Duty Free Americas petitions court on IAA tenders

Duty Free Americas, which operates the largest duty-free chain in the United States, is trying to make a deeper push into the Israeli market. In May, the company, owned by the Falic family, which is close to Prime Minister Benjamin Netanyahu, submitted a bid to operate duty-free stores at the Beit Hanoun (Taba) border crossing between Israel and Egypt and the Sheikh Hussein border crossing on the Jordan River between Israel and Jordan.

Duty Free Americas also recently filed a petition with the Tel Aviv District Court asking the Israel Airports Authority to disqualify the bidders – Heinemann (the German company that owns shares in James Richardson). According to the petition, the company has been suspended in two previous court rulings – one in the International Commercial Court and the other in the Tel Aviv District Court for bid rigging more than a decade ago.

At this stage, the Tel Aviv District Court accepted the request for an interim injunction, and the date for announcing the winning bid was postponed until the ruling on the petition and the decision of the Israeli Competition Authority to open an investigation into the matter.

The Authority said in its response: “The Authority has not received the petition yet, and when it receives it, it will respond to it before the court, as is customary.”

A conflict that started more than 10 years ago

The story began in 2013 when Heinemann and Alpha bid to operate the duty-free shops at Ben Gurion Airport. Heinemann and Alpha lost out to James Richardson in the tender, but it later emerged that several months before the bids were submitted, the controlling owners of Heinemann and James Richardson met secretly in Hamburg. They had two phone calls shortly before the deadline for submitting the bids.

In 2017, the Israel Airports Authority issued a new tender in which Heinemann competed not with Alpha but with its former competitor James Richardson. The company won the tender and Heinemann and James Richardson have been operating the duty-free shops at Ben Gurion Airport ever since.

Alpha, which had bid with Heinemann in the previous tender, claimed that Heinemann had breached their agreement and deliberately caused their joint bid to fail by conspiring with James Richardson to cooperate with them in the future. Alpha subsequently brought a claim before the International Court of Arbitration, which accepted its claims and upheld serious findings against James Richardson.

In 2022, the majority of the court in the arbitration case found that James Richardson conspired against Alpha. The court also ruled that there was sufficient convincing evidence to show that a senior executive of James Richardson knew that Heinemann’s offer was approximately $169 million, and that Heinemann agreed to a lower joint offer with Alpha in the first bid, in order to help James Richardson retain its franchise. As a result, the court ordered Heinemann to pay a whopping $23 million in damages.

Following the award, the International Arbitration Tribunal appointed an internal investigation panel to examine the case. The panel ruled that “there was insufficient evidence to determine whether there was fraud in the 2013 bid between Heinemann and James Richardson.” The ruling also stated that “the Panel confirmed that it did not see sufficient evidence to reach the contrary conclusion, that Heinemann and Richardson were not successful bidders, but that, as these allegations are significant and serious, and constitute criminal offences and an act of genuine fraud, the evidence required for the purpose of reaching a positive determination of fraud is insufficient to take any steps, including those relating to future bids to be published by the Tribunal.”

The ruling contradicted a 2022 Tel Aviv District Court ruling, in which Judge Yehudit Shevach stated, “The arbitration award bears a long chain of circumstantial evidence and reasoning, which by their combined and cumulative force correctly establish the factual finding regarding the existence of a conspiracy between Heinemann and James Richardson.”

Seeking to break Heinemann’s grip

Heinemann is a privately held German company controlled by the Heinemann family and is one of the largest players in the global duty-free market, particularly in Europe. In 2016, the company acquired a 50% stake in James Richardson, which operates duty-free shops at most Israeli border crossings. This year, Heinemann acquired the remaining 50% of James Richardson.

Duty Free Americas, which is seeking to replace Heinemann, owns the French Christian Lacroix brands, cosmetics and perfumes, and operates in the wine and spirits market in Israel. In the past, Duty Free Americas, through one of its group companies, operated duty-free shops at Ovda Airport in the Negev, and currently operates the duty-free shop at the Rabin border crossing (Allenby Bridge) between Israel and Jordan.