District Court Judge Requires Plaintiff Suing Patent Attorney for Failing to Pay Issue Fees on his Behalf, to Post Bond of 50,000 NIS to Cover Defendant’s Costs

Joshua Fischler has sued G.A. Ehrlich ltd (Ehrlich & Fenster Patent Attorneys – henceforth Ehrlich) for failing to pay the issue fee of an Australian Patent, thereby allegedly causing them damage of 21,000,000 Shekels.

For the sake of the court fee, Fischler sued for 5,000,000 Shekels.

Judge Michal Amit Amisman of the Tel Aviv District Court was asked by Ehrlich to order that Yehushua Fischler deposit a bond under Regulation 529 of the Civil Court Regulations 1984.

The plaintiff (Fischler) has sued the defendant (Ehrlich) claiming damages of 5,000,000 Shekels that were caused by breach of contract.

In 2010, Fischler, as owner of 99% of the shares in Koron Industries ltd, approached G.A. Ehrlich  to manage the registration of a patent in a number of jurisdictions, including Australia.

Erhlich could only make a very approximate estimation of the costs for this service since they could not tell in advance how many actions would be required in each of the various jurisdictions, and Fischler was also informed that the estimate did not include the various official fees. Consequently, from time to time, Fischler made various additional payments at Ehrlich’s request.

Fischler claimed that at the end of 2013, he suspected that he was paying additional sums that were not required, and so requested a breakdown of what had been paid for which application, and what additional charges could be expected. However, he did not receive the requested breakdown. Fischler claimed that this led to an agreement between the parties, that he would pay 8962 Shekels in cash, and the balance of the claimed debt of 41,109 Shekels would be checked. He gave a security cheque for this sum, that was post-dated six months.

Fischler claimed that this security cheque was not intended to be banked, but was banked anyway, was not honoured, and a district court proceedings was initiated (number 38702-10-15) that was subsequently combined with this case.

The present case was submitted after the case regarding the security cheque was filed, and it relates to failure to register the patent in Australia.

According to Ehrlich, on 7 August 2014, they informed Fischler that the Australian patent had been allowed and that they had to pay 2100 Shekels + VAT + 635 Australian dollars in official fees and local agent’s fees by 7 November 2014.

Fischler alleges that Ehrlich made their acceptance of the Australian issue fees conditional on Fischler settling the open debt, including that relating to the registration in other jurisdictions that he’d asked them to check.

In consequence of this, the fee was not paid to the Australian Patent Office and the period for registration lapsed. Fischler claims that Ehrlich broke the contract between the parties, and should have allowed the client to pay the issue fees directly or via his credit card (whose number Ehrlich had) and not allowed the patent to be canceled.

Fischler is relying on two opinions. The first states that the patent was relevant and economical for use in Australia, and the second opinion, that failure to register the patent in Australia had resulted in losses of 21 million shekels. However, for the sake of limiting the court fee, he was only claiming damages of 5 million Shekels.

Ehrlich counter-claimed that the effect of this lawsuit was that the plaintiff was asking the court to establish an absurd norm under which a client could make it absolutely clear, after warnings, that he had no intention of paying the requested service charges and official fees, and the service provider would have to bear the burden of paying the costs, instead of the client, to save him from the trouble he’d brought upon himself.

Ehrlich claimed that there was no disagreement that he’d informed the client regarding allowance of the patent in Australia, and to ensure that the patent would issue, he had to pay both local and Australian agent fees and the official issue fees. Similarly, there was no disagreement that Ehrlich had reminded him of the timeline and the fees, and that if the client failed to pay the fee, the application would lapse. It was explained to the client that unless he transferred the money by 7 November 2014, the application would lapse. In their final correspondence, he had informed the client that failure to transfer funds would result in him taking no further action and the application would lapse.

Nevertheless, the client, despite knowing the deadline and the result of not paying, chose not to transfer the required payment and so the issue fees were not paid and the patent lapsed.

Ehrlich claimed that there is no legal obligation for him to pay fees on behalf of a client, and at the time in question, the client owed tens of thousands of shekels, and a cheque that was supposed to cover the debt had not been honoured by the bank. Ehrlich claimed, and considered that the client concurred, that there was no agreement that he would provide  services for free and to pay fees on client’s behalf from his own pocket. He noted that the agreement with the client was that all actions required advanced payment and he was acting in accordance with this agreement.

Ehrlich further noted that the client in this instance was actually Koron and not Fischler himself. Thus even if there was some basis for the charges (which Ehrlich denies), then Fischler has no legal standing but Koron does. Ehrlich has no disagreement with Fischler and this alone is sufficient justification to throw the case out.

Finally, Ehrlich denies making payment of the Australian issue fee conditional on settling the accumulated debt for other legal services. Had Fischler paid for the issuance in Australia, he would have paid the issue fees, regardless of the open debt.

The claims of the parties

The Defendant (Ehrlich) claimed that there is room to require the Plaintiff (Fischler) to deposit a bond to ensure that should he lose, that Ehrlich’s costs be met, since the allegations are ridiculous (in Ehrlich’s opinion) and lack a legal foundation, and so should be simply thrown out.

Ehrlich considers it would be wrong to establish a legal norm wherein when a client makes it clear to a service provided that he will not pay fees and service charges and is warned of the consequences, that the service provider (in this instance, a patent attorney) should be obliged to cover costs himself, and there is no normative source that can serve as a basis for the charges brought.

Ehrlich further claims that the post-dated cheque given to him was not a conditional cheque that should not have been deposited, and it bounced due to insufficient funds in the account, and not because the client had given an order not to honour it. This is indicative of economic difficulties of the client.

Fischler claims to own two real estate properties; one in Shoham and one in Givatayim, owned together with his wife, and failure to cover the cheque was due to a legitimate business disagreement between the parties.

Fischler counter-claims in an affidavit, that the registration of the patents was supposed to be done in his name, and so he himself filed the suit. Fischler further claims that Ehrlich could have used Fischler’s credit-card to pay the official fee, and failure to pay the fee was negligence on the part of Ehrlich.

Ehrlich pointed out that Fischler did not provide documentary evidence for the real-estate that he claimed to own, and reiterated that he was under no legal obligation to pay the fee on behalf of the client, he did not have the client’s credit card details and was anyway forbidden by law to use the client’s credit card without permission.

The Normative Framework

Ehrlich is relying on regulation 519 that requires the plaintiff to post a bond to guarantee funds to cover the defendant’s expenses.

A bond to cover costs

(a) The court or the registrar, can, if deemed appropriate to do so, order the plaintiff to post a bond to cover the costs of the defendant.

The rationale of Regulation 519(a) is to prevent frivolous lawsuits and to ensure that the defendant’s costs will be covered in cases where the likelihood of the defendant prevailing are deemed weak. The case-law establishes that the judge should seek a balance between the rights of the defendant to have his costs covered, and the right of the plaintiff to have access to the courts, such that the bond should not be set too high to cause a difficulty for the plaintiff to sue. See Appeal 5488/16 Netanel vs. Rishan Buiding and Investments ltd, 17 July 2016, Appeal 8575 Hamad vs. Elvatin ltd., 30 December 2015, Appeal 2142/13 Naamat vs. Kramin, 13 November 2013, Appeal 5738/13 Amu Saluk vs. The General Health Service 14 November 2014, and 2142/13 Abraham vs. Jaegerman, 16 January 2013:

We are dealing with a regulation that invites a meeting and clash between important values. On one hand, the request to post a bond can block access to the courts before a plaintiff with few resources, and can seal his fate before he has his day in court. This conceals a real damage to the right to a trial to someone, merely because of poverty. On the other hand, the purpose of the bond is to prevent baseless charges being brought, and to ensure that if they are brought, the defendant can recuperate his costs should he prevail.

In setting this balance, the Case-Law establishes that posting a bond under Section 519 is a rare occurrence and is done only in extreme circumstances, since one should not require the plaintiff to post a bond merely as an aggressive strategy, and it is noted that there is a ‘balance of powers’ between his chance of winning in the proceeding, between the plaintiff’s ability and the right to use the courts, as a normative activity. (see Plony vs. Plony, paragraph 9, 18 February 2016).

When the court comes to rule on whether a bond is appropriate, it has to consider four issues, which the Supreme Court has divided into two groups: The first is where the plaintiff is a foreign entity and where there is no update address of record, and the second is where there is only a slight chance of the plaintiff prevailing, and where the plaintiff is in financial straits.

The two issues relevant in this instance are that the chances of prevailing and financial state of the plaintiff.

As to the chance of prevailing being slight, in re Naamat it was established that “in light of this request, the court has to consider the a priori likelihood of prevailing at a relatively early stage of the proceeding, but is not expected to make a detailed analysis. It is also stated that this consideration alone is insufficient to require a bond to be posted unless the case looks to be totally baseless.  In such cases, it is ruled that “The defendant’s interest not to be distracted by the proceeding and the public interest that the court’s time is not wasted prevails. However, it is also important to ensure that the right of access to the courts is not limited, except in exceptional cases.”

As to the financial condition of the plaintiff, in re Naamat it was established that this consideration is problematic. Particularly as the sole consideration, and even as one of the considerations. Where we are dealing with a plaintiff who is in a poor financial state, one is particularly worried that he may not be able to compensate the defendant for his expenses at the end of the proceeding. Despite this, the court has ruled more than once, that one doesn’t require the plaintiff to deposit a bond merely as a deterrent (see Appeal 544/89 Oykel Industries (1985) ltd vs. Nili Metal Works ltd, p.d. 650, and the Jaegerman case mentioned above). Furthermore, where we are dealing with a party who is resident in Israel, his financial condition does not have to be considered when weighing up whether he should hae to post a bond. The approach is that where a plaintiff is based in Israel, even where the financial state is poor, he is considered an economically viable entity that can be collected from over time (see Abu Keva above). In Judge Amit’s opinion, this approach requires the court to be very careful before ordering a bond be posted. The gates of the court should be open to all litigators, poor or rich, destitute or financially solid, and we cannot allow a situation where it appears that justice is the inheritance of the financially well off.

From the case-law taken together, it appears that requirement for a bond to be posted should reflect the balance between the right of access to the courts of the plaintiff and the property right of the defendant to be protected from baseless law-suits.

Applying the principles to the case in question

Having expressed her preliminary opinion regarding the merits of the case, the defendant’s comments and the plaintiff’s response, and to the law and case-law, Judge Amit doesn’t think that the plaintiff will prevail.

As to the likelihood of the plaintiff winning, Judge Amit Amisman first notes that case-law establishes an interest to avoid frivolous law-suits, and this is not only an interest of the defendant (which should not be sneezed at) but also of the public in that court resources are limited and expensive and should be available for handling significant issues. This itself is part of the importance of ensuring access to the courts (see re Halid, above).

In this instance, the court is not sure that the complaint can fairly be labeled a “completely groundless proceeding”. However, one cannot ignore the defendant’s points regarding the chances of the plaintiff prevailing, notably the lack of legal grounds for claiming that a service provider is obliged to pay fees on behalf of the client. Furthermore, there is no disagreement that the parties had agreed that the fees should be borne by the client, and the plaintiff had received warnings from the defendant that failure to pay the fee would result in the application becoming abandoned (see emails from 20 October and 3 November 2014).

As to the financial standing of the plaintiff, it seems to the judge that lack of cover for the cheque is sufficient grounds to establish a doubt that the plaintiff will pay defendant’s costs if he loses. True, the defendant provided documentation that claimed that he owned real estate, but there were no land registry certificates that proved that the properties were indeed his; are these properties co-owned with his spouse, or are they being used as securities or is there a lien on them? The plaintiff did not submit a valuation of the properties or any indication of his personal wealth.

The defendant has only asked for 53,807 Shekels in the parallel law suit regarding unpaid bills, and this also supports the judge’s decision to accept the request for a bond to be posted.

In this instance, the defendant has stated that should he be required to pay costs, he will do so without trying to wriggle out of them. If so, the defendant has the financial wherewithal to post a bond or to pay the defendant’s costs, and so access to the court will not be denied.

In light of the above, Judge Amit Amisman comes to the conclusion that in this instance, the balance of interests leads to requiring a bond to be placed.

Size of the Bond

When balancing all the interests and those pertinent to the case in question; plaintiff’s right of access to the court, the judge’s preliminary assessment of the case and the right of the defendant to be compensated if the case fails, with a rough estimate of the cost of mounting a defense, the size of the outstanding debt due to the bounced cheque, Judge Amit saw fit for the plaintiff to post a bond of 50,000 NIS, to cover at least part of the defendant’s anticipated costs.

Conclusion

The plaintiff will deposit a bond of 50,000 NIS (cash or index-linked bank guarantee) as guarantee to pay costs should he lose.

IF the bond is not timely paid, the case will be dismissed under regulation 519b.

As an afterword to this decision, but not to the case, the judge considers that the parties should try arbitration to try to bridge the gap between them, outside the court. The parties will respond to this suggestion by 7th July 2018.

Interim ruling by Judge Michal Amit Amisman regarding posting of a bond in Civil Case 13934-07-17 Fishler vs. G.A. Ehrlich (1995) ltd, and Civil Case 38720-10-15 G.A.Ehrlich vs. Fischler, 23 May 2018.

COMMENT

Following this ruling, Fischler requested that Judge Amit Amisman recuse herself as having preconceptions that made it impossible for her to judge the case fairly, and then appealed both the size of the bond and the request that she recuse herself to the Supreme Court.

I will translate and post the appeals. As it is ongoing, I will not comment on the merits of the case at this stage.

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