Claimed about NIS 200 million - and is obligated to pay millions himself

The owner of the collapsed "Hansikah" hotel sued the Isrotel hotel chain and Bank Hapoalim on the grounds that they acted in bad faith towards him.

The lawsuit was for NIS 200 million, so why was he ordered to pay NIS 11 million?

Walla!

Of money

08/16/2022

Tuesday, August 16, 2022, 2:43 p.m

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Judge Ester Nahliali Hayat of the District Court in Tel Aviv today published the verdict in the lawsuit filed in December 2016 by the owners of the Princess Hotel against the Isrotel hotel chain and Bank Hapoalim, while sharply criticizing the copy claim for a total of 200 million shekels that was rejected for all its components , accepts the counterclaim filed by Yisrotel, and obligates the plaintiffs to pay expenses in the amount of NIS 1.15 million.

Isrotel will be represented in the proceedings by attorneys Hagi Ullman and Noa Solomon from Yehuda Rowa & Co. Bank Hapoalim will be represented by attorneys Alon Pomerantz and Omer Meiri from Lipa Meir & Co.

A 6 year lawsuit is over.

The Princess Hotel (photo: Walla! NEWS system, photo: Shashi Horesh)

Let's briefly mention the background for the copy claim: starting in 1992 and then until 2009 or so, the Princess Hotel in Eilat was considered one of the leading luxury hotels in Israel.

But then, the unique hotel that was promoted at the southern end of Eilat port near the coral reef, ran into real difficulties that did not allow its continued operation.

These circumstances required the owners of the hotel at the time, the Lexan Israel company and headed by the German businessman Alexander Tessler, who collapsed under the burden of debts of NIS 197 million, to take significant actions.

Under these circumstances, in 2011, Lexan entered into a contract with the Isrotel hotel company, in order to help it own, manage and operate the hotel, as well as in a deal with Bank Hapoalim to secure the required credit amounting to hundreds of millions of shekels, overcome the owner's liquidity difficulties and renovate the hotel which at that time was in very poor condition.

However, after the deal was signed, the Antitrust Commissioner (as he was called at the time) announced that it was a prohibited merger, and thus the deal that Lexen, Yisrotel and the workers were aiming for was effectively thwarted.

The aforementioned decision put Lexan in a tailspin that resulted in it not being able to repay the loans it took from Bank Hapoalim, and led to its entry into receivership proceedings in which the shareholders were forced to sell their holdings in the company and, as a result, the hotel as well.

"An attempt to lay an infrastructure to 'capture in the net'

A few years later, in 2016, the Larsen company and its head, Tesler, filed a copycat lawsuit against Isrotel and Bank Hapoalim, including claims for damages in the amount of more than NIS 200 million to the plaintiffs.

This damage was made up of NIS 135 million for the loss of the hotel's value at the time of the sale that had to be carried out in receivership;

NIS 50 million for the fees and interest the bank collected from Lexan and NIS 18 million for additional damages.

The main allegation in the statement of claim was for conduct in bad faith and the mixing of extraneous considerations on the part of Isrotel and the workers.

Thus, the lawsuit included an extensive description of 23 different cases regarding which the plaintiffs claimed bad faith, which led the judge to declare them as "an attempt to lay a foundation for as many claims as possible so that some of them will be 'caught in the net' and ripe for the decisive determinations that Lexen seeks to make."

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Merger prohibited?

The judge did not think so.

Bank Hapoalim (Photo: ShutterStock)

Among other things, it is claimed in the lawsuit that Bank Hapoalim preferred to open bankruptcy proceedings, in order to illegally collect fees and abnormal interest in the amount of approximately NIS 46 million, in a way that led to the collapse of the hotel.

This, despite the claim of the plaintiffs that the hotel could have been left as a going concern and transferred to one of the competitors of the Isrotel chain.

The lawsuit also claims that the Isrotel chain did everything to avoid responsibility, shifting the damage to Lexan and the shareholders, and that after the commissioner determined that it was an illegal merger, the Isrotel chain and Bank Hapoalim acted in coordination, leading the "Princess" hotel into receivership, a procedure that led to its collapse .

"The trust that Shisrotel and the bank placed in the plaintiffs has run out as a result of their own conduct"

Despite the fierce prosecution, at the end of the procedure that lasted 6 years and included 40 hearings and approximately 5,000 pages of protocol, not only did the judge reject the lawsuit in its entirety and accept all the claims of the workers and Vishrotel - but she also stated that she was under the impression that "exactly the opposite is true. I was under the impression that the plaintiffs, With their stubborn and even arrogant approach, they contributed a significant part to the unfortunate results of Lexan entering receivership proceedings, whether it was due to their unwillingness or their inability to be flexible and compromise with the circumstances that arose after the commissioner's intervention in the transaction."

The judge also determined that "the plaintiffs created extremely significant difficulties for the contractual partnership with Isrotel and their main creditor, Bank Hapoalim. The plaintiffs were unable to agree to various proposals that were put before them and it was their power to resolve the tangle that arose from the moment the supervisor's objection hovered over the transaction. The plaintiffs dug in by refusing to invest additional funds in the hotel , and corrupted him for a long time - and all this at a time when the trust that Shirtel and the bank had placed in them was dwindling as a result of their own conduct."

The judge fully accepted Yisrotel's claims that the supervisor's intervention undermined the original deal that was planned and agreed upon, and caused a substantial and fundamental change in the terms of the deal.

In the ruling, it was determined that the main purpose of the deal was economic and business, "in the sense that at the center of the deal was the operation of the Princess Hotel in Eilat and not the 'rescue' of Lexan."

Robert De Niro visits the Princess Hotel in the beautiful days (photo: Lexan Israel Company)

In her ruling, the judge described how Yisrotel, which enjoys great expertise in the hotel industry, recognized the great business opportunity in operating a hotel near the Taba crossing and close to the waters of the Gulf of Eilat, given Lexan's precarious financial situation.

This is the prism from which the entire contractual system concluded between Lexan and Yisrotel must be seen, the judge stated, clarifying that contrary to what was described in the lawsuit, "Yishrotel offered Lexan its financial strength and its connections with the banking system as a lifeline from drowning in the debts that Lexan was in. However, the lifeline given to Lexan was not delivered She has altruistic motives, but a legitimate desire to take advantage of an economic opportunity that was predicted to be worthwhile."

Under these circumstances, the judge determined, Isrotel's conduct was reasonable and even more so, and certainly not tainted by bad faith.

Moreover, the judge accepted the counterclaim filed by Yisrotel against Lexan and Tessler, which included, among other things, a demand to return the signing bonus in reduction of the equipment purchased by Yisrotel from Lexan, amounting to NIS 3 million;

and an amount of about 7 million shekels for a commitment to a minimal renovation to which Lexan committed, which was not carried out.

In this context, the judge determined that Lexan must return NIS 2.5 million for the signing bonus and an additional amount of NIS 6.8 million in anticipation damages - for a total of approximately NIS 9.4 million.

"The claim of bad faith is a hollow claim"

Also with regard to Bank Hapoalim, the judge determined that there is no trace of bad faith claims, and accepted the bank's main claim, according to which it acted in accordance with business judgment and agreed to enter into the transaction from the beginning on the condition that Shrotel would be the one to manage the chances and risks in the management of the hotel.

According to the judge, the bank's decisions "were in themselves reasonable and logical decisions that correspond to the changing circumstances of dynamic commercial life. I did not find a hint of arbitrariness, lack of thought or frivolity on the part of the bank. The opposite is true. From the abundant evidence attached it appears that the bank's decisions were made after thinking , conversation and exchange of things between the bank and Yisrotel and between the bank and Lexan."

To support this conclusion, the judge even stated that "the bank did not demand full repayment of the loan when it learned of the supervisor's objection, but allowed the hotel to operate under a trustee while carefully calculating risks. The plaintiffs' claim regarding the bank's lack of good faith and more is not clear, therefore. It is no longer clear what Lexen expected from the bank when, before his eyes, a loan transaction that was initially predicted to be distinctly safe due to the involvement of a reputable hotel company, turns at the whim of a supervisor's decision into a high-risk transaction that exposes the bank to the possibility of losing hundreds of millions of NIS? The

judge also stated that " It is not enough to repeat the phrase 'good faith' over and over again and try to find in it solutions to complex problems that arise in real life.

Lexan was expected to act actively to reduce the level of risk that was viewed from it as a liability;

But in the absence of Tesler's desire to pour funds from his own pocket into Lexan, and in the absence of willingness on Tesler's part to agree to various offers made by Yisrotel,

The judge ordered the plaintiffs to pay expenses in the amount of NIS 500,000 to Bank Hapoalim, and NIS 650,000 to Sherotel.

• Of money

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• The Princess Hotel