Personal liability of a shareholder in a contracting company that carried out renovations
Apr 4, 2023
From: Attorney Shlomi Hadar - John Geva, Hadar & Co. - Lawyers and Mediators
introduction
The court recently ruled on a lawsuit brought by representatives of a condominium and owners of rights in the apartments therein, against a contracting company and its shareholder, in which they claimed compensation for damages caused as a result of a breach of an agreement to perform renovation work .
The parties disagreed on three issues:
1. The amount of compensation that the defendant must be required to pay to the plaintiffs for the purpose of repairing the construction defects for which it is responsible.
2. The amount of compensation that should be awarded to the plaintiffs for non-pecuniary damage (mental distress).
3. The issue of the defendant's (shareholder in the defendant) personal liability for the defendant's debt.
From: Attorney Shlomi Hadar - John Geva, Hadar & Co. - Lawyers and Mediators
introduction
The court recently ruled on a lawsuit brought by representatives of a condominium and owners of rights in the apartments therein, against a contracting company and its shareholder, in which they claimed compensation for damages caused as a result of a breach of an agreement to perform renovation work .
The parties disagreed on three issues:
1. The amount of compensation that the defendant must be required to pay to the plaintiffs for the purpose of repairing the construction defects for which it is responsible.
2. The amount of compensation that should be awarded to the plaintiffs for non-pecuniary damage (mental distress).
3. The issue of the defendant's (shareholder in the defendant) personal liability for the defendant's debt.
The parties' claims
The statement of claim
1. The plaintiffs are representatives of a condominium and owners of rights in the apartments in the building. They entered into an agreement with the defendant, a company that performs building contracting work (hereinafter also: " the contractor "), in which it undertook to carry out renovation and preservation work on the facade of the building. The defendant is the sole shareholder and sole manager of the defendant.
2. The plaintiffs claim that a short period after the work was performed, it became clear to them that some of it was not completed and some was performed negligently. They claim that the defendant did not even perform the work it had undertaken to perform in the agreement.
3. The plaintiffs contacted the defendant with a demand to repair the defects, but their requests were not answered. They hired a structural engineer who prepared an opinion regarding the defects, following which the defendant repaired their part, only cosmetically. After the first round of repairs, another opinion was prepared for the plaintiffs, according to which additional defects remained, which the defendant did not agree to repair.
4. It is also alleged that the defendant did not transfer to the plaintiffs a test guarantee as agreed between the parties, which constitutes a violation in itself.
5. According to the plaintiffs, the defendant is personally liable for the defendant's actions, either by virtue of the doctrine of lifting the veil or by virtue of the tort of negligence. It is claimed that the defendant is a void company, and it will not be possible to recover compensation from it if a judgment is given against it. The plaintiffs claim that the defendants breached the agreement by performing the work in a defective manner, contrary to their obligations, and that they are also liable by virtue of the law of torts.
The defense
1. The defendants claimed that they carried out the work according to the agreement under the supervision of a project manager, and that approval was given by the relevant municipality's conservation team for the completion of the work.
2. It is alleged that towards the completion of the work, the plaintiffs began renovating the third floor of the building, and it was this construction that caused some of the damage. It is further alleged that after the completion of the work, a truck hit the wall of the building in a way that caused damage and compromised its stability, and that it caused the defendants' damages.
3. As for the grounds for the defendant's personal liability, it is argued that the defendant is not an empty company, but rather a company that carries out projects worth tens of millions of shekels, and that there is no reason to lift the curtain or personally charge the defendant.
The course of the litigation
4. Initially, the parties reached a settlement agreement, which had the force of a decision. The parties began to act in accordance with the settlement agreement, according to which they were to authorize an expert to provide an opinion on the questions underlying the dispute between the parties, and this expert provided an initial opinion.
5. The plaintiffs attempted to coordinate with the defendants a date for the work to be performed, but the defendants "dragged their feet" and on this basis the plaintiffs petitioned to cancel the settlement agreement.
6. The expert then gave a supplementary opinion after the work was completed and determined that there remained defects that were the responsibility of the defendant.
7. The court's attempts to resolve the dispute through negotiation or compromise were unsuccessful, and therefore, it was necessary to issue a ruling on the issues in dispute.
The statement of claim
1. The plaintiffs are representatives of a condominium and owners of rights in the apartments in the building. They entered into an agreement with the defendant, a company that performs building contracting work (hereinafter also:
2. The plaintiffs claim that a short period after the work was performed, it became clear to them that some of it was not completed and some was performed negligently. They claim that the defendant did not even perform the work it had undertaken to perform in the agreement.
3. The plaintiffs contacted the defendant with a demand to repair the defects, but their requests were not answered. They hired a structural engineer who prepared an opinion regarding the defects, following which the defendant repaired their part, only cosmetically. After the first round of repairs, another opinion was prepared for the plaintiffs, according to which additional defects remained, which the defendant did not agree to repair.
4. It is also alleged that the defendant did not transfer to the plaintiffs a test guarantee as agreed between the parties, which constitutes a violation in itself.
5. According to the plaintiffs, the defendant is personally liable for the defendant's actions, either by virtue of the doctrine of lifting the veil or by virtue of the tort of negligence. It is claimed that the defendant is a void company, and it will not be possible to recover compensation from it if a judgment is given against it. The plaintiffs claim that the defendants breached the agreement by performing the work in a defective manner, contrary to their obligations, and that they are also liable by virtue of the law of torts.
The defense
1. The defendants claimed that they carried out the work according to the agreement under the supervision of a project manager, and that approval was given by the relevant municipality's conservation team for the completion of the work.
2. It is alleged that towards the completion of the work, the plaintiffs began renovating the third floor of the building, and it was this construction that caused some of the damage. It is further alleged that after the completion of the work, a truck hit the wall of the building in a way that caused damage and compromised its stability, and that it caused the defendants' damages.
3. As for the grounds for the defendant's personal liability, it is argued that the defendant is not an empty company, but rather a company that carries out projects worth tens of millions of shekels, and that there is no reason to lift the curtain or personally charge the defendant.
The course of the litigation
4. Initially, the parties reached a settlement agreement, which had the force of a decision. The parties began to act in accordance with the settlement agreement, according to which they were to authorize an expert to provide an opinion on the questions underlying the dispute between the parties, and this expert provided an initial opinion.
5. The plaintiffs attempted to coordinate with the defendants a date for the work to be performed, but the defendants "dragged their feet" and on this basis the plaintiffs petitioned to cancel the settlement agreement.
6. The expert then gave a supplementary opinion after the work was completed and determined that there remained defects that were the responsibility of the defendant.
7. The court's attempts to resolve the dispute through negotiation or compromise were unsuccessful, and therefore, it was necessary to issue a ruling on the issues in dispute.
First dispute: Compensation for construction defects
1. In accordance with the trial arrangement, an agreed expert was appointed, who had the same status as an expert appointed by the court, and it was determined that his findings should not be deviated from within the framework of his opinion as long as they were based on reasonable and logical reasoning within his field of expertise and were not obscured by clear findings that the expert contradicted and could not explain.
2. Therefore, the court determined that there was no reason to deviate from its findings according to the prevailing standard, and found it appropriate to uphold it, and therefore it was decided that the plaintiffs are entitled to compensation for the cost of the repairs for which the expert found the defendant responsible.
Second dispute: compensation for non-pecuniary damage
3. The court held, mainly in light of the defendant's conduct over the years, that the scales were tilted in favor of compensation on the high side, and not necessarily due to the severity of the defects and their impact on the plaintiffs' lifestyle.
4. Thus, it was determined that the defendant's conduct before and during the litigation raises difficulties and tilts the scales to increase the amount. The plaintiffs invested considerable efforts to resolve the dispute amicably and without legal proceedings. To this end, they presented the defendant with two opinions on their behalf, but the defendant did not show a willingness to reach an agreed solution. The litigation dragged on for a long time, about six years, and in itself burdened the plaintiffs, whose dissatisfaction, justified, was evident in the eyes of the judge .
5. Against this background, the court found that the plaintiffs are entitled to compensation for non-pecuniary damage that gives due weight to the defendant's conduct throughout the litigation, conduct that expresses an unwillingness to correct the deficiencies as required despite an obligation to do so, a blatant violation of the trial arrangement, and the unnecessary prolongation of the proceedings, all of which increased the mental anguish.
Third dispute: Is there a case for personally holding the defendant liable for the compensation that the defendant was ordered to pay?
6. In its opening remarks, the court emphasized that one of the fundamental principles on which corporate law is founded is that "a company is a legal entity capable of every right, obligation and action consistent with its character and nature as an incorporated body," and this separately from its shareholders.
7. Lifting the veil is a legal remedy (remedy) designed to address cases where the separate legal personality of the company is misused to evade personal liability.
8. The court ruled that the plaintiff's claim that the defendant has no activity or assets should be accepted, and that this initial evidentiary foundation is sufficient to shift the burden of bringing evidence to contradict it to the defendant's shoulders, and on the other hand, that the defendant did not bring a shred of evidence to contradict this factual foundation.
9. Based on the above, the court determined that the defendant is the sole shareholder and director of the defendant. As such, all decisions and actions taken on behalf of the defendant were made under his direct or indirect direction, and he made all decisions for the defendant.
Discussion and decision
Judgment
The court ruled that the defendant should be held personally liable for negligence and therefore must compensate the plaintiffs for the full damage as ruled above, including the non-pecuniary damage. It is to be assumed that the result would have been different if the defendant had acted differently in that case and had addressed the representative's inquiries in a matter-of-fact manner in real time and not led to the continuation of the procedure, showing that decisions are not always based on rulings and the seriousness of the matter, but rather on the manner of conduct.
The court ruled that the defendant should be held personally liable for negligence and therefore must compensate the plaintiffs for the full damage as ruled above, including the non-pecuniary damage. It is to be assumed that the result would have been different if the defendant had acted differently in that case and had addressed the representative's inquiries in a matter-of-fact manner in real time and not led to the continuation of the procedure, showing that decisions are not always based on rulings and the seriousness of the matter, but rather on the manner of conduct.
מסמכים
