Class actions have been permitted in Israel since the late 1980s. However, prior to 2006, class actions were only permitted via specific legislation governing a particular area of the law tool (the Consumer Protection Law, 5741-1981, the Companies Law, 5759-1999, the Antitrust Law, 5748-1988 and others), and under a regulation relating to group claims that was viewed as procedural ground for the class action mechanism.
Class actions have been permitted in Israel since the late 1980s. However, prior to 2006, class actions were only permitted via specific legislation governing a particular area of the law tool (the Consumer Protection Law, 5741-1981, the Companies Law, 5759-1999, the Antitrust Law, 5748-1988 and others), and under a regulation relating to group claims that was viewed as procedural ground for the class action mechanism.
As result, there was no uniformity in the language regulating class actions from one set of laws to the next. Additionally, Rule 29 of the Civil Procedure Regulations (5744-1984), permitted class actions based on “general” causes (ie, tort law, contract law or unjust enrichment). On 1 October 2005, the Israeli Supreme Court issued a landmark decision in which it determined that Regulation 29 cannot serve as a basis for class actions for any area of law in the absence of specific express provision of the law.
The Israeli Supreme Court’s judgement in the Eshet Project Management and Manpower case accelerated the legislative process of the Israeli parliament to finalise the legislation of a new class action law. On 12 March 2006, the Class Action Law, (5766-2006) was passed by the Israeli parliament. The Class Action Law replaced all provisions in the various laws that had previously allowed the filing of class actions and set new and comprehensive rules for the filing and handling of class actions in Israel.
The first noticeable effect of the Class Action Law was the rush of consumer class action filings. Consumers of products filed claims against the manufacturers and/or suppliers of products that allegedly misled the consumers by the dissemination of false, misleading or only partial information concerning the product in question. Additionally, there are also, generally, five different types of securities class action categories in Israel. They include, but are not limited to, securities fraud class actions.
Israeli securities fraud class actions tend to be filed by shareholders or bondholders of a company alleging that its prospectus and/or the financial report relied on to purchase the company’s shares or bonds was false and/or misleading. These types of cases are brought pursuant to the Israeli Securities Act (5728-1968), which stipulates that all those who signed the prospectus and/or the company’s financial reports, including its directors, officers, and underwriters, as well as controlling shareholders, are all liable for the misleading information contained in the prospectus and/or financial reports.
The worldwide financial crisis led to an increasing number of securities claims being filed due to allegedly false and/or misleading information contained in different companies’ prospectuses and/or financial reports.
For these cases to progress and be certified as class actions they needed to meet the heightened standards set by the Israeli courts in precedential cases such as Tezet v Zilbershatz, where the Israeli Supreme Court determined that in order for a securities fraud claim to be certified as a class action, plaintiffs must show that they allegedly suffered losses as a result of the misleading details contained in the prospectus and that a causal link exists between the allegedly misleading information contained in the prospectus and the alleged loss.
In reaction to the increased scrutiny and number of financial related claims filed in the wake of the worldwide financial crisis, on 15 December 2010, the Israelis Courts Law (5744-1984) was amended and it included the establishment of a financial department in the Tel Aviv District Court (the Financial Court), which was inspired by the Delaware Court of Chancery operating since 1792 in the US, which deals largely with corporate issues and is responsible for developing the case law on corporate matters.
The goal of the Financial Court is to provide a specialised tribunal for financial cases, both civil and criminal, which will be decided by a team of three financial-oriented judges nominated by the president of the Supreme Court, in consultation with the presidents of the district courts.
The Financial Court focuses mainly on financial cases arising from both Israeli securities laws and the Israel Companies Law, and it has exclusive jurisdiction in the following matters: indictments regarding offenses under the Securities Law, most civil cases regarding the Companies Law and the Securities Law, including derivative claims and class actions, administrative appeals against the Israel Securities Authority, the Tel Aviv Stock Exchange and the Registrar of Companies, and appeals on resolutions of the discipline committee under the Investment Advisors Law (5755-1995).
The Class Action Law is intended, primarily, for situations where a large corporation injures a group of people, in such a manner that each individual suffers small damage, which would not justify the filing of an individual claim. However, the aggregate damage to the injured parties is extensive. Therefore the class action mechanism allows for consolidation of all the injured parties and created an incentive for filing the lawsuit.
As result, the Class Action Law is not only an important tool for enhancing the enforcement of rights, but has an equally important deterrent effect because of the cumulative nature of the class action claim. Moreover, it is particularly important in areas where there is no adequate enforcement and the administrative supervision is also lacking. Thus, the Class Action Law not only serves the private interest of injured parties, but also the social/public interest.
