Israel: The Filing Of A Third Party Notice In Class Actions

A recent Supreme Court judgement handed down in the framework of MCA 5635113 (Coral-Tel v. Avihu Raz and three others) had put an end to an ongoing discussion in Israeli Courts concerning the possibility of filing Third Party Notices in Class Action claims. This judgement has a significant influence on the handling of the defence against a motion to certify a claim as a Class Action, as will be detailed below.

The Facts:

Coral-Tel Ltd., (hereinafter: Coral) operates a website which serves as an online message board. The website allows users to publish ads and includes a virtual telephone number in order to protect their privacy.  The caller contacts the virtual number and is then transferred to the publisher's actual phone number.

Plaintiff, Mr. Avihu Raz (hereinafter: the Plaintiff) filed a motion to Court requesting it to certify the filing of a Class Action against Coral.

Plaintiff contended that as opposed to Coral's advertisements, a call to the virtual number costs more than a regular call.  He further contended that text messages to the virtual number cost more than regular text messages.

The District Court certified the filing of a Class Action against Coral.

At that point Coral filed a Third Party Notice against three other companies which it allegedly retained to provide the virtual number service.

Plaintiff objected to that move alleging that Coral should have sought the Court's permission to file a Third Party Notice.

The District Court handed down a decision determining that Coral's allegations against the Third Parties should be discussed only after a judgement is handed down in the Class Action.

Coral filed an appeal to the Supreme Court.

The Supreme Court's Judgement:

The Supreme Court determined that in principle, Third Party Notices can be filed in the framework of Class Action claims.  In this respect the Supreme Court referred to both US and Canadian Court precedents which allow the filing of Third Party Notices in the framework of Class Action claims.

The Supreme Court further determined that a defendant who wishes to file a Third Party Notice in the framework of a Class Action, must seek the Court's approval to do so (even though such an adjoining does not require the Court's approval in a regular claim – M.A. and A.M.). The Supreme Court stressed that the Court's approval shall be granted in cases where defendant will show that the allegations against the Third Party are founded and that the filing of a Third Party Notice does not constitute misuse of the legal proceeding.

The Supreme Court went on to review the stage at which the Court's approval for filing a Third Party Notice must be sought, i.e. whether in the framework of the motion to certify the filing of a Class Action or whether after the filing of a Class Action was certified by the Court.

This question which looks like a technical one is in fact crucial. The stage of certifying a Class Action is not merely a procedural stage. In fact in this stage the Court determines whether the case is suitable to be discussed as a Class Action. In order to decide same it receives expert opinions and hears testimonies of main witnesses.

Thus if a party which is adjoined to the proceeding as third party wishes to defend its interests properly it should have the right to do so during the motion to certify the claim as a Class Action.

The Supreme Court concluded that in order to enable the Third Party to respond to the allegations raised by the Class Plaintiff, a motion requesting the Court's approval to file a Third Party Notice, must be filed along with the defendant's response to the motion to certify the filing of a Class Action itself (90 days after the motion is served on the defendant).

The Third Party should file its response to such motion along with a response to the motion to certify the filing of a Class Action itself.

Should the Court approve defendant's motion to file a Third Party Notice, it will further be required to grant instructions as to how this notice should be discussed.

The Supreme Court referred in this respect to the possibility of separating the disputes discussed, i.e. only discussing the dispute with the Class Plaintiff and not the dispute between defendants and the Third Party.

The Supreme Court further stressed that the Third Party may take an active part in the hearing of the motion to certify the filing of a Class Action and cross-examine witnesses, but only in respect of the dispute with the Class Plaintiff.

The outcome of the judgement was that the Supreme Court dismissed the Third Party Notices filed in this claim, as they were filed only after the claim was certified as a Class Action.

Two matters which the Supreme Court left unresolved at this stage, is whether such Third Party Notice can be filed also against State Authorities (given that the Class Action Act places limitations upon filing Class Action claims against State Authorities and the fear that filing Third Party Notices against State Authorities may by-pass those limitations) and whether the filing of a Third Party Notice should be subject to payment of Court fees.¹

Comments:

The filing of Third Party Notices already in the stage when the motion to certify the filing of a Class Action is discussed may result in more complex proceedings, more prolonged discussions and possibly even an increase in the number of claims certified as Class Actions. This judgement obliges the respondent to the motion to certify a claim as a Class Action, to identify the potential Third Parties and the cause of actions against them already once the response to the motion is filed.

It is needless to say that it may increase the fees of defence attorneys who now will have to review also possible allegations against Third Parties.

On the other hand, as many of the Class Action claims are settled already at the certification stage, adjoining relevant Third Parties may assist in reaching such settlements.

It is unclear whether this judgement will affect also Derivative Actions.  However, as a precautionary measure, defendants may choose to file motions to approve the filing of Third Party Notices, also in the framework of motions to certify the filing of Derivation Actions.

  Footnote

1 In general Plaintiffs in Israel and defendants who issue Third Party Notices are required to pay Court fees. Class Plaintiffs are exempted from such duty and the question is therefore, whether a defendant filing a Third Party Notice in the framework of a Class Action is also exempted from such payment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.