Contractual Stability and Hotel Management in an Integrated Complex: An Analysis of the Supreme Court Judgment in the “Queen of Sheba” Hotel Case

Introduction
The judgment of the Supreme Court in CA 7/24 Moshe Levi v. Queen of Sheba–Eilat Assets (Nevo, 23 November 2025) (hereinafter: the “Queen of Sheba Hotel Case”) sets a clear normative marker regarding the limits of judicial intervention in complex contractual arrangements, particularly those characteristic of the hotel industry, where private ownership, centralized management, and long-term economic mechanisms intersect. The judgment addressed an appeal filed by owners of residential units in the hotel, who sought to impose managerial and economic constraints on the hotel owners that were not anchored in the written agreements, relying instead on extra-contractual arguments, principles of equity, and good faith.

The appeal was dismissed, reinforcing the primacy of contractual language and clarifying the legal framework applicable to hotel arrangements in Israel.

Factual and Procedural Background

The appellants purchased residential units in a luxury hotel in Eilat and, in consideration for payment of the purchase price, entered into a detailed contractual framework that included a purchase agreement, a management agreement, and an optional agreement for inclusion of the units in the hotel pool. Following the termination of the long-standing engagement with Hilton, disputes arose between the parties regarding the identity of the future management company and the level of management fees.

The District Court dismissed the appellants’ claims, struck from the proceedings a temporary representative body of unit owners, and left the appellants with the option of filing separate proprietary claims. Their appeal to the Supreme Court was dismissed in its entirety, accompanied by an order to pay substantial costs.

The Contractual Framework: Closed Contracts Rather Than “Relational Contracts”
The core of the judgment lies in the determination that the contractual system between the parties does not constitute a “relational contract,” despite its long-term nature. Israeli law recognizes that relational contracts are characterized by openness to change and updating, by leaving material issues to future regulation, on the understanding that such matters will be addressed, as they arise, through the formulation of separate ad hoc agreements.

In the present case, however, the Court held that the agreements are closed, detailed, and exhaustive, containing express integration clauses and provisions negating the validity of changes not made in writing. Accordingly, classifying them as relational contracts was found to be erroneous. Pursuant to section 25(a) of the Contracts (General Part) Law, 5733–1973 (hereinafter: the “Contracts Law”), and the jurisprudence established in the Bibi Roads doctrine, primacy must be given to the language of the contract, particularly where the matter concerns a complex commercial transaction concluded after negotiations and meticulously defining the allocation of risks between the parties.

 Rejection of Extra-Contractual Arguments and the Limits of the Principle of Good Faith
The Court rejected the appellants’ attempt to rely on alleged understandings, representations, and considerations of distributive justice that found no expression in the written agreements. As noted, the arrangements set forth in the agreements are detailed and explicit and reflect the negotiations conducted between the parties. Consequently, the Court held that it may not intervene in such agreements even by virtue of the principle of good faith, enshrined in sections 12 and 39 of the Contracts Law.

The principle of good faith does not confer upon the Court authority to rewrite explicit agreements or to transfer substantive rights from one party to another based on value-based considerations. Good faith operates solely within the protected interests of contract law—reliance, expectation, and restitution—and is not a tool for retroactive correction of transactions.

Commercial Certainty and Judicial Policy Considerations
The judgment emphasizes that strict enforcement of detailed contracts is not mere formalism, but rather a necessary condition for commercial stability. Judicial intervention in clear contractual arrangements may create a chilling effect on entrepreneurs, management companies, and investors—including foreign investors—who fear exposure to legal uncertainty. In this respect, the judgment reinforces the message that Israeli courts adjudicate “within the four corners of the contract,” subject only to limited mandatory protections.

Hotel Law: Centralized Management, Hotel Pool, and Management Fees
From an industry perspective, the judgment affirms the legitimacy of the integrated hotel model, in which residential units are privately owned yet managed as part of a single hotel operation. The Court held that Israeli law does not impose a general obligation to entrust hotel management to an internationally branded operator, and that such an obligation exists only if expressly agreed upon.

It was further held that the contractual arrangement establishing fixed management fees of USD 3 per square meter was tied to the management of the hotel by Hilton, and that upon the expiration of that engagement, the tariff likewise expired. In its place, the “closed economy” mechanism—customary in hotel management agreements—became applicable, pursuant to which unit owners bear the full management expenses in proportion to their relative (pro rata) share in the property.

Distinction Between a Principled Right and Its Concrete Implementation
Alongside recognition of the hotel owners’ right to collect management fees in accordance with the closed economy model, the Court emphasized that questions concerning the concrete method of calculation and the reasonableness of such fees, as well as proprietary issues relating to the registration of rights in the units, remain open for future determination. In this manner, a balance is preserved between respect for contractual consent and the possibility of targeted judicial review of its implementation.

Conclusion
The judgment in the Queen of Sheba Hotel Case reinforces the primacy of contractual consent in Israeli law and delineates clear boundaries for judicial intervention in complex arrangements within the hotel industry. The takeaway from the judgment is that detailed commercial contracts will be enforced according to their terms; the principle of good faith is not a means for rewriting transactions; and integrated hotel models based on centralized management and allocation of expenses according to the closed economy principle enjoy full judicial protection, provided they are expressly anchored in the agreement. In so doing, the judgment contributes to commercial stability and legal certainty in the hotel industry and the Israeli income-producing real estate market.

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