Derivative Claim (Tel Aviv) 59581-06-18 Dror Cohen v. Bezeq Israel Communications Company Ltd.

1. The Applicant filed a petition against the Respondent (hereinafter also: "Bezeq" or "Company") a request for disclosure of documents prior to the filing of a derivative claim under Section 198A of the Companies Law, 5759-1999 (hereinafter: "Companies Law").

Bezeq is a public company whose shares are listed for trading on the Tel Aviv Stock Exchange, and it operates a fixed communications network in accordance with a general license (hereinafter: the "License") granted to it by virtue of the Communications Law (Telecommunications and Broadcasting), 5742-1982 (hereinafter: the "Communications Law").

The request relates to a financial sanction of approximately ILS 8.5 million imposed on Bezeq by the Ministry of Communications for violation of the license provisions that apply to it.  The application is based on the Applicant's argument that the violation for which the financial sanction was imposed on Bezeq is the result of a deliberate policy outlined by Bezeq's officers.  Therefore, the officers must compensate Bezeq for the lack of pocket caused to it as a result of the payment of the financial sanction.

In the present application, the Applicant petitioned that the Court instruct Bezeq to disclose to him a series of details and documents that he detailed in the application.  According to him, after receiving the requested details and documents, he will be able to examine the causes of action available to Bezeq, including considering filing a motion to certify a derivative claim on its behalf against all or some of its officers.

Factual Background

2. In 2010, the Minister of Communications (hereinafter also appointed: "Minister") A committee to examine and update Bezeq's tariffs and to determine recommended tariffs for wholesale services in the field of fixed communications (hereinafter: "Hayek Committee"). The Hayek Committee's recommendations were submitted to the Minister of Communications (the Hayek Committee's report was attached as Appendix 2 to the application), and on May 2, 2012, the Minister of Communications published a policy document on expanding competition in the field of stationary communications – a wholesale market (hereinafter: "Policy Document", Appendix 3 to the application).

In the policy document, the Minister of Communications adopted the main recommendations of the Hayek Committee, including: a recommendation regarding the development of the wholesale market and the obligation of holders of a general domestic operator license (MPA) to provide services and use of their infrastructure by other telecommunications license holders in the provision of services to end customers; regulating the prices of wholesale services; the abolition of the obligation of structural separation in the fixed field and in other areas in the communications industry except in the field of multi-channel television; and beyond the supervision of Bezeq's retail prices using the method of setting a maximum price instead of a fixed rate.

3. On January 14, 2014, the Ministry of Communications published its decision regarding the list of services and characteristics that owners of nationwide fixed access infrastructures that provide retail communications services will be obligated to offer to licensees wishing to purchase services from them (see Appendix 5 to the application). Among other things, the Minister determined that Bezeq will be obligated to provide broadband access service (an obligation referred to hereinafter: "Reform" or "Broadband Reform").  In accordance with the format of the provision of wholesale access services, a "service file" was established in which various provisions were established relating to Bezeq's responsibility, the level of service, the manner in which it was provided, and the manner in which the end equipment was managed and assigned (hereinafter: "Service Portfolio").  It should be clarified that the service file is part of the license granted to Bezeq by virtue of the provisions of the Communications Law.
4. On January 15, 2014, the Minister of Communications published a notice regarding a summons to a hearing for the supply of wholesale services and the determination of a tariff for wholesale services in the Bezeq network (see Appendix 6 to the application). Attached to the notice was a draft of the proposed service file, to which the license holders were asked to submit their comments.  Bezeq submitted its response on March 10, 2014 (see Appendix 8 to the application).  On August 19, 2014, the Minister of Communications published a secondary hearing document to which the updated service file was attached (see Appendix 9 to the application).  On September 30, 2014, Bezeq forwarded to the Ministry of Communications its response to the updated service file (see Appendix 10 to the application).
5. On November 17, 2014, the Minister made a decision to amend the license of the infrastructure owners, including Bezeq, and to establish a portfolio of managed broadband access service and wholesale telephone service (see Appendix 12 to the application). In terms of the timetable, it was determined that Bezeq would have to implement the Minister's decision as of February 17, 2015 (see paragraph 22 of the application and paragraph 85 of the response).  Bezeq petitioned against the Minister's decision and its petition was rejected on May 23, 2016 by the Supreme Court (copy of the Supreme Court's judgment in HCJ 8976/14 [Published in Nevo] attached as Appendix 13 to the application).
6. With the beginning of the implementation of the reform, the Ministry of Communications received complaints from the telecommunications operators about the incompatibility between the provisions of the service portfolio and their actual implementation by Bezeq. On February 18, 2015, the Ministry of Communications held a hearing in which the complaints were clarified (the summary report of the investigation of engineering complaints and work processes from February 19, 2015 was attached as Appendix 28 to the application).

Subsequently, on February 23, 2015, an inspection process was held with the participation of representatives of the Ministry of Communications and Bezeq, which was intended to examine Bezeq's conduct in implementing the reform and its compliance with the requirements of the service portfolio.  On March 1, 2015, the Ministry of Communications sent Bezeq a document entitled "Preliminary Supervision on the Implementation of the Broadband Reform ('Wholesale Market') – Bezeq" (hereinafter: "The Initial Supervision Report", Appendix 29 to the Application).  In the initial supervision report, it was noted that the inspection process showed that Bezeq allegedly deviated from the provisions set out in the service file.  Subsequently, a final supervision report was prepared in which it was determined that Bezeq had deviated from the provisions that apply to it by virtue of the service portfolio (hereinafter: the "Final Supervision Report", or the "Supervision Report", Appendix 32 to the Application).