I INTRODUCTION TO THE PRODUCT LIABILITY FRAMEWORK
The Defective Products (Liability) Law 5740-1980 (DPL) specifically regulates the issue of defective products that result in bodily injury. The DPL imposes strict liability on manufacturers of defective products, the liability for which is subject only to limited and specific defences, and does not require proof of fault on the part of the manufacturer but only the existence of a defect in the manufacturer’s product. Nonetheless, a prescribed cap is imposed in the DPL for non-pecuniary damages, as well as for loss of earnings and loss of earning capacity. The DPL also provides a shortened limitation period. In view of these limitations, the DPL is seldom solely relied upon and injured persons usually also utilise other causes of action that are not subject to these limitations.
Liability for a defective product may also be based on a tort claim filed in reliance on the Civil Wrongs Ordinance (New Version) 5728-1968 (CWO),2 or on a claim for breach of contract filed in reliance on the Contracts Law (General Part) 5733-1973 (the Contracts Law), the Sale Law 5728-1968 (the Sale Law) or the Sales Law (International Sale of Goods) 5760-1999 (the International Sales Law).
Liability for failure to disclose material information relating to a product may be imposed by virtue of the Consumer Protection Law 5741-1981 (CPL) and deviation from standards governing the manufacture, distribution and sale of products may be actionable under the Standards Law 5713-1953 (SL).
II REGULATORY OVERSIGHT
i Israeli Standardization Administration (ISA)
The ISA, which falls under the auspices of the Ministry of Economy, oversees the adoption of, and adherence to, the relevant standards under the SL. The ISA may determine that a specification of a product or certain working process be listed as an Israeli standard. The Minister of Economy may declare an Israeli standard as an official standard. Upon such a declaration, no person may deal with any such product or perform such a working process unless he or she complies with the requirements of the official standard.
The SL regulates the issue of product recalls of products that are subject to an official standard and, inter alia, authorises the Commissioner of Standardization to impose a product recall and prescribes the circumstances under which a safety event or deviation from the applicable standard must be notified to the Commissioner of Standardization. In addition, Israeli Standard 10393 adopts in its entirety international standard ISO 10393 and provides practical guidance to suppliers about consumer product recalls and other corrective actions to be taken after a product has left the manufacturing facility. Amendments made in 2016 to the SL impose new tractability obligations alongside additional changes related, inter alia, to quality checks and approval for the marketing of standard-subject products.
ii Product-specific regulation
Certain products are regulated by specific legislation that identifies the regulatory authority responsible for overseeing the safety of those products. For example:
- Medicinal preparations fall within the responsibility of the Pharmacy Department, a division within the Ministry of Health (MOH). All matters pertaining to medicinal preparations are largely regulated by the Pharmacists Ordinance [New Version] 5741-1981 (PO), as well as corresponding regulations and guidelines issued by the MOH. The recall of medicinal preparations is addressed in the PO, as well as in the Pharmacists Regulations (Preparations) 5746-1986 and Guideline No. 3 published by the MOH and entitled ‘Notification of a Defect in Medicinal Preparations and Raw Active Ingredients’. The issue of pharmacovigilance and safety monitoring is addressed in Guideline No. 6 published by the MOH and entitled ‘Reporting Adverse Events and New Safety Information’.
- A recent comprehensive amendment to the PO introduced into primary legislation the obligation to immediately notify the Director General of the MOH (DG) of a defect in a preparation. The amendment also lists the steps that the DG is authorised to take in connection with a preparation that is found to be defective, to safeguard public health, for example, initiating a product recall and notifying the public thereof by publishing same in the media. It is also prohibited to manufacture, market and use a preparation that was the subject of a decision given by the DG under the aforesaid authority, save in accordance with the DG’s directives in connection with that preparation.
- In addition, with respect to a potentially hazardous preparation, MOH-supervised consumer product and cosmetic product, the DG is authorised to prohibit the manufacturing or marketing of such a product or preparation or to order its destruction, after being convinced that the product is indeed hazardous (subject to giving the manufacturer or distributor or registration owner an opportunity to present his or her arguments in the matter).
- Medical devices fall within the responsibility of the Medical Devices Department, a division within the MOH. The Medical Devices Law 5772-2012 (MDL), which is expected to enter into effect as soon as all corresponding regulations are enacted, caters for the regulation of medical devices. The MDL addresses, inter alia, the issue of product recalls and provides that the MOH will publish regulations detailing the registration owner’s duty to notify the MOH of events with safety implications.
- Cosmetics fall within the responsibility of the Cosmetics Department, a division within the MOH. As mentioned in point (a) above, according to the PO, the DG is authorised to take certain steps in connection with potentially hazardous cosmetics. An additional amendment to the PO, which is expected to enter into effect as soon as corresponding regulations are enacted, addresses, inter alia, the issue of product recalls and prescribes the steps that should be taken by a dealer who discovers that a cosmetics product under his or her responsibility is harmful. The amendment also grants the DG broad powers with respect to harmful cosmetics, including the authority to impose a product recall, notify the public of the harmful cosmetic product, etc. The MOH Guidelines for Licensing Cosmetics provide, inter alia, that if a cosmetic product is found to be, among other things, harmful or might be harmful to public health, or is not effective for the purpose for which it was intended, the Pharmacy Department is authorised to prohibit its manufacture, import or marketing. The Department is also authorised to cancel the licence or refuse to renew the licence.
III CAUSES OF ACTION
i Civil liability
Tortious claims for injury can be brought based on either the DPL or the CWO. For details concerning liability under the DPL, see Section I. The main cause of action in product liability cases is based on the CWO and, in particular:
- negligence, for which the following elements must be established: the existence of a duty of care; breach of this duty by the defendant; and a causal connection between the breach and the resultant damage; and
- breach of statutory duty, in which a plaintiff claiming breach of statutory duty will need to show the breach by the defendant of a duty imposed on it by any law or regulation, other than the CWO (e.g., the duty to meet an official standard), provided that: (1) the purpose of the other law or regulation is to protect or benefit the plaintiff; and (2) the damage caused as a result of the breach is of the nature contemplated by that law or regulation.
A manufacturer or distributor of a defective product may also be exposed to contractual claims. In addition to the provisions of the specific contract that form the contractual basis between the relevant parties, the Contracts Law, the Sale Law and the International Sales Law should also be taken into consideration. These laws include provisions to the effect that, for example, a party to a contract should not mislead the other party and both parties should perform the contract in good faith and in a customary manner. In addition, according to the Sale Law, a seller will not be deemed as fulfilling its obligations under a contract if, for example, it delivers a product that does not meet the quality required for its normal or commercial use, or for a special purpose as reflected in the contract.
Civil liability for certain acts or omissions related to a defective product may also be established by reliance on the CPL. The CPL provides, inter alia, that a dealer3 should disclose to the consumer any defect or quality inferiority that materially diminishes the value of the product, as well as any feature of the product that necessitates a particular type of maintenance or use to avoid injury to the user, any other person or the product during ordinary use or handling.
The CPL further provides that a dealer should not do anything – whether by act or omission – likely to mislead a consumer as to any matter material to a transaction. Examples of matters that are material to a transaction, as listed in the CPL, include the quality and nature of the product or service; the use that can be made of the product and the risk associated with that use; the manner of handling the product; and the conformity of the product to a standard, specification or model.
ii Criminal liability
Criminal sanctions as regulated by the Penal Law 5737-1977 (PL), may be imposed, where death or severe injury is caused owing to negligence. Criminal sanctions may also be imposed by virtue of legislation referring to specific products that may apply in the event of the sale or distribution of defective products. In addition, the SL provides that it is a criminal offence to manufacture, sell, import or export a product that fails to comply with the requirements of an official standard (subject to the terms of the SL). In addition, a dealer who misleads a consumer as to any matter material to a transaction or fails to disclose to a customer any defect, inferior quality or other feature known to it that materially diminishes the value of the product may be liable to criminal sanctions under the CPL. Similar administrative penalties such as fines and administrative warnings may also be imposed where a dealer is found to have breached the provisions of the SL or other product-specific legislation, such as the PO, the FL and the VL.
Product liability cases are classified as general civil law claims and, as such, are adjudicated within the framework of the general court system. The same holds true with respect to criminal proceedings with product liability aspects.
The Israeli courts of first instance may be either the magistrates’ courts or the district courts, generally depending on the value of the subject matter of the case. District courts have jurisdiction over cases in which more than 2.5 million Israeli new shekels are in dispute. Appeals of judgments rendered by a magistrate’s court are heard by the district court, and those of the district court (when sitting as a court of first instance) are heard by the Supreme Court in Jerusalem. A second appeal before the Supreme Court will be given in rare cases and only upon the approval of the court. The Israeli legal system does not have juries and all decisions are rendered by professional sitting judges.
Certain violations of the CPL and the SL may also be adjudicated by the relevant regulatory officials (i.e., the Commissioner of Consumer Protection and the Commissioner of Standardization, respectively).
ii Burden of proof
As mentioned above, under the DPL there is no need to prove negligence on the part of the manufacturer – a plaintiff need only show that the product was defective and that the injury was caused as a result of a manufacturing defect. Under the DPL, a product is presumed to be defective if the circumstances of the case are more consistent with the conclusion that it was defective than with the conclusion that it was not. The plaintiff bears the burden of convincing the court that this presumption should apply and, if successful, the burden shifts to the manufacturer4 to prove that the product is not defective.
If, however, the manufacturer is able to show that the product passed a reasonable safety check before leaving its control, then the burden of proof shifts again and the presumption is that the product became defective after having left the control of the manufacturer. In Phoenicia et al v. Amar et al,5 a landmark and precedential decision in Israeli product liability law, the Supreme Court held, inter alia, that sample checks are not sufficient to establish the presumption that the defect arose after the product left the manufacturer’s control. Therefore, the manufacturer must show that the specific damaged product was reasonably checked.
Where the cause of action is based on torts or contracts, the plaintiff bears the ultimate burden of proof, based on the required standard of balance of probabilities.
As for the elements to be established by the plaintiff in a claim for negligence, see Section III.
The CWO contains several rules and caters for various situations whereby the onus to prove that no negligence exists shifts to the defendant. These include:
- where the damage was caused by a dangerous object that was owned by the defendant or in respect of which the defendant was responsible, or fire, and the defendant was the owner or holder of the property where the fire erupted;
- res ipsa loquitur;6 and
- where it is reasonable to assume that the defendant may have more information regarding the incident and the subject matter of the claim, then – practically – the court expects the defendant to provide evidence showing that no defect exists.
Under the DPL, only the following defences are available to a defendant to mitigate or avoid liability:
- The defect arose after the product left the manufacturer’s control (see the discussion above concerning reasonable safety checks).
- Based on the state of scientific and technological development at the time the product left the manufacturer’s control, it could not have known with regard to its design that the product did not meet reasonable safety standards.
- The manufacturer had not intended the product to leave its control, and it took reasonable steps to prevent the product leaving the manufacturer’s control and to warn the relevant public of the associated risk.
- The injured party is more than 12 years old and knew of the defect and the associated risk and voluntarily exposed himself or herself to that risk.
Contributory negligence cannot be raised as a defence by the manufacturer. However, if the injured party was grossly negligent, the court is authorised to reduce the amount of compensation, taking into account the extent of the injured party’s negligence.
Where a claim for product liability is based on the CWO or the CPL, a defendant may raise the following defences:
- no fault – in which the damage was caused by an extraordinary natural event that a reasonable person could not have foreseen and the consequences thereof could not have been prevented, even with reasonable care, or that the fault of another person was the decisive cause of the damage;
- voluntary exposure to risk (does not apply to breach of statutory duty or to a child under the age of 12);
- de minimis; and
- an act committed pursuant to any enactment (this does not apply where the cause of action is negligence).
Under the CPL, a dealer has an obligation to disclose certain information to the consumer, such as any defect or inferiority known to the dealer that materially diminishes the value of the goods. However, a good defence for the dealer is to prove that the defect or inferiority was known to the consumer.
The mere fact that a product complied with an Israeli standard does not constitute a defence, nor would that fact be sufficient to show that the manufacturer was not negligent. Nonetheless, under certain circumstances, such compliance may give rise to a refutable presumption of non-negligence. In addition, a recent district court decision recognised compliance with a regulatory authority’s directives as a valid defence against a claim concerning the non-disclosure of information to the public relating to a specific product (this decision, however, does not constitute binding case law).
Statutory periods of limitation are entrenched in Israeli civil law. The general rule is that the statutory period of limitation with regard to civil actions, including product liability matters, is seven years. The statutory period of limitation for causes of actions falling under the DPL is three years. In addition, an action under the DPL can only be brought within 10 years of the end of the year in which the product left the manufacturer’s control. A plea of prescription for causes of action arising under any law may not be entertained by the court unless the defendant raised it at the earliest opportunity after the action was brought.
iv Personal jurisdiction
The DPL applies to all defective products distributed throughout Israel. When a claim under this law involves a product manufactured outside Israel, the term ‘manufacturer’ may also refer to the importer or, if the importer is unidentifiable, the Israeli distributor. The Israeli distributor may thus avoid liability if it supplies the injured party with details enabling the latter to identify and locate the manufacturer or importer, within a reasonable time frame following receipt of the request by the distributor; however, the DPL does not apply to injuries caused outside Israel.
As for the applicability of the Israeli law to claims based on torts and involving an international element, the Supreme Court held7 that the law governing such claims is the law of the place where the tort was committed (and in so ruling, replaced the previously held double-actionability test); however, deviations from this rule are possible where special justifications exist.
According to the Civil Procedure Regulations 5744-1984 (CPR), which apply to both regular tort actions and those brought under the DPL, an Israeli court is assumed to acquire jurisdiction to hear a claim filed with that court upon service of the pleadings on the defendant. If the defendant is located abroad, special leave from the court to serve the pleadings outside the Israeli court’s jurisdiction is required.
According to the CPR, the court may permit service of pleadings outside the Israeli jurisdiction if, inter alia, the act or omission in question took place in Israel. In Metallurgique de Gerzat SA v. Wilensky,8 the Supreme Court held that pleadings may not be served on the foreign manufacturer based on this rule if the manufacturer did not intend to export the product to Israel. The court may also permit service of pleadings outside Israeli jurisdiction if, inter alia, the person abroad (e.g., a foreign manufacturer) is a necessary party, or the correct party in an action duly brought against another person on whom a summons was properly served within Israel.
A foreign party served with pleadings based on leave granted by the court as aforesaid may seek cancellation of the leave by arguing that the case does not fall within the list of matters allowing for service outside the jurisdiction, as prescribed by the CPR or that the Israeli court is not the proper forum to hear the case. In recent years, the tendency of the Israeli courts to accept forum non conveniens arguments has considerably declined, bearing in mind the effects of globalisation and technological developments.
v Expert witnesses
Under the CPR, evidence relating to issues of expertise must be submitted by means of an expert opinion. An expert opinion pertaining to a medical issue should be attached to the pleadings. Each party has the right to cross-examine the other party’s expert.
The court may itself appoint one or more experts on any matter in dispute between the parties. If the court appoints an expert with the parties’ consent then, unless otherwise instructed by the court, the parties will not present expert opinions on their own behalf.
Under Israeli law, discovery relates to documents and does not include depositions. A party to the litigation is obliged to disclose to its opponent, in a duly signed affidavit, the existence of all documents relevant to the dispute, which are or were in its possession or under its control.
The term ‘documents’ includes written records as well as materials such as videos, and the test for relevance is broad. A document is relevant if it assists a party to the litigation (the disclosing party or counterparty) to establish its case or damages its opponent’s case. Objections to disclosure are usually limited to questions of relevance, and to the test of whether the discovery sought will facilitate a fair trial and save costs, or whether it would be burdensome and with little benefit to ascertaining the relevant facts in the actual trial.
A party is entitled to inspect any document referred to in the pleadings or affidavits of the other party, including the discovery affidavit. Thus, if a party objects to the other party inspecting a particular document mentioned in the discovery affidavit (on the ground that it is privileged), this objection must be clearly specified in the discovery affidavit. If a party is not satisfied with the extent of the other party’s discovery or willingness to allow inspection, an application may be submitted to the court requesting further discovery or inspection, as applicable (or make similar orders relating to interrogatories).
Failure to comply with court orders on issues of discovery may lead to sanctions, including – albeit only in rare circumstances – striking out an action or defence. Documents and information received in the context of discovery should not be disclosed or used for any purpose other than the conduct of the trial in the framework of which discovery was made. The intentional destruction of documents that are, or may be, required as evidence in a judicial proceeding, or wilfully causing such documents to be unidentifiable or illegible, constitutes a criminal offence under the PL.
It is possible for multiple parties to share joint liability for the same wrongdoing. The DPL explicitly sets out that if damage is caused owing to a defective component, then both the component manufacturer and the product manufacturer may share joint liability (and, as mentioned above, the term ‘manufacturer’ can also refer to an importer or distributor). Joint liability is also available under both the CWO and the Contracts Law. The Supreme Court held, in the Phoenicia case, that if a defective product underwent several manufacturing stages and no information is available regarding the extent of the fault of each of the wrongdoers, liability should be equally divided among them. While the Supreme Court discussed the doctrine of market share liability, to date, this doctrine has not been adopted into the Israeli legal system.
In addition, a manufacturer served with a product liability action may attempt to obtain partial or full indemnification by means of a third-party notice served on another potentially liable party.
The acquisition of a manufacturer, distributor or seller through a purchase of shares in the ordinary course of business (i.e., not as part of recovery or insolvency proceedings) will usually not affect the liability of the manufacturer, distributor or seller in the case of defective products (i.e., the successor corporation will be liable therefor). In the case of the purchase of assets, successor liability will be determined according to the terms of the relevant asset-purchase agreement. Although not yet addressed by the courts in the context of product liability case law, based on general corporate law principles, a court may theoretically lift the corporate veil and impose liability on the acquiring company where the structure of the transaction is fraudulent and does not reflect the true commercial nature of the transaction.
viii Mass tort actions
According to the Class Actions Law 5766-2006, an application to approve a claim as a class action may be filed, inter alia, with regard to a claim against a dealer (see footnote 3) that concerns a dispute between that dealer and a consumer, regardless of whether they are parties to a transaction.
The court may allow an application to hear a claim as a class action only if the following conditions are met:
- there is a reasonable likelihood that material common questions of fact or law will be decided in favour of the group;
- the class group mechanism is a fair and efficient way to resolve the dispute; and
- there is a reasonable likelihood that the interests of the entire group will be represented and administrated properly and in good faith.
The class-action mechanism is often pursued in cases involving mass product liability claims in Israel.
One of the most notable class action cases in Israel is Tnuva Communal Marketing Centre v. Estate of Tufic.9 In this action, claims originated when it was discovered that, for almost two years, one of Israel’s biggest milk distributors, Tnuva, mixed an organosilicon compound into milk as an anti-foaming agent, without disclosing the existence of the compound on the product’s label. Despite there not being any real evidence of physical damage, the court held that compensatory damages in a class action may also include negative feelings, feelings of disgust or feelings of harming the consumer’s autonomy. Nonetheless, within the framework of an appeal, the Supreme Court refused to adopt a purely objective approach for awarding compensation and held that actual damage is required, even if the damage amounts to merely negative feelings.
As mentioned above, under the DPL, damages may be awarded for bodily (including psychological) injury only and the possible sums awarded for non-pecuniary damages, loss of earnings and loss of earning capacity are limited. Compensatory damages in product liability claims under the CWO include damages for bodily injury as well as damages to property or products.
Damages for bodily injury may be pecuniary (such as for the loss of capacity to earn money also during the ‘lost years’) as well as non-pecuniary (pain and suffering and reduction of life expectancy). According to the decision in the Tnuva case, compensatory damages may also include compensation for compromised consumer autonomy, which resulted in negative feelings. In addition, damages may also include consequential losses, such as loss of profits. The court is also authorised to issue an interim or permanent mandamus or injunction order in addition to damages or even as a sole remedy.
Case law has held that generally (in the absence of other specific provisions in statutory law), punitive damages may be awarded when the manufacturer is found to have acted with malice. In cases involving the tort of negligence, the court has ordered punitive damages only in specific and severe instances and, particularly, where ‘some type of intention’ was shown. The general view is that notwithstanding the courts’ competence to do so, punitive damages will be awarded only in rare circumstances.
As for criminal penalties, general offences regulated by the PL, such as causing death or severe injury owing to negligence, may also apply to impose sanctions for the sale or distribution of defective products. Other legislation referring to specific products may similarly provide relief in the form of criminal sanctions where the case involves the sale or distribution of defective products.
In addition, the SL provides that it is a criminal offence to manufacture, sell, import or export a product that fails to comply with the requirements of an official standard (subject to the terms of the SL). The Commissioner of Standardization is also empowered to impose financial sanctions or issue an administrative warning where it is found that a dealer breached the provisions of the SL.
Further, under the CPL, a dealer who misleads a consumer as to any matter material to a transaction or fails to disclose to a customer any defect, inferior quality or other feature known to it that materially diminishes the value of the product may be subject to criminal sanctions.
Criminal liability could also be imposed on certain key office holders in a corporation or on civil servants conferred with relevant responsibility (e.g., to oversee the safety of products). In one case,10 charges were pressed against both a civil servant employed by the MOH and key office holders from Humana Corporation in a product liability case concerning the deficiency of a certain vitamin in baby formula, which resulted in the injury to, and – in two cases – death of, infants.
The CPL includes a chapter relating to administrative enforcement tools, which, inter alia, empower the Commissioner of Consumer Protection to impose an administrative fine on a dealer, if, inter alia, it fails to notify consumers of details the disclosure of which is mandatory under the CPL. Similar enforcement tools were adopted in the PO, the FL and the VL.
V YEAR IN REVIEW
Over the past few years, we have witnessed a wave of legislative developments that have addressed, for the first time, in the framework of primary and secondary legislation, the recall of defective products, an issue previously mainly regulated in guidelines published by the relevant regulatory authorities. During the course of the coming year, we expect that a series of new regulations will be enacted pursuant to the powers granted to the relevant ministers under this newly enacted legislation, which will provide clarity and regulate in greater detail, inter alia, the product recall process and related issues. For example, a draft of the Cosmetics Regulation is currently being discussed in the Israeli parliament, the Knesset. The Regulation is expected to implement the amendments to the PO with regard to cosmetics, governing the production, importation and marketing of cosmetics in Israel.
In the past year, the Israeli Supreme Court, in LCA 5119/17 Hewlett Packard Company v. Yehud Ezra, addressed the issue of consumers’ ability to sue dealers for failing to include mandatory information on product packaging. In this motion to approve a class action, the claim originated from HP’s breach of the CPL’s requirement to mark in Hebrew certain information on its ink cartridge packaging. The Supreme Court dismissed a motion for leave to appeal the district court’s decision to allow the motion to hear the claim as a class action. The Supreme Court recognised, inter alia, that a cause of action for non-pecuniary damages of discomfort resulting from the breach by HP, as well as a possible claim for reinstatement of the benefit resulting from the breach, may be available to consumers.
1 Avi Ordo and Moran Katz are partners at S Horowitz & Co.
2 For example, for negligence or breach of statutory duty.
3 A ‘dealer’ is defined as anyone who sells a commodity or performs a service by way of trade, including a manufacturer.
4 A ‘manufacturer’ is defined as a person who is engaged, for commercial purposes, in the manufacture or assembly of products, including the importer of the relevant products to Israel for commercial purposes and, where it is impossible to easily ascertain the identity of the manufacturer and importer of the products, the supplier of such products.
5 CA 166/88.
6 ‘The thing speaks for itself.’
7 CA 1432/03 Yinon Food Products Producing and Marketing Ltd v. Magda Kar’an Tak.
8 LCA 2752/03.
9 CA 10085/08.
10 Criminal Case 2613/08 State Attorney Branch Division (Petach Tikva) v. Frederik Black.