Class action suits in Israel can challenge the law

Daphna Fisher Photo: PR

A Supreme Court ruling on payments to Israel Electric employees passed on to customers, means consumers can receive remedies for unjust government actions.

Israel's Supreme Court recently validated its own landmark and precedential ruling in regards to a class action filed against the Israel Electric Corporation (IEC), estimated at NIS 3.5-5 billion, stating essentially that one can file a class action against the law.

This high-profile case deals with the rate charged to consumers for electricity by the IEC, a state-owned enterprise that holds a monopoly over the market. The electricity rate is regulated by the government and, in theory, it should only reflect the justified costs directly related to the electricity generation itself, such as production, transmission, distribution and fixed payments for a basket of services. It does not even take into account the electricity consumption, which is charged in an additional separate rate.

According to the claimants, the IEC financed supposedly unlawful payments for its employees by including these amounts as part of the costs for electricity production. The IEC responded to the claims, stating, inter alia, that those payments were retroactively authorized by a collective labor agreement which was effectively signed into law by the government, and as such, the payments were legally authorized.

The claimants were not deterred and in response, they argued that this retroactive authorization is not enough to justify charging the consumers for those internal payments. It is important to note that this class action does not require the employees to reimburse the money, and the IEC will need to find a new source of income to cover the allegedly unlawful expenses. Be that as it may, the main obstacle in the case was still the fact that the IEC was allegedly protected by law and thus, the pivotal issue of the case was - can one file a class action against an action authorized by the law? Or to put it in another way - can a retroactive law remedy a cause for class action?

This battle has been taking place for nearly a decade, in both the District Court and on appeal in the Supreme Court of Israel. In a nontraditional move, the Attorney General sided with the IEC rather than with the claimants. However, the claimants won on both legal issues, with the court delivering a precedential ruling, stating that the collective labor agreement, even if approved by law, cannot retroactively grant a shield against litigation.

The IEC, backed yet again by the Attorney General’s office, tried to make use of the rare procedure of a secondary review of the decision by a wider panel of Supreme Court judges. However, Chief Justice Esther Hayut denied the motion, stating that the case against the IEC is clear cut and basing her ruling on unjust enrichment, among other points. Regardless of the decision, by certifying the class action the court had made quite an earthquake in the field. It had long been assumed that a green light by the government prevented in-court challenges, but in reality, this assumption has been losing its credibility over the years as the courts have applied more and more judicial review on such actions by the regulator where the outcome was unjust to the public.

However, there was also a counter-current, such as the supreme court ruling in re: Kol BaRama - a religious oriented radio station which refused to put women on air. In this case, the court ruled that it is permissible to file a class action against the station, but not for the period of time where it was under close review by the regulator, who had worked to gradually raise the number of women to be heard over the station’s broadcasts. The obvious difference here is that the regulator in the Kol BaRama case had worked to fix the problem, whereas the regulator in the IEC case had merely redefined the issue at hand as not a problem.

In recognizing the key differences between the Kol BaRama case and the case against the IEC, the court turned the green light given by the government to red, at least for now. This precedential ruling ensures that the consumer public will be able to receive remedies for unjust actions by government entities. As a result, it is to be expected that many more will follow in the footsteps of the claimants in the case against the IEC.

The author is Senior Partner and Head of the International Law Department at Gideon Fisher & Co. Law Offices and Notary.

Published by Globes [online], Israel business news - - on July 4, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Daphna Fisher Photo: PR
Daphna Fisher Photo: PR
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