Imposing a Guarantee to Secure Legal Expenses - General Law
- Section 353A of the Companies Law provides as follows:
"Submitted to court A lawsuit by a company Or an offshore company, Asher Its shareholders' liability is limited, Permitted The court has the authority to hear a lawsuit, At the Defendant's Request, To instruct that the company will provide a sufficient guarantee for the payment of the defendant's expenses If he wins the judgment, and he may delay the proceedings until the bail is granted, Unless he believes that the circumstances of the case do not justify charging the company or the foreign company with bail or if the company has proven that it can pay the defendant's expenses if he wins the lawsuit".
- Ruling Pinherited the aforesaid provision as a rule, i.e., that as a matter of principle, every plaintiff company must deposit a guarantee to secure the defendant's expenses unless circumstances arise to exempt it from its deposit. Section 353A of the Law actually enumerates two alternative conditions, each of which is met, the court may exempt the company from depositing the guarantee. First, if the court believes that in the circumstances of the case there is no justification for obliging the company to deposit the guarantee. The second is if the company has proven that it can pay the defendant's expenses if he wins the lawsuit. These conditions create the proper balance between the parties, and regulate the relationship between the right of access to the courts and the right to property on the one hand, and the defendant's right not to lose if the claim against him is dismissed, on the other hand.
- Civil Appeal Authority 10376/07 N. Computer Engineering in Tax Appeal v. Bank Hapoalim (2009) [published in the Legal Databases, [published in Nevo] on February 11, 2019] (hereinafter: "The L.N. case. Engineering"), it was determined that the "triple test" should be applied where a request was made to instruct the plaintiff, which is a corporation, to deposit a guarantee to secure the defendant's expenses. In the first stage of the examination, the court must first and foremost consider the company's financial situation. If the company has not proven that it will be able to pay the defendant's expenses if he wins the lawsuit, the court must proceed to the examination of the second stage. In the second stage, the court must examine whether the circumstances of the case justify charging the company with a guarantee, or not. In relation to this stage, it is necessary to consider the constitutional rights of the parties and the assumption that the obligation of the company to deposit a guarantee expresses the rule, while the exemption is the exception. Once the second stage of the examination is over, it is necessary to examine, as part of the third stage of the examination, the amount of the required guarantee and whether it is proportionate.
- See also Civil Appeal Authority 537/19 Nisco et al. Electro Light (February 14, 2019) [published in the databases], [published in Nevo] in paragraphs 9 and 10 of the judgment: "9) Section 353A of the Companies Law instructs that a plaintiff who is a limited liability company will be obligated, at the defendant's request, to provide a guarantee for its expenses - unless it proves that it will be able to pay these expenses, or if the court is of the opinion that "the circumstances of the case do not justify" the obligation to pay the guarantee. This arrangement, which defines the obligation to deposit a guarantee for expenses as a rule, and the refraining from imposing it as an exception, is intended to alleviate the concern that a defendant who won the case will not be able to be reimbursed for his expenses from a plaintiff hiding behind a vague legal entity devoid of assets (Civil Appeal Authority 10905/07 Neot Oasis Hotels in Tax Appeal v. Zisser, [published in Nevo], paragraph 6 (July 13, 2008); Uri Goren, Civil Procedure Issues 684 (Twelfth Edition, 2015)).
(10) The burden of proving that there is justification for exempting the plaintiff company from depositing a guarantee for expenses rests on its shoulders. This was the case even before the enactment of the section, when the rule regarding the presumption of depositing a guarantee was a case law rule (see: Civil Appeal Authority 544/89 Oykel Industries (1985) in Tax Appeal v. Nili Metal Factories Ltd., IsrSC 44(1) 647, 652 (1990)), and this was also the case after the enactment of section 353A of the Companies Law , which was added in the framework of the Companies Law (Amendment No. 3), 5765-2005 (see Civil Appeal Authority 9237/18). Carmel Direct in Tax Appeal v. R.H. PETERSON CO, [published in Nevo] paragraph 5 (12.2.2019); Civil Appeal Authority 9618/11 Art Judaica in Tax Appeal v. G. Tali Ad Transportation Ltd., [published in Nevo], paragraph 5 (December 29, 2011). For the legislative history of section 353A of the Companies Law, see the comprehensive judgment of Justice (as he was then called) Hanan Melcer in Civil Appeal 10376/07 L. N Computer Engineering in Tax Appeal v. Bank Hapoalim in Tax Appeal [published in Nevo] (February 11, 2009)).