Within the invoice discounting contract of the agreement was a clause that allowed Leumi to charge up to 15% of sums collected in collection fees in the event the borrower went into administration. They did just that claiming that it “exercised its contractual discretion” to charge the maximum fee.
However, evidence showed that, in fact, no discretion was exercised and Leumi historically always charged the maximum fee.
The clause was unqualified as it gave Leumi an entirely open discretion which could be exercised oppressively or abusively.
The Court applied the public law standard to the exercise of discretion in this case and held that Leumi had a duty to estimate internal costs and expenses using data from its experience of previous collect-outs to determine a suitable estimate. In this case, the Courts found that in fact, 4% should have been the maximum implied.
This is an important decision which should be closely heeded. Not only did the Court apply public law standards to a private commercial setting, but it found that a Bank had fallen short of such standards.