Background
In early 2018, Yosef Levi and other apartment owners in a renovation and reconstruction project (under Israel’s Tama 38/2 program) on Herzl Street 116 in Jerusalem entered into an agreement with Hod HaBira Projects Ltd. The agreement provided that replacement units would be allocated by lottery, but owners could upgrade to higher floors for an additional fee. In February 2022, Levi entered into an amendment allowing him to upgrade to a specific three-room apartment on the eighth floor measuring 82.5 square meters.
The upgrade agreement included a structured process: once the upgraded unit became available for sale, the company would have 14 days to either return Levi’s upgrade fee or notify him to decide within 7 days whether to proceed with the swap. If Levi responded positively, the parties would execute an exchange agreement; if he did not respond, the company could offer the unit to others and Levi would retain his original allocation. The parties agreed to this procedure because mortgage guarantees for upper-floor units were unavailable at the time.
In June 2024, Levi sued the company in Jerusalem District Court, seeking a declaration that the upgrade agreement was valid and an injunction preventing the upgraded unit from being offered to third parties. The company defended by arguing that it had offered Levi various upgrade options (which he never accepted), that no unit exactly matching the agreement’s specifications existed in the completed building, and that the unit in question had already been sold to a third party. During the district court proceedings, these defenses proved dispositive: the upgraded unit had indeed been sold to a third party, and no unit precisely matched the agreement’s description.
The Court’s Holding
The Supreme Court unanimously dismissed Hod HaBira’s appeal seeking an award of costs. The court reaffirmed the principle that appellate courts rarely interfere with costs determinations made by trial courts, intervening only in “rare and extreme” cases involving legal error or substantial defects in judicial discretion. The court emphasized that trial courts possess broad discretion in awarding costs and attorney’s fees because they are intimately familiar with the case, the parties’ conduct, and the procedural nuances—factors appellate courts cannot fully appreciate.
The court found the district court’s reasoning sound. First, the declaratory relief Levi sought had become impractical and unworkable because the upgraded unit had already been sold to a third party. Second, and critically, the district court never resolved the parties’ underlying dispute: it did not determine whether either party had breached the upgrade agreement. As the Supreme Court stated, “the question whether the appellant [company] violated the upgrade agreement remained ‘open,'” meaning this was not a “frivolous” claim as Hod HaBira argued. Under these circumstances, the district court reasonably declined to award costs to either party.
The court noted that the district court had explicitly acknowledged both parties’ conduct contained problems and that the court had considered awarding costs against Levi at an earlier stage but ultimately refrained because the third-party sale was discovered late in the proceedings. This reasoning demonstrated judicial fairness and was entitled to deference. Accordingly, the Supreme Court affirmed the dismissal and the refusal to award costs, but ordered Levi to pay Hod HaBira 10,000 NIS in costs for pursuing the appeal.
Key Takeaways
- Appellate courts will not routinely intervene in trial court costs decisions absent legal error or substantial defect—the deferential standard applies even when the trial court declines to award any costs.
- Trial courts retain broad discretion to decline costs when the underlying merits remain unresolved, particularly where both parties’ conduct is problematic.
- A claim is not “frivolous” merely because it becomes unworkable due to changed circumstances (here, the unit’s sale to a third party); unresolved merits mean a party cannot be penalized with costs.
- Discovery of dispositive facts late in proceedings may justify a trial court’s exercise of discretion to avoid costs, even against a party who ultimately withdrew the claim.
Why It Matters
This decision reinforces that Israeli appellate courts defer substantially to trial courts’ costs discretion, maintaining a high barrier to reversal. For litigants, it demonstrates that even claims that prove unworkable on the facts are not automatically deemed abusive if the underlying contractual dispute remains genuinely contested. The court’s willingness to credit the trial court’s observation that “the conduct of neither party was free from difficulties” reflects a balanced approach: neither the defendant’s delay in disclosing the third-party sale nor the plaintiff’s withdrawal of an ultimately unachievable remedy justifies punitive costs when the contract’s breach is genuinely disputed.
For practitioners in Israeli real estate and development disputes, the case illustrates that trial courts enjoy considerable leeway in managing costs when circumstances change mid-litigation, particularly in complex Tama projects involving multiple parties and units. It also clarifies that appellate review of costs decisions focuses narrowly on whether the trial court’s discretion was exercised rationally, not on whether the appellate panel would have decided costs differently.
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