The Deterrence Interest in the Association
- As stated, the property interest is not the only interest that underlies the possibility of filing a derivative claim, and alongside it is the deterrence interest, which stems from the fear of lack of enforcement in a case where there is no effective entity between the corporation's institutions or outside it to try to prevent prohibited conduct or to claim compensation for damages caused by such behavior to the corporation.
The parties that can act in the event of unlawful behavior in a corporation are of two types – the first is the corporation's institutions (which may not act in some cases as a result of a conflict of interest); The second is regulatory enforcement agencies, which can, when given the authority, take action against the corporation's officers. The greater the concern about the lack of action of the company's institutions, and the more limited the possibility of regulatory enforcement, the greater the purposive justification for allowing the filing of a derivative claim, and vice versa. As we shall see, this issue was at the basis of the decisions of the courts (District and Supreme Court) in the Kahani case.
- The concern about the lack of action by the corporation's institutions against its officers due to conflicts of interest has been discussed at length in the context of companies. The case law has determined that the decision of the company's officers to file a lawsuit against themselves, their associates or the controlling shareholder may in many cases be an "tainted" decision (and see The Vision Matter, in paragraph 35 of the judgment of Justice Y. Danziger).
There may also be a conflict of interest in non-profit organizations. The association's board is the authorized organ to decide on filing a lawsuit on its behalf, and therefore when the association has a cause of action against its board members, it is likely that such a lawsuit will not be filed, since the board will decide not to sue. Even when the possible lawsuit is against some of the board members (and not against most of them), there may be concerns about structural bias, the existence of which must be examined on a case-by-case basis.
- The deterrent purpose of the institution of the derivative prosecution is weakened when there are other ways of enforcing the law. Moreover, the existence of such effective ways may strengthen the conclusion that the legislature's lack of reference to the possibility of filing a derivative claim on behalf of an association is a negative arrangement. This conclusion derives from the judgments in the Priests - Both the judgment of the Supreme Court and the decision of the District Court before it (see Priestly Matterin paragraph 25 of the judgment of Justice Y. Amit).
Thus, in the Kahani case in the District Court, the court noted that it should be allowed to file a derivative claim on behalf of the health plan (being an Ottoman association) in order to prevent a situation of "emptiness" in which "the health plans will be left without any supervision and control over them by their members, a situation in which the directors of the health plans will be able to act as they please" (Kahani's case in the District Court, at para. 20 of the decision of Justice H. Kabub). On the other hand, the Supreme Court clarified that even if the possibility of filing a derivative claim is not given, a situation of "vacuum" will not be created, in view of the additional supervision and control mechanisms that operate in relation to the health funds.