Regulation

Overview

Is third-party litigation funding permitted? Is it commonly used?

Third-party funding of litigation and arbitration is permitted in Israel and has received positive judicial endorsement. In Benny Bachar Zoabi Construction company v Bank Hapoalim, LF 29526-10-16 (Nazareth District) (published in Nevo, 26 October 2017), the vice president of Nazareth district court, Judge Attif Ailablouni, while holding that a litigation funding agreement was valid, also encouraged the use of such funding agreements in liquidation cases:

Finally, there is a fund that is willing to examine potential claims with professional eyes, and where the prospects of the claim look good, will be willing to fund the costs of the claim, while taking the risk that if the claim is rejected, there will not be indemnity on the funding costs, and if it succeeds, the fund will be indemnified and will receive additional returns. There is no doubt that we should bless the establishment of the fund and even say that it is a shame that it did not arise before. The idea underlying the establishment of the fund would enable the right of choice of the insolvency firm, if it so wishes, to use funding to file a claim and prevent a situation in which justified claims are waived only because of a shortage of funds. It is also necessary to encourage officeholders to apply for the services of the fund where it appears that there is a justified claim that has no sources of funding.

The use of third-party litigation funding in Israel has only recently taken off, but has grown quickly and significantly over the past three years to become an accepted part of the litigation landscape. While most of the positive judgments regarding litigation funding in Israel have related to liquidation cases, the courts have also endorsed funding in general litigation.

The courts have not provided comprehensive rulings on the Israeli court’s approval regarding all of the issues relevant to litigation funding. However, the courts have, through positive endorsement of funding, certainly established a favourable environment for litigation funding.

Restrictions on funding fees

Are there limits on the fees and interest funders can charge?

There are no specific statuary limitations on the fees or the interest a funder can charge, but according to the professional regulations governing lawyers in Israel, Bar Association Law, 5721-1961, the courts have the right to alter and reduce a lawyer’s contingency fee arrangements if they are held to be excessive. Also, in liquidation cases, a liquidator requires the court’s approval to enter into a funding agreement and the court may review the terms of that funding agreement to determine whether entry into a funding arrangement is in the best option available to the company in liquidation.

Specific rules for litigation funding

Are there any specific legislative or regulatory provisions applicable to third-party litigation funding?

Presently there are none.

Legal advice

Do specific professional or ethical rules apply to lawyers advising clients in relation to third-party litigation funding?

In Israel, a lawyer’s conduct is governed by the lawyer’s Bar Association Rules (Professional Ethics), 5746-1986 and Bar Association Law, 5721-1961. There are no specific professional or ethical rules applicable to a lawyer’s advice in respect of third-party litigation funding, but general professional or ethical rules do apply:

  • • lawyers are obliged to act in the best interest of their clients;
  • • all information a lawyer obtains in relation to a case is confidential;
  • • lawyers are prevented from sharing their fee income with a third party (unless the third party is a lawyer); and
  • • lawyers are prohibited from soliciting work from their clients (either directly or through a third party).
Regulators

Do any public bodies have any particular interest in or oversight over third-party litigation funding?

At present, no public bodies have a specific interest in or oversight over third-party litigation funding, apart from in a liquidation context, in which a liquidator is required to seek the court’s approval when entering into a funding agreement with a third-party funder.