ISRAEL Law and Practice Contributed by: Yitzhak Yaari, Chen, Yaari, Vaki & Co.
of the corporation (or at least was not directed against it). The test of whether the act was done in the course of the officer performing their duties is a broad one: whether they acted in their capacity as a “corporate individual” rather than as a private individual. In addition to liability by virtue of the doctrine of organs, vicarious liability can sometimes be attributed to a company because of the acts of persons who acted on its behalf. Thus, for example, a company may be liable under the Torts Ordinance for a tort that was committed by one of its employees (even if they are not an organ) or by an agent. 3.2 Claims Against Ultimate Beneficial Owners A finding that a company is liable does not mean that its organs have no liability for their actions, nor does it grant them immunity in torts. If an officer, in their posi - tion in the company, deceives, misleads, misrepre - sents, conducts negotiations in bad faith, performs a contract in bad faith, etc, they will be personally liable, whether the company is also liable or not. Moreover, Section 6 of the Israeli Companies Law provides the doctrine of raising the veil, according to which a court may attribute a debt of a company to a shareholder if it finds that it is just and right to do so in the circum - stances of the case, in the exceptional case where the company’s separate legal personality is used, inter alia, to defraud someone. This section is intended to prevent shareholders from hiding behind the corpo - rate veil in order to avoid being sued by victims of fraud. 3.3 Shareholders’ Claims Against Fraudulent Directors By means of a derivative action, a shareholder or director can compel the company to sue its officers when they caused damage to the company. This tool is intended to solve the representative problem, which arises when the directors themselves caused dam - age to the company. A shareholder (or director) who wishes to file a derivative action is usually required to write first to the company and demand that it enforces its rights by filing a lawsuit. If this demand is refused (or ignored), the court can be petitioned to allow the filing of a derivative action. The court will certify the motion if it is persuaded that the claim and its litigation
are in the company’s best interest and the plaintiff is not acting in bad faith. Usually, even before the motion for a derivative claim is filed, a motion for discovery relating to the process of approving the derivative claim is filed in court. This motion will be approved if the court is persuaded that there is a preliminary basis in evidence regarding the conditions for certifying the derivative claim. Upon certification of the motion to file a derivative action, the applicant files the claim and litigates it on behalf of the company. At the end of the lawsuit, the court awards attorney’s fees, which are usually paid by the company, as well as remuneration for the plain - tiff who took the trouble to file and litigate the deriva - tive claim. These amounts are usually determined as a percentage of the benefit derived by the company from the claim. 4. Overseas Parties in Fraud Claims 4.1 Joining Overseas Parties to Fraud Claims Naturally, there is nothing to prevent suing a foreign individual or corporation in Israel, or to join a foreign individual or corporation as a defendant together with Israeli defendants. The jurisdiction over the foreign party is acquired by serving the statement of claim on that party. If the defendant has a representative in Israel, it can simply be served on the representa - tive. If not, the documents must be served outside the jurisdiction. According to the 2018 Regulations, it is no longer necessary to obtain the court’s approval in advance for serving a party outside Israel, but there is a long list of cases where a party may serve a state - ment of claim outside the jurisdiction. What these cases have in common is the existence of a certain connection to Israel, whether a personal connection of the defendant or a substantive connection relating to the cause of action. However, it is still necessary to apply to the court to order the way in which service will be performed, and the court has the authority to prevent service of the documents. The court will not prevent service outside the jurisdiction if it finds that the claim satisfies one of the grounds stated in the Regulations as allowing
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