Third party finance of litigation and arbitration is permitted in Israel and has received positive judicial endorsement.
In Benny Bachar Zoabi Construction company vs Bank Hapoalim, LF 29526-10-16 (Nazareth District) (published in Nevo, 26 October 2017), the vice-president of Nazareth district court, Judge Attif Ailablouni, whilst holding that a litigation finance agreement was valid, also encouraged the use of such finance agreements in liquidation cases: ‘. Finally, there is a fund that is willing to examine potential claims with professional eyes, and where the prospects of the claim look good, will be willing to fund the costs of the claim, while taking the risk that if the claim is rejected, there will not be indemnity on the funding costs, and if it succeeds, the fund will be indemnified and will receive additional returns. There is no doubt that we should bless the establishment of the fund and even say that it is a shame that it did not arise before. The idea underlying the establishment of the fund would enable the right of choice of the insolvency firm, if it so wishes, to use funding to file a claim and prevent a situation in which justified claims are waived only because of a shortage of funds. It is also necessary to encourage officeholders to apply for the services of the fund where it appears that there is a justified claim that has no sources of funding.’
Today, third party finance for litigation in Israel is an accepted part of the litigation landscape and has been judicially endorsed by the Israeli courts in recent years. Although the courts have not provided comprehensive rulings on the Israeli court’s approval regarding all of the issues relevant to litigation finance, the courts have, through positive endorsement of finance, established a favourable environment for litigation finance in Israel.
The use of third party litigation finance in Israel has only recently taken off, but has grown quickly and significantly over the past 3 years. Whilst most of the positive judgments regarding litigation finance in Israel have related to liquidation cases, the courts have also endorsed finance in general litigation.
Practitioners of litigation finance should be aware that whilst Israeli lawyers’ costs are relatively low in comparison to some jurisdictions (and contingency fee arrangements are possible), there is a mandatory court fee of 2.5% of the claim value (up to 25 million NIS; 1% of the sum above that), where half of the fee should be paid when the claim is filed, and the second half when the trial begins. The litigation finance industry is in its developing stages in Israel, and considering the increasing number of cases that are financed, we might see in the near future more court decisions that will determine the rules on matters like the limits on the fees and interest a funder can charge, the legality of veto rights and the privilege in the communications between litigants and fincancers (including disclosure of funding agreements).
Litigation Financers can assist Israeli claimants both financially and strategically. The scenario where an Israeli start-up is in dispute with a large tech company, fits well with classic ‘David v Goliath’ litigation finance. For instance, the typical budget for patent litigation can be in the $3-5 million range, and campaigns against multiple infringing defendants can require double that budget. A financer can tip the playing field in the claimant’s favour, providing the resources necessary for the claim to be effectively pursued.