Attorney Gil Nadel, Gilad Paz
The bona fide principle is a central and important principle in Israeli contract laws. The contract law specifies the obligation for bona fide among the parties of the contract both during the negotiations before signing the contract as well as after entering the contract and throughout its implementation. A few months ago, this issue was raised in the District Court of Haifa, during a sitting regarding an appeal on the verdict of the Magistrates Court of that city. The District Court approved the verdict of the Magistrates Court, by determining that the "Babies" company will compensate the "Davron" company, and this as a result of "Babies" having sold to third parties the baby cribs that they had imported to Israel and had pledged to sell to "Davron".
In this case, the lack of bona fide on the part of "Babies" is not derived from the fact that "Babies" chose to simultaneously negotiate with "Davron" and with third parties on the sale of the cribs, but from the fact that "Babies" had negotiated the sale of the cribs with two parties simultaneously without divulging the double negotiation to these two parties. In other words, if "Babies" had made it clear that their negotiations for the sale of the cribs was in fact a sort of bid between the parties, then there would have been no reason to complain of a lack of bona fide on their part.
In this venture, "Babies" was given the task of importing the products and acquiring the relevant approvals, and "Davron" had the task of selling the products to the general public.
At a certain point, the venture failed due to damages discovered in the products, and the companies arrived at court.
The case:
"Babies" had agreed by contract to manufacture and import baby products from China for "Davron". These products included car seats and cribs.
In the contract it was determined that Davron would purchase products from Babies under the condition that these products would be approved by the Israeli Standards Institute. Babies was the party responsible for acquiring these approvals. Since Babies had no financial sources, it was agreed that Davron would pay an advance payment for the importation.
The first deal signed between the companies was for the importation of 1400 cribs. After receiving the advance payment, the CEO and owner of Babies declared that he was not willing to supply the cribs to Davron at the price they had agreed upon, nor was he willing to return the advance paid to the company, and he began negotiations with other companies on this matter. The cribs were confiscated by a receiver, at the request of Davron, but upon the bidding carried out by the receiver they were sold to "Goldie Hawn" and "Dr. Baby" instead of to Davron.
In the meantime, Babies had imported newborn car seats for Davron. Regarding these seats, Babies had committed to receiving approval for them from the Standards Institute, and had even promised to bear full responsibility should they fail to be approved.
In practice, Babies imported seats that were found to have faulty buckles/safety belts, after the seats had already been sold.
When these defects were discovered by the Standards Institute, the Institute gave the order to recall these seats, to collect these products from the public and to replace the faulty buckles with standard ones. Davron claims to have suffered heavy damages by the Standard Institutes recall.
The lawsuit was submitted in light of these incidents.
Verdict of the Magistrates Court:
The Magistrates Court accepted most of the lawsuit against Babies and its manager.
The Magistrates Court determined that the fact that Babies had conducted negotiations with third parties for the sale of the cribs that had been designated for Davron, this constituted a lack of bona fide, deserving of financial compensation. In addition, Babies and its manager were deemed as the responsible party for the failure to acquire the approval of the Standards Institute for the sale of the seats in Israel.
"Goldie Hawn" and "Dr. Baby" who had purchased the cribs were also held responsible for causing a breach of contract between Babies and Davron, because, according to the court, they were aware of the contract between the two sides, and yet they still negotiated with Babies and its manager for the purchase of the cribs.
Verdict of the District Court in the appeal that was given in the past few days:
Most of the parties appealed to the District Court, but the District Court deferred the appeal and determined that the conclusions of the Magistrates Court are correct.
In so doing, the Court determined that the evidence points to the fact that Babies and its manager failed to display bona fide when negotiating on the sale of the cribs with a number of parties, despite their promise to sell them to Davron. The appeals submitted by Goldie Hawn and Dr. Baby were also deferred and the Court determined that they had made a business deal with Babies while fully aware of its contract with Davron.
[Civil appeal (District Court of Haifa) 2801-06-11 Babies Harmony Ltd. and others vs. Davron Imports and Exports Ltd., verdict of January 5, 2012, panel of judges Schtemer, Bar-Ziv and Zrenkin. Party representatives- on behalf of Babies- Attorney Avi Eliov; on behalf of Davron- Attorney Yoav Bain].
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