Introduction to class actions framework
Israel's class action law allows any individual, as well as qualified non-profit organisations and government commissions, to file a claim on behalf of a group of people who may not have requested any such claim, and who may not even be aware of the fact that a claim is being managed on their behalf. Should the class action be approved, its result (if settled or dismissed) is likely to impair the rights of those claimants in whose name it is brought. Class actions may also constitute an injury to the procedural rights of defendants, who are forced to deal with claims that, whether justified or not, may be of unusual scope and risk.
Despite these and other considerable difficulties, the class action is an important tool that forms an integral part of the Israeli legal system, serving as a bulwark to balance the interests of the individual against corporations that interact with the public on a large-scale basis. The Class Actions Law, 2006 (the Law) is a detailed statute governing all class action claims in Israel, which seeks to strike the necessary balance between the competing interests, rights, and policy considerations at stake in the class action proceeding. The Law reflects the basic premise that a class action is not just a procedural method for handling claims, but first and foremost a tool for promoting the public interest, with the understanding that worthy class actions should be encouraged without being unduly hampered by procedural stumbling blocks.
The Law's innovations include an expansive set of qualified causes of action, a unified framework for class actions including detailed guidelines and regulations, legal standing for certain government entities and third-sector organisations as parties and as amici curiae, guidelines for 'opt-in' versus 'opt-out' actions, comprehensive guidelines for the appointment of representative counsel as well as for court approval of settlements and fees, a substantial degree of flexibility with regards to damages, causality and remedies, a public record of motions for approval of class actions, and the establishment of a fund to assist class actions that promote the public interest.
Since the Law's enactment, the number of motions filed per year for approval of a class action has multiplied more than fiftyfold in one decade, and has been estimated at 1,250 motions for 2018. By number, nearly 55 per cent of the motions filed are related to consumer products, with insurance-related and banking-related claims together corresponding to an additional 3 per cent and 2 per cent related to breaches of securities and competition law. By amount consumer products and banking claims accounted for five of the top approved settlements for 2018, accounting for 247 million Israeli new shekels of the aggregate 425 million Israeli new shekels awarded to the public from class actions.
The year in review
Recent developments in Israel's case law on class actions include an increased tendency of courts to rule in favour of motions for approval of a class action, alongside increased judicial review of the class 'agents' (i.e., representative plaintiff and counsel seeking fees and costs alongside the collective claims that they promote).
Despite this, most of the certification motions in 2018 ended with arrangements for withdrawal.
In addition, 2018 saw a decrease of approximately 13 per cent in the number of certification motions that were submitted in comparison with 2017. The reason for this probably stems from a 2018 amendment to the Court Regulations (Fees) 2007, which introduced a fee related to the bringing and disposal of a certification motion for a class action. The regulations now provide that in order to bring an application for the certification of a class action, the representative plaintiff is required to pay part one of the fee in the amount of 6,000 Israeli new shekels when filing a class action motion in the district court, 3,000 Israeli new shekels when filing a class action motion in the magistrates' court and there are no fees payable when filing a class action motion against governmental and local authorities. Where the certification motion is dismissed or withdrawn, the representative plaintiff is required to pay part two of the fee in the amount of 10,000 Israeli new shekels in the district court, 5,000 Israeli new shekels in the magistrates' court or 1,800 Israeli new shekels for certification motions against governmental or local authorities (irrespective of whether the representative plaintiff filed the motion in a district or magistrates' court – if the respondent is a governmental or local authority the court fee is always 1,800 Israeli new shekels). On the other hand, should the certification motion be successful, the respondent will be required to pay part two of the fee and reimburse the representative plaintiff for part one of the fee. The court still retains a discretion in this regard. In a worst-case scenario, the representative plaintiff is at risk for the full fee (i.e., part one and part two of the fee) as well as the respondent's legal costs.
Certain types of plaintiffs are exempt from paying these court fees namely: (1) an organisation registered with the Registrar of Non-Profit Organisations or the Registrar of Charitable Trusts, which operates to promote public goals and the filing of class actions motions is not its main activity, (2) the Israel Consumer Council, and (3) a person who hires a public apartment and conducts a suit against a company for public housing.
The two main objectives of the amendment are:
- a reduction in groundless class actions and their proportion in relation to all the class actions that are submitted. While it is anticipated that the proposed fee may deter claims with a low chance of success, the 'chilling effect' on reasonably worthy claims may be moderate, since the class actions public assistance fund is likely to provide increased assistance to reasonably worthy claims in light of the new fees (money that is likely to be returned to the fund should the action result in a favourable settlement); and
- to cover a portion of the court expenses and judicial resources that are required by a class action due to it being a complicated and long, legal proceeding.
In our estimation, during 2019 an additional decline may be expected in the number of class actions to be filed, in light of the fact that the amendments to the regulations regarding the payment of a fee for the filing of an application for approval of a class action entered into force during May of 2018, which could affect the data for 2019.
With regards to withdrawals of class action proceedings, a representative plaintiff and their lawyers were previously permitted by the court to receive a reward and legal fees, respectively, despite the withdrawal of proceedings. However, during August 2018 in Markit v Sonol the Supreme Court held that in a case of a withdrawal of proceedings, a representative plaintiff and its lawyers were not permitted to receive a reward or legal fees unless the case was exceptional. Although the Supreme Court refrained from providing a closed list of factors that a court had to consider when deciding whether a case was exceptional, it did mention the following considerations:
- the benefit to any injured persons represented by the plaintiff and their lawyers;
- the efforts that the representative plaintiff and their lawyers invested during the class action;
- the risk taken and expenses incurred by the representative plaintiff and their lawyers in bringing the class action;
- the degree of public importance of the class action;
- the manner in which the representative plaintiff conducted the class action proceedings; and
- the gap between the remedies that were requested in the application (for approval of the class action) and the remedies that are to be received by the representative plaintiff as part of the withdrawal. A withdrawal, including the terms of the withdrawal, requires the approval of the court.
Subsequent to this case, it appears that the courts are willing to intervene and reduce the rewards and the legal fees, and even deny it completely in some cases of withdrawal.
Overview of procedural options
Procedurei Types of action available
The Law is the exclusive procedural framework for any group action in Israel. No action may be brought on behalf of a group of individuals without their express power of attorney, unless the claim falls within the ambit of the Law. A class action will only be recognised if it falls within a statutory list of enumerated causes; it should be noted, however, that as a rule, these causes are broadly worded. Some of the causes that may be of interest to international corporations include: claims against manufacturers, distributors and service providers, including product liability claims and various claims against internet platform providers; claims against insurance providers and agents; antitrust claims, including 'follow-ons'; claims related to corporate securities or trading platforms; claims related to environmental damages or nuisances; and claims related to the 'anti-spam' amendment to the Communications Law (Telecommunications and Broadcasts) 1982.
A class action suit requires prior approval of the court, in a preliminary proceeding known as a 'motion for approval of a class action'. A court may, at its discretion, approve a class action if it falls within the ambit of the enumerated causes, and all of the following elements are present:
- the claim presents questions of law or fact common to the class members;
- there is a 'reasonable chance' that those questions will be decided in the group's favour;
- a class action would be the just and efficient method for resolving the dispute;
- there are reasonable grounds to believe that the class members' cause will be adequately represented and managed; and
- there are reasonable grounds to believe that the class members' cause will be represented and managed in good faith.
Class actions do not have a special statute of limitations. In nearly all circumstances relevant to this note, the period provided by Israel's general statute of limitations applies, which is seven years from the time when the grounds for the claim arose, or would have become known to a reasonably diligent injured party. The Law includes a saving clause such that claims whose statute of limitations would otherwise have run in the course of a class action proceeding will survive for an additional year from the date that a motion for approval was denied or dismissed, or from the date that the claimant was removed from the class.ii Commencing proceedings
A motion for approval of a class action may be commenced by either a person possessing a cause of action that raises the question in law or fact common to the group, one of the government commissions listed in the Law's appendix, or a qualified non-profit organisation whose purposes include the public cause advanced by the class action. In practice, approximately 99 per cent of motions for approval of class action are commenced by a private member of the group. At least one Supreme Court Justice has expressed the sentiment that standing in a class action should be granted liberally and with heightened flexibility, in order to better promote the public cause. In practice, 'entrepreneurial' lawyers may take an active role in the formation of the claim, and the Supreme Court has said, in obiter, that in light of the public interest of promoting 'civil enforcement', the mere fact that a lawyer may take a leading role and even recruit a representative plaintiff to advance the claim does not, in and of itself, disqualify the lawyer or the representative plaintiff. Furthermore, the Law mandates that a court that would otherwise have allowed a motion for approval of a class action must 'cure' any defect in locus standi by ordering that the class action be maintained and continued by an additional plaintiff.
The default mechanism for a class action is 'opt out', meaning that upon approval of a motion for a class action, all individuals meeting the definition of the group as approved will be judged as members of the group and bound by the outcome of the proceedings, unless they file an objection within the required time period (the default period is 45 days from publication of the decision to approve the motion). In special circumstances, the court may, at its discretion, rule that the action be conducted on an 'opt-in' basis, which means that the proceeding will relate only to those class members who request to be included. In either case, the procedural and substantive provisions of the Law will apply.
The class must be defined, initially, by the party bringing the motion for approval. In the course of hearing the motion, however, the court has substantial discretion to alter or redefine the class, or create sub-classes and appoint representative plaintiffs and attorneys for each sub-class. Ultimately, the final definition of the class will be set forth in the court's ruling to approve the class action. There is nothing in the Law to exclude foreign claimants from being included in a class; however, several cross-border jurisdiction questions may arise in cases with foreign elements, as explained in Section IV.
The Class Actions Law established a seven-year pilot period for a dedicated government fund to provide financial assistance for representative plaintiffs whose causes of action are of public or social importance, and the lifetime of that fund has been continually renewed each year since 2013 by subsequent orders of the Minister of Justice.
Indeed, during 2018 the Ministry of Justice submitted a memorandum for a proposed amendment to the Law (proposed amendment number 11), according to which the fund's activity will become permanent. This is a reflection of the success of the fund in facilitating class actions with merit and of public and social importance.
The fund's nine-member management committee includes representatives from the Attorney General's office and several government commissions concerned with matters related to class actions (such as the Commission for Consumer Protection, the Antitrust Commission, the Environment Ministry, and so forth). The management committee holds quarterly meetings in which it examines, approves and follows up on funding requests, based on each claim's degree of public importance and its potential to promote the public interest, and the committee may also take into account any particularly onerous financial obstacles that a claim may face. Assistance may be offered at any stage of the motion for approval, in the course of the claim itself or any process of appeal and, in specially warranted circumstances, even before the initial motion is filed. To the degree that the sponsored motion or action is successful (whether upon judgment or settlement), proceeds from the award corresponding to the monies received are recycled into the fund. In its annual report for 2018, the fund reported that 1,582,126 Israeli new shekels had been approved for 64 funding requests, for an average of approximately US$6,800 per request.iii Procedural rules
One defining aspect of the Law is the requirement that a motion for the approval of a class action may be granted only once the court is satisfied that there is a 'reasonable chance' of the common question of fact or law being decided in favour of the class. The 'reasonable chance' criterion for approving a class action in Israel essentially forces the court to have some initial regard for the merits, even as it considers what is otherwise (and ostensibly remains) a procedural motion. The representative plaintiff must provide a preliminary evidentiary basis that sufficiently demonstrates a reasonable chance of success on the merits. Although phrased in terms of a procedural question, this essentially substantive requirement has created, de facto, a bifurcated process, in which a preliminary approval often serves as an indication of the court's leaning as it progresses to the merits. Experience has shown that the parties to litigation invest considerable resources in the 'preliminary motion' stage, which may include discovery, testimony and cross-examination, and may last several years in complex cases.
The Supreme Court directly responded to the bifurcation dilemma in The Phoenix v. Amosi, in which three insurance companies (as defendants joined into a single class action) contended that their alleged underpayment of personal accident insurance benefits was justified by the rules of contractual construction applicable to similarly phrased policy wordings. The court held that the very fact that the defendants had placed reliance upon an inferred reference not mentioned in the plain language of the policy wordings was sufficient, in and of itself, to determine that the plaintiffs' interpretation of the policy had a 'reasonable chance' of success in the claim. The court established that the guiding rationale of the 'reasonable chance' requirement was to strike a balance between protection of class action defendants from the collateral damage caused by spurious claims on the one hand, and the public interest of encouraging worthy class actions on the other hand.
The court in The Phoenix did not expressly retreat from the previous case law that had clearly established the need for a plaintiff to provide preliminary evidence to support the claim's 'reasonable chance' of success, and acknowledged that certain complex cases might even require preliminary legal or factual findings on the merits. On the other hand, the court warned against a bifurcation that would require 'duplicate proceedings' that place undue obstacles before plaintiffs, and potentially increase the collateral cost for defendants. In light of the above, the lead opinion held, inter alia (and in obiter), that where plaintiffs sought an identical remedy on several alternative grounds, it was sufficient to find that just one of the grounds had a 'reasonable chance' for success to allow the entire claim to proceed as a class action.
Upon the court approving a certification motion, the representative plaintiff's proposed statement of claim takes effect as the claim of the plaintiff class, and the main proceeding continues in accordance with the normal rules of civil procedure. All claims available in a normal proceeding remain available to both sides at this stage, unless and to the extent that the court, in its discretion, orders amendments to the statement of claims.
Experience has shown that nearly all class actions in Israel are resolved either by a withdrawal of the motion for approval or by settlement, most often during the motion's preliminary approval stage. While recent years have seen a measured increase in the number of class actions that gain approval (approximately 8 per cent on average in the past three years versus 5 per cent or less in previous years), the lion's share consistently result in a negotiated withdrawal or settlement, and typically only about 1 per cent, are finally resolved through a judgment. Of the tens of cases that have reached judgment since the Law's enactment, the vast majority have been decided for the claimants, an indication that the court's finding of a 'reasonable chance' of success in the approval stage may in fact include some preliminary review of the merits.
The Law does not entirely entrust the public interest to the self-appointed 'class agents'. It gives special procedural standing to the Attorney General's office, government commissions, non-profit organisations, and others. In every motion for approval of a class action, the representative plaintiff must send a notice, including the full motion and proposed statement of claims, to the government commission associated with that particular type of class action. The Attorney General, as well as the relevant government commission, must also receive every public notice related to the class action, including interim court decisions as well as any joint motion for the approval of a settlement. Qualified non-profit organisations and government commissions (as well as any individual class member) may, with the court's permission, participate in hearings to the extent the court deems such participation required for the sake of fairness, efficiency, or the defence of any of the class members' interests, and the court may, in its discretion, award a fee to a non-profit organisation in light of its contribution to the hearings. In addition to the Attorney General and all of the aforementioned persons, 'any person acting for the benefit of the class members' interests' may submit a reasoned objection to the proposed settlement of a class action proceeding, including an objection to the costs and fees proposed for the 'class agents' thereby, which objection may not be withdrawn without court approval, and in light of which the court may award a fee, commensurate to the extent to which the objection served to promote the public interest.
The Israel Consumer Council has special standing under the law, in that it may commence a class action proceeding without needing to demonstrate any particular difficulty or burden in the action being commenced by a private individual. The Israel Consumer Council has played a role both in commencing class actions and filing objections to proposed settlements that resulted in arrangements more favourable for consumers.
Motions for class actions are most commonly submitted to the district courts, since they generally involve aggregate claims in excess of 2.5 million Israeli new shekels. They generally require more judicial hours than an average case judged by the standard rules of civil procedure, but are still resolved, on average, with fewer judicial hours than cases involving standard form contracts, antitrust law or serious crimes. Of those certification motions in respect of which a decision was rendered, the average time lapse between the date of filing and the date of the decision (of the certification motion) has been approximately 1.5 years, although of those motions for which approval was granted, the average time lapse is slightly higher, and it is not uncommon for particularly complex certification motions to require several years to be adjudicated.iv Damages and costs
There are no jury trials in the Israeli legal system. Class actions are typically heard before a single judge, who will determine all questions of fact and law regarding the certification motion, the action, and the extent and nature of damages and other remedies.
Israeli law takes a particularly flexible approach to damages and causality in class actions, an approach anchored in statute by the express purposes of the Law, which include '[civil] enforcement of the law and deterrence of its breach' and 'the grant of fitting remedy to those injured by a breach of the law'. Even prior to the Law's enactment, the Israeli courts had viewed flexibility in damages as essential to certain class actions. A prevalent jurisprudential sentiment is that while the damages awarded in classic tort actions are meant to provide 'corrective justice', a strict adherence to the traditional rules of damages would undermine the basic rationale and primary purpose of the law of class actions: to achieve efficient and effective deterrence against breaches of the law.
In the landmark Tenuva (I) case, Tenuva, a major Israeli dairy manufacturer, had misled consumers regarding the use of a clear, non-toxic, silicone-based polymer as an additive to prevent frothing in low-fat milk. The plaintiff class consisted of those who had consumed the milk on the false understanding that the silicone had not been added, yet plaintiffs had failed to demonstrate any physical damage. The Supreme Court upheld the district court's approval of the certification motion for a class action, based on breach of consumers' autonomy, with non-monetary damages awardable based on plaintiffs' negative feelings of disgust upon learning of the additive. Flexibility would also be required in awarding the damages to benefit a public cause, since it would be impossible for those who had actually consumed the milk to prove their identity, or the extent of the injury they suffered.
Subsequently, the Law anchored and built upon the case law that had preceded it. Punitive damages are rarely granted by Israeli courts, and, with the exception of certain class actions regarding the rights of people with disabilities, the Law specifically disallows punitive or exemplary damages in a class action, rather requiring the class members to prove that they suffered actual 'injury'. As in the previous case law, however, flexibility lies in the causation, scope and proof of injury, as well as the variety of remedies available.
The Law itself provides statutory mechanisms for overcoming the problem of class members whose individual identity may be difficult or impossible to ascertain or prove. A court rendering judgment in favour of the class members may grant damages or any other remedy (including any injunction or declaratory relief), which may include the quantum of damages for each member as well as the standard of proof required of a class member to demonstrate his or her right to damages (or other remedy). The court may also determine a global quantum of damages that the defendant must remit in any event, and in the event that the proved claims of individuals do not reach that amount, may provide instructions for the distribution of any remainder to class members with a proved right, up to the full satisfaction of their loss. If there is still a remainder from the global quantum, it will be paid to a statutory fund charged with distributing the proceeds to the public benefit in a manner most closely resembling the matter of the class action.
The Law further recognises, as did the Supreme Court in Tenuva (I), that the award of traditional 'damages' to atomised class members is not always a feasible remedy (especially, as in the Tenuva case, where the injured members were consumers of household items, who are not readily identifiable and who do not generally maintain proofs of their purchase or consumption). If a court is of the opinion that class members cannot be individually identified and compensated without unreasonable cost or difficulty, the Law authorises the court to grant damages, or any other remedy, for the benefit of either the group as a whole or the general public.
The Law reflects the jurisprudential sentiment that the damage in a class action is more than just the sum of the parts; the claimant is not just an individual representing other individuals, but rather a 'super-plaintiff' who gives expression to the collective and aggregate interest of the class. This sentiment found authoritative expression in Tenuva (II), the sequel to the first Tenuva case, in which Tenuva was ordered to donate approximately US$11 million to public causes. The court in Tenuva (II) further allowed for group causality to satisfy the causality requirement of a class action in tort, under which generalised and statistical evidence of consumer preferences and behaviour as a whole would be sufficient to demonstrate the causal link between non-monetary damages and the violation of consumer autonomy.
The remedy of enforced donations as damages payable to the public raised an ancillary issue in the Israeli courts: the concern that either or both of the parties to a class action would leverage the outcome to promote their own public image or sponsor their own preferred channels, exploiting court-mandated donations to serve their own goodwill and advertising interests. The Law's amendment of 2016 has provided a statutory solution: from now on, damages awarded to a public cause will be transferred to a statutory fund charged with distributing the proceeds to causes that match or approximate the public interest that each particular class action is meant to promote.v Settlement
Any settlement of a class action proceeding requires court approval. A report of the claim and the proposed settlement, including certain key parameters, must be publicised and sent to the Attorney General as well as to the public commission charged with the claim's designated subject area, and any other person whom the court deems appropriate. A proposed settlement must include, inter alia, a definition of the class, a summary of the claim and the proposed settlement, the gap between the amount of the claim and the amount of the settlement, the stage of the proceedings and an evaluation of the benefits and risks of their continuation, and the issues and remedies regarding which the proposed settlement would comprise an estoppel. Class members who wish to exit from the proposed settlement may request leave from the court to do so.
The Law mandates that a court may approve a proposed settlement only after it is satisfied that the settlement is fair, adequate and reasonable, and that concluding the proceedings by way of settlement is the most equitable and efficient manner for resolving the issue under the circumstances. In the case of a settlement in the 'motion for approval' phase, the court must also be satisfied that the claim would have met all of the procedural requirements for a class action, including the quasi-substantive requirement of a 'reasonable chance of success'. Furthermore, the court may not ordinarily approve a settlement until it has first received the expert opinion of an 'examiner' appointed as an officer of the court, who is authorised to summon the parties for a hearing or suggest variations to the proposed settlement. The court may provide specific instructions for supervision of the settlement's execution, and may also predicate the payment of fees and costs to the representative plaintiff and counsel on the settlement's actual execution (in full or in part).
The Attorney General and any government authority relevant to the claim, as well as any class member, qualified non-profit organisation, or person who acts in general for the benefit of the class members, have legal standing to file an objection to a proposed settlement within 45 days of its publication notice; any such objection may not be subsequently withdrawn without court approval. Under a recent amendment to the Law, if the court accepts the objection in full or in part, it may order that a 'reward' commensurate with the public interest achieved to be paid to the objector.
It is common for the Attorney General to express a position ('objection' or 'no objection') regarding the proposed settlement, and there seems to be a recent trend of the Attorney General responding with comments to the proposed settlement even when filing a 'no objection' response. The Attorney General has typically filed objections to around 15 per cent of proposed settlements, and among such cases, the court's tendency to reject the settlement or approve the settlement with substantial changes is correspondingly greater. If approval of a settlement is withheld or cancelled, nothing said or determined in the course of the settlement approval proceeding may serve as evidence in any civil proceeding.
The Law does not provide any territorial limitations; as a rule, cross-border issues will be a matter of Israel's general private international law. Thus, a foreign corporation may be the respondent in a certification motion of a class action (and a defendant in the action itself), subject to procedural rules regulating the lawful service to foreign defendants. A class may also include foreign members, thereby binding such members to the result of the proceedings, although a preponderance of foreign connecting factors may guide the court in deciding whether to allow the service of proceedings abroad, or whether it will relinquish its jurisdiction under the forum non conveniens doctrine.
An Israeli court gains jurisdiction over a foreign defendant in one of three ways: either by direct service of claims to the defendant (or an officer of the defendant) within the territory of Israel, by service to the defendant abroad upon leave from an Israeli court (or a registrar who is a judge) under Regulation 500, or by service to the defendant's 'authorised agent' in Israel under Regulation 482. From a plaintiff's perspective, the advantages of Regulation 482 are obvious: it is a more efficient procedure that does not necessitate a preliminary hearing, and is not subject to judicial discretion. The barrier lies in the question of who is deemed to be an authorised agent of the defendant. The case law has established a fact-dependent 'intensiveness of commercial relationship' test, which looks at a variety of objective factors to determine whether the agent in fact reports to and does business on behalf of the principal. It is settled law that an 'intensive relationship' with one foreign company does not necessarily constitute a relationship with another group affiliate of that company, and that the mere fact of an exclusive distributorship, unless supported by evidence of additional factors, does not in and of itself constitute an authorised agency. Similarly, the mere fact of being an affiliate or member of the foreign company's group does not necessarily constitute an authorised agency, to the extent that the affiliate operates as a bona fide supplier of services to the parent group, and especially if its lack of authorisation is adequately documented in representations made to the public. In practice, the question is highly dependent on the facts of the case.
Even if a foreign corporation does not have an 'authorised agent' in Israel, it may be directly served with a certification motion of a class action by leave of the court if the criteria of Regulation 500 are met. In a string of cases regarding foreign companies operating global internet platforms, the courts have interpreted Regulation 500 broadly to allow Israeli plaintiffs and classes to bring their claims before an Israeli court, and have consistently struck down foreign jurisdiction and choice of law clauses in the platform operator's standard terms and conditions by means of the 'presumption of unfairness' clause of Israel's Standard Contracts Law 1982. Furthermore, although forum non conveniens is a doctrine applied in a court's discretion on a case-by-case, fact-dependent basis, a common thread in these cases indicates that where a platform operator appeals to the Israeli public through the internet in the Hebrew language, and especially where Israel has a public policy interest in protecting the rights of Israeli residents, it will be challenging for a foreign defendant to persuade an Israeli court to relinquish jurisdiction.
Cross-border jurisdiction issues may be highly relevant for multinational corporations facing follow-on class actions in Israel for breaches of competition law. These issues were the focus of the Optronic/Sharp case, a follow-on action in Israel against foreign defendants regarding an alleged large-scale international cartel of screen manufacturers that claimed a domestic 277 million Israeli new shekels in damages. The plaintiffs sought to introduce the 'effects doctrine' to Israel to justify extraterritorial application of Israel's Restricted Trade Practices Law 1988. The registrar refused the defendants' motion to annul the service of proceedings, holding that the sale of the cartel-related products in Israel, as well as the deleterious effect on competition in Israel under the 'effects doctrine', were sufficient grounds to allow service of proceedings to foreign defendants alleged to have participated in a cartel.
The district court reversed the registrar's decision on appeal, setting aside the service of proceedings and annulling the court's jurisdiction. The district court held that the sale of goods in Israel could not be interpreted as an 'act' by the alleged cartel members, and that the 'effects doctrine' could only apply to the scope of Israel's substantial antitrust law, and could not transform an alleged international cartel, which took place globally, into an 'act or omission' done in Israel to satisfy the requirements of Regulation 500 for service abroad. Since the basis for Israeli jurisdiction was removed, the court did not reach the issue of whether the 'effects doctrine' would apply to Israel's substantial antitrust law, but expressed doubt in obiter as to whether the 'effects doctrine' (even if adopted by the court) would apply to the facts of the case, where defendants had not sold products or operated directly in the Israeli market (such that the effect on the Israeli market was at best indirect). This was an important cross-border precedent for follow-on class actions in competition law, which places a significant procedural barrier before 'class agents' seeking to bring multinational corporations into an Israeli court.
However, a recent, significant amendment to the Civil Procedure Regulationshas increased the risk to a foreign company of being sued for damages in an Israeli court. The new section provides that an Israeli court may hear a claim for damages where the damage occurred in Israel even though the act or omission that caused the damaged occurred outside Israel's borders. The claim must be based on damage caused to the plaintiff in Israel from a product, service or behaviour of the defendant and that two further conditions must be fulfilled, namely: first, the damage caused to the plaintiff in Israel must be from a product, service or behaviour of the defendant and the defendant could have expected that the damage would be caused in Israel. The assumption is that the foreign company can expect the damage to occur in Israel and therefore be able to take precautions against it occurring.
The amendment was introduced by the Department of Justice to bypass the decision in the Optronic/Sharp judgment and enhance Israeli consumer protection.
It should be noted that Section 500(7a) is a new regulation that came into force recently, and accordingly it has not yet been examined by the Israeli courts. Therefore, the manner in which the courts will interpret and apply the new section is uncertain.
The second, that the defendant or a related person must be engaged in international trade or the provision of significant international services.
The mirror image of service of proceedings to foreign defendants is the degree to which Israeli courts will recognise a decision rendered in a foreign class action suit as binding on Israeli plaintiffs. If a judgment has been rendered on a similar class action in a foreign court, an Israeli court may allow 'incidental' recognition of the foreign judgment for purposes of res judicata or collateral estoppel. For a foreign judgment to provide estoppel in an Israeli certification motion of a class action, the foreign court must possess, in addition to jurisdiction under its own laws, a 'real and substantial connection' to the matter, which may include, inter alia, the location of a substantial portion of the class members, and the reasonable expectation of class plaintiffs that their class matter would be resolved in that forum. It must also be shown that the procedural rights of the class members were not compromised; specifically, that they had fair notice of the proceedings, the opportunity to participate in or withdraw from the proceedings, and adequate legal representation throughout the proceeding. Under exceptional circumstances, the court may re-examine the judgment or court-approved settlement reached in a foreign class action if its result was 'patently inadequate' or contrary to public policy. Otherwise, the foreign class action judgment will generally merit incidental recognition by the Israeli court and, if and to the extent that the foreign law so mandates, may create claim or issue estoppel.
In a recent Facebook ruling, the Supreme Court held in a class action that a clause in a contract, which was determined to be a standard contract under the Standard Contracts Law, 1982 (the Standard Contracts Law), that stipulated that any dispute arising between the parties shall be heard in a jurisdiction outside Israel may deprived consumers, pursuant to the Standard Contracts Law, of their right to bring their dispute before an Israeli court and it was therefore null and avoid. Under the Standards Contracts Law, a court may annul or change any condition of a standard contract that, having regard to the totality of the contract's conditions and to other circumstances, involves an undue disadvantage to customers or an unfair advantage for the supplier, which is likely to lead to the customers' deprivation (Section 3). A condition in a standard contract that stipulates the law regarding, among other things, the place of jurisdiction for the settlement of a dispute unilaterally is presumed to be an unduly advantageous condition and thus unenforceable (Section 4(9)). However, a stipulation as to a choice of a foreign governing law (as opposed to a choice of the place of jurisdiction) was held to be valid, provided that such choice of law clause was not used to 'bypass' those provisions of Israeli law that cannot be conditioned.
Damages and costs
Outlook and conclusions
In general, Israel continues to be a class-action-friendly jurisdiction even though there was a 13 per cent decrease in the number of certification motions brought in 2018. This marked a departure from what had been, until then, a consistently increasing volume of motions for approval of class actions. As mentioned above, this reduction might be due to the introduction of significant court fees required to bring an application for the approval of a class action.
Israel's case law in class action claims continues to be proactive and dynamic. A series of successful class actions involving internet platform providers further emphasises the fact that vigilant observance of local laws, regulations and standards should be of concern for all multinational corporations operating in the Israeli market. Foreign companies should also be attentive to the details of the degree and nature of their relationship with local entities (whether group affiliates or not) in managing the risk of litigation. The exact extent of foreign companies' exposure is subject to the manner in which the courts will interpret and apply the new legislation.