An unusual legal battle is currently underway between Diamond Exchange member Netanel Yelizarov, who works as an employee at the company 'Diamonds O. W. Diamonds and Jewelry Ltd.', and a number of companies and traders on the Israel Diamond Exchange.
This followed an incident in which a valuable rough diamond exploded during processing, completely losing its value.
Attorney Avichai Yehosef, who represents Yelizarov, explains that the phenomenon of diamond explosions is not common: "This is an event that sometimes occurs during the processing and polishing process, and insurance usually covers the damage."
In this case, however, there was no insurance coverage for the diamond, which is estimated to be worth about one million shekels. As a result, the diamond suppliers, Holtzman Fabian Diamonds Ltd., Nathan Friedman, and Walla Gems Ltd., chose to sue Yelizarov personally at the Diamond Exchange Arbitration Institute.
According to Attorney Yehosef, who represents the defendant employee, "The question is not just a matter of liability - it is clear that the company is responsible, since it took the stones without payment - but rather it is a matter of authority in general. The employee is a member of the stock exchange, while the company he worked for is not a stock exchange member, which creates an unusual situation."
He said that the Israel Diamond Exchange is a closed organization of diamond traders, and its members are committed to internal arbitration procedures in the event of disputes. Those who are not members of the exchange, on the other hand, are not subject to these procedures.
In this case, Uriel Yelizarov, the controlling shareholder of the company and the defendant's brother, is not a member of the stock exchange, and therefore the company - despite its official license to trade in diamonds - is not subject to the arbitration institution.
Attorney Yehosef adds: "According to the exchange regulations, all parties – the polisher, the buyer and others – are supposed to purchase insurance that will balance the risks. It is clear that the lack of insurance is what caused the conflict that reached the door of the Diamond Exchange Arbitration Institute."
According to Attorney Yehosef, his client acted solely as an employee in his brother's company, without making independent decisions or making personal commitments, and was not directly involved in agreements with suppliers. To protect his rights, Attorney Yehosef appealed to the Tel Aviv District Court, requesting a declaratory judgment, according to which the Diamond Exchange's arbitration institution has no authority to hear the dispute.
In addition, Attorney Yehosef submitted an urgent request to the Diamond Exchange for a temporary injunction, in which he seeks to delay the arbitration process for fear of conflicting decisions between two courts, a situation that could cause irreversible damage to his client.
The stock exchange's legal committee met and determined that it actually has the authority to hear the lawsuit against Yelizarov. However, according to Attorney Yehosef, this decision is controversial because it was made with a deficient composition of only three members - contrary to the regulations that require at least five members at the committee's meeting.
Attorney Yehosef notes: "Court intervention in an internal arbitration process of the stock exchange is indeed extremely rare. The ruling shows that even in employee-employer relations, disputes are discussed at the Diamond Exchange and not in the Labor Court. But here, when it is clear that the company signed the agreements and the employee acted solely as an employee, the case constitutes a clear exception, and therefore there is a real chance of legal intervention."
Following the legal committee's decision, Attorney Yehosef filed another petition with the Tel Aviv District Court, where he seeks to have it overturned.
Attorney Yehosef: "If the arbitration process is invalidated and the dispute is transferred to court, this could have a dramatic impact on the arbitration institution and create a precedent that will allow the stock exchange's authority to be challenged in future cases as well."
He emphasizes: "The goal is for the company to be responsible for its transactions, and not the employee, who is not supposed to pay a debt created by its business activities."
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