In 2018, the Hatzlacha Association for the Promotion of a Fair Society (“Hatzlacha“) filed a motion for certification of a class action against several foreign banks, alleging that they manipulated the LIBOR (London Interbank Offered Rate). This motion was filed following various criminal, administrative, and civil proceedings taken against these banks in other countries, which resulted in the banks paying billions of dollars in fines and penalties, with certain bank officers receiving prison sentences. Hatzlacha sought to represent entities (institutional and others, including the State) that held financial assets whose value was derived from the LIBOR rate in a class action seeking compensation for their direct damages. Additionally, two savers in institutional entities, whose money was used to purchase financial assets derived from the LIBOR rate, filed a motion on behalf of savers in institutional entities, seeking compensation for their indirect damages from the LIBOR manipulation.
The District Court dismissed the motions for certification filed on behalf of both alleged groups – the institutional entities and the savers. Regarding the savers’ group, the court ruled that they should not be recognized as “indirect consumers” with standing to sue under Competition Law. The District Court applied the “original form retention test” (according to which an indirectly injured party’s standing can be recognized if the product purchased “retained its original form as sold by the manufacturing company”) and determined that the financial instruments in question did not maintain their form down the supply chain.
As for the institutional entities group, it was determined that Hatzlacha is not entitled to represent them in a class action, as it lacks personal standing, did not act with reasonable diligence to locate a plaintiff with personal standing, and did not demonstrate any “difficulty” in filing a motion for certification by such a plaintiff.
The Supreme Court dismissed the appeal and affirmed the dismissal of the motion for certification. However, in its reasoning, the Supreme Court disagreed with some of the District Court’s fundamental determinations. Thus, the Supreme Court held that as a matter of principle, standing should be recognized under Competition Law between an indirectly injured party (to whom the directly injured party “passed on” the damage) and the parties to a restrictive arrangement, including between a saver in an institutional entity and a party to a restrictive arrangement that caused damage to the institutional entity’s assets, thereby indirectly harming the saver, and applies even if the “original form retention test” is not satisfied with the circumstances.
The Supreme Court detailed several reasons supporting its determination. First, the Court recognized that passing on damages down the supply chain to end consumers is not the exception but rather the rule. Second, the Court found that directly injured parties often lack incentive to pursue legal action in these situations. Third, recognizing the indirectly injured parties’ standing serves both the objectives of the Competition Law and deterrence purposes, especially given the challenges in enforcing criminal and administrative sanctions against international cartels. Fourth, such recognition is directly supported by the provisions of the Competition Law.
The Supreme Court held that there is no place for adopting the “original form retention test” as a mandatory condition for recognizing the indirectly injured parties’ standing. In particular, it was determined that using this test as the sole criterion opens the door to manipulation, as it might encourage manufacturers and distributors to artificially alter the form of the product down the supply chain, solely to negate the indirectly injured parties’ standing.
However, recognizing the indirectly injured parties’ standing against a party to a restrictive arrangement does not mean that a class action will be the efficient and fair way to resolve the dispute in every case. As a rule, class actions should preferably be filed by those directly injured by the Competition Law violation. Accordingly, a class action by a saver in an institutional entity will be certified only in exceptional and special cases. This is, inter alia, because the institutional entity possesses the relevant information regarding the damage caused to it, if any, and regarding the circumstances and market characteristics necessary to prove the cause of action.
The Supreme Court dismissed the appeal on its merits, holding that under the circumstances, the motion for certification of a class action should not be granted (against the opposing opinion of Acting President (Ret.) Uzi Fogelman, who believes that the matter of the savers’ group should be remanded to the District Court). Regarding the savers’ claim, it was determined that the preliminary approach to the institutional entities requesting them to file the claim themselves was not made “with an open mind and willing spirit” and did not allow adequate time for examining the allegations raised. As for the claim on behalf of the institutional entities, it was determined that the petitioner failed to demonstrate “difficulty” regarding the filing of the class action by a representative plaintiff with personal standing, namely the institutional entity itself.
Nevertheless, it was unanimously decided to recognize an indirectly injured party’s standing where damage was passed on as a result of a restrictive arrangement.
This ruling establishes the indirectly injured parties’ standing as part of the Israeli Competition Law. However, claimants must satisfy basic tort law requirements, including proving actual damage and demonstrating causation between the restrictive arrangement and the harm suffered. The Court also emphasized the importance of preventing double recovery from defendants.
Please contact our Litigation Department and/or Competition Law Department for further information.
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