Israeli Supreme Court: Ukrainian vodka producers must pay Israeli company $500 thousand

The Israeli Supreme Court ruled that the Ukrainian vodka companies GSH Trademarks and Global Spirit Europe, which own the popular Khortytsya and Morosha brands, must pay $500 thousand to the Israeli distributor AGTD

The Supreme Court judges dismissed without consideration cross-appeals filed by both sides against the decision of the Haifa District Court and fully approved its findings.

Business cooperation between the companies began back in 2005 and successfully continued for about 14 years. In 2017, the parties signed a new agreement, according to which manufacturers received the right to immediately terminate cooperation if the Israeli distributor violated its terms. The agreement also stipulated that a party that unilaterally breached the agreement would be required to pay liquidated damages in the amount of $2 million.

In 2019, the manufacturers announced their unilateral termination of the agreement following their inspection of points of sale in Israel. In connection with this move, AGTD filed a claim for the full amount of liquidated damages of $2 million, while the Ukrainian manufacturers filed a counterclaim seeking compensation in the amount of NIS 1.5 million.

Haifa District Court Judge Ibrahim Boulos, after analyzing the case, ruled that AGTD’s obligation to market and distribute brands constituted only a “duty of best efforts” and not an obligation of result, and that AGTD had indeed materially breached that obligation.

At the same time, the judge took a tough line against the manufacturers, finding that they terminated the agreement unlawfully by failing to provide AGTD with a reasonable grace period to remedy the deficiencies – thereby violating the contract themselves.

Taking all this into account, the judge ruled that the producers were required to pay AGTD only a quarter of the liquidated damages – $500,000.

Both sides refused to accept this decision and filed appeals to the Supreme Court. The producers argued that this was a commitment to results rather than effort, that AGTD was not promoting the Morosha brand at all, and that the distributor had been given numerous advance warnings.

In turn, AGTD argued that the partnership was terminated only because it refused to employ the son of the producers’ controlling shareholder, Evgeniy Chernyak, and that the producers were already conducting parallel negotiations to transfer the franchise to another party.

Judges Yitzhak Amit, Daphne Barak-Erez and Khaled Kaboub found that the district court’s decision was well founded on the evidence and documents.