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A Claim for the Amount of ILS 4,375,000 After Signing a Letter of Intent

posted 6 months ago

“Dragon” is a Chinese company registered in Hong Kong that engages in business collaborations in China.

In 2009, Dragon was introduced to an Israeli company by the name of KAIIMA BIO AGRITECH LTD (KAIIMA). KAIIMA engages in the enhancement and improvement of agricultural crops.

Both companies began establishing connections for the purpose of distributing KAIIMA’s products in China.

On July 6, 2010, the parties signed a letter of intent in which they stipulated that they would form a joint company in China by the name of “KAIIMA China”, while 85% of the shares of the new company would be issued to KAIIMA and 15% to Dragon.

The parties further stipulated that after signing the letter of intent, they would engage in negotiations, and would sign an agreement by July 15, 2010.

The parties further stipulated that the letter of intent could be canceled by any of the parties at any time, with or without giving reasons.

On August 12, 2010, KAIIMA China was formed, and was registered in Hong Kong. Later on, the parties opened a bank account for the new company so that they will be able to launch the marketing of KAIIMA’s products in China.

The parties proceeded to conduct lengthy negotiations for the purpose of signing an agreement, while started their cooperation on various issues.

In the summer of 2011, the parties started accelerating their negotiations for the purpose of signing an agreement; however, they were unable to reach a mutual understanding. The parties were disputed regarding the manner of allocation of the shares in KAIIMA China, and regarding the option of KAIIMA to purchase the shares of Dragon in KAIIMA China.

After the parties failed to reach an understanding, on November 10, 2011, KAIIMA notified Dragon that the letter of intent was canceled, and in any event, the letter of intent did not constitute a binding legal relationship between the parties.

In 2013, Dragon learned that a Chinese investment fund made an investment in KAIIMA in the amount of approximately ILS 87,000,000. Dragon argues that Dragon created the connection between KAIIMA and the investments fund.

Therefore, Dragon argued that it deserved a commission for creating the connection that resulted in the investment in KAIIMA, for an amount equal to 5% of the investment, i.e. ILS 4,375,000.

For the purpose of substantiating this argument, Dragon argued that the letter of intent was a binding contract, and that one of the drafts of the contract that were exchanged between the parties included a section that entitles Dragon to 5% as intermediary fees from any investment made by an investor that Dragon would help KAIIMA to procure.

The court concluded that the letter of intent was not a binding contract, in light of the fact that the parties stated that each of them would be entitled to withdraw from it at any time, and the parties stated that they would sign a binding contract in approximately nine days, an event that did not eventually occur.

The court concluded that in any event, a draft of the final agreement that was not signed cannot bind the parties.

The court further concluded that it was not even proven that Dragon is the party that created the connection between the Chinese investment fund and KAIIMA.

Dragon’s claim was dismissed, and Dragon was even ordered by the court to pay trial costs in the amount of ILS 50,000.

  • Case 13533-04-14 Dragon Ventures Management Inc. v. KAIIMA BIO AGRITECH LTD, given on May 21, 2019, by the District Court of Tel Aviv.

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