The Duty to Act in Good Faith in Israeli Private and Public Procurement Proceedings

ד"ר אורן שבת
Photographer:E. David

Dr. Oren Shabat, Feb 8th, 2018

In a recent appearance in Tel-Aviv, before a large group of procurement officials from both the public and private sectors, I chose to talk about the legal duty to act in good faith in the Israeli legal system. The reason for this subject matter choice was, that a sound familiarity with the duty to act in good faith, may well convey to the audience a more comprehensive understanding of the underlying norms applying to public and private procurement proceedings.

The statutory foundation of the duty to act in good faith in Israeli Law is embedded in Articles 12 and 39 of the Contracts (General Part) Law, 5733-1979 (hereinafter: The Contracts Law). Article 12(a) to the Contracts Law stipulates, that "within negotiations toward the signing of a contract, a person must act… in good faith.". Article 61 of the Contracts Law applies the provisions of the aforesaid Articles, also to non-contractual legal dealings, and to legal duties not stemming from legal agreements.

In his rulings, former President of the Supreme Court, Judge Aharon Barak, has labelled the duty to act good faith as "royal" doctrine and "the soul" of Israeli legal system.

Throughout the years, the duty to act in good faith has been applied by the Israeli Supreme Court over a variety of non-contractual legal dealings. The duty to act in good faith has been applied, inter alia, to public as well as private procurement proceedings. The duty to act in good faith has also been applied to public authorities' dealings; it has even been ruled that public authorities are subject to an increased duty to act in good faith.

In the public procurement law setting, a breach of the duty to act in good faith by the procuring authority may entitle the aggrieved party to injunctive orders or damages (including damages for loss of profits). Nevertheless, only in very few cases have Israeli courts awarded disappointed bidders with damages for loss of profits, based on a breach of the duty to act in good faith in public procurement proceedings.

For an further reading on the damages remedy in Israeli public procurement law please refer to an article which I co-authored with Prof. Arie Reich from Bar-Ilan University (P.P.L.R., volume 2, pg. 50-77 (2014)).

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