The interpretive process relating to the possibility of filing a derivative action on behalf of the association will be carried out in accordance with the rules of interpretation that apply in our legal system, while referring to the language of the law, the intention of the legislature (as it can be deduced from the Associations Law, the Companies Law and other sources), and the purposes underlying the institution of a derivative claim – taking into account the principles set out in the judgment in the Kahani case.
- As stated above, Section 194(a) The Companies Law states that: "Every shareholder and every director In the company (in this chapter – a plaintiff) may file a derivative claim if the provisions of this article have been fulfilled(My emphasis, R.R.). The legal arrangement therefore establishes an explicitly positive provision regarding the applicability of the derivative action mechanism in relation to companies. This provision also applies to companies for the benefit of the public, for which it has been expressly stipulated In section 345D(a) of the Companies Law that "Extra On the provisions of section 194(a), the Registrar of Endowments may also file, with the approval of the Attorney General, a derivative action in the matter of Public Benefit Company(My emphases, R.R.).
- With regard to the possibility of filing a derivative claim on behalf of an association, there is no explicit provision for affirmation or negation (neither one that states that it is possible and not one that excludes such a possibility).
As is well known, it is the language that determines the scope of possible legal interpretations. With regard to the interpretation of the Associations Law and the Companies Law, these two possibilities (both the existence of a negative arrangement and the existence of a buyer) are possible implicit interpretations, which fall within the scope of reasonable interpretations of the language of the law. Therefore, in order to choose the appropriate interpretation, the court is required to take into account the objective purpose of the law and its subjective purpose, i.e., the intention of the legislator.
- The question of whether the law establishes a negative arrangement or whether it is a lacuna is usually a complicated one. Thus, sometimes it is possible to deduce from a positive explicit provision the existence of a negative implied provision, and sometimes this is not the case. In this context, the President, Ret. Prof. A. Barak, wrote that:
"It is possible that the explicit instruction came only for the sake of caution (ex abundanti cautela) and for the removal of any doubt; It is possible that the positive provision was drafted carelessly without the legislature seeking to draw a negative implication; It is possible that the purpose of the legislation clearly indicates that such an inference is not possible [...] The transition from the linguistic meaning to the legal meaning must be made through the purpose of the legislation" (Aharon Barak, Interpretation in Law – Interpretation of Legislation 114-115 (1993) (hereinafter: "Barak – Interpretation of the Legislation")).
The purposes underlying the derivative claim
- In the framework of the interpretation of legislation from the perspective of its objective purpose, we will examine whether it is appropriate to interpret the The Non-Profit Organizations Law and Companies Law as enabling the filing of a derivative claim on behalf of an association, both in light of the purposes of the institution of the derivative claim in general, and in light of the specific characteristics of the association – and of the Football Association in particular.
In this context, we will compare the characteristics of an association with those of a commercial company and a public benefit company (for which, as may be recalled, an explicit mechanism has been established that allows the filing of derivative claims); We will also compare the characteristics of associations in general and the Association in particular with those of health funds, for which, as will be recalled, the Supreme Court ruled in the Kahani case that there is no mechanism for derivative claims.
- As explained above, the derivative lawsuit mechanism is a mechanism of private enforcement, which is intended mainly for situations in which there is a possible conflict of interest of the corporation's institutions whose role is to decide in relation to the filing of a lawsuit. This conflict of interest raises concern that the company will not file a lawsuit even in cases where it would have done so without the conflict of interest (see The Verdnikov Matter, in paragraph 17 of the judgment of Justice Y. Amit; and the words of Justice A. GrosskopfDerivative Claim (Central District) 10466-09-12 Ostrovsky v. Discount Investment Company Ltd., [Published in Nevo] in paragraph 27 of his judgment (August 9, 2015)).
It appears that the basis for the possibility of filing a derivative action is based on two main reasons: one – the protection of the company's property interest (and consequently – the property interest of its shareholders and, in special cases, of its creditors); and the second – the enforcement of the law and the deterrence of officers of the company from violating it (see the Cohen case, at para. 13 of the judgment of Justice Y. Amit; see also paragraph 16 of his judgment in Civil Appeal 5296/13 Antorg v. Stevinsky [published in Nevo] (December 24, 2013), and the references therein; and in paragraph 15 of his judgment in Civil Appeal Authority 4024/14 Africa Israel Investments in Tax Appeal v. Cohen [published in Nevo] (April 26, 2015)).
- These reasons also have implications, it seems, on the identity of the entities that the legislature allowed them to file the derivative claim on behalf of the company.
The existence of an indirect property interest is the basis for the fact that shareholders in a company are those who have been granted the right by the legislature to file a derivative claim on its behalf – as they are the typical potential victims of the company's failure to file the lawsuit itself. The indirect property interest of the shareholders justifies the possibility granted to them to file a derivative claim not only by virtue of their right to act to realize their self-interest, but also as an incentive matter – the indirect property interest of the shareholders increases the chances that they will not file derivative claims that may harm the company. and that, for the most part, the claims filed by them will be in the company's favor. For the same reason, a person who is not a shareholder in the company at the time of filing the application for approval (but, for example, there was one in the past, or he holds a share trust for the shareholder, etc.) is not entitled to file a derivative claim (see the Shkedi case, at paragraphs 22-23 of the judgment of Justice Y. Amit, and the references therein).