Recently, the Knesset on Second and Third readings, approved a legislative amendment to the Class Action Law (Amendment No. 10) (Settlement and Dismissal Arrangements), 5776-2016. The focus of the amendment concerns creditors' arrangements with respect to settlement arrangements in class actions and the dismissal process, with the aim of proving better protection to the public interest.
The Class Action Law was promulgated in 2006 and it was intended to set down standard and clear principles for any – as defined in the law - 'claim managed in the name of a group of individuals, who have not empowered the claimant to represent them and which raised substantial factual or legal questions shared by all members of the group'.
Alongside this important mechanism, during the last decade, problems arose in implementing the law, with respect the settlement and dismissal procedures. Section 16 of the law provides that the applicant, the representative claimant or his attorney, will not withdraw the application to approve [a class action] or from a class action except with the approval of the court. It also provides that such applicant will not receive, directly or indirectly, any benefit from the defendant or from any other person with respect to such withdrawals, except with the approval of the court. Studies which were undertaken in this subject demonstrated that the majority of the applications for a class action end in withdrawals. In this situation, the representative plaintiff can receive personal compensation from the defendant, without any compensation to the members of the public who were injured by the behavior of the defendant. The courts tend to approve the withdrawals since this does not prevent the filing of a claim by the other claimants in the future.
Amendment 10 to the law currently provides that applications to withdraw which also have an application to approve the receipt of the benefit in the hands of the claimant, require the court to consider whether the 'claim showed a prima facie cause of action' and the 'benefit which the application to approve or the class action will bring to the members of the group'. These considerations are intended to make it difficult for the claimants to withdraw from their said claims while receiving a benefit.
Another aspect with which the amendment deals concerns applications filed to approve settlements of class actions. Section 18 of the law in its current language provides that 'no agreement for the settlement of a dispute in respect of which an application to approve, or which concerns the approval of, a class action (in this law – a settlement arrangement) shall be made except with the approval of the court'. Different parties, including those organizations which the Minister of Justice approved, are entitled to object to settlement proposals. As a result of this amendment currently any organization and every person 'operating for the benefit of the interests of the members of group' is entitled to file an objection to the settlement arrangement, and thus to advance the public interest. The amendment also added that such a person or organization, which files an objection to a settlement arrangement, will not withdraw their objection and will not receive any benefit from the defendant or from someone on the latter's behalf, except with the approval of the court. Thus, it is sought to prevent a situation whereby the objections of a person operating for the benefit of the group and the public are bought by wealthy corporations. In addition, the court may – if it accepts the objection - rule in favor of compensation to the individual or organization that filed an objection, taking into account the benefits which he or it brought to the members of the group.
Another important problem in settlement arrangements in class actions is that the courts do not, generally, determine the mechanisms for supervision of the settlement arrangements which have been approved. Therefore, many of these arrangements are not carried out in practice. As a result of the amendment, from here on, the law gives the court the power to hand down instructions for supervision of the carrying out of the settlement arrangement, and included in this to condition the payment of legal fees upon the realization of the arrangement. It can also award compensation to the group by means of a donation to be transferred henceforth to a dedicated fund which will manage the donations and will no longer enable free donations to any Amuta (not for profit organization) as the parties may choose. This is to try to remove the suspicion of conflicts of interest and donations to entities connected with the parties.
Reference: Class Action Law (Amendment No. 10), 5776-2016