Cartels 2019

Last Updated July 11, 2019

Israel

Law and Practice

Authors



Goldfarb Seligman & Co Law Offices is one of Israel’s largest law firms and is among the elite group of firms that deliver top-tier legal services at international standards. The professional hallmark of the firm, which traces its history back over 80 years, is the unrelenting pursuit of the highest professional and ethical standards in the service of its clients. Goldfarb Seligman provides legal counsel in various fields of antitrust, competition and regulation to companies and corporations, from swift solutions of specific issues to setting long-term regulatory strategies. The firm also advises on antitrust and competition aspects arising from transactions, and represents local and international clients in these matters. Goldfarb Seligman's antitrust and competition department provides comprehensive strategic advice in the fields of antitrust and competition, as well as in the regulation field. The department's attorneys’ deep understanding and broad knowledge of the field, partially derived from long years of public service in senior regulatory positions, alongside their close working relations with various regulatory authorities, allow the department's legal teams to provide top-tier legal-strategic counsel to clients.

The prohibition on cartels is set out in the Economic Competition Law, 5748-1988 (the Law). In Israel, cartels are not dealt with separately from other restrictive arrangements; rather, a cartel is a specific case of a restrictive arrangement.

Article 2 of the Law establishes what a restrictive arrangement is, while Article 4 stipulates that any restrictive arrangement is unlawful unless it has received clearance from the Antitrust Tribunal (the Tribunal), or it has been exempted by the general director of the Israeli Competition Authority (ICA), or it falls within a Block Exemption.

Article 2(a) defines a restrictive arrangement as, inter alia, an arrangement that is likely to prevent or reduce competition in the marketplace. Case law has interpreted the Article as referring to competition in a relevant market.

Article 2(b) sets out several non-rebuttable presumptions for the existence of a restrictive arrangement. The non-rebuttable presumptions apply to most of the common patterns of hardcore cartels. Among other things, the Article establishes such non-rebuttable presumptions as those relating to price-fixing, the fixing of profit margins, market allocation, the allocation of customers, and co-ordination of the production of supply, the quality or the kind provided.

Finally, Article 47(A1) of the Law establishes that being a party to an unlawful restrictive arrangement is an offence punishable by up to five years in prison.

The ICA is the only enforcement agency that deals with cartel conduct in Israel.

Article 47(A1) of the Law establishes that being a party to an unlawful restrictive arrangement is a criminal offence.

According to the Law, the maximum penalty for cartel conduct is five years' imprisonment, regardless of the circumstances. Civil judgments are different and the award to the claimant, if the claim succeeds, depends on the damage the cartel caused. The most common award is compensation for the surcharge collected by the cartel.

Article 50 of the Law stipulates that any act or omission contrary to the provisions of the Law shall constitute a tort in accordance with the Israeli Torts Ordinance. Thus, any person that suffered damage due to a cartel can bring a private suit to court.

In recent years, almost any cartel investigation by the ICA has led to a follow-on class action claim for the damage that the cartel has caused to the public. In addition, several follow-on class actions have been filed in Israel regarding cartel investigations conducted by foreign agencies. 

The prohibition on cartels is set in the Law. Cartels are not dealt with separately from other restrictive arrangements; rather, a cartel is a specific case of a restrictive arrangement. Joint action by competitors may well be legal and thus not amount to a violation of the Law. First and foremost, there are several Block Exemptions that may apply to joint action by competitors.

The Block Exemptions are special rules regarding various kinds of restrictive arrangements, such as the Block Exemption for Arrangements of Minor Importance or the Block Exemption for Joint Ventures. If any of the Block Exemption conditions applies, the arrangement will be exempted from needing the approval of the Tribunal or exemption by the general director of the ICA.

The limitation period for cartels is ten years due to the classification of the offence as a crime offence. In any case, any investigative activity will suspend the limitation period.

In private suits for damages, antitrust suits are no different from other private claims for damages and the limitation period is seven years.

The Law applies in Israeli territory; thus, the geographic reach of public enforcement is generally limited to Israeli territory.

However, extra-territorial reach applies in certain circumstances. Regarding foreign entities, the ICA applies the 'Effect Doctrine' to acquire extra-territorial jurisdiction over any restrictive arrangements, including cartels conducted outside Israel that limit competition in Israel.

The Effect doctrine has been used by the ICA consistently since 1998, when it was used in respect of vertical restraints between suppliers of branded perfumes and a local retailer, and in 2013 regarding a cartel in gas insulated switchgear (the GIS cartel) in which all participants were foreign companies.

The ICA's stated policy is that, due to the severity of cartel cases, they should be dealt with by pressing criminal charges. In practice, however, the ICA has in the past deviated from its general policy in a case acquiring criminal jurisdiction over foreign defendants. Experience shows that the ICA has run into substantial difficulties in applying criminal jurisdiction to foreign defendants, so for this reason, in the case of the GIS cartel, the ICA conducted an administrative procedure in lieu of a criminal procedure. The ICA ruled the level of 'effects' on the local market must show a clear link between the conduct outside Israel and the conduct in the local market, rather than indirect or negligible effect. It was also ruled that when an arrangement is made outside Israel and is not entirely directed at the Israeli market, and when the foreign collaborators were not actively engaged in implementing the arrangement in Israel, the link to Israel is rendered insufficient.

In addition, in civil cartel cases, there is also a procedural requirement, besides the essential requirement for extraterritorial application of the Israeli law. In order to extend the jurisdiction of the local courts over foreign defendants located outside Israel, it is necessary to obtain permission for service of process outside the border, in accordance with the provisions of Regulation 500 of the Civil Procedure Regulations. So far, it was argued for application of Regulation 500(7), which establishes a link to Israel when an act or omission subject of the claim was committed within the borders of the state.

In recent years there have been a growing number of class actions brought against multinational cartel conduct. According to recent judgments, to establish a link (according to Regulation 500), it must be shown that the act occurred in Israel and it is not enough to show that damage was caused in Israel. However, the Supreme Court expressed its discontent with having Israeli consumers suffer indirect damage from cartels occurring outside Israel and criticised the inaptness of the regulation.

In September 2019, a significant amendment to the Civil Procedure Regulations will take effect and the wording set forth in Regulation 500(7) will be changed and extended to actions that have caused damage that occurred within Israel.

Only after the application of the amendment will it be possible to study the manner in which it is applied in the courts.

Experience shows that the principle of comity has not played a significant role in the ICA's decisions to date. However, thus far, only a few cases related to cartels have been subjected to enforcement means in multiple jurisdictions including Israel, so it is possible that the comity principle could evolve in the future. In any case the application of comity is made by the courts and it is therefore subject to the court's discretion.

An ICA investigation can be initiated by several actions, including a complaint filed to the ICA. The investigation itself also varies depending on the circumstances of the specific case – in some cases the ICA can use wire-tapping and even surveillance teams, while in others they will use more 'traditional' means such as document seizures and questioning.

There is no formal sequence, and it all depends on the characteristics of the specific case at hand.

The ICA can conduct surprise dawn raids on both a company's premises and its employees' homes. The ICA cannot make casual informal visits, so all surprise visits it makes are in fact dawn raids.

If there are reasonable grounds to believe that it is necessary to ensure implementation of the Law or to prevent its contravention, an ICA official may enter any business premises and conduct a search and seizure procedure, even without a warrant. Search and seizure in residential premises, however, requires a court warrant. During the search, the ICA official may seize any article, document or item of computer material if they believe that it may serve as evidence in a trial.

During the raid, it is crucial to record accurately and in detail the places from which documents and files have been collected by the ICA personnel, so that in the future different claims and defences may be raised regarding who was exposed to the information in the documents. Clearly, a document found on a secretary's desk is very different from the same document when found at the CEO's desk, once claims of who was exposed to the information emerge.

After the raid, privilege claims can be made and if no such claims are made, the court may view the lack of claims as a waiver.

The outside counsel's role is very limited during dawn raids – it can accompany the investigators and make sure that the documentation is credible. If any employees are to be taken for questioning, the counsel can explain to them their rights, but even if the counsel is not present during the dawn raid, a questioning under warning will not begin without an attorney explaining his or her rights to the interrogatee.

During dawn raids the ICA can, at its discretion, decide whether to seize documents and devices such as mail servers and personal computers or make copies of them or their contents on the premises.

If a document has been seized, the ICA must allow it to be copied upon request. The general director may refuse such a request, for a period of three months from the date of seizure, if it is believed that copying it might disrupt an investigation regarding a violation of the Law. The director can also file a motion to a Magistrates' Court, which may extend the period and stipulate conditions for such extensions.

The issue of legal privilege may arise when a suspected company or individual claims that certain documents or files seized in their position are privileged, or when the ICA examines the documents and files seized and thinks they may be privileged. Different kinds of privilege can be argued in certain circumstances, such as attorney-client privilege, medical privilege and privilege of documents that were prepared for trial. 

If the suspect claims privilege, the ICA must seal the documents in question inside an envelope or a locked file, if the privilege is claimed in respect of a file. In either case, the ICA is required to refrain from reviewing the document and/or file. The suspect's attorney is asked to review the material that has been claimed to be privileged to ascertain whether it is indeed privileged, whether the privilege could be waived and whether the documents or files are relevant to the ICA's investigation.

The attorney must provide the ICA with a general description of the file or document in question without detailing its content (for example, "an email from the suspect to its attorney regarding a tender offer from 2012"). If the ICA disputes the claim of privilege, it brings the case to the court for a decision. The court will review the document and decide whether the document or file in question is privileged.

When the ICA examines the seized material and believes that it may include a document or a file that might be privileged, it will approach the relevant individual or entity. The file or document in question will then be isolated and the ICA will alert the individual or entity to the possibility that it is indeed privileged, which will allow them to claim such privilege.

In criminal cases the ICA can conduct employee investigations both at the company's premises and at its own offices or a police station. While there is no prohibition upon conducting an employee investigation in his or her home, it is not done by the ICA.

The ICA does not conduct informal interviews with employees; any interview should be considered as an investigation and if it is not conducted as such, this may jeopardise the weight of the evidence. An employee can decline an interview but declining an interview could result in arrest.

Usually, the ICA prefers not to conduct such investigations at a company's premises but rather at its own offices or at a police station. In such cases, the journey from the company to the ICA or police station and any conversation during the journey between the representatives of the ICA and the employee is a procedure in which the ICA gathers information and should therefore be regarded as such. A counsel cannot attend the investigation, but there is a right to consult a lawyer.

A company can copy any documents that were seized in its ownership, provided that the copying does not raise a concern regarding disruption of the investigation.

If, after completing the investigation, the legal department of the ICA believes that there is a prima facie case, a hearing will be held in which most of (and often all) the investigation materials will be delivered to the suspects.

Before any investigation under a warning (an investigation that is made when an interrogatee is suspected of violating the Law), the interrogatee decides who will be the counsel and he or she is free to choose whether it is an outside counsel. The attorney is not present during the interrogation and the suspect cannot consult with an attorney during questioning.

In practice, since interrogations last a few days, it is accepted that at the end of each day the interrogatee will meet the attorney for advice (and there is no prohibition upon doing so).

It is at the individual's discretion whether to be represented by a separate counsel and there is no special requirement.

The principal initial steps are the following:

  • trying to learn from both the suspect and the investigators what are the alleged violations that are being investigated;
  • briefing the suspects regarding their rights, explaining how to deal with questions in the interrogation and warning about prohibited techniques. If there have been arrests, it is likely that the investigation included wire tapping and the suspects should be ready for the interrogation techniques in that regard;
  • understanding from the suspects what interactions they had with competitors and explaining the legal boundaries of such interactions;
  • if there are suspects who have been arrested, there is a need to prepare the court hearing regarding the remand;
  • at the end of the investigation day, meeting all the clients and establishing a full picture of what lines of inquiry and evidence the ICA has.

In recent years the ICA has tended to use wire-tapping more often. Wire-tapping needs to be granted by a court. In several cases, where there was use of the leniency programme, while the cartel was still operating, the ICA used one of the cartel members for recording the cartel meetings and calls.

The ICA also operates surveillance teams that photograph meetings between the cartel members. The remaining means are more traditional: seizure of documents, questioning of suspects, etc.

The ICA operates a sophisticated and well-trained intelligence team that conducts physical surveillance on suspects, photographs meetings and so on. The ICA also carries out wire-tapping; several major cases that are currently on trial are based on wire-tapping. However, it is important to note that wire-tapping requires a court's warrant. A court may issue such a warrant, considering, inter alia, the degree of infringement of privacy.

The ICA has a wide discretion to obtain any document it requires for an investigation. To this day, the issue of documents being located in another jurisdiction has not been settled in court, but it is assumed that the court's policy would likely be that the authority to obtain documents would follow the international authority – if the ICA has the extra-territorial authority to bring the case to trial, it will also have the authority to obtain the documents.

The issue of legal privilege may arise when a suspected company or individual claims that certain documents or files seized from them are privileged, or when the ICA examines the documents and files seized and thinks they may be privileged.

If the suspect claims attorney-client privilege, the ICA must seal the documents in question inside an envelope or a locked file, if the privilege is claimed in respect of a file. In either case, the ICA is required to refrain from reviewing the document and/or file. The suspect's attorney is asked to review the material that has been claimed to be privileged to ascertain whether it is indeed privileged, whether the privilege could be waived and whether the documents or files are relevant to the ICA's investigation.

The attorney must provide the ICA with a general description of the file or document in question without detailing its content (for example, "an email from the suspect to their attorney regarding a tender offer from 2012"). If the ICA disputes the claim of privilege, it can bring the case to court for a decision. The court will review the document or file and decide whether it is privileged.

When the ICA examines the seized material and believes it may include a document or a file that might be privileged, it will approach the relevant individual or entity. The file or document in question will then be isolated and the ICA will alert the individual or entity to the possibility that it is indeed privileged, which will allow them to claim such privilege.

According to a recent Supreme Court decision, communications to or from in-house counsel are also recognised as privileged.

The privilege against self-incrimination is absolute and must not be violated. In certain circumstances the privilege applies not only to oral communication but also to the delivery of documents and other objects. Nevertheless, the defendant's decision to apply the privilege against self-incrimination carries an evidentiary weight against them in court.

In addition, medical privilege is also recognised in Israel.

According to Article 46 of the Law, any person is obliged at the request of an ICA-authorised member of staff to provide all information and documents that would ensure or facilitate the implementation of the Law. The ICA often uses Article 46 to collect information and the information collected plays a significant role in the ICA's work.

In two separate cases, the ICA reached a consent decree in lieu of criminal charges for violation of Article 46. In the first case, the consent decree was agreed upon with a liquid petroleum gas company that filed for an exemption to a restrictive arrangement. In its reply to the information request, the company submitted misleading information and therefore was subject to criminal sanctions. The second case is perhaps more far-reaching, since the ICA reached a consent decree with a third party, a film distributor, that was required to submit information in accordance with Article 46 in a case of a merger between two other parties.

In a recent ruling, the court further intensified and sentenced a prison sentence (which was converted to community service) and a financial fine to the CEO of a sewage disposal company, due to the partial transfer of information. It should be noted that the company was also found to infringe the Law, but this infringement was sanctioned by monetary fines, meaning that for the first time, the ICA used a criminal tool and sentenced a CEO of a company to prison time for partial transfer of information, while the actual infringement was not criminal. 

These cases demonstrate that the ICA views Article 46 information requests very seriously and is willing to take significant measures to ensure compliance with Article 46.

The ICA will be able to obtain any information that belongs to the targets of enforcement and relevant to the case, even if it contains confidential information. Nevertheless, this information could be kept confidential to third parties.

It is possible for third parties to ask the court to permit the reviewing and copying of the material. In such a case a specific request would be brought before the court of law and the parties would have the opportunity to submit their position. In all cases the prevailing principle would be for the transparency of the information.

In addition to a request to the court, it is also possible for third parties to see the information that has been collected through use of investigative powers via the Freedom of Information Law. In that case the parties would have an opportunity to submit their position, but the courts are usually very liberal regarding discovery of such information. Therefore, it could be said that there is a high possibility that evidence collected through use of investigative powers would be discoverable in court in private damages actions, either by a specific request to the court or by a motion based on the Freedom of Information Law.

However, the disclosure of information under the Freedom of Information Law is not absolute and the party to whom the information relates has the right to state its argument to the ICA and the court prior to disclosure of the information.

There is no formal procedure in which the defence attorney could present the ICA with arguments regarding the procedure that the ICA undertakes. If, however, a defence attorney wished to meet representatives of the ICA, during the investigation, the ICA would agree to such meeting. In such a meeting the defence counsel can present its claims as to why the ICA needs to refrain from action. The defence attorney needs to be aware that the meeting will be documented and would thus be a part of the investigation material.

The ICA's leniency programme was introduced in 2005, as a directive of the Attorney General, who heads the criminal prosecution service in Israel. Thus, there is a certainty that if the conditions of the programme are met, the leniency will stand. Nevertheless, the terms for receiving immunity are strict (as will be detailed below) and they are continuances in the sense that they require the applicant's co-operation in relation to future investigations. Therefore, an applicant who was initially granted leniency might forfeit it if they do not co-operate in the future.

There is limited experience regarding the leniency programme in Israel and there have been only a few cases of applications for leniency, so the ICA has a clear incentive to ensure that the immunity programme succeeds and that all discussions with the ICA are met with goodwill.

The main advantage of the ICA's leniency programme is that it allows the applicant full immunity from criminal penalties, which can be quite severe. According to a new ICA draft guideline, the leniency programme would allow the applicant immunity also from monetary sanctions. The violation of the Law is criminal and significant penalties are likely. In cartel cases, in light of recent court rulings, it is reasonable to expect an actual term of imprisonment to be imposed; therefore, immunity could prove to be a substantial advantage.

The main disadvantage of the leniency programme is that it does not protect the applicant from private claims for damages. In this respect, the exposure of the cartel actually facilitates the possibility that an applicant may be exposed to private suits for damages (including in the form of class action) that might otherwise not succeed. Experience demonstrates that in one case, the ICA used evidence received from a leniency applicant to promote private enforcement, including enforcement against that same leniency applicant.

The programme provides immunity from prosecution for horizontal restrictive arrangements of a cartel nature (price-fixing, bid-rigging, customers' allocation, market allocation and regulation of quantities) and a number of disruption offences that may have been committed in connection with the offence (such as destruction of evidence, tampering with the trial, etc). The programme's main principles are as follows.

  • The immunity is provided only to the first applicant. No subsequent applicant is eligible for any sort of immunity.
  • The immunity is dependent on the fact that there has not been a public investigation.
  • The immunity applicant is required to co-operate fully with the ICA, both in relation to information concerning the past (including all documents and files) and in relation to future investigation activities.
  • The immunity is conditional upon the applicant not being the clear leader of the cartel.
  • Not only does the immunity provide no protection against tort claims, but the immunity can also be conditional upon paying damages to victims.
  • According to a new ICA draft guideline, the immunity will also provide protection against monetary sanctions.
  • The immunity agreement is set out in writing and signed by the applicant and the head of the ICA's investigation department. The agreement must be approved by the general director and the district attorney.

Companies in Israel cannot apply for markers as no marker system exists in Israel. No company except the first company to approach the ICA (the whistle-blower) can enjoy a reduction of fines. Being the first company to apply for immunity is a mandatory condition of receiving any reduction or any other benefit and the ICA will not grant any benefit to latecomers. 

In criminal cases the ICA can conduct employee investigations in the companies’ premises and at the ICA offices or a police station.

The ICA does not conduct non-formal interviews with employees; any interview should be considered as an investigation and if it is not conducted as such, this may jeopardise the weight of the evidence. An employee can decline an interview but declining an interview could lead to an arrest warrant.

Usually the ICA prefers not to conduct this investigation at the companies' premises but rather at its own offices or at a police station. In such cases, the journey from the company to the ICA or police station and any conversation during the journey between the representatives of the ICA and an employee is a procedure in which the ICA gathers information and should therefore be regarded as such. A counsel cannot attend the investigation, but there is a right to consult a lawyer.

According to Article 46 of the Law, any person (including third parties) is obliged at the request of an ICA-authorised member of staff to provide all information and documents that would ensure or facilitate the implementation of the Law. The ICA often uses Article 46 to collect information and the information collected plays a significant role in its work.

The scope of Article 46, which allows the ICA to request information, is not limited solely to Israeli companies. With regard to non-criminal cases, there is no case law that defines the scope of foreign companies' duty to respond to such requests and the ICA is sensitive in requesting information from foreign companies. In the past there have been cases in which foreign companies have not responded to the ICA's requests. In practice, the ICA has difficulty in receiving information from foreign companies since enforcement against companies located outside Israel is more difficult.

With regard to criminal cases, collecting evidence is done by a specific procedure detailed in the Evidence Ordinance, which applies only to jurisdictions that have signed a relevant treaty with Israel (such as the European Convention on Mutual Assistance in Criminal Matters).

The ICA is not significantly involved in international co-operation with other enforcement agencies in multi-jurisdictional cases. Any co-operation between the ICA and enforcement agencies in other jurisdictions is rare and there are no known significant cases of such co-operation. Since no significant co-operation exists between the ICA and competition agencies in other jurisdictions, it does not affect the ICA's work in relation to the timing or the evidence-gathering procedure.

Before a hearing is conducted, if the alleged violation was made under aggravating circumstances, the ICA must notify the suspect when the investigation is overover, and the investigation material is transferred to the legal department.

Before the indictment, all suspects are entitled to a hearing before the ICA.

The defendants will then have access to the relevant information in the hands of the enforcement agency. Generally, the suspect does not have a right to third-party information that was not a part of the investigation materials. Nevertheless, the law enables suspects to require the ICA to sue for third-party material that is required for their defence. The use of this option is rare and the ICA will punctiliously examine whether the information is indeed required for the defendant's defence.

After an indictment has been filed, criminal cases litigate in front of the District Court of Jerusalem.

Civil action is initiated by filing a suit to the relevant court. The relevant court will be determined based on the sum of the suit; if it exceeds ILS2.5 million, it will be held in the District Court and, if not, in the Magistrates' Court.

In a civil suit the defendants have no right to access to information in the hands of the enforcement agency or in the hands of third parties and this information will be presented by the claimants during trial (as the burden of proof lies on its side).

Typically, the first stages of the enforcing action are brought against all parties in a single proceeding. When approaching trial, however, the ICA may wish to divide the parties into (at least) two separate trials so the evidence gathered from one trial may be used in the other.

In theory the ICA can use both criminal sanctions and administrative fines against violations of the Law. In practice, however, it is the ICA's policy to enforce against cartels with criminal sanctions.

The standard of proof for criminal cases is the highest standard possible as it requires proof beyond any reasonable doubt.

The court is the relevant body to find facts of the case, both civil and criminal, and it is the body that then applies the law to these facts.

Since the burden of proof in criminal cases is the highest burden possible (beyond any reasonable doubt), evidence obtained in criminal cases serves as prima facie evidence in private litigation in which the burden of proof is lower.

This firm is unaware of a case in which evidence proffered by an applicant for leniency from another jurisdiction was used in Israel. In the case of the 'GIS cartel', the ICA has published its factual findings, which were based on material provided by a foreign company that reached a leniency agreement with the ICA. Nevertheless, the document containing the ICA's factual findings served as prima facie evidence against the leniency applicant themselves. Thus, evidence collected through the leniency programme should be regarded as evidence that may be discoverable in court.

The regular rules of evidence apply and depend on the type of case – civil or criminal.

Experts are often used in court in the field of their expertise. In antitrust cases these are usually retained expert economists who are used in questions such as defining the relevant market (both product market and geographic market).

The following privileges are all recognised by the law in Israel: attorney-client privilege, medical privilege and privilege against self-incrimination.

The ICA will not bring multiple enforcement proceedings involving the same facts. It may, however, have a main proceeding for the actual violation and another proceeding regarding the refusal to supply information.

Regarding imposing sanctions for violating the Law, the ICA has the ability to impose administrative sanctions at its own discretion. In order to achieve a criminal conviction and enforce it by means that are available only for criminal offences, such as imprisonment, the ICA must bring charges to court.

The ICA's discretion to impose monetary sanctions could in some cases lead to fines much harsher than the criminal fines that could be imposed. The ICA can impose monetary fines of up to 8% of the company's previous year's revenue (with a ceiling of ILS100 million) for every violation of the Law. That is, if a company is involved in more than one violation of the Law, which is often the case in cartel violations, and if certain circumstances apply that would incline the ICA towards an administrative procedure rather than a criminal procedure, the monetary fines could be quite significant.

Furthermore, the law also allows the imposition of sanctions on a person who violates the law, up to ILS1 million.

The ICA often uses plea bargains in the charges that it brings. Some cases end with plea bargains to all defendants and, in most cases, at least some of the defendants reach a plea bargain with the ICA.

In addition, the Law enables the ICA to reach a consent decree with a potential defendant in lieu of indictment. Consent decrees could include fines, payments to injured persons and structural and behavioural provisions imposed on the suspect. The consent decree can be agreed upon without necessarily serving as an admission of violating the law.

In order for the consent decree to be in force it must be approved by a court. In practice, the ICA reaches consent decrees in lieu of indictments and the courts are very liberal in allowing such consent decrees; in fact, to date the court has never declined a consent decree that the ICA has reached with a defendant.

Nevertheless, when it comes to cartel cases, the ICA's willingness to reach consent decrees changes and it will do so only if a unique set of circumstances exists, since the ICA's principal position, which has been shown in recent cartel cases, is that they should end with a criminal conviction and imprisonment.

Both plea bargaining and consent decrees in Israel are closer to the US type of procedure rather than to the EU procedure. Specifically, in cartel cases the similarity to the US procedure is understandable, since in both jurisdictions the procedure is criminal.

Since the burden of proof in criminal cases is the highest burden possible (beyond any reasonable doubt), responsibility that is established in criminal cases serves as prima facie evidence in private litigation in which the burden of proof is lower.

In addition, if responsibility is established then the company and its officers might be debarred from public procurement. This depends on the specific public body that runs the procurement and there are no strict requirements that apply to all public procurement.

The Law determines the maximum penalty for any violation of the Law and it is the court's discretion to determine the specific sanction to be decided on in a specific case.

In a recent decision of the District Court in which companies and their managers were convicted of bid-rigging the court held that the penalty range for such cases must include a component of actual imprisonment.

The underlying purpose of the civil proceeding is to compensate the damaged parties for the damages caused by the cartel – most frequently, a surcharge the cartel took. The civil proceeding is not a means to penalise the cartel members and thus there are no sanctions for regulating future behaviour of a company or person.

Companies can adopt an internal compliance programme according to the format that the ICA has published. The programme offers clear 'dos and don’ts' for the company's managers and employees in view of the Law and according to the company's business and commercial activity. In fact, the programme is a 'tailor-made' set of antitrust rules for the environment in which the company operates. Adoption of such a programme offers some benefits to the company, principally the protection of the company's managers from criminal liability for the violation by the company of the Law, as well as providing a valuable instruction tool for preventing violations by the company's employees, in particular its middle-class workers.

According to a draft published by the ICA, consultation with expert lawyers on competition law may lead to a reduction in financial sanctions, if imposed on a particular company.

Sanctions in the governmental proceeding will not automatically extend to a mandatory consumer redress, but it is highly likely that in such cases a follow-on class action will follow the government's proceeding.

As mentioned, cartels will regularly not be dealt with by governmental enforcement proceedings but rather by a full trial before a court of law.

In any case, governmental enforcement proceedings could be appealed to the Tribunal and the Tribunal decision can then be appealed to the Supreme Court (the highest court in Israel).

Article 50 of the Law stipulates that any act or omission contrary to the provisions of the Law shall constitute a tort in accordance with the Israeli Torts Ordinance. Thus, any person that suffered damage due to a cartel could bring a private suit to court.

In recent years, almost any cartel investigation by the ICA has led to a follow-on class action claim for the damage that the cartel has caused to the public. In addition, several follow-on class actions have been filed in Israel regarding cartel investigations made by other foreign agencies. 

There are no specific thresholds and any person that was damaged by the cartel conduct may bring such action, which is brought before the relevant court, depending on the claim's total sum.

The standard for the claimant in a private suit is the lowest and it differs from administrative or criminal proceedings. It is possible that facts that have not been proved beyond any reasonable doubt in a criminal proceeding will be accepted under the lower standard of the civil suit.

As in other tort suits, the underlying principle of the compensation is to bring the situation back to the way it would have been were it not for the tort. Specifically, in private antitrust cases the compensation must compensate for the damage incurred by the violation of the law. In antitrust cases this principle can be applied in two separate forms:

  • compensation for the surcharge collected – for instance, if a cartel existed in a certain sector, the damage that has been suffered is the surcharge the consumer paid, compared to the competitive price that would have existed had it not been for the cartel; and
  • compensation for profits lost – for instance, if the cartel has boycotted a competing company, that injured company can collect damages for the amount by which it would have profited had it not been for the cartel.

Moreover, according to the Israeli Unjust Enrichment Law, 1979, the claimants can ask for compensation of unjust enrichment. The claimants may resort to the remedy of unjust enrichment when there are no instructions in a specific law regarding the compensation.

According to the Israeli Unjust Enrichment Law, 1979, the plaintiff in a claim for unjust enrichment is required to prove three cumulative elements:

  • enrichment on the part of the defendant;
  • that the enrichment of the defendant emanates from the plaintiff; and
  • that the enrichment of the defendant is unlawful.

There are no punitive or treble damages in antitrust cases in Israel.

Actions for damages caused by a cartel could be brought in a class action. Indeed, in recent years almost every cartel investigation by the ICA has been followed by a class action. Consumer associations have a standing of their own to bring such class actions before the court.

There is no binding precedent in Israeli case law either for the issue of the indirect purchaser's ability to claim damages or for the defendant's ability to raise a pass-on defence against claims brought by direct purchasers. In the only relevant case in which the Supreme Court referred to the passing-on defence, its position was sympathetic to the claim but the suit was dismissed on other grounds, so the court did not have to decide on the matter.

There is no specific process applied to resolving a passing-on defence and it will be determined as any other claim made during the trial.

The legal questions that arise mainly in class actions relate to the indirect group entitlement. The court examines the distance of the indirect group from the defendant's torturers; does the direct group process the product and the indirect group purchased a processed product; can the amount of the compensation be split; can a clear distinction be made between the two groups, and in fact each case is examined on its merits according to its circumstances. It can be said that as a general note, the courts tend to approve claims brought by indirect purchasers.

After a criminal trial has ended in a verdict, the evidence from the criminal trial can be used as prima facie evidence in a civil action.

Usually, the plaintiff will not have access to evidence from the investigations, but it can file a request under the Freedom of Information Law. In that case the parties would have an opportunity to submit their position, but the courts are usually liberal regarding discovery of such information. Therefore, it could be said that there is a high possibility that evidence collected through use of investigative powers would be discoverable in court in private damages actions, either by a specific request to the court or by a motion based on the Freedom of Information Law.

Claims for alleged cartel violations could be generally divided into two types of cases.

In cases where the civil litigation is brought as a follow-on action, after the ICA has pressed criminal charges for claims of violation, the claim can go to full trial or settlement but would be less often dismissed. Class actions are likely to be settled, depending on the number of parties sued (all cartel members or any number of them).

Civil cases that are brought with no other government action could go to full trial, dismissal or settlement depending on the specifics of each case.

In class actions the fee for the claimants' attorneys is set by the court according to its own wide discretion.

In regular and non-class actions the court awards the winning side with attorney fees, but the actual fees are determined between the client and the attorney.

In both regular and non-class actions the court awards the winning side with attorney fees, thus unsuccessful claimants will be obliged to pay the other side's legal fees. Nevertheless, the actual fees are determined between the client and its attorney. In recent years there has been a rise in legal fees imposed on unsuccessful claimants in class actions in cases where the court believes there is no real merit to the claim.

Any private suit could be appealed to a higher court. The appeal court will rarely examine the evidence itself (although it has the discretion to do so).

On 1 January 2019, the Israeli Parliament passed a comprehensive amendment to the Law, which essentially changed the executives' responsibility, who now may be involved in an offence if the organisation they run violates the competition law.

According to the amendment, company officials (active executive in the company, partner, or company-nominated officials for the field in which the violation occurred) must supervise and act to the full extent of their power in order to prevent a violation of the Law by the company or one of its employees. The law states that if an offence was committed under the Law by the company or one of its employees, the company official will be held in violation of this obligation and will be subject to a year in prison, alongside a monetary fine.

In addition, it is important to note the court's judgments in a main cartel case.

The Tree Trimming Cartel

The affair involved trimming contractors who co-ordinated tens of millions of dollars’ worth of tenders by the Israel Electric Corporation and local authorities during 2009 and 2010.

Following the investigation of the ICA and the National Fraud Investigation Unit, indictments were filed against more than 40 defendants for offences of restrictive arrangement under aggravated circumstances, aggravated fraud and money laundering.

The defendants were sentenced to a few months' imprisonment and the main defendant was recently sentenced to 11 months in prison along with a fine and forfeiture of funds.

No such written guide exists.

Goldfarb Seligman & Co Law Offices

98 Yigal Alon Street
Tel Aviv
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Israel

+972-3-6089999

+972-3-6089909

info@goldfarb.com www.goldfarb.com
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Law and Practice

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Goldfarb Seligman & Co Law Offices is one of Israel’s largest law firms and is among the elite group of firms that deliver top-tier legal services at international standards. The professional hallmark of the firm, which traces its history back over 80 years, is the unrelenting pursuit of the highest professional and ethical standards in the service of its clients. Goldfarb Seligman provides legal counsel in various fields of antitrust, competition and regulation to companies and corporations, from swift solutions of specific issues to setting long-term regulatory strategies. The firm also advises on antitrust and competition aspects arising from transactions, and represents local and international clients in these matters. Goldfarb Seligman's antitrust and competition department provides comprehensive strategic advice in the fields of antitrust and competition, as well as in the regulation field. The department's attorneys’ deep understanding and broad knowledge of the field, partially derived from long years of public service in senior regulatory positions, alongside their close working relations with various regulatory authorities, allow the department's legal teams to provide top-tier legal-strategic counsel to clients.

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