In those cases where the relevant regulator is unable to locate all the violations and compel the violators to be held accountable, private enforcement mechanisms (including the derivative lawsuit and the class action) contribute to increased deterrence and, as a result, to the compliance of the relevant provisions of the law. The application of this rationale to class actions is also reflected in the explanatory notes to the proposed Class Actions Law, according to which "The class action instrument serves not only the private interest of the victims, but also the public interest in that it deters potential harm from violating the provisions of the law, even when it is a matter of minor violations of the law" (see the Class Actions Bill, 5765-2005 93, p. 232).
- It appears that the deterrent purpose is the reason for which the legislature determined that not only shareholders would be able to file derivative claims, but also directors of the company. This is despite the fact that in the typical case they have no property interest in the company filing a claim and winning it (see I decided in a derivative claim (Tel Aviv District) 31402-05-15 Ultra Equity Investments in Tax Appeal (The Company) v. Yeini, [Published in Nevo] at paragraphs 24-41 (July 20, 2015)). The authority given to the directors to file a derivative claim stems, among other things, from the advantage they have in accessing the information. In this way, directors are exposed to information about the company's affairs – including information about improper acts that have been committed or are about to be carried out in it. Such information is not necessarily in the hands of a shareholder. Therefore, directors can serve as particularly effective agents for enforcing the rights and obligations of the company (see, for example, The Shkedi Matter in paragraph 22 of the judgment of Justice Y. Amit)). Another reason that justifies the right of directors to file a derivative claim lies in the duties that apply to them (mainly the duties of trust and care), which are expected to lead them to act in a manner that will benefit the company.
- Further evidence of the centrality of the deterrence interest in justifying the mechanism of a derivative action is found in its application to companies for the benefit of the public as well. Such companies, like non-profit corporations, are non-profit corporations, whose shareholders usually have no property interest in the corporation. In such companies, the main purpose of the derivative litigation mechanism is therefore enforcement and deterrence, in light of the importance of realizing the public purposes for which such corporations are established and operate.
As stated, with respect to companies for the benefit of the public, the legislature also allowed the Registrar of Endowments to file a derivative claim (in section 345 of the Companies Law). This is because the legislature was of the opinion that the absence of a proprietary interest of the shareholders exacerbates the potential conflict of interest between the company and its officers (see, in this context, for example, the Companies Bill (Amendment No. 4) (Public Benefit Company), H.H. 5765-2006 195, p. 1092 (hereinafter: "Proposed Law (Amendment No. 4) to the Companies Law"), which matured into Amendment No. 6 to the Companies Law, S.H. 5767-2007 2098, p. 332).