Third party funding 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 funding agreement was valid, also encouraged the use of such funding 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 funding 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 funding, the courts have, through positive endorsement of funding, established a favourable environment for litigation funding in Israel.
The use of third party litigation funding 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 funding in Israel have related to liquidation cases, the courts have also endorsed funding in general litigation.
Practitioners of litigation funding 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 funding industry is in its developing stages in Israel, and considering the increasing number of cases that are funded, 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 funders (including disclosure of funding agreements).
Litigation Funders 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 funding. 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 funder can tip the playing field in the claimant’s favour, providing the resources necessary for the claim to be effectively pursued.