The parties’ business relations were close, and the Schlein Company believed Yamato granted it exclusive distribution rights in the Israeli, Jordanian and Egyptian markets. However, the parties never executed a written exclusivity agreement, and the parties’ engagement relied on an oral agreement and on trust.
In 2001, the Schlein Company established a marketing operation in Turkey, to sell Yamato sewing machines in the Turkish market. The Schlein Company also entered into a major agreement with Delta to supply sewing machines to China. The Schlein Company’s claimed that these actions cost it millions of ILS.
However, it found out that Yamato went behind its back and sold sewing machines in the Turkish market and directly to Delta.
The parties’ relations took a turn for the worse and the Schlein Company filed a lawsuit claiming a violation of an exclusive distribution agreement, for ILS 15,000,000.
The main question for discussion is: did the parties were bound by an exclusive distribution agreement? If they did, Yamoto violated it and it must compensate the Schlein Company. If they did not - Yamato was entitled to enter into direct agreements with the Turkish Company and Delta, and it did not violate any agreement with the Schlein Company.
Theoretically speaking, an agreement can be made orally.
In practice, it is harder to prove oral agreements: one must prove the parties’ agreements, and the engagement’s specifics (e.g. - the agreement period, the exclusive geographic area, etc.).
After the Court heard the all the testimonial it subpoenaed, it concluded that it was not proven that the parties were engaged by an exclusivity agreement. The Court noted how peculiar it is that the parties never put such a fundamental and crucial agreement in writing, and determined that the Schlein Company failed to prove the alleged exclusivity agreement. Hence, the Court rejected the lawsuit against Yamato.
The conclusion that arises from this ruling is that the parties’ trust relations and their long term commercial relations notwithstanding, it is highly advised to draft a written agreement that regulates your business relations clearly and explicitly. This can prevent substantial losses and mental anguish.
• Civil Case 1796/06 The Schlein Brothers Ltd. and Others v. Yamato and Others, issued on May 21, 2014, in the Tel Aviv District Court.
Schlein Brothers Ltd. is an Israeli company that imports and sells sewing machines.
Yamato is a reputable Japanese sewing machine manufacturer.
Since the 1980’s, the Schlein Company has been buying Yamato sewing machines and selling them in Israel and in the Middle East.