will? Can renunciation take place before the condition stipulated in clause 4 of the will has been fulfilled? In the latter case, the said share is a future or conditional right only. Second, what are the legal consequences of renouncing a right under a will in order to bypass a condition stipulated in the will, so that the renouncer may inherit by law, without meeting the condition? This question will be examined both according to the “internal” provisions of the Inheritance Law as well as in accordance with the “external” law, viz. reasons contained in the general law, such as public policy considerations or the claim that the renunciation was not made in good faith. Third, what are the consequences of the aforesaid renunciation in terms of the rules for distributing the estate between the heirs? The need to decide this third issue will naturally only arise if it transpires, after resolving the first two issues, that the heirs' renunciation of their share under the will is valid and effective.

4. Among the main issues in dispute between the parties, I have not included two additional matters which I was able to resolve without difficulty. In brief, these were as follows:

(a) The learned judge in the lower court was not prepared to infer any conclusion in our case from the testamentary provision which stated that the will was made in accordance with the provisions of Jewish religious law. It is true that the judge was presented with an expert opinion regarding the treatment of renunciation in Jewish law. According to this opinion, the renunciation was not valid. At the same time, however, the expert admitted on cross examination that there were other opinions on this matter. I have examined appellants’ complaints concerning the reasoning of the District Court in this regard, and I am satisfied that these are grounded in law. Such complaints are therefore dismissed.

(b) It was argued – and this was in fact the first claim submitted – that appellants have no standing to submit this appeal. Not only was this claim not raised in the court of first instance, but appellants in fact do have an interest, as the long arm of the deceased, in upholding the provisions of the will. Moreover, the provisions of the will expressly confer on them a concrete duty to manage the deceased’s assets, so long as they have not been transferred to the sons. This issue is unlike that which arose in LCA 3154/94 Asi v. Asi [1]. That case held that a person possessing an “indirect benefit” under a will through an heir or beneficiary lacks standing to oppose an inheritance order or an order of probate under section 67 of the law. This has no bearing on the standing of the estate executor.

The Legality of Renunciation – Renunciation of a Future or Conditional Right

5. Legal scholars are divided on this issue. According to Prof. Shilo, until the condition has been fulfilled or the time has arrived for receiving the beneficiary’s share, that person is not regarded as an heir. As such, he or she may not renounce his or her “right,” which is merely a protected expectation. S. Shilo, Perush Lichok Hayerusha, 1965 [Interpretation Inheritance Law] [19], 392-94. He finds support for his approach in various provisions of the law. These include section 51(d) which provides that a person who becomes entitled to an asset "at a later date" is entitled to the income from that asset earned only beginning at the date at which the person becomes entitled. This contrasts with the opinion of Prof. P. Shifman, in his article, Histalkut Mitzavaa-al-tnei Lishem Akifat Hatnei [Renunciation to Circumvent a Condition] [20], which was adopted by the learned judge. Prof. Shifman argues that the law makes no distinction between a person whose entitlement in an estate is absolute and immediate and a person whose entitlement is conditional and postponed. Both may renounce immediately upon the death of the deceased. In support of his approach, Prof. Shifman cites section 42 of the law, in which the legislature recognized the renunciation of the second heir in a will providing for successive heirs, even before the condition establishing the second heir's right is fulfilled. I am not sure that the references to the aforesaid sections of law can help resolve the issue at hand, because the legislature was not consistent in these sections, or because it sought to use them to make provisions for specific issues. Substantively, there are two ways of viewing the issue in question. Because of the conclusion I will reach, as shall be explained infra, I do not need to resolve this matter. I shall therefore leave the question to be resolved on another occasion.

The Legality of Renunciation – Application of the “Internal” Law

6. The law does not force a person who has inherited part of an estate to accept that part. A beneficiary is entitled to renounce the share bequeathed to him or her, as stipulated in section 6 of the law. In return for the deceased’s freedom to bequeath those assets which form part of his or her property rights, the heir also has the freedom to “reject” his or her entitlement by way of renouncing those assets. However, an heir may not renounce an obligation which is imposed on him or her and which deviates from the “active” areas contained in his or her share. Nor may his or her act of renunciation injure any third party rights. In other words, the beneficiary under a will is entitled, under the laws of inheritance, to renounce what he or she has been given; he or she may not, however, renounce what he or she has not been given. For example, if the deceased left a house to her son, while also requiring him to pay a sum of money to her daughter, the son may not avoid paying the sum to his sister by renouncing the house. This is because the daughter is entitled to the payment from him in any event. A.R. Mellows, The Law of Succession [22] 421. It follows that the renunciation must be substantive and not merely formal. See also CA 765/87 Chesler v. Estate of Ofel Mendel Israel, decd. [2] at 87:

It is true that a person cannot bequeath property which does not belong to him or her. Logic dictates, however, that if the beneficiary wishes to circumvent a provision in the will which obligates him or her to transfer part of his or her property to a third party, he or she must also relinquish those assets to which he or she is entitled under the will. In other words, a beneficiary may not select only those provisions of the will which are comfortable for him or her. The choice is to accept the will as a whole or to reject it as such.

Renunciation Intended to Circumvent a Condition of the Will and to Enable the Renouncing Party to Inherit His or Her Share by Law, without Complying with the Condition

7. In Israeli and foreign legal literature, the opinion is nearly uniform: an heir by law may renounce his or her share under a will, even where such renunciation allows him or her to circumvent a condition contained in the will. Through that renunciation, the opinion goes, the heir inherits by law, and is thus exempt from fulfilling the condition. See Shilo in his aforesaid book [19] 398-99; Shifman in his aforesaid article [20] 527; Mellows in his aforesaid book [22] 421; the Uniform Probate Code, para. 2-801 at 180; J.S. Barlow, L.C. King, A.G. King, Wills, Administration and Taxation: A Practical Guide [23] 311. In the above circumstances, I am prepared to concede that the laws of inheritance pose no obstacle to renunciation whose goal is to circumvent any of the conditions of the will. At the same time, as shall be later clarified, here we address only the freedom to renounce under the laws of inheritance. It is a totally different question as to whether renunciation will be invalid according to other laws which complement the laws of inheritance, such as using the freedom of renunciation not in good faith or in circumstances which would be contrary to public policy. I will deal with these issues presently.

The Legality of Renunciation – Application of the General Law

8. It is decided case law that section 6 of the Inheritance Law does not bar an examination into the validity of renunciation under the substantive law. See e.g. CA 4372/91 Sitin v. Sitin [3] at 130:

[S]ection 6 only sets forth the procedures governing renunciation … and the circumstances in which this path may be taken – as long as the estate has not been distributed (sect. 6(a)) and the share of the renouncing heir has not been charged (sec. 7(a)). The section does not, however, outline circumstances, if any, in which the renunciation will be regarded, in terms of the substantive law, as an unjust violation of the rights of third parties held with respect to the heir.

Where the circumstances indicate that the rights of reliant parties risk being violated, the status of the heir who has elected to forgo his or her inheritance will then be examined within the framework of the relevant general laws – viz. the laws of bankruptcy, whether the debtor was declared bankrupt; the laws of contract; the laws of collateral; and even, in special cases, under the laws this court has established regarding joint ownership of property between spouses. CA 4372/91 Sitin v. Sitin at 129-30 (Shamgar, P.).

 

On the foregoing basis, the Court examined the case of a renunciation made with the intent of concealing assets from the creditors of the renouncing party, including his wife. Id. (at the end of judgment). Cf. CC (CC) 1310/91 Trustee-in-Bankruptcy for Shmuel Avni v. The Estate of Rachel Avni, decd. [14]. There, the renunciation was invalidated because it was performed with a lack of good faith, through an abuse of legal proceedings. The theory at the base of these laws is that renunciation is considered a “legal act” within the meaning of section 61(b) of the Contracts (General Part) Law, 1973. Prof. G. Tedeschi, Vitur al Hayerusha Vachalifot [Waiver of Succession and Alternatives] [21]. As such, the provisions of the law governing “legal acts” apply to the renunciation, including the good faith use of a right, as well as provisions concerning abuse of legal proceedings and public policy, even beyond the provisions of section 39 of the aforesaid law. See CA 245/85 Engelman v. Klein [4] which used public policy criteria to evaluate a term which disinherited a beneficiary from a will.

 

In the case at hand, there is no doubt that the sons’ renunciation frustrated the deceased’s wish for his assets to be transferred to the sons only after the death of their mother. As we have already explained, even where the act of renunciation is recognized by law, it is still incumbent upon us to examine its validity under the general law. A conflict of values arises here between the deceased’s right to decide what will happen to his property after his death and the freedom given to an heir according to law or under a will to frustrate this right by renunciation. We must examine the interests of the deceased, on the one hand, and of the sons, on the other. This will enable us to find the point of balance between these two values. Once we reach a conclusion on this matter, we will need to evaluate whether there are sufficient grounds to invalidate the renunciation, because it was not done in good faith, because it abused a right, or because of public policy considerations.

 

The Deceased’s Right to Decide How to Dispose of His or her Property v. the Freedom of Renunciation – Balance of Interests

 

9. The law accords significant weight to the deceased’s right to decide how to dispose of his or her assets after death. This is true even to the extent of disinheriting heirs-in-law of their rights under the laws of intestacy. Thus, for example, section 54(a) of the law provides that “[a] will is interpreted according to the testator’s presumed intention …” When the Supreme Court has examined the validity of a term purporting to disinherit a beneficiary from a share in the estate, in addition to examining the considerations to rebut the disinheritance term, it has evaluated the considerations upholding this term. See CA 245/85 supra [4] at 785-86:

 

… On the one hand, the following considerations are to be noted in support of granting validity to a disinheritance provision: First, this gives expression to the principle of respecting the testator’s last will and testament. This is sound legal policy which merits implementation. It is a distinguishing mark of the laws governing succession. It acts as the yardstick for the interpretation of various provisions of the Inheritance Law … Second, through the disinheritance provision, the deceased protects those interests which are dear to him or her, such as the unity of the family, his or her good name and other matters which the testator seeks to protect through this provision. It is in the interests of society to enable the testator to utilize such protective mechanisms … The disinheritance provision preserves the privacy of the family unit …

 

Thus, for example, in CA 2698/92 Yona v. Edelman [5] at 279, the Court stated that “respect for the wish of the testator, even if he imposes conditions in his will, is a value in need of protection, and an heir who wishes to inherit his or her share of the estate must also comply with the preconditions imposed on him or her before being entitled to his or her share.”

 

The court, in its capacity as such, is often asked to take action to protect the wish of the testator as expressed in his will. In Re Jacques (1985) [18], for example, one of the heirs sought to renounce her share under the will. The court was asked to address the issue of what should happen to the share of an heir who had renounced her share in the estate. The court stated as follows:

I have not been referred to any authority in which the doctrine of acceleration has been applied in such a way as to frustrate the apparent intent of the testator.

…The basic obligation of the court … is to ascertain, and give effect to, the intent of the testatrix as expressed by the terms of the will. Id. at 476.

10. The testator’s right to dispose of his assets as he wishes after his death has now received constitutional force by virtue of section 3 of Basic Law: Human Dignity and Liberty [right to property – ed.], and this right may not be violated, except within the bounds set by the limitation clause in section 8 of the law. It is true that a beneficiary reserves the right to “reject” a bequest under the will by the act of renunciation. However, where the effect of such renunciation is to frustrate the wish of the testator by annulling a reasonable term included in the will, we must evaluate whether, under the circumstances, there are any legal grounds for invalidating the renunciation. In this regard, in my opinion, we must strike a balance between the testator’s right to dispose of his assets as he wishes following his death and the beneficiary’s right to reject the “share” given to him or her. Needless to say, the balance between these two considerations will always be done in the context of the particular circumstances of the case in question.

Shilo’s book [19], at 395-96, describes a case decided by the Tel-Aviv-Jaffa District Court. PC (CC) 3056/67 Yemini, In the Matter of the Will of Binyamin (Ben Yehoshua), decd. [15]. In that case, in his will, the deceased devised the sum of one lira to all of his heirs by law – his sons – while leaving the whole of his residuary estate to a fund whose beneficiaries were the grandchildren. The fund was meant to provide them with loans and gifts subject to extremely onerous conditions: provided they preserved a religious lifestyle, ate only kosher food, honored their elders and hung pictures of their grandparents in the large guest room of their home. Despite the heirs’ opposition, the court upheld the will. The author of the book raises the question as to whether the provisions of the will could have been invalidated on the grounds that they were contrary to the public welfare, because they constituted an attempt to have the dead rule over the living. Let us imagine, on the above mentioned facts, that the will had been written in favor of the sons, including the same onerous conditions, and that the sons had renounced the will in order to circumvent these conditions and to become heirs by law, in order to free themselves from any precondition. Let us further assume that the will did not violate any public policy per se. Can there be any doubt that we would rule that the sons are not entitled to frustrate the wish of the deceased by utilizing the vehicle of renunciation? Alternatively, let us imagine a case in which, in his will, a testator devises all of his estate to his only son; and the will further establishes that the son shall take only 10 years from the date of the testator’s death. Would we allow such a son to renounce the will and to become an heir by law, by circumventing the condition stipulated in the will? The case before us does not differ in any fundamental respect from the above-mentioned examples. In light of the murky relations which characterized the deceased and members of his family, the deceased preferred to disinherit his wife and his daughter from the estate and to suspend the delivery of his assets to his sons until after the mother had died. There is no legal impediment inherent in the deceased’s considerations. The deceased made reasonable use of the property and constitutional right to decide how to dispose of his assets after his death. I do not think that the sons, under the circumstances of our case, made proper use of the renunciation, by seeking to frustrate the wishes of the deceased and to circumvent the condition he imposed, in order to receive their intestate share by law.

11.            Israeli case law has used the doctrine of good faith (or abuse of legal proceedings) in order to examine whether there are grounds for invalidating the renunciation by heirs of their share under a will. CA 4372/91 supra [3]; CC (CC) 1310/91 Trustee Over the Assets of Bankrupt, Shmuel Avni v. Estate of Rachel Avni, decd. [14]. However, so far, the said doctrine has been used only in connection with the non-good faith use of a right, insofar as it relates to third parties such as creditors. I see no reason to limit the application of this doctrine only to these cases, especially when it has become commonplace as a tool for examining the conduct of an heir. See e.g. CA 2698/92 supra [5]; CA 202/85 Kleina Bik v. Goldberg [6]. A condition restricting the right of a beneficiary under a will may not deviate from the testator’s reasonable use of his property right. In such case, no validity should be accorded a renunciation whose sole aim is to thwart his wishes and to remove a reasonable precondition from the gift bequeathed by will.

We can attain the above outcome through the legal device of failing to exercise a right in good faith, under section 39 of the Contracts (General Part) Law or through invalidating renunciation as being contrary to public policy. See CA 4372/91 supra [3] for a discussion of the considerations involved in choosing the particular legal underpinning on which the invalidation rests. Whichever vehicle is used, the renunciation at the core of the appeals in question should be invalidated.

In light of my conclusion, I am not required to examine the third issue which might have arisen in this case. This is the question of the effect of the renunciation in terms of the distribution of the estate between the heirs. It goes without saying, therefore, that, in my opinion, the question as to whether or not the deceased disinherited his wife and daughter from the estate does not arise.

The appeals should therefore be granted, because the renunciation was not performed in good faith or because it violates public policy.

I would therefore grant the appeals, annul the decision of the District Court, and rule that the renunciation is invalid and that the will in its original version remains intact.

 

Justice E. Mazza

 

1. My learned colleague, the Deputy President, saw no need to address in his opinion the issue of whether it was possible to interpret the deceased’s will as including a provision regarding the disinheritance of his wife and daughter from the estate. At the same time, once it has been proven that the sons of the deceased renounced their entitlement under the will with the aim of frustrating the wish of the testator, he reaches the conclusion that, for reasons grounded in laws external to the Inheritance Law, the renunciation should be invalidated. With all due respect, I personally am of the opinion that the question of whether the deceased used his will to disinherit his wife and daughter from his estate has a direct bearing on the validity of the deceased’s sons’ renunciation of their entitlement under the will. Based on my reasons for resolving these two questions – the issue of the will’s interpretation and the issue of the validity of the renunciation – I will suggest that the appeals be denied. In reaching this conclusion, I will need to resolve two further issues, which my colleague, the Deputy President, saw no need to address: the effect of an heir’s renunciation on the rights of the other heirs and the rule for renouncing a future or conditional right.

 

2. The District Court was in doubt as to whether the deceased’s will disinherited his wife and daughter from his estate. The estate executrices alleged that the disinheritance of the wife and the daughter was to be inferred from the bequeathment provisions in his will. These provisions left nothing to either of them. In addition, the disinheritance of the wife could also be inferred from the provision in the will which stated that his sons would receive their share of the estate “only after the death of (his wife), and in no circumstances before such time.” The Court rejected this approach for three principal reasons. Its first reason was based on the wording of the will. The Court pointed out that the deceased did not expressly state in his will that he was disinheriting his wife and daughter from the estate. The Court regarded the failure to include an express statement of this sort in his will as a “thunderous silence” which effectively shed light on the deceased’s intention not to expressly exclude his wife and daughter. The judge’s second reason was based on evaluating the presumed intention of the testator, given the circumstances surrounding the making of the will. These indicated a rupture in the relationship with the deceased, not only on the part of the wife and daughter, but also on the part of his three sons. This rupture vacillated in terms of its severity. As a result of the rupture, the Court found it difficult to conclude from the circumstances that the deceased specifically intended to exclude his wife and daughter. The Court’s third reason was that, based on the evidence, no definite conclusion could be drawn on the issue of whether the deceased would have excluded his wife and daughter from the estate even if he had known that the sons would renounce their rights under the will in the future.

 

3. I believe the District Court was justified in its conclusion that there was insufficient basis to find that the deceased had in fact excluded his wife and daughter from his estate. To justify this conclusion, I need look no further than the learned judge’s first reason: because the deceased did not expressly state in his will that he was excluding his wife and daughter from the estate, no intent to exclude them should be ascribed to him. From the fact that they were not included in the will as heirs of his estate, the conclusion can indeed be drawn that the testator’s presumed wish was for his wife and daughter not to inherit. However, the failure to include the wife and daughter in the will does not prove that the testator had resolved to disinherit them. It merely attests to his decision to exclude them from their share of the estate, in the event, and only in the event, that the estate would be devised according to his will. However, an heir’s exclusion from a will cannot override the right of beneficiaries to renounce their shares under the will, the inevitable consequence of which is the distribution of the estate between the heirs by law. In order to nullify the entitlement of an heir by law to inherit his share of the estate after he or she renounces, the testator must expressly state in his will that he wishes to disinherit the successor. I would like to expand a bit on this point.

 

Exclusion v. Disinheritance

 

4. The exclusion of an heir and the disinheritance of an heir are not synonymous. A will which is drafted such that the testator refrains from granting a share of his estate to any of his heirs by law or grants the heir only a small part of the share to which he or she would be entitled by law, negates or detracts from the heir’s share. By so doing, the testator excludes (i.e. he cuts off or removes) the heir, in whole or in part, from the heir’s share under the rules of intestacy. The disinheritance of an heir is a different legal act. By disinheriting an heir, the testator imposes an absolute prohibition on the heir benefiting from any part of his estate. Disinheritance, as distinct from exclusion, cannot be implied; it cannot simply arise as the natural corollary of the bequeathment provisions of the will. It must be explicit. The main difference between exclusion and disinheritance is that the former does not preclude the right of the excluded heir to return to the circle of heirs by law – in general or to receive his or her full share. This could occur as a result of the renunciation by a beneficiary of his or her legacy under the will; the annulment of any of the testamentary provisions; the existence of an asset not disposed of by the testator; or due to an event which prevents the distribution of the estate according to the provisions of the will. By contrast, an heir who has been disinherited loses his or her right to inherit; the right is rendered null and void. A disinherited heir only returns to the circle of heirs if there are justifiable grounds for invalidating the entire will, or at least a justifiable ground for invalidating the disinheritance provision itself.

 

There is also immense practical significance to the exclusion of an heir. However, this applies only where none of the will’s beneficiaries exercises his or her right of renunciation and where there are no grounds for annulling any of the testamentary provisions whose renunciation may return the excluded heir to the circle of heirs. Take a case of a father of three who bequeathed his estate to two of his heirs only, leaving nothing for the third heir. Provided that none of the beneficiaries renounces his share, in whole or in part, in favor of the brother who was excluded from receiving a share in the estate, and provided the court decides to ratify the will – in the absence of any opposition to its ratification or in the absence of any ground not to ratify it – the practical outcome is that the testator’s estate will indeed be divided up according to his will, between two of his three sons. However, in making a will in favor of two out of three sons, the testator does not deprive those sons to whom he bequeathed his estate of the right of renunciation, including renunciation in favor of the third son. Moreover, he does not negate the right of the third son to whom no bequest was made to inherit by law, whether as a result of the renunciation by any of the beneficiaries or whether for any other reason preventing all terms of the will from taking effect. Thus, for example, if any of the entitled sons were to predecease the testator without leaving descendants, the testamentary provision in favor of the relevant beneficiary would lapse, and his designated share would be divided up between the heirs by law. Sec. 49 of the Inheritance Law; CA 122/86 Shapir v. Clivensky [7]. The same would apply in the event that any of the beneficiaries under the will is found to be disqualified from inheriting. Sec. 50 of the law.

 

5. The Inheritance Law does not discuss the exclusion or disinheritance of heirs. However, the testator’s ability to deprive an heir by law of his or her share, whether in whole or in part, derives from the provisions of sections 1 and 2 of the law. According to section 1:

 

            Upon a person’s death his or her estate passes to his or her heirs.

 

And section 2 provides that:

 

            The heirs inherit by law or under a will; inheritance is by law, except to the extent that it is under a will.

 

The rule is therefore that a person’s estate passes to his or her heirs by operation of law. If the testator left a will, then his estate will be devised to the will’s devisees. In such case, the right of the heir by law lapses only where the provisions of the will dictate as much. It follows that if the testator bequeathed only part of his estate, the beneficiaries will take that part bequeathed to them, while the residuary estate will be distributed to his heirs by law. If the testator devised part of his estate to a person who was not his heir by law, or if he devised, to any of his heirs by law, gifts which exceeded their own entitlements by law, the shares of other heirs will be negated or reduced. The terms of such a will have the effect of excluding an heir by law from his or her share, whether in whole or in part. However, this type of exclusion is merely the natural consequence of the bequeathment provisions of the will. It cannot therefore be assumed that the testator intended to deprive the heir of any right to inherit a share of the estate which may exist because of an asset which the testator forgot at the time the will was made or on account of a renunciation by any of the devisees.

 

The Implications of an Heir’s Renunciation of His or her Share under the Will

 

6. The testator has an absolute right to stipulate, in his will, how his assets will be disposed after his death. On the other hand, each of the beneficiaries under the will has a free choice – whether to realize his or her share or to renounce it. He or she is also entitled to renounce the share in order to avoid having to perform an onerous condition that the testator imposed on the share. CA 119/89 Turner v. Turner [8] at 86. At times, renunciation by a beneficiary of a will directly affects the entitlement of the heirs by law and or at least its scope. A beneficiary’s renunciation of his or her share under the will may be either unqualified or in favor of the testator’s spouse, children or sibling. See end of section 6(b) of the Inheritance Law. An heir’s renunciation of all or some of the legacy to which he or she is entitled under a will may benefit all those heirs who inherit by law. This may include the renouncing party, provided he or she would inherit by law and has renounced his or her entitlement under the will, not the right to inherit in general. Alternatively, the heir’s renunciation may be in favor of the testator’s spouse, children or sibling, even where the testator has excluded these heirs by giving instructions for devising the whole of his estate without including such heirs as beneficiaries under the will. The exclusion does not deprive such heirs of the right to realize their entitlement to a share of the estate by virtue of the renunciation. It follows, therefore, that a devisee’s right of renunciation and the heir’s right to have the renunciation work in his or her favor take preference over respecting the wishes of the testator.

 

The following should also be noted: even if the testator bequeathed his estate to two (or more than two) beneficiaries, devising a gift to the second heir, if the first heir has not inherited, the first heir is entitled to renounce all or part of his or her share in favor of the testator’s spouse, children, or sibling. In so doing, the first heir may negate or reduce the share of the second heir. See section 41 of the law which governs the case of substituted heirs. It would appear that even a will naming successive heirs, as defined in section 42 of the law, will have a similar result unless the testator made it a condition of his will that the first heir’s renunciation would entitle the second heir to inherit. The reason for this is that in the absence of any special condition for entitlement, the second heir will inherit, as stated in section 42(a), “after the first has inherited.” When the first heir renounces his or her share, he or she is no longer an heir who “has inherited.” This is made clear by section 6(b) which states: “he or she is deemed never to have been an heir.” The testator may make it a condition of his will that the renunciation of the first heir would benefit the second heir. However, this would not prevent the distribution of the estate to heirs-by-law, in the event that the second heir decides, when his or her time to inherit arrives, to renounce his or her share of the estate as well.

 

7. On the subject of renunciation by an heir under a will – I see no reason to distinguish between renunciation of an immediate and absolute right and renunciation of a future or conditional right. I concur with the approach of Prof. Shifman in this regard. I believe that the right of renunciation is also available to a person to whom the testator has granted a right in his will which cannot yet be realized because of a time requirement or a precondition that has not yet been fulfilled. See Shifman in his above mentioned article [20]. This conclusion is also mandated by section 6 of the Inheritance Law, which permits an heir to renounce his or her share of the estate, without distinguishing between an heir with an immediate and absolute right and an heir with a future or conditional right. The need to verify the rights of the heirs as soon as possible further corroborates this conclusion. The heir has a right of renunciation, according to section 6, so long as the estate has not been distributed. It is clear that if making renunciation of a future or conditional right dependent on the arrival of a specific time or on the fulfillment of a condition to realize the entitlement would create delays and ambiguities in the inheritance process and in the distribution of the estate. Such delay would serve no purpose. Since the renouncing party, to the extent he or she has renounced his or her share, is deemed never to have been an heir ab initio, there is no reasonable justification for preventing him or her from renouncing the share, even if the time has not yet arrived or the condition for realizing the entitlement has not been fulfilled.

 

Express Disinheritance – Why Is This Necessary?

 

8. Section 6(a) of the Inheritance Law permits renunciation by a beneficiary under a will, while the end of section 6(b) stipulates that “renunciation cannot be in favor of any other person, except in favor of the testator’s spouse, children, or sibling.” The sole purpose of these provisions is to balance between the testator’s right to bequeath his estate in the manner he wishes, and the right of the testator’s heirs in general and of his close relatives in particular to inherit by law. The need for this balance stems from the realization that the right to inherit by law accrues to an heir by virtue of the law, and the testator’s will constitutes an intervention of the natural order. Moreover, section 1 of the Inheritance Law states that “[u]pon a person’s death his or her estate passes to his or her heirs.” This principle reflects the social consensus regarding people’s tendencies to leave their estates to their nearest relatives. In the case of Banks v. Goodfellow (1870) [16], Chief Justice Cockburn noted that heirs have a natural right to inherit, and the testator has an ethical duty to satisfy their expectations:

 

            Independently of any law, a person on the point of leaving the world would naturally distribute among his or her children or nearest relatives the property which he possessed. The same motives will influence him in the exercise of the right of disposal when secured to him by law. Hence arises a reasonable and well warranted expectation on the part of a man’s kindred surviving him, that on his or her death his or her effects shall become theirs, instead of being given to strangers. To disappoint the expectation thus created and to disregard the claims of kindred to the inheritance is to shock the common sentiments of mankind, and to violate what all men concur in deeming an obligation of the moral law. Id. at 563.

 

CA 1212/91 Keren LIBI v. Binstock [9] expressed similar sentiments:

 

Without diminishing the significance of other policy considerations concerning the distribution of a deceased’s estate – a policy which is expressed in these and other provisions of law – the distribution of an estate between heirs in the manner set forth in the Inheritance Law derives from that innate human instinct; the extent of distribution of the estate between the heirs themselves is meant to reflect society’s consensus concerning the wish of the “average” person. Id. at 723-24 (Cheshin, J.).

 

9. Moroever, in CA Calpha (Gold) v. Gold [10], the Court considered the ramifications of disinheriting an heir on his or her status as an heir and relationship with the other heirs.

There is no dispute that the disinheritance of one of the children under the will not only leaves him or her without any means of economic support. It may also result in the creation or perpetuation of feelings of jealousy and even hatred between the siblings. In many cases, disinheritance is a complex consequence of murky relationships between a parent and his or her child. The responsibility for this may lie either in the disinheriting parent or in the disinherited child. Generally, both parties are partially responsible. And, still, disinheritance per se is not unlawful or impossible. Even if we were to attempt to judge it according to any particular ethical code, and we reached the conclusion that in such and such circumstances it is unethical – this would not be sufficient. Id. at 38 (Malz, J.).

 

I find support for my approach in these words. Owing to the special injury to an heir caused by his or her disinheritance – injury which is not only material but also emotional and ethical – it is justifiable to predicate the testator’s ability to disinherit an heir upon an express condition to this effect. It would not satisfy me if the testator had merely included a provision to leave out any of his heirs by bequeathing them the sum of “one shekel” unless he also stated his express desire to disinherit the heir.

 

10. It thus follows that a will in favor of one particular person does not deprive the heirs by law of their right to inherit, in the event that the said person renounces his or her entitlement under the will. If the testator wishes to disinherit an heir absolutely from the right of inheritance afforded to him or her by the laws of intestacy, in such a manner that under no circumstances will the said heir inherit any part of the estate, the testator must express this wish unambiguously in his will. It is decided precedent that the very existence of a will is dependent on the bequeathment provisions contained therein. A will containing only a disinheritance provision – a “negative will” – is not a will. Shapir v. Klivensky, supra [7]. By contrast, a will which includes bequeathment provisions may also include disinheritance provisions.

 

As an aside, I would add that several cases have come before the court raising questions about the validity of an heir’s disinheritance and its effect on the rights of the other heirs. In these cases, in resolving the question of the validity of the disinheritance provision, the Court was asked to examine factual issues: the testator’s mental state and the influence it had on his decision to disinherit his family (see e.g. Keren LIBI v. Binstock, supra [9]); the testator’s motives for disinheriting two of his six children (CA 196/85 Rosenfeld v. Salant [11]); and the question of the validity of terms incidental to the disinheritance which the testator included in her will (Calpha (Gold) v. Gold, supra [10]). It should be added that no conclusion can be drawn in this regard obligating or expecting the testator to give reasons in his will for the decision to disinherit, provided that the disinheritance provision itself is clear and unambiguous.

 

A Look at Comparative Law

 

11. It should be noted that the law in the case at bar is situated at a point at which English law and U.S. law part company. Under English law, a will containing a disinheritance provision will be valid subject to two conditions. These are that the testator must have expressly stated in the will his intent to disinherit and that, aside from the disinherited heir, the testator has at least one more heir who will inherit his estate. On the basis of this approach, which from a theoretical perspective is regarded as an “implied gift” to the other lawful heirs, the Court upheld a will which consisted of two short sentences:

 

I, Olga Wynn, revoke all previous wills today 9th January. 1981. I hereby wish that all I possess is not given to my husband Anthony Wynn. In re Wynn, decd. (1984) [17] at 239.

 

This implies that, under English law, the testator is estopped from disinheriting all his heirs in his will, but that if he disinherited only some of his heirs of their share and did so expressly, his will is valid, even if it did not include any bequeathment provisions. See H.S. Theobald On Wills [24]:

 

A clause declaring that none of his next-of-kin shall take any part of his estate under his will or on his intestacy is nugatory and does not prevent them from taking on intestacy. But if the clause excludes one or some only of the next-of-kin, it operates as a gift by implication to the others of the share of those who are excluded. Id. at 801

 

In contrast, under the prevailing law in the United States, a disinheritance provision in a will has no force. Furthermore, the only way a testator can prevent his lawful heirs from receiving their share of his estate is by drafting a will which disposes of all his assets. From this it follows that an heir by law is entitled to take his or her share in those assets of the estate which the testator did not bequeath to another person. Even if the testator expressly directed in his will that he was disinheriting that heir from his or her right to inherit by law, his direction is not binding. The main reason for this approach is that disinheritance provisions in a will violate the right of the heirs to duly inherit the assets of the estate which the testator did not bequeath in his will. See J.A. Heaton, The Intestate Claims of Heirs Excluded by Will: Should ‘Negative Wills’ Be Enforced? [26] at 181.

 

12. Our law, like English law but unlike American law, recognizes the testator’s power not only to disinherit an heir by bequeathing his share to another heir, but also to expressly disinherit an heir. The difference between our law and the English law is the fact that our law does not recognize a “negative will” which contains only a disinheritance provision. A will, under our law, must include bequeathment provisions. The knowledge that the testator has heirs other than those who were disinherited does not fill the gap in such provisions. We should pay attention, however, to the clear distinction in American law recognizing a positive bequest in favor of one person but not recognizing a negative provision to disinherit another person. This distinction supports my approach. No intent to disinherit any of the heirs can be derived from a bequest in favor of one person only. I propound the following rule of interpretation: in the absence of an express disinheritance provision in his will, no intent can be attributed to a testator to disinherit his heir from everything; only an express term of disinheritance can override renunciation which operates in favor of the disinherited heir. Indeed, the testator is fully entitled to dispose of his estate as he sees fit, and he is entitled to deprive an heir by law of all or some of his or her share. However, if he failed to express in his will his intent to disinherit the heir, no such intent will be attributed to him. The guiding principle in the interpretation of wills is, indeed, the testator’s intent, and where no such intent can be presumed from the will, we must examine whether it can be implied by the circumstances. See section 54 of the Inheritance Law. However, we cannot use the circumstances of a will to presume that the testator intended to disinherit. Moreover, the normal rule is that the court will give no validity to the presumed wish of the testator. It will only recognize a wish that receives overt and clear expression in the will. Justice Or made this point:

 

By adopting this position, we are following the rule which guides us in matters of inheritance. I refer to the “commandment to carry out the wishes of a deceased”… This rule was this court’s guiding light when it wished to avoid undesirable consequences, in which procedural defects were liable to obstruct giving effect to the wish of the deceased. This rule does not mean that the court will create a will for a deceased person who did not do so himself, solely with the intent of giving expression to the presumed intent of the deceased … But where the deceased has made explicit provisions in his or her will, these should be executed wherever possible. Therefore, the exception set forth in CA 122/86 Shapir v. Clivensky [7], according to which a “negative will” which is purely disinheriting in essence does not constitute a will, must be construed narrowly, similar to the English law. Such an interpretation is also likely to lead to the conclusion that where there are negative disinheritance provisions as well as positive bequeathment and succession provisions, the entire will is valid. In that case, all provisions of the will must be complied with – both the inheritance and the disinheritance provisions. CA 449/88 Ofri v. Perlman [12] at 607/

 

To these words we can add that a will which contains a bequest to one heir, but does not contain an express provision to disinherit another heir, can attest at most to the presumed wish of the testator, a wish which has no significance.

 

            A Disinheritance Provision of a Will Overrides Any Silence in the Bequeathment Provisions and Any Renunciation by Beneficiaries

 

13. In wills containing a provision disinheriting one or more heirs by law, one of six typical scenarios is possible. I will mention these while at the same time pointing out what appears to me to be how the Court would rule in each of the first five scenarios. The sixth scenario is the only one which raises difficulty. I will therefore not reach the issue of the proper ruling in that case.

 

(a) The testator leaves the whole of his estate to named beneficiaries in his will. None of the beneficiaries renounces and none of the disinherited heirs contests the will’s validity. There is no doubt that this is a simple case: the court will validate the will and its provisions will be executed.

 

(b) At the request of an interested party, the court decides to invalidate the will or the disinheritance provision. This, too, is a straightforward case. If the entire will is invalidated, the estate will be distributed among the heirs-by-law according to their intestate shares. If only the disinheritance provision is invalidated, the disinherited heirs will be entitled to their intestate shares by law, to the extent the bequeathment provisions of the will enable it.

 

(c) The bequeathment provisions of the will do not dispose of all of the testator’s assets. Therefore, those assets about which the testator left no instructions will be distributed among his heirs by law, with the exception of the disinherited heir. This means that the disinheritance provision excludes the disinherited heir from the circle of heirs who can inherit assets not mentioned in the will.

 

(d) The bequeathment provisions of the will dispose of all the estate’s assets, but some of the beneficiaries renounce their share of the estate or their legacy under the will. In this case, the shares of the renouncing parties will be distributed among the heirs by law, with the exception of the disinherited heir. Renunciation in favor of the disinherited heir (if this is the testator’s spouse, child or sibling) is of no avail. The testator’s instruction to disinherit will prevail, and renunciation in his or her favor will be construed as a general renunciation, which operates only in favor of all the other heirs.

 

(e) Some of the bequeathment provisions in the will were invalidated by the court. As a result, once the valid bequeathment provisions are executed, the remainder of the estate will be distributed among the heirs by law, save for the disinherited heir.

 

(f) The will contains no bequeathment provisions, either because it was drafted in this manner ab initio, because all the bequeathment provisions were invalidated by the court, or because all the will’s beneficiaries gave notice of an undefined renunciation. In each of these cases, we appear to be dealing with a “negative will.” We have already seen that the difference between our law and English law is that even where the testator has heirs by law who are not the disinherited heirs, Israeli law does not recognize a will that does not contain bequeathment provisions. From this rule, it follows that in each of the aforesaid three types of cases, the validity of the will’s disinheritance provision will also be negated. I, personally, would reconsider this law, at least in relation to cases of the first and third types. For a case in which the court invalidates the bequeathment provisions of a will, there may be room to assume that, had the testator known that his bequeathment provisions were void, he would have refrained from making the disinheritance provision. However, this assumption is not valid for cases of the other two types. For cases of the first type: there is no dispute that if the testator instructed in his will that he was disinheriting one of his heirs and that his estate should therefore be distributed according to the laws of intestacy, his will would not be regarded as “negative,” even though the bequeathment provision did not add anything. If that is the case, what is the point of invalidating a will which from the outset contained only a disinheritance provision?

 

It can similarly be asked, for cases of the third type, why invalidate a disinheritance provision in a case in which all beneficiaries to whom the testator granted legacies in his will have renounced their shares? It is true that, under section 50 of the Inheritance Law, renunciation by a beneficiary, not in favor of the testator’s spouse, child, or sibling, results in the testamentary provision in his or her favor becoming void. Therefore, renunciation by all beneficiaries empties the will of all of the bequeathment provisions. However, as distinct from the other two types of case, in this case the will has become “negative” solely due to the renunciation by the beneficiaries. In this state of affairs, there is good reason, in my opinion, to validate the disinheritance provision. If we do so, the beneficiaries’ renunciation of their legacies under the will would result in the intestate distribution of the estate among the heirs by law, save for the disinherited heir. Even if the beneficiaries have renounced all their shares in the estate, the disinherited heir will not take; if there is no heir, the state inherits by law pursuant to section 17 of the Inheritance Law. It is doubtful whether such development is possible under English law, where the Crown is not recognized as an heir by law and the transfer to the Crown of an estate without heirs is done only bona vacantia. See I W.J. Williams, On Wills [25] at 479.

 

The above mentioned questions and further additional questions invited by the sixth scenario I shall leave for further examination. However, from the description of the first five cases which I discussed, I would like to propose a theory which I think should be adopted as a matter of law. I propose that a valid disinheritance provision in a will that has been probated should prevail over the silence of the bequeathment provisions in a will, and should be immune to the normal consequences of renunciation by the heirs. This implies that the disinheritance provision totally blocks the possibility of the disinherited heir returning to the circle of heirs.

 

From the General to the Specific

 

14. In the case at issue, the deceased made a will in which he excluded his wife and daughter from their share of the estate. Had the sons not renounced their legacies under the will, the two would indeed not have been entitled to take any part of the estate. But the sons’ renunciation returned their mother and sister, as well as themselves, to the circle of heirs [distributees – ed.] under the laws of intestacy. I agree that the sons’ renunciation was intended not just to benefit their mother and sister. It was also intended to circumvent the onerous condition imposed by their deceased father regarding their gifts, namely that they would receive their shares under the will only after their mother’s death. But the fact that the deceased included an onerous term in his will did not deprive his sons of the right to renounce their shares under the will. Earlier I concluded that in the absence of an express disinheritance provision in the will, there is no room to attribute to the deceased an intent to disinherit his wife and daughter, but rather merely to exclude them. In light of this conclusion, I see nothing untoward by the fact that the sons’ renunciation of their entitlements under the will returned their mother and sister, as well as themselves, to the circle of heirs by law. However, had the deceased included an express provision in his will to disinherit his wife and daughter, the sons’ renunciation would not have sufficed to return them to the circle of heirs by law. The deceased did not do this, and in my opinion there is no basis to assume that he would have done so, even had he known that his sons intended to renounce their shares under the will, with the aim of frustrating it. As I have attempted to explain, the disinheritance of an heir results in serious injury, not only material but also emotional and ethical, to the disinherited heir. It is not at all clear that a testator who decides to exclude any of his heirs would also be prepared to disinherit him.

 

15. The Deputy President considers that the sons’ renunciation should be invalidated on the basis of external laws, due to their use of the right of renunciation in bad faith and in circumstances that violate public policy. In my opinion, this thesis does not require resolution. However, beyond what is necessary, I would point out that in principle I find it difficult to adopt my colleague’s approach. It is quite true that Israeli case law has not recoiled from making use of the doctrine of good faith in the past, or the principle of the abuse of a right, in order to examine whether there is room to invalidate an heir’s renunciation of his or her share under a will. However, this has only been done in cases when it became clear that the use of the right of renunciation was intended to violate third party rights. In Sitin v. Sitin [3], President Shamgar describes circumstances in which the court will deem it appropriate to examine the validity of the renunciation in light of the motives of the renouncing heir. He stated as follows:

 

The motives of the renouncing party are not relevant to an examination of the validity of the renunciation in terms of the provisions of the Inheritance Law. However, where the renunciation is characterized by deception or intent to injure reliant parties, the court must conduct an in-depth examination of the circumstances of the act outside of the Inheritance Law, in order to ensure that the law does not give its blessing to the injury of said parties. The provisions of the law are not designed to provide cover for the applicant to infringe on the rights of the claimants against him. Such an act would be an abuse of legal rights and may therefore be annulled.

If we examine the language of section 6 of the Inheritance Law in light of this approach, we reach the following conclusion: [S]ection 6 only sets forth the procedures governing renunciation governing renunciation (an affidavit filed with the Court) and the circumstances in which this path may be trodden – as long as the estate has not been distributed (section 6(a)) and as long as the share of the renouncing heir has not been charged (section 7(a)). The section does not, however, outline circumstances, if any, in which the renunciation will be regarded, in terms of the substantive law, as an unjust violation of the rights of third parties held with respect to the heir.

Where the circumstances indicate that the rights of reliant parties risk being violated, the status of the heir who has elected to forgo his or her inheritance will then be examined within the framework of the relevant general laws – viz. the laws of bankruptcy, whether the debtor was declared bankrupt; the laws of contract; the laws of collateral; and even, in special cases, under the laws this court has established regarding joint ownership of property between spouses. Id. at 129-130.

 

My colleague, the Deputy President, wishes to extend the expansion of the said doctrine, in a manner that would invalidate a beneficiary’s renunciation of his or her legacy under a will, where such renunciation would traverse the wish of the testator. I personally am not convinced that such an expansion is feasible, if only because every renunciation by a beneficiary of his or her share under a will constitutes, in practice, a transgression of the testator’s wish. This would apply whether such renunciation is beneficial to the renouncing party or whether it only benefits other heirs. It seems to me, a priori, there should be recourse to a law external to the Inheritance Law only in those cases in which it is necessary to protect an interest which is itself entrenched in the external law, and where the inheritance laws themselves are unable to provide a response to the said interest.

 

16. For the above reasons, I conclude that the appeals should be denied.  

 

           

Justice J. Turkel

 

1. I concur in the opinion of the Deputy President, S. Levin, his reasoning and the verdict he rendered. I would just add one note to emphasize the reasons which I regard as important.

 

2. In approaching the adjudication of the disputes between the sons of the deceased and the estate executrices, I am cognizant of two factual assumptions:

 

(A) The deceased’s wish as expressed in his will was that his wife would not inherit him, only his sons.

 

(B) The sole objective of the sons’ renunciation of the legacy that was bequeathed to them under the deceased’s will was to reach a result, by resorting to guile, that would mean annulment of the will in its entirety, and in any event, annulment of the wishes of the deceased, as if they had never existed.

 

3. There would seem to be no clearer and more explicit expression of the deceased’s wish than the provision in his will: “my said sons shall receive their aforesaid share in my estate, only after the death of their mother… and under no circumstances before such time” (my emphasis – Y.T.). The well-known and accepted rule is that the wishes of the testator are to be respected. Therefore, the deceased’s wishes as expressed in his will should be respected and upheld.

 

In my eyes, the use of a contractual provision or a provision of law other than for the purpose for which it was intended falls within the bounds of a lack of good faith and abuse of a right. See my judgment in CA 8034/95 Maor – Petroleum Company Ltd. v. John [13] at 113. The same applies in the case at hand. The renunciations by the sons were not made in good faith, and they constitute an abuse of a provision of law. This is because they make use of the provisions of section 6 of the Inheritance Law not for the sake of an honest and genuine form of renunciation of their legacy under the will or of their share of the estate. The renunciations are a mere sham whose sole goal is, in effect, to annul the will, so that they can later come back and benefit from parts of the estate in a way that does not accord with the wishes of the deceased.

 

I think the approach of the greatest scholars of Jewish law to such stratagems can be deduced from the use they made of the meta-principle, “And you shall do that which is right and good,” in the context of a stratagem designed to circumvent the law regarding rights in neighboring property:

 

…[W]hoever wishes to cheat and to disregard the regulations of the Sages of the Talmud and to trick his associate – the Sages in their cunning trapped him and stood in his way in order to frustrate his evil designs. And we can learn one thing from another; for the Sages of the Talmud did not manage to cover every future manifestation that every new day brings, but those coming after them follow in their footsteps and liken one thing to another.

See Responsa Rosh, 78:3.

This approach is also appropriate for the issue in question, in which the sons attempt to make use of the provisions of section 6 of the Law in order “to cheat” [evade – ed.] the rule that the wishes of the testator must be obeyed. The doctrine of good faith – or the abuse of a right – under section 39 of the Contract Law (General Part) affords us with a tool “to thwart their counsel and to annul their evil thoughts.”

 

4. I would point out that my colleague, the Deputy President, held that the renunciations could also be invalidated by recourse to the principle of “public policy.” I doubt that this course is suitable in this matter. It is not easy to dismiss the claim that public policy considerations in fact support not cutting off a widow from her share of the estate.

 

5. Because my conclusions are primarily based on the special facts of the case at hand, I see no need to take a stance on the interesting discussion of the issues raised by my learned colleague, Justice Mazza, in his opinion. This discussion can be conducted when the time arises.

 

Decided, by a majority, according to the opinion of Justice S. Levin, against the dissenting opinion of Justice Mazza.

 

Under the circumstances, no party was ordered to bear costs.

 

May 16, 1999