The parties' arguments
- The Applicant argues that the Respondents' activities are contrary to the Law. This argument is based on the prohibition on gambling set forth in Section 12 of the Penal Law, 5737-1977 (hereinafter – the Penal Law), in sections 225-228.
- Section 231(a)(2) of the Penal Law states that the prohibition does not apply to gambling conducted by the National Lottery with a prior permission from the Minister of Finance or by a person authorized by the Minister to do so. Indeed, the Lottery, which establishes the lotteries, was granted a permit to hold lotteries under certain restrictions and conditions. However, according to the Applicant, the respondents in this case are not acting on behalf of the Lottery and do not even comply with the restrictions imposed on the Lottery in the sale of lotteries, and thus violate the provisions of Section 12 of the Penal Law.
- In this context, the Applicant refers to the positions of the Attorney General, as expressed on a number of occasions in recent years, which indicate that although in the past a position was expressed that it was doubtful whether this was illegal, in a later period an official position was expressed that it was illegal, and even declared (quite a few years ago) an intention to begin enforcing the prohibition within a reasonable period of time.
- The Applicant further argued that the opinion of the expert on her behalf, Dr. Tali Regev, indicates that the characteristics of the lotteries as proposed by the Respondents are substantially different from the lotteries offered by the Lottery. The difference stems from the fact that we are dealing with group participation, the commission paid to the clubs, from tax aspects, and more. Therefore, the argument that these are the same bets that the Lottery makes with a permit, and even in this respect it is illegal.
- According to the Applicant, the illegality of the Respondents' activity establishes a number of causes of action for the class members. First, the engagement contracts between the Respondents and their clients are invalid contracts due to illegality, and it must be determined that they are null and void by virtue of Section 30 of the Contracts (General Part) Law, 5733-1973, and that the parties must return what they received from each other, in accordance with Section 21 of the Law. Second, according to the Applicant's position, the nullity of the engagement agreements also establishes for the class members a cause of action for enrichment and not in law. Third, according to the Applicant, a violation of the provisions of the Penal Law also establishes a cause of action for the class members for breach of a statutory duty, under section 63(a) of the Torts Ordinance [New Version] (hereinafter – the Torts Ordinance).
- The Applicant is of the opinion that by virtue of these grounds, it is necessary to order the cancellation of the contracts and the return of the subscription fees paid by the class members to the Respondents, less sums received by the class members for participation in the lotteries for which the subscription fees were paid, and to prohibit the defendants from continuing their activities.
- The main arguments of the respondents in response to this element in the application for approval are as follows: First, on the merits of the matter, the activity of the respondents is not illegal, because in essence it is a lottery that is conducted with a permit. In addition, even if the lottery is not permitted, there is no right to a civil action by virtue of this violation on the part of the person who himself violates the law together with the respondents, and in these circumstances the granting of relief in favor of the lottery purchasers is inappropriate. Moreover, a civil class action is not the appropriate place to clarify the question of legality and/or to enforce a criminal prohibition in general, especially when it is indeed illegal, then the class members are a party to it, so that it is in fact self-incriminating. It was further argued that there is no reason to allow the Council to file a motion for a class action regarding illegality because it is a matter that is not within its areas of expertise.
Discussion of the Grounds of Illegality
- The respondents' argument that the civil proceeding in general, and the class proceeding in this regard, as the Council seeks to take on behalf of the class members, is not an appropriate framework for a declaration and relief regarding the respondents' activity as an illegal activity, is acceptable to me.
- In view of this, although the Applicant has considerable claims that the Respondents' activities violate the prohibition on gambling set forth in the Penal Law, the Applicant's place is in a criminal proceeding, in respect of which the appellant expressed himself in the affirmative, and not in the framework of a civil-class proceeding.
- A class proceeding is a tool for preventing infringement of consumer rights, the enforcement of which by the individual is not worthwhile. This is not the case before us in terms of the claim of illegality. Here we are dealing with, as it is claimed, a bilateral prohibited activity – prohibited by the respondents and prohibited by the class members, the respondents' clients. As a rule, it is difficult to appropriate a proceeding that was taken on behalf of a person, in order to incriminate him. Harnessing the class proceeding that is taken on behalf of the group, for the purpose of eradicating an activity whose illegality is also attributed to the class members, appears to me to be an artificial move that is not justified. In this context, it should be noted that in the application for approval, the Applicant does not claim that the class members are entitled to relief by virtue of addiction damages, and in any event, such a claim is not even proven, but rather her claims are deceptive and illegality in themselves.
- Other Municipality Applications 7141/13 Connect Group Ltd. v. Shimon Dabush [Nevo] (November 5, 2015) The Supreme Court noted the difficulty in establishing a tort of the type of breach of statutory duty in such a case in general, and in a class proceeding in particular. In the same matter, two members of the panel – the Honorable Justice Barak-Erez and the Honorable Justice Mazuz – disagreed on the question of whether, when the alleged damage is addiction, a cause of action arose by virtue of section 64 of the Torts Ordinance for a participant in the lottery as well. In the same matter, since addiction was not proven, all the members of the panel ruled that it was lawful to reject the request for approval and that a class proceeding on behalf of the clients should not be allowed.
- In our case, no remedy was sought for addiction damages, and not a single instance was brought in which addiction was caused due to the engagement with the respondents – as opposed to purchasing a lottery directly from the National Lottery. In this context, it should be noted that some of the respondents claim that they limit the scope of purchases to the customers and thus, as claimed, prevent the fear of addiction. Accordingly, similar to the Connective case, a claim for relief in favor of the class members by virtue of a claim of illegality raises a difficulty.
- Accordingly, it seems that allegations concerning a violation of the criminal prohibition on gambling should be of interest to the enforcement and prosecution authorities, who will decide, in accordance with their discretion, whether and when it is appropriate to take criminal enforcement and against any of the companies engaged in the field. Taking into account the nature of the alleged violation, the civil proceeding, and all the more so the class proceeding, is not the appropriate venue for the hearing of such claims. For our purposes, the words of Justice Englard in the Lawtont case are appropriate: "The use of civil proceedings for private enforcement of criminal prohibitions raises great difficulty. This is liable to harm the rights of the defendant-defendant and public order. The difference between the burden of civil proof and the burdens in criminal law must be borne in mind. Duplication of proceedings in these circumstances is not desirable at all, especially since it exposes the defendant-defendant to the possibility that he will have to defend himself in two separate proceedings."
- The motion for approval to conduct a class proceeding in connection with the claim regarding the illegality of the Respondents' activity is therefore denied.
- To be precise: the aforesaid does not legitimize the Respondents' activity. All that has been determined is that this issue should be dealt with and examined by the enforcement and prosecution authorities, in accordance with their powers and discretion, and if necessary, it will be decided by a criminal court in the appropriate legal procedures, and not in the framework of the proceeding here in which relief is sought against the Respondents on behalf of their clients.
Grounds for deception
- Another head in the application for approval revolves around grounds for deception. According to the Applicant, the Respondents mislead their customers on material matters. First, they conceal the fact that a significant portion of the customers' money is not used to purchase lottery tickets, but is taken as a commission; Second, the Respondents present a misleading representation that betting through them is preferable and increases the chances of winning, since they use mathematical and statistical methods that allow them to choose combinations of numbers that have a higher chance of generating profits for customers, even though such methods do not exist.
- To substantiate these claims, the Applicant attached an expert opinion of the economist Dr. Tali Regev. The Respondents also attached an expert opinion on their behalf, by the mathematician Prof. Gadi Fibich.
- Before we examine the Applicant's arguments in relation to each of the Respondents, we will discuss the provisions of the Consumer Protection Law that establish the cause of consumer deception.
Deception under the Consumer Protection Law, 5741-1981
- The Consumer Protection Law, 5741-1981 (hereinafter – the Consumer Protection Law) imposes on a dealer a series of duties and restrictions, which are intended to ensure that the consumer has reliable and complete information about the transaction he is considering executing, and to prevent situations that may lead to misleading, including by default by not presenting material details. The cause of consumer deception is set forth in section 2 of the Law, and it reads as follows:
"A dealer shall not do anything – by act or omission, in writing or orally or in any other way, including after the date of engagement in the transaction – that is liable to mislead a consumer in any material matter in the transaction (hereinafter – deception);