"Force majeure" in Israel. Don't count on it

Gaza operation
Gaza operation

Adv. Benjamin Leventhal warns that Israeli courts see acts of war as something a contracting party should take into account.

In many western and modern countries worldwide, people and lawyers are well familiar with the common force majeure doctrine, basically meaning a contractual protection/disclaimer for non-performance of a contractual obligation due to unexpected occurrences beyond the control of contracting parties.

Said doctrine usually applies also to instances of acts of war; military acts of foreign enemies; hostilities (whether war is declared or not); terrorist activities and more, and in many cases a party invoking said argument (assuming fulfillment of common conditions), will indeed be entitled to protection from breach of contractual obligations.

In Israel, however, while based on the similar principals of law (a rather interesting combination of common law and civil code), the doctrine applies rather differently, and is very limited in providing force majeure protection in cases of acts of war, terrorism, militant hostilities etc., if at all.

As a legal guideline - contracting parties regarding an Israeli related matter or party, be it in the field of import or export, construction, goods or services etc. would NOT be able in many cases to use the argument of force majeure based on act of war or terrorist activity to justify noncompliance or nonperformance of a contractual obligation - this is because in Israel, the courts perceive the foreseeability of acts of war as something a contracting party must or should take into consideration when doing Israeli related business.

This approach originated in the 1970's, where the courts held that until Israel reaches the peace longed for with its neighbors, the risk of war at any designated time, close or remote, always exist, and the unpredictability of peace and war is actually the predictable for any Israeli (that should always predict a possible state of war) and this undermines according to the case law, the argument of failure to preform due to "force majeure" in such respect.

Thus, in general, inability to perform a construction contract for instance, and not deliver the building on a contractual designated timetable did not enable the breaching party to avoid the consequence of the breach of contractual obligations. This was also the case or in other examples like drastic changes in value of goods, due to the war which did not enable remedy.

This concept of law, and binding precedent, was indeed criticized along the years, calling for the need to differentiate between kinds of militant hostilities, and also to better balance between contract obstruction and the kinds of military conflict involved.

In this respect, there were also judgments which held that the party insisting on the compensation or penalty for the breach, despite the state of war, is pursuing remedy in bad faith, and thus not entitled for such remedy, and in other cases, courts held that limited reimbursement for out of pocket expenses were in place as remedy, but these were cases with very specific circumstances and hardly reflect the main direction of the case law.

For instance in a case where the parties entered a contract for supply of goods by ship transport during militia hostilities in 2006 (even when yet to be declared formally as a war - which was declared eventually as "The second Lebanese War"), the court held that war is not " force majeure" and is indeed an expected possible occurrence in Israel, and therefore a supplying party should have taken into account that it might not be able to deliver on time in such case and the Second Lebanese War cannot provide a justification for the delay (especially when the parties knew of the ongoing hostilities) -and the purchaser was awarded compensation for the late supply.

Nevertheless, there seems to be a slight movement in the case law toward applying a more somewhat liberal approach under which, specific circumstances and facts may have a key role in the outcome of each case, and might have great impact while applying the force majeure doctrine.

Indeed, in a Tel Aviv district court case, despite the existing binding precedent of the Supreme Court, the court held that the fact that investors from Switzerland did not transfer funds for the contractual investment, due to the Second Lebanese War, qualifies as a legitimate justification, a-la force majeure, for the non-performance and the breach did not entitle compensation.

In another case the Jerusalem District Court held that even though the parties to a construction contract, have foreseen the "Intifada" (militant riots), and the contracting party undertook to be responsible for any delay or damage caused by said riots, court held - rather radically - that a contracting party cannot be expected to foresee all possible occurrences and magnitude of such, and therefor declared contracts canceled only with mutual reimbursement. Part of the reasoning was that the parties should not be obligated to expect an outbreak of war or riots that will totally diminish the ability to execute the contract, and are only to expect reasonable implications the war/riots might actually have on the contractual relations. However, it is greatly questionable if such judgment can be deemed as reflecting the main stream of the case law.

Indeed Israel is mostly a rather peaceful state, and functions like any other western nation, economically, politically etc. however, unfortunately, every now and then some kind of hostility occurs, such as last year's attacks from Gaza including missiles launched into Israel, which led Operation Protective edge, and courts have held and still hold an approach that they cannot sustain a situation where every security unrest will allow to dispose contractual obligations.

Thus, in Israel, which unfortunately faces terrorism and militant hostilities every now and then, it is extremely important to be aware of the somewhat different status of the "force majeure" doctrine.

It is important to know how to refer specifically to this possibility and to what would be the consequences of any delay or obstruction of the contractual obligations in such case. In other words, especially in Israel, control the unknown rather than have the unknown control you and lead you.

Furthermore, if encountered a situation in which there was failure of any kind to perform, and it is claimed that it was due to Operation Protective Edge, or any other militant occurrences, it is advisable to analyze the foundations of such argument thoroughly.

If you are a party harmed from a contractual breach, it is not necessarily the breaching party would be entitled to raise the "force majeure" defense, and perhaps remedy is in place.

On the other hand if you are the breaching party it is important to align the "force majeure" argument with the case law in order to achieve protection from claims of remedy etc.

The author is Litigation Partner at Gideon Fisher & Co. in Tel Aviv.

Published by Globes [online], Israel business news - www.globes-online.com - on July 29, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Gaza operation
Gaza operation
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018