With litigation involving global corporations gaining unprecedented prominence in Israel, becoming acquainted with Israeli litigation practices could offer significant advantages for companies and individuals already operating in, or considering entering the Israeli market.
PART II
I. Class actions In Israel
Class action lawsuits have become a prevalent phenomenon in Israel, including against foreign international corporations. The legal framework for filing and adjudicating class actions in Israel is outlined in the Class Actions Law, 2006 and the Class Action Regulations, 2010.
The Class Actions Law limits the causes of action and matters that can be certified as a class action, listing several class actions that may be certified. Some prominent examples for such class actions are listed below:
- Most commonly used of these is any civil cause of action against a business in a matter between that business and a customer, whether derived from contract law (e.g. breach of contract) or torts law (e.g. breach of a statutory duty). These may include, for example, claims based on the Consumer Protection Law, 1981, such as misleading consumers regarding material aspects of a transaction (e.g. the nature of the asset or service); transaction cancellation terms, etc.
- In recent years, there has been a marked rise in private
enforcement of the Economic Competition Law, 1988 (the
"Antitrust Law") through the filing of
class actions, for example in the context of alleged damages caused
in Israel by international price-fixing conspiracies
(cartels).
A declaration of a breach of the Antitrust Law by the Director General of the Israeli Competition Authority serves as prima facie evidence in all legal proceedings, and thus facilitates the submission of class actions regarding the subject of the declaration; though a plaintiff may try and convince a court that a defendant is indeed a monopoly or a party to a cartel for instance, even without such declaration. - Another prominent cause of action in recent years is unlawful invasion of privacy, especially in cases where personal information regarding customers is collected and stored.
Under Israeli law, a class action is adjudicated in two stages:
- The certification stage – where the court decides whether to allow the class plaintiff to lead a class action on behalf of the class they claim to represent.
- The adjudication of the action itself – which is similar to the adjudication of any other civil claim in Israel.
The certification stage begins with the plaintiff filing a motion to certify the class action. The motion to certify must demonstrate that the claim meets the cumulative conditions required for the court to certify the motion, being that:
- The plaintiff has a personal cause of action concerning the subject of the motion.
- The class action raises material questions of law or fact that are common to all the members of the putative class.
- There is a reasonable chance that said mutual questions will be decided in favor of the putative class in the adjudication of the claim.
- A class action is the fair and effective mechanism for resolving the dispute.
- There is a reasonable basis to assume that the class plaintiff will duly and properly represent the interests of the represented class.
- There is a reasonable basis to assume that the interests of all class members will be represented and managed in good faith.
The respondents are entitled to respond to the motion to certify, and the class plaintiff is then entitled to reply to the respondents' response.
Following the parties' submissions, the court will usually set a preliminary hearing, for the purpose of simplifying and expediting the adjudication of the motion to certify, or to explore the option of resolving dispute through a settlement. At times, the court might propose that the parties turn to mediation.
Should mediation or the preliminary hearing not be fruitful, the court will usually schedule evidentiary hearings, wherein the affiants (and experts who submitted expert opinion) on behalf of both parties are subjected to cross-examination (unless the parties agree to forgo cross-examinations).
The evidentiary hearings are typically followed by written summations, following which the court decides whether to certify the class action.
If the motion to certify is granted, the court will include in its decision the legal and factual questions that will be adjudicated, and the definition of the class to be represented by the plaintiff.
In general, the decision to certify a class action can be challenged by leave of appeal filed to the relevant court of appeal. A decision to deny the motion to certify, on the other hand, is considered a judgment, and can therefore be appealed by right. However, the court's decision in the claim itself (following the granting of the motion to certify) can be appealed by right to the relevant court of appeal.
The Class Actions Law sets out a unique procedure for the approval of settlements, which are subject to the court's approval. The parties must publicize a notice to the public with the terms of the proposed settlement. Furthermore, a copy of the proposed settlement must be sent to the Attorney General, the Courts Administrator, and the relevant regulator (such as the Custodian of Consumer Protection). These officials, as well as any member of the represented class, and any entity or government body that operates to further public goals in fields relevant to the motion, may file objections to the proposed settlement. Members of the represented class may also "opt- out" of the settlement agreement.
The settlement will only be authorized if the court finds it fair, reasonable, and proper, considering the interests of the represented class. If the settlement is reached during the certification stage, the court must also find that the prerequisites for certifying the motion are fulfilled.
II. Israel's new International Commercial Arbitration Law
On February 12, 2024, the Knesset enacted the International Commercial Arbitration Law, 2024 (the "ICAL"). This law closely conforms to the United Nations Commission on International Trade Law's ("UNCITRAL") Model Law on International Commercial Arbitration, initially adopted in 1985 and subsequently amended by UNCITRAL in 2006 (the "Model Law"). The ICAL's primary purpose, as outlined in its introductory provision, is to establish a comprehensive legal framework for conducting international commercial arbitration proceedings in Israel, guided by the principles contained in the Model Law.
Before the ICAL came into effect, all arbitrations conducted in Israel, whether domestic or international, were governed by the Israeli Arbitration Law, 1968 (the "Arbitration Law"), which also referred to certain terms of international conventions on arbitration, where applicable. However, the explanatory notes accompanying the ICAL bill contended that the Arbitration Law inadequately addressed the distinct features of international commercial arbitration. As a result, the ICAL was introduced to bridge this gap by adopting a framework based on the provisions of the Model Law, which reflect a globally-recognized standard for international arbitration practice. It should further be noted that Israel is a party New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
III. Noteworthy procedures and Principles in Israeli Law
A. Good faith
Great emphasis is placed on the principle of Good Faith under Israeli law, which is applicable across all domains of private law. The duty of a party to act in good faith is often sufficient to establish liability (or rights), and sometimes even to create duties towards a party harmed by conduct in bad faith – even if said obligations are not expressly included in the original agreement between the parties.
The duty to act in good faith was set in the Israeli Contracts (General Part) Law, 1973 and applies to all the contractual stages – negotiations, the execution of the agreement, and termination thereof, but has also been interpreted to apply to all types of legal actions, whether contractual or not, including actions taken in the context of litigation, such as misuse of judicial procedure etc.
B. Unjust enrichment
Unjust Enrichment is a codified and well-established cause of action under Israeli law. It may be used as an independent cause of action where there is no contract or specific tort, but where a party is deemed to have benefitted unfairly at the expense of another. It may also be useful as a cause of action accompanying a more 'traditional' one, such as copyright infringement, where there is difficulty proving damages (or where it is impossible to do so), but where the injured party can show that there is enrichment resulting from such unlawful conduct.
Under such circumstances, a party may be required to reimburse the other party for its enrichment.
Under Israeli law, a plaintiff must prove three cumulative elements in an unjust enrichment claim: (1) the existence of enrichment; (2) that the enrichment is at the expense of the plaintiff; and (3) that the enrichment is unlawful.
C. Standard Form Contracts
A standard form contract (or a contract of adhesion) is a contract with a uniform formulation intended for many engagements. Generally, the contract is drafted by one party, or at its request, in order to be used in agreements with its customers and is usually presented to the customer as a finished product that cannot be negotiated ("take it or leave it").
The Standard Form Contracts Law, 1982 was enacted to protect customers that are party to a standard contract. The law stipulates that in circumstances where – considering the entirety of the contract's provisions and the context of the engagement – a specific clause of a standard form contract is found to be exploitative or provides an unfair advantage to a service provider, the court is empowered to invalidate it. The law also includes a list of instances which are presumed to be exploitative.
Numerous claims, including class actions, are submitted alleging that the provisions delineated in the agreements which are the subject of the claim (in the case of a class action, for example, user agreements, or terms of service), prescribed by the service providers, are exploitative and hence non-binding.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
