Restrictive Arrangement in an Agreement May Possibly Lead to Nullification of the Entire Agreement

A significant judgment which deals with issues of restrictive arrangement has been given recently.

The district court nullified an agreement signed more than four decades ago, because the parties to the agreement set up a restrictive arrangement therein.

A Company named “Shar Fuels and Lubricants Ltd.” petitioned the District Court to nullify an agreement signed in 1973 between it and Sonol Israel Ltd. for the establishment and operation of a fuel station in Haifa.

According to the Statement of Claim, the Company petitioned the court to nullify the agreement on the grounds that the agreement is illegal, since it includes, inter alia, exclusivity stipulations and price fixing, which constitute restrictive arrangements pursuant to the Restrictive Trade Practices Law.

Sonol pleaded in its Statement of Defense that Shar had acted after lengthy delay and with mala fides, since it had operated for many years according the stipulated restrictions, which makes the arrangement legal. Sonol further pleaded that the agreement should not be voided, but rather only the restrictive stipulations.

In its judgment, the Court cited section 19 of the Contracts Law, which prescribes that, if it is possible to split the contract into sections, and the cause for nullification concerns only one of its sections, then it is permissible to nullify only that section.

Nevertheless, the court ruled that the entire agreement should be nullified, since it is not possible to isolate the restrictive clauses in the specific agreement between Shar and Sonol from the other clauses in the agreement, as they constitute a single unit.

This judgment constitutes a warning sign and adds sanctions that may be imposed on parties to a restrictive arrangement, by virtue of the Contracts Law, coupled with the ramifications of drawing up such an arrangement in violation of provisions of the Restrictive Trade Practices Law.