The proposed Israeli Class Actions Law Amendment – Is it Relevant at All?

The proposed Israeli Class Actions Law Amendment – Is it Relevant at All?

May 12, 2024

The business world is difficult enough as it is, and in addition to the day-to-day difficulties of establishing a business and maintaining its success, businesses, including small businesses, are exposed to frivolous lawsuits filed by individuals whose entire purpose is to try and "milk" the business. One of the effective tools for extorting businesses is a class action, when the claimant doesn't really need any real grounds to file it, because a business would prefer to compromise and pay instead of conducting an expensive procedure, because even if it wins, it won't be able to get back its expenses. A government suggested law published April, 2024, attempts to mitigate the phenomenon, but it seems that the solutions it offers are far from being helpful.

A class action is a correct and good capitalistic solution for dealing with broad consumer phenomena, because each claimant has a small financial claim that does not justify, by itself, filing a personal claim, and therefore the law should encourage people to file a claim on behalf of the entire class of claimants, when both the claimant and his attorney will enjoy a reward for doing so. However, the reward has become an over incentive that created a national sport of filing class actions because it is easier for a business to settle than to go through a long process, even if the business did not breach the law at all, or did so in good faith and in a manner that can be easily remedied.

The amendment offers ineffective solutions to combat frivolous class actions. Thus, for example, it suggests that in certain cases it will be possible to file a claim against a small business only for an injunction and not for a financial relief - a solution that also eliminates the incentive to file justified class actions. Another ineffective solution is to limit a person to filing up to 5 class actions per annum - an ineffective solution because it is easy to technically record another claimant and circumvent the limit.
The amendment also offers some effective suggestions, such as an obligation to send a letter prior to filing a claim against a small businesses and defining a claim as troublesome or vexatious if the damage to the members of the class is "minor", i.e. a damage that does not justify compensation, in which case it is possible to order the rejection of the claim even before the first hearing.

The memorandum attempts to offer solutions that will combat the filing of frivolous class actions but ignores one of the biggest incentives to such, which is the unsuitability of the Courts to handle these claims. Thus, for example, a frivolous class action filed in Herzliya against our office in January, 2024, was dismissed only about four months later, even though we already showed in the first response that it is a serial claimant that not only never contacted our office but is also under bankruptcy, and therefore is legally uncapable of filing a claim. Similarly, the Court in Kfar Saba in May, 2024, rejected a number of class actions only four months after their filing by the same bankrupt. Such lawsuits mean expensive judicial resources and also enormous financial resources for businesses, and only a solution that forces the Courts to review class actions a priori, before expensive judicial resources and huge sums by the business are invested in such, together with charging high costs to those who filed frivolous class actions, may make it possible to stop the new national sport without causing harm to genuine claimants.

In conclusion, although the amendment to the law offers several solutions to reduce the phenomenon of filing frivolous class actions against small businesses in particular, it seems that it ignores the reasons for the phenomenon and the possible solutions and in the end will not help alleviate the burden on the Courts and the huge expenses they impose on businesses.