CaesarStone to pay Kfar Giladi NIS 50m compensation

CaesarStone Ltd. (Nasdaq: CSTE) will pay Kfar Giladi Quarries NIS 50 million it has been ruled in arbitration after six years of deliberations. In a long, reasoned arbitration decision covering 1,000 pages, Judge (Ret.) Boaz Okun, the arbitrator accepted Kfar Giladi’s claims, and ordered CaesarStone to pay Kfar Giladi more than NIS 50 million as compensation.

The arbitrator rejected CaesarStone’s version that the parties’ agreement had been terminated, and decided that the agreement was in effect and binding. The arbitrator also ordered CaesarStone to pay attorney fees and legal costs in the amount of more than NIS 7.5 million. The counterclaim that CaesarStone filed in the amount of NIS 70 million was dismissed almost in entirety.

The arbitration between Kfar Giladi Quarries and CaesarStone proceeded for the past six years following a claim filed by Kfar Giladi Quarries against CaesarStone for about NIS 230 million. Kfar Giladi Quarries alleged that CaesarStone caused heavy losses to the quarry by terminating the parties’ agreement to set up a plant in Kibbutz Kfar Giladi, as a result of which the Kibbutz constructed a quartz processing plant that was designed to provide raw materials to CaesarStone.

According to CaesarStone’s main defense, the parties’ agreement had been terminated orally during a meeting between former CaesarStone CEO Yossi Shiran and then-CEO of Kfar Giladi Quarries. CaesarStone argued that the reason for the termination was Kfar Giladi’s failure to comply with the terms of the agreement.

The arbitrator rejected CaesarStone’s argument and determined that the agreement had not been terminated in the meeting between the CEOs of CaesarStone and Kfar Giladi, and in any case CaesarStone did not have the right to terminate the agreement.

The arbitration was concluded after six years, during which 100 arbitration sessions were conducted. After the arbitration hearings, the parties submitted summaries extending over thousands of pages.

Kfar Giladi was represented in the proceeding by Attorneys Ron Berkman, David Zilberboim, Chen Glick, Keren Birnhack, and Niv Amitay of the law firm Berkman Wechsler Bloom and Co.; and Attorney Doron Tishman of Tishman Paritzky Tzadok Levin and Co.

CaesarStone was represented by Attorneys Giora Erdinast, Tomer Weissman, Efrat Cibulski, Efrat Rosner and Nir Molho of Erdinast Ben Nathan Toledano and Co.

A decade ago, the two kibbutzim signed a business cooperation agreement that seemed very profitable and promising for both of them at the time - Kfar Giladi Quarries’ manufacturing potential in rock crushing meshed well with CaesarStone’s need for a regular supply of high quality raw materials for granite production. In the agreement, Kfar Giladi committed to construct a designated plant that produces quartz powders, at an investment of NIS 40 million, and Caesarstone, on its part, committed to purchase from the plant products valued at $10-15 million annually, for eight years. Two years later, the northern-Israeli Kibbutz inaugurated its new plant with much fanfare. From that point - almost everything went wrong.

Kfar Giladi argued that CaesarStone violated sections of the agreement, and the company decided to activate the arbitration clause in the agreement. In 2011, Kfar Giladi referred the dispute to arbitration. Its main argument was that the quantities that the granite manufacture committed to purchase were simply not being ordered on a regular basis, and this caused it serious losses, in respect of which the arbitrator was requested to order payment of damages in the amount of NIS 232 million. CaesarStone responded that the agreement had been terminated orally because Kfar Giladi itself had failed to meet the terms of the agreement - it had supplied inferior quality products with repeated delays.

The dispute was heard by Judge (Ret.) Boaz Okun, but after two years’ of arbitration, CaesarStone filed a motion with the District Court to terminate the proceeding, on the grounds of lack of good faith on Kfar Giladi’s part.

The judges did not grant the motion, and remanded the dispute back to the arbitrator, who issued his decision yesterday.

What changed the picture for Kibbutz Kfar Giladi was an investigation conducted by the intelligence firm Black Cube, owned by Dan Zorella and Dr. Avi Yanus, which produced a recording of a CaesarStone executive that ostensibly contradicted the allegations that CaesarStone made in the arbitration proceeding. Yoel Manor, an associate engineer and Technion graduate, was a raw materials technologist at CaesarStone at the time. In the recording that was obtained during a bicycle ride, he seemingly admitted, among other things, that the quality of Kfar Giladi’s products was high, and that CaesarStone had other motives for severing its ties with Kfar Giladi.

CaesarStone said, “Kfar Giladi’s award constitutes 15% of the amount that they sued for and does not even cover their actual expenses in constructing the plant, which was closed, and the losses that it accumulated over the years.” Adv. Zilberboim of Berkman Wechsler Bloom, who represented Kfar Giladi, said in response to the arbitration decision, “This is a long, comprehensive arbitration decision and we obviously have not yet studied it carefully. The proceeding itself extended for a long time and we are happy that it has reached an end, and the main arguments that were made were affirmed.”

Published by Globes [online], Israel business news - www.globes-online.com - on January 21, 2018