The agreements included confidentiality obligations and restrictions designed to prevent competition with the Max Stock network. The Ashdod agreement also included a mechanism that allowed Max Stock, under certain circumstances, to purchase the other shareholders’ shares.
The dispute began when Max Stock became concerned that Naftali Shimshon, who was involved in operating the branches, was also involved in establishing or operating a competing retail chain called Super Stock.
The suspicion was based, among other things, on the fact that Shimshon’s brother had invested in the company operating the competing chain.
Max Stock hired a private investigator. After receiving the investigation report, the company terminated the franchise agreements for the Bat Yam and Sderot branches. It also sought to activate the separation mechanism under the Ashdod agreement and purchase the shares held by the other shareholders.
Shimshon and the franchisees denied any breach of the agreements. They argued that the terminations were unlawful and filed a counterclaim seeking compensation for the losses they suffered as a result.
The central question was straightforward:
Was Max Stock entitled to terminate the franchise agreements based on the information it had at the time?
The Court said no.
Suspicion is not the same as proof
Max Stock argued that it had evidence showing that Shimshon was substantially involved in the competing business and that his brother was effectively acting on his behalf.
The Court reviewed the evidence, including the findings of the private investigation, and concluded that this involvement had not been established.
The fact that Shimshon’s brother had purchased 20% of Super Stock’s shares was not enough, on its own, to show that Shimshon was also involved in the competing business.
Shimshon explained that he had helped his brother by providing him with a loan and maintained that he had not been involved in managing the competing chain. The Court found that this explanation had not been disproved.
The Court also found that some of the investigation material was inconclusive. In certain instances, it was unclear what particular statements actually meant. In others, the investigator himself had raised Shimshon’s name and suggested that he might be behind the activity.
The bottom line was clear: Max Stock had suspicions, but it did not have sufficient evidence to establish a contractual breach that justified terminating the franchise agreements.
A contractual right does not mean you can act automatically
The judgment also addressed a broader issue that is highly relevant to business owners.
Even when a contract gives a party the right to terminate the relationship following a breach, that right must be exercised responsibly and in good faith.
This was particularly important here because the parties had an ongoing franchise relationship, involving a significant degree of trust.
In practical terms, the message from the Court was:
If you suspect that a business partner, franchisee or distributor is competing against you, you cannot simply terminate the relationship based on a feeling that something is wrong.
You need to check the facts and make sure there is a sufficient basis for taking such a significant step.
The Court recognized that Max Stock may have had legitimate reasons to be angry or concerned about the information it received. But feeling that trust has been damaged is not a substitute for establishing an actual breach.
What about the new competing business?
After Max Stock terminated the franchise agreements, the franchisees established a new brand called Big Stock and continued operating in the same general field.
Max Stock argued that this violated the non-compete provisions in the franchise agreements.
The Court rejected this argument as well.
A key consideration was that the franchisees had not voluntarily walked away from Max Stock in order to establish a competing business. Instead, Max Stock had terminated the franchise agreements unlawfully, and the franchisees’ new business was their way of continuing to operate in the industry after the relationship had been terminated.
The Court also made an important point: a non-compete clause cannot be used to give an unfair advantage to a party that unlawfully terminated the agreement in the first place.
The financial consequences
Max Stock’s claim was dismissed, while the franchisees’ counterclaim was partially accepted.
Max was ordered to pay NIS 3,676,424 in compensation, in addition to:
NIS 500,000 plus VAT in attorneys’ fees
and
NIS 20,000 in legal costs.
What should business owners take from this?
The case highlights a common business dilemma.
When you believe that a partner, franchisee or distributor is working with a competitor, the natural reaction is to act quickly and protect the business.
But moving too quickly can create a much bigger problem.
Before terminating an important commercial agreement, it is worth asking three questions:
- What exactly does the agreement allow us to do?
Check the termination provisions carefully. What constitutes a breach? What circumstances allow termination? Are there notice or other procedural requirements?
- Do we actually have evidence of a breach?
There is an important difference between information that raises a concern and information that establishes a contractual violation. An investigation, a business connection or a suspicious circumstance may justify further checking, but it does not necessarily justify termination.
- Are we exercising the termination right fairly and in good faith?
Even where the contract gives you a right to terminate, the way you exercise that right matters. This is especially important in long-term business relationships based on trust and cooperation.
The business lesson
The case is a reminder that terminating a franchise, distribution or partnership agreement is not a decision that should be made solely on the basis of suspicion or instinct.
If the suspicion turns out to be unfounded and the termination is found to be unlawful, the consequences can go far beyond losing the business relationship. The company may also face a substantial compensation claim, legal fees and litigation costs.
Before terminating a significant commercial relationship, make sure the facts support the decision, the contract allows it, and the termination is being carried out properly and in good faith.
Sometimes, taking a little more time to verify the facts can prevent a very expensive mistake.
Case Nos. 47423-07-18, Max Management Israel Ltd. (formerly Max Stock Ltd.) v. Naftali Shimshon et al.; and 51268-03-19, Max Management Israel Ltd. v. Top Team Wise Investment Ltd., Tel Aviv-Jaffa District Court, August 13, 2026.
