Mizrahi Tefahot v. Orly Haran: the bank will bear half of the damage from speculative options trading

Background and facts: Mizrahi Tefahot's claim against Orly Haran

The details here are based on reports in Globes and Bizportal of July 10, 2013. The full text of the judgment was not found openly online. According to Globes, the judgment was given on July 8, 2013 by the Deputy President of the Tel Aviv District Court, Judge Drora Pilpel.

According to the reports, Orly Haran had been a customer of the Mizrahi branch at Ben Gurion Airport for 35 years. Her accounts were managed conservatively, without activity in securities and derivatives. In 2005 she gave her son a power of attorney to act in her account.

The son carried out large-scale speculative activity, in shares and in Maof options, with the support of bank officials and at times under their guidance. According to Globes, after about three years losses of about NIS 20 million had accumulated. The bank stopped the activity and sued the customer. After she returned about NIS 9 million, the claim was amended to about NIS 12.3 million.

The parties' arguments

The bank sought to place responsibility for the entire debt on the customer. According to the bank, she knew of the risk and signed all the forms, including forms for the granting of credit, knowing that the account was no longer conservative.

The customer argued that the responsibility lay with the bank. According to her, the bank officials knew the account was being run in a risky way that did not suit her needs, and remained indifferent. According to her lawyers, they woke up only when the stock of collateral ran out.

What the court held: a heightened duty of care and "economic suicide"

According to the reports, the judge found that the customer was not involved in the account apart from signing forms. The son managed the account and consulted with the bank official and with the trading room.

The judge divided the responsibility. The mother's duty was to follow what was happening in her account. The son's duty was not to act without understanding the risks. As for the bank, she noted that when an account shows a negative balance of about a million dollars and the bank continues to run it on condition of reinforcing collateral, it is minding its own interest more than the customer's.

According to Globes, it was held that the bank's duty of care is heightened, because it is the professional, especially in unusual transactions. It was also held that when the bank comes to the conclusion that the customer's conduct may cause "economic suicide", the activity in the account must be stopped.

The outcome: the damage, about NIS 12 million, will be split equally. The customer will pay the bank NIS 6 million. According to the bank's counsel, she was also ordered to pay the bank's legal fees of NIS 40,000. The bank stated that it was considering an appeal to the Supreme Court. The reports do not state whether an appeal was filed.

What it means for Mizrahi Tefahot customers

The judgment shows that the court examines what the bank knew about an account whose activity departs from the customer's usual pattern of activity. However, the customer herself bore half of the damage. A customer who gave a power of attorney in his account is required to follow what is happening in it. More background information appears on the page The bank's fiduciary duty.

Sources

• Globes: "The bank must prevent the customer's 'economic suicide'", July 10, 2013
• Bizportal: Economic suicide, she gave her son a power of attorney in the account

Frequently asked questions about court rulings against Mizrahi Tefahot Bank

The full text was not found openly online; details according to a report, not yet verified against the text of the decision; whether an appeal was filed should be checked

How to cite

Claim by Mizrahi Tefahot Bank v. Orly Haran, case number not stated, Tel Aviv District Court, 08.07.2013. Source: Net HaMishpat (Israeli courts database), case Claim by Mizrahi Tefahot Bank v. Orly Haran, case number not stated.