In general, collective actions are pursued in the Israeli legal system in accordance with the mechanism established by the Israeli Class Action Law, 5766-2006 (the “Law“), which governs the filing and adjudication of class actions. According to the Law, in order to commence a class action, the petitioner (aiming to represent the members of the class) must file a statement of claim based on a personal cause of action, alongside a motion to certify the personal claim as a class action, which is subject to the court’s approval and discretion.

The motion to certify is adjudicated as a separate and preliminary trial. Following the filing of the respondent’s response to the motion, the court will hold evidentiary hearings and decide upon various petitions. Once this process is concluded, the court will decide whether the motion to certify meets the conditions specified in the Law for certifying the statement of claim as a class action. The court will grant certification only if it is satisfied that (1) there is a reasonable possibility the common questions of fact and law will be resolved in favour of the class; (2) a class action is the efficient and fair way of resolving the dispute under the specific circumstances of the matter; and (3) there is reasonable basis to assume that the interest of the class members will be represented and managed properly and in good faith. If the court grants certification, then the class action is adjudicated on its merits.

A notable exception to the above-mentioned mechanism is the collective redress mechanism established by the Prevention of Environmental Nuisances (Civil Action) Law, 5752-1992, which allows a person who suffered damages or is expected to suffer damages due to an environmental nuisance, as well as eligible entities or non-profit organizations, to file a collective proceeding as set forth in Article 10 of that law.

Article 4 of the Law defines who is entitled to file a motion to certify a class action, as follows: (1) an individual or corporation who possesses a personal valid cause of action that raises substantive questions of fact or law common to all members of the group; (2) a public authority (enumerated in the First Addendum to the Law) with respect to a claim in the scope of one of its public goals; and (3) an organization (as defined by the Law) with respect to a claim in the scope of one of its public goals, provided that the court is convinced that, under the circumstances of the matter, there is difficulty in filing the motion to certify by an individual possessing a personal cause of action (except for the Israeli Consumer Council, which is entitled to submit a motion to certify, even if there is no difficulty in submitting the request by an individual).

The court designated to hear a specific class action is determined according to the general rules of subject matter and territorial jurisdiction. For example, the jurisdiction of the court in a class action seeking monetary relief will be determined by the total monetary compensation sought or estimated in the claim. Another example is a class action that is filed for a cause of action as to which the labor court holds exclusive jurisdiction. Such class action is adjudicated by the relevant labor court (except for cases where specific remedies are sought).

The Second Addendum to the Law specifies causes of action that may serve as a basis for a motion to certify a class action. The list of causes of action includes, inter alia: (1) a claim against a person selling products or providing services as an occupation, including a manufacturer, in a matter between such person and a client; (2) a claim against an insurer, an insurance agent, or a fund management company, in a matter between such and a client; (3) a claim against a banking corporation, in a matter between the banking corporation and its client; (4) a claim based on a cause of action pursuant to the Antitrust Law; (5) a claim based on a cause of action deriving from the ownership, possession, purchase, or sale of securities or investment units; (6) a claim regarding an environmental hazard; (7) a claim based on a cause of action under the Prohibition of Discrimination in Products, Services, and Entry into Places of Entertainment and Public Places Law; (8) a claim against a public authority for restitution of unlawfully collected payment; or (9) a claim by a shareholder or holder of means of control in a rated corporation or holder of a rated financial instrument against a rating company, for a cause of action stemming from any law arising from said rating.

Article 3(a) of the Law stipulates that a class action may only be filed if it is based on the causes of action specified in the Second Addendum to the Law or on a provision of law that explicitly permits the submission of class actions on its basis.

According to empirical research conducted and published in March 2023 by an inter-ministerial team established to examine the arrangements stipulated in the Law, since the enactment of the Law in 2006, there has been a surge in class actions filed in Israel. In the past five years, an average of 1,500 class actions have been filed per year. The inter-ministerial team has published the following chart, which lays out the number of motions to certify class actions that were filed over the years:

According to the empirical research conducted and published in March 2023 by the inter-ministerial team, the vast majority of class actions in Israel are filed for causes of action under two main categories, and thus pose the top two categories of emerging business risks:

Consumer protection: The main business risks in this category relate to false and misleading advertising and false marking of goods. These issues are relevant to a large number of consumers (potential class members) and thus pose a substantial monetary risk for companies.

Rights of persons with disabilities: This category poses an emerging business risk due to growing awareness and governance as to the rights of persons with disabilities. Furthermore, the rules and procedures pertaining to such causes of action are meant to incentivize petitioners to file class actions relating to the rights of persons with disabilities (i.e., no court fee payment upon filing, the court’s ability to award punitive or exemplary damages, etc.).

Another third category of emerging business risk involves securities and corporate governance class actions. Though the quantity of class actions filed for causes of action under this category is not as large as the other two categories, the ongoing development of the relevant rules and regulations relating to this category creates high exposure for companies, with the main emerging business risks being, inter alia, allegations relating to misrepresentation, insider trading, and breach of fiduciary duty. Furthermore, class actions on these matters tend to be legally complex and involve a long-drawn-out, costly process.

The default mechanism for class actions in Israel, in accordance with the Law, is an opt-out mechanism. However, the court has judicial discretion to order, under special circumstances, that an opt-in mechanism shall apply in a specific class action.

In order to initiate a class action, the petitioner must meet several procedural formalities, inter alia, the plaintiff must file an individual statement of claim, based on a personal cause of action, alongside the motion to certify a class action supported by an affidavit. The petitioner must attach supporting evidence and case law and pay the required court fees (in accordance with the Courts Regulations (Fees), 2007) upon filing. Furthermore, prior to filing, the petitioner is required to check if the register includes a pending class action (or motion to certify), which raises identical or similar essential questions of fact or law. If no such pending class action exists, upon filing, the petitioner is required to notify the Courts Administration of the filing, to have the claim registered.

It should be noted that the Law does not require any prior notice to the potential defendants, although lack of prior notice may be a relevant consideration in the decision on whether to grant certification of the motion in specific circumstances, as ruled by case law.

In general, the Law does not limit the type of remedies that can be petitioned for in a class action, and the court has discretion to award any remedy it deems appropriate for the benefit of the class, including monetary compensation, injunctive relief, declaratory relief, and restitution.

A notable exception is the restriction on monetary relief in class actions filed against a public authority for restitution of payment unlawfully collected as a tax, toll, or other mandatory payment, which is limited to the amounts collected in the 24 months prior to the filing of the motion to certify.

Punitive or exemplary damages cannot be awarded in a class action, and the same rule applies to statutory damages. A notable exception may only be granted in class actions where the cause of action pertains to specific rights of persons with disabilities.

The Israeli legal system does not involve juries. Proceedings in Israel are conducted before professional judges. Class actions are adjudicated before a single judge.

The Law provides guidelines for the court as to quantifying damages and the distribution of remedies for such among the class. The preferred method that coincides with the purpose of a class action is to reward the class members for actual damage resulting from the defendant’s wrongdoing. Nonetheless, when there is an inherent difficulty in quantifying the specific, the court has the authority to order that estimated damages be applied.

As to distribution, the court may order monetary compensation, or any another suitable remedy, to be paid directly to each class member who has proven eligibility, in the amount and manner decided by the court. Alternatively, the court may order each class member to prove their eligibility for monetary or any other compensation. The court may otherwise order the defendants to pay a lump sum, from which each class member will be compensated on a pro-rata basis. If a remaining sum is left due to a class member relinquishing compensation, failing to prove eligibility, or if he cannot be located, the remaining sum will be allocated among the other class members proportionally, provided that no class member is overcompensated, following which the court may order any sum left to be reverted to the national class actions trust or to be used for other purposes, such as donations.

In cases where it is impossible to identify and locate the specific individuals that incurred damage from the wrongdoing, the court may award monetary compensation or any other remedy to individuals that were not part of the represented group, for example, future customers of the defendants, even if they were not members of the original represented class.

The Law does not impose any restrictions relating to territorial jurisdiction. Therefore, the general Israeli rules of jurisdiction and private international law apply. In this regard, when a motion to certify a class action is filed against an international respondent, the court will examine whether the procedural rules regarding proper service are met and if the forum non conveniens doctrine applies. Furthermore, the court will also consider the choice of law.

It should be noted that in recent years, a series of rulings have broadened the interpretation and application of the relevant considerations and procedural rules, reducing the obstacles that petitioners face when a foreign respondent is involved. Prominent rulings in this regard provide that foreign entities that operate or provide online services in Israel are subject to Israeli jurisdiction and can be liable for damages under Israeli law, even where their terms and conditions contain clauses that try to deprive jurisdiction.

The law does not provide any explicit limitation as to the nationality or domicile of the petitioner. Thus, a foreign petitioner may initiate a class action and represent the class if he possesses a personal cause of action and the court deems him able to represent and manage the class’s interests properly, effectively, and in good faith.

International laws may be taken under consideration by the court while adjudicating class actions, especially when dealing with precedential matters. The weight attributed to international laws on rulings, if any, is subject to the court’s discretion.

Article 18 of the Law outlines a detailed mechanism for settlement agreements in class actions. In short, the Law mandates that settlement agreements be brought before the court and be subject to its approval.

A motion to approve a settlement agreement is filed with the court, alongside affidavits on behalf of the parties and their prospective counsels that include all material details related to the settlement. If the court does not dismiss the settlement in limine, the court will order that a public notice concerning the motion be made. Further to the publication, class members, a relevant public authority or organization, and the Attorney General may file an objection to the proposed settlement, following which the parties will be given the right to respond to the objection. Furthermore, class members who do not want the settlement to apply to them may request the court’s permission to opt out.

After such process is completed, the court will review the settlement agreement and any objections (if applicable), examine the relevant considerations, and decide whether to approve the proposed settlement.

As mentioned, a settlement in a class action, both at the stage of the motion to certify as well as after the action is certified, is subject to judicial oversight and requires the court’s approval.

Article 19 of the Law provides the considerations the court must take into account, establishing that the court may approve a settlement only if it is satisfied that it is proper, fair, and reasonable in consideration of the interest of the class members, and that the settlement agreement is the most efficient and fair manner of resolving the dispute under the circumstances of the matter.

The Law further mandates that prior to the approval of a settlement agreement, the court receive an expert opinion on the appropriateness of the settlement, unless the court deems the expert opinion not to be required due to special circumstances detailed in the decision.

As part of the judicial oversight, the court may condition the settlement’s approval on conditions aimed at protecting the interests of the class members, to ensure adherence to the law or to supervise proper implementation of the settlement. The court may also order the parties to submit a report upon the execution of the settlement or that other means of supervision be taken.

Another aspect of the judicial oversight is the court’s role and discretion in ordering the compensation amount to be paid to the petitioner and the fee to be paid to the petitioner’s counsel upon approval of a settlement. This is aimed to ensure that the benefit to the petitioner and his counsel be proportionate to the actual benefit the settlement provided to the class, and to create proper incentives in regard to class actions.

In general, the effect of a regulator’s position on class actions dealing with matters governed by it is at the court’s discretion and depends on the specific case and its circumstances. Due to the expertise and information that the public authority has on the matters regulated and supervised by it, the court may request to receive the relevant regulator’s position on specific matters in the class action. In other instances, the court has ordered to stay the hearing of the motion to certify due to pending proceedings held by the relevant regulator. Furthermore, regulatory findings have often led to, and provided the basis for, the filing of motions to certify.

The weight attributed to the regulator’s position varies. Though past Supreme Court rulings stated that the regulator’s position should be adopted if the court finds it to be reasonable and consistent with the law, a recent Supreme Court ruling in the matter of Seligman v. The Phoenix Insurance Company Ltd. provided that the regulator’s position and interpretation in relation to its own guidelines should not be adopted by default. Rather, the court’s decision on whether to adopt or reject a regulator’s position should be based on a set of unique considerations: is the proposed interpretation consistent with the rules of interpretation established by case law; is the interpretive position technical and professional, utilizing the regulator’s expertise, or is it a normative position, in which case the expertise lays with the court; does the regulated market’s structure and the identity of the parties raise concern that the position of the regulator is tainted; is the position an in-depth, reasoned, and broad position; are there two relevant regulators that have presented opposing positions; and does the regulator’s position stem from non-pertinent considerations, or from a conflict of interest, in which case the interpretive position should be rejected.

Israel has a comprehensive set of laws and regulations relating to ESG matters, which are increasingly being enforced through class actions. In fact, the laws and rules that deal with class action proceedings in Israel are intended to promote the enforcement of ESG matters.

For example, the Second Addendum to the Law allows class actions to be filed against companies for various violations of environmental matters. Prior to the Law’s enactment, the only remedy available to petitioners in a class action filed on the grounds of environmental violations was an injunctive relief. The Law’s enactment provided petitioners with the possibility of petitioning for monetary relief, thus creating an economic incentive to file class actions based on environmental matters.

The Law’s enactment also significantly advanced the enforcement of employee rights by enabling class actions to be filed for causes of action under the Minimum Wage Law, 5747-1987; under the Employment of Workers by Manpower Contractors Law, 5755-1995; and for causes of action as to which the labor court holds exclusive jurisdiction.

Another example is the significant increase in the number of class actions filed for a cause of action pertaining to the rights of persons with disabilities, which can be attributed to the exemption from the requirement to pay court fees upon filing a class action regarding the rights of persons with disabilities.

A notable class action precedent in relation to companies’ ESG practices is the class action filed by the Ministry of Environmental Protection against two major corporations, Hogla-Kimberly Ltd and Sano-Bruno’s Enterprises Ltd, for “greenwashing” practices. The Tel Aviv District Court ruled that the companies misled the public by falsely labelling bags as “environmentally friendly” and claiming that the bags were manufactured from biodegradable and ecological material.

It is also important to note that in recent years, Israeli regulators have begun focusing their attention on ESG matters. For example, the Ministry of Strategic Affairs established a program that aims to incentivize companies, by distribution of grants, to draft and publish ESG reports, and the Israel Securities Authority published a statement calling on all reporting corporations whose securities are traded to publish a yearly corporate governance report. Therefore, it is safe to assume the number of class actions concerning ESG matters will increase in the coming years.

Third-party funding of proceedings in Israel, including class actions, is not prohibited by law, and such practice has been established and recognised by the court and officials in recent years. Although third-party funding may be a relevant consideration in the examination of the class’s interests being conducted properly, effectively, and in good faith, there is no legal obligation to inform the court about such funding.

In addition, two public sources are available in Israel: The Fund to Finance Class Actions, a public fund established by Article 27 of the Law, which aims to assist in the filing of class actions of public and social significance, and the Israel Securities Authority, which can assist in the funding of class actions relating to securities.

Class actions are usually funded by the petitioner. The fee awarded to the petitioner for representing the class and funding the class action is determined by the court, which weighs the considerations listed in Article 22 of the Law, inter alia: the burden and risk assumed by the petitioner in the filing and management of the class action; the benefit the action brings to the class; and the public significance of the action.

As to fee agreements concerning third-party funding of class actions, these are not governed by the Law or subject to the court’s approval or discretion. Therefore, there is no explicit rule permitting or prohibiting contingency fee arrangements with third-party funders. According to the inter-ministerial team’s report, private litigation funds that provide financing for class actions have been known to do so under contingency fee arrangements.

As a general rule, in the Israeli legal system, the court may order the losing party to bear the costs and fees incurred by the prevailing party. However, the court has broad discretion as to the amount awarded to the prevailing party. In class actions, when a motion to certify is denied or when a class action is dismissed, the court usually awards the defendant with substantially lower amounts than actual costs incurred and may even decide not to award any costs at all, if it deems the action to be of public importance or value.

Recently, in April 2024, the Class Action Law Memorandum (Amendment No. 16), 2024 was published for public comments. The purpose of this memorandum is to anchor in legislation the recommendations made by the inter-ministerial team established to examine the arrangements stipulated in the Law.

The memorandum contains comprehensive amendments to the Law on various matters, including several amendments that aim to tackle the large number of unsubstantiated and frivolous motions to certify that are filed with the court. These include:

• Obliging prospective petitioners to send a demand to the prospective respondents as a precondition to filing a motion to certify a class action in specific instances, inter alia, in a claim against a “small business” for the causes of action enumerated in the Law; in any claim against a “minuscule business”; or in a claim where no monetary relief is sought.
• Granting the court the authority to impose costs, at a reasonable and fair amount, on petitioners or their counsel if the court deems the motion to certify or a class action to be conducted in bad faith.
• Granting the court the authority to order that a motion to certify be dismissed at any time, if it deems the motion to be a vexatious claim that holds no public interest and provided that the damage suffered by the class members was minimal.
• Repealing court authority under Article 16 of the Law to reward compensation to the petitioner and contingency fees to his counsel when approving a withdrawal from a motion to certify or from a class action that was certified.
• Limiting the number of motions to certify that a petitioner can file to five claims per year, in an effort to eliminate the widespread phenomenon of “serial plaintiffs.”

Another notable amendment includes the addition of several causes of action relating to the Privacy Protection Law to the Second Addendum to the Law, allowing such causes of action to serve as a basis for a motion to certify a class action.