A party to the negotiations announced just four hours before the signing of an agreement to operate a gas station that it had not found partners and therefore withdrew from its intention to enter into the agreement. The gas supplier demanded compensation worth over 1.5 million NIS, since during the negotiations there was a clear understanding that the gas station would be operated by the operator alone and not through partners.
The court partially accepted the claim and ruled that the withdrawing party would compensate the fuel supplier for the costs of conducting the negotiations. In negotiations leading up to the conclusion of a contract, a person must act in an acceptable manner and in good faith. Breach of the duty to act in good faith in negotiations entitles the other party to compensation for damage, of any kind, caused by the breach. In a situation where the lack of good faith prevented the conclusion of a contract, the “damage” suffered by the other party is the loss of that contract and the loss of future profits. Here, the intended operator of the gas station negotiated in bad faith because he concealed from the fuel supplier that the issue of operation would arise or fall on the power to find partners and caused the negotiations to be fruitless. However, in this case, the drafts included a clause that explicitly stated that the agreement to be signed is not valid until it is first approved by the fuel supplier’s board of directors, and thus the agreement has not yet been formalized into a binding document, and therefore the fuel supplier is only entitled to reimbursement for the legal expenses of the negotiations and is not entitled to compensation for loss of future profits.
