On 16 October 2018 the Supreme Court (the Honourable Justices Solberg, Groskopf and Baron) issued a decision in Civil Appeal 2889/18 – Cohen v Tower Semiconductor Ltd – confirming that the liability for breaches of reporting obligations in the secondary market by dual-listed companies is governed by the securities laws of the foreign trading jurisdiction.

The appeal was filed with respect to the Tel-Aviv District Court (Economic Division) ruling in favour of Tower Semiconductor Ltd. In his ruling, Honourable Judge Kabub provided an answer to the fundamental question: what law governs a dual-listed company with respect to liability for breaches of the company's ongoing reporting obligations in the secondary market? Following a comprehensive and extensive analysis, Kabub held that the securities laws of the foreign jurisdiction in which the company's shares are traded govern this issue. Further, Kabub held that the governing law with respect to liability of the dual-listed company's external auditors is also the law of the foreign jurisdiction in which the company's shares are traded.

The key points of the decision include the following:

  • Although it is not considered a formal precedent (since the appeal was withdrawn rather than denied), the Supreme Court explicitly expressed its view that it agrees with the District Court's rulings and interpretation of the legal question at hand.
  • Hence, with respect to ongoing reporting obligations of dual-listed companies in the secondary market in the existing legal framework, the securities laws of the foreign jurisdiction in which the company's shares are traded will most likely govern liability in connection with such reports.
  • The Supreme Court clarified that the question of the governing law with respect to liability issues in the primary market (ie, alleged misrepresentations in a prospectus or other documents submitted in the framework of an issuing of securities) has not yet arisen; therefore, the Supreme Court's approach to this issue remains uncertain.
  • Another issue which the parties raised and argued over in the appeal and which the Supreme Court has also not yet dealt with, is a situation where there are claims of a misstatement in a prospectus, of securities issued in Israel only, by a dual-listed company. This question remains unanswered, although it is more likely that a court will see fit to apply the Israel law in such a case, as opposed to a case involving dual-traded securities.
  • The alleged class in the class action against Tower included holders of securities that were issued in Israel only. Given the Supreme Court's decision, it appears that with respect to liability for misrepresentation in the secondary market, there is no distinction between dual-listed securities and securities that were issued in Israel only by a dual listed company. In either case, the law governing such claims will be the law of the foreign jurisdiction in which the company's securities are traded.
  • Ultimately, the Supreme Court called on the Israeli legislature to consider a legislative amendment to make the language of the Securities Law with respect to the issue of the applicable law more explicit, in order to prevent future legal disputes on the subject.

For further information on this topic please contact Gil Orion or Jana Rabinovich at Fischer Behar Chen Well Orion & Co by telephone (+972 3 694 4111) or email (gorion@fbclawyers.com or jrabinovich@fbclawyers.com). The Fischer Behar Chen Well Orion & Co website can be accessed at www.fbclawyers.com.

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