THE SUPREME COURT: THIRD-PARTY NOTICE MAY BE SERVED IN A CLASS ACTION

By Adv Barak Golan, Litigation Practice

On some occasions, a defendantin a class action suit does not only have defense arguments against the plaintiff by virtue of which he seeks to dismiss the claim against him, but also has arguments of a different  kind, their significance being that if he is found liable he will be entitled  indemnity or a to contribution by a certain third party. Until very recently, it was not at all clear whether a defendant in a class action may, in the context of the class proceeding, also make his arguments against the third party. However, the Supreme Court, in the framework of a new law determined by the Court, recently acknowledged that third-party notice may also be served in a class action proceeding, subject to receipt of the court’s permission and under the terms and conditions prescribed in the judgment[1].

The purpose of this article is to review the new law, as well as the conditions prescribed by the Supreme Court for the purpose of obtaining permission to serve a third-party notice in the context of a class action.

What is a third-party notice, and what is its purpose?

A third-party notice is a proceeding filed by a defendant in which context, generally speaking, the defendant argues that although he denies his liability to the plaintiff, if his arguments are rejected and he loses the case, he is entitled to indemnity or to a contribution by a certain third party. The third-party notice proceeding is sometimes called a “contingent claim” because, as a rule, when the primary claim is dismissed, the third-party notice is dismissed automatically. Only if and to the extent that the primary claim is accepted, in whole or in part, will there be room to hear the defendant’s arguments against the third party.

The main purpose of the third-party notice is the prevention of contradictory rulings and it is accomplished by allowing for all disputes, including those between the defendant and the third party, to be clarified in a single proceeding before the same court. In addition, the third-party notice allows for savings in resources and in judicial time.

 

Third-party notice in a class action proceeding

Although the third-party notice is a common proceeding in civil law, and although the world of class actions has developed greatly in Israel in the past decade, the third-party notice has been virtually absent from the class action arena. The reason for this may be that the Class Action Law and the regulations enacted pursuant to this law do not include express reference to the option of serving third-party notice in the class action proceeding, and as a result, the question as to whether the legislator’s intention was to permit this, or not to permit it, has been shrouded in legal obscurity.

Noting the foregoing, in a number of cases where the issue was brought before the courts, including the Supreme Court, it was discussed but not decided. Now, a moment before his retirement from the bench as Supreme Court President, the Hon. Judge (Ret.) A. Grunis has decided to put the matter in order and to define a clear practice in regard to the subject, according to which – noting that the underlying purposes of the third-party notice in an ordinary proceeding are served, and sometimes even more greatly so, in the class action proceeding – the conclusion is that third-party notice must be permitted in class actions as well.

By right or permission?

Another question that the Supreme Court was required to address in its ruling is whether the defendant may serve the third-party notice without receiving the court’s permission as is the practice in an ordinary claim, or whether he must first petition the court for its permission. The Court determined that in light of the complexity and special features of the class action proceeding, the service of third-party notice in a class action necessitates that the court’s permission be received, and permission will be granted when the defendant adequately establishes the third-party’s liability to him in his motion (for example, when the defendant’s allegations against the third party are based on written evidence).

Format of the discussion on the class action and third-party notice

As regards the stage in which the defendant is required to file the motion for service of third-party notice, the Court asserted that the suitable stage is the stage when the motion for class certification is heard, as it is the major stage in the clarification of the class action. Accordingly, it was determined that the defendant is required to file the motion for permission to serve third-party notice together with his response to the motion for class certification, i.e. within 90 days from the date whereon the defendant was served a copy of the motion for class certification.

If the court approves the service of third-party notice, the hearing of the class action proceeding will be conducted in one of two ways: full consolidation – both the relationship between the plaintiff and defendant and the relationship between the defendant and the third party will be discussed at the same time; severance according to the subject – the preferred method, where the court instructs that a separation be made between the hearing of the primary proceeding and the discussion on issues arising exclusively on the level of the relationship between the defendant and the third party (this hearing being held, in the nature of things, only if and to the extent that the defendant is found liable to the plaintiff in the primary proceeding).

Implementation of the new ruling

Although the law has only recently been determined, the district courts have begun to implement it. Thus, for example, in one case a third-party notice filed by the defendant was dismissed because the notice was not served in the motion for certification stage, but only after the claim had been certified as a class action, and in addition, the notice was served without the court’s permission having been received[2]. In a second case, the court granted the defendants in the class action permission to serve third-party notice[3].

In summary

The new law grants defendants in class actions an important tool in dealing with the class action, the availability of which to them had previously been shrouded in legal obscurity. It is emphasized that use of this tool is made according to conditions and provisions, both procedural and substantive, which were determined by the Supreme Court in this regard, a few of which are described above.


[1] Leave for Appeal 5635/13 Coral-Tel Ltd. v. Raz et al. (published in Nevo, April 1, 2015).

[2] Class Action (Central District) 50704-05-14 Nitzanim Garden Design Ltd. v. Sonol Israel Ltd. (published in Nevo, April 21, 2015).

[3] Civil Case (Tel Aviv District) 1420/07 Zeevi v. T.R.D. Instrum Ltd. (published in Nevo, April 28, 2015).