Newsletter 47 – August 15 2013

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We are pleased to present another English-language edition of our firm newsletter.  In this edition we provide a brief synopsis of recent court decisions regarding “as is” provisions in a sales contract, shareholder right of first refusal provisions and the obligation of public companies to update previously-made voluntary disclosures.

The newsletter, which our firm publishes periodically, addresses important practical developments in the field of Israeli corporate and commercial law.  The objective of the newsletter is to create awareness of these developments and of the underlying principles of the issues discussed.  We hope that you will find the newsletter informative and helpful.  Any comments or suggestions are appreciated.  If you need further information or have any questions concerning the issues discussed in this newsletter, please contact either Yoram Shiv, 972-3-607-4777,, or Alex Berman, 972-3-607-4777,

You can view previous editions of our newsletter on our website:

Sharir, Shiv & Co., Law Offices

Supreme Court / “As Is” Provisions in Sale Contracts

The Israeli Supreme Court recently held that an “as is” provision in a sale contract was to be interpreted as an acceptance of all risks of the contract and a waiver of claims of mistake or error in the formation of the contract.

Two parties entered into an agreement for the sale of real property.  After the execution of the contract, the parties discovered that the property was the subject of a secret criminal investigation and that development plans for the property were now being frozen.  The purchasers attempted to cancel the contract on grounds of mutual mistake.  The purchasers argued that the “as is” clause in the contract did not mean that they must bear all risks associated with the property but only such risks that they had an ability to discover for themselves or to reasonably suspect at the time of the contract’s execution.

The Court held that by accepting the “as is” provision in the contract, the purchasers waived any claim of defect or unsuitability of purpose.  The Court noted that other provisions in the agreement demonstrated that the purchasers were aware that there was unknown information about the property and that they were waiving claims of hidden defects in consideration of a discounted purchase price.  The Court further observed that “as is” provisions are common in situations where the seller does not have any information advantage over the purchaser.  While an “as is” provision cannot be used by one party to intentionally mislead the other party, in the matter at hand, the Court found that both parties acted in good faith.

District Court – Commercial Division/ Shareholder Right of First Refusal Provision

The District Court, Commercial Division, recently held that shares in a private company were transferred in violation of the right of first refusal provisions of the company’s Articles of Association and fashioned a compromise remedy for the injured shareholder.

Between 2000 and 2007, several share sale transactions occurred between shareholders of a private company.  According to the company’s Articles of Association, the other shareholders (the “non-participating shareholders”) had a right of first refusal which allowed them, in their discretion, to either purchase all of the offered shares or a pro rata portion of the offered shares.  A non-participating shareholder first discovered such transactions in 2007 and petitioned the court – stating that, in violation of the company’s Articles of Association, he had not been informed of such transactions and had not been given an opportunity to purchase the shares.

The Court found that the transfers in question were subject to the right of first refusal contained in the Articles of Association (as existing shareholders were not defined as “permitted transferees” with respect to whom share transfers were excluded from the right of first refusal) and that as the non-participating shareholders were not given the required opportunity to purchase such shares at the time of the original transactions, the non-participating shareholders were entitled to purchase such shares now.

However, the Court noted that some of the transactions occurred more than 10 years in the past and that the company’s growth during such period was due to the efforts of the defendant shareholders and not the efforts of the non-participating shareholders, who had no role in the company’s progress.  Consequently, the Court held that it would be unjust to allow the non-participating shareholders to exercise in full the rights contained in the Articles of Association.   The Court referred to Section 4(3) – Contact Law- Remedies that provides that the remedy of enforcement is not available in circumstances where enforcement would be unjust.  The Court ruled that partial enforcement of a contract right is appropriate in circumstances where full enforcement is unjust.   Thus, the non-participating shareholders were granted the right to exercise the right of first refusal only to the extent of their pro rata holdings in the company (not for all of the transferred shares) and at the price of the original sale of shares, plus interest and linkage to changes in the consumer price index from the date of the original sale transaction until the date of actual payment of the purchase price by the non-participating shareholders.

District Court / Obligation of Public Company to Disclose Termination of Tender Offer 

The District Court recently held that while a company is not obligated to disclose an intention by a controlling shareholder to commence a tender offer, if the company did disclose such intention it is required to make a corrective disclosure once it knows that such tender offer will not be proceeding.

A public company issued an immediate report indicating that its controlling shareholder intended to commence a tender offer for all of the company’s outstanding shares.  No specific date was announced for the tender offer, but the notice stated that it will occur in the upcoming weeks.  After such announcement, in anticipation of the tender offer, the company’s share price rose.  Once it became known that the tender offer was not going to occur, the share price dropped, the company entered into bankruptcy proceedings and trading in its securities was halted.

The plaintiff’s claimed that they purchased shares based upon the company’s disclosure of the proposed tender offer and that the company was obligated to issue an immediate notice once it became aware that the tender offer was not going to occur and that the plaintiff’s suffered financial loss as a result of this failure by the company.   The company argued that as it was not legally required to announce the controlling shareholder’s intention to commence a tender offer; it was also not required to announce the controlling shareholder’s decision not to proceed with the tender offer.

The Court held that in a situation where a company voluntarily discloses to the public its expectation of a forward-looking event, once the company becomes aware that such event will not occur the Securities Laws require a corrective disclosure.  Failure to make such disclosure is misleading and company management that failed to take the necessary actions to avoid such conduct is personally liable to compensate the public shareholders that were damaged.  The Court limited the class of plaintiff’s entitled to recovery to those that purchased shares between the period when the misleading conduct occurred and the period when the undisclosed information became available in the market.

This newsletter provides general information and should not be used or taken as legal advice for specific situations, which depends on the evaluation of precise factual circumstances.