16 August, 2022
The Israeli Supreme Court, in a precedential ruling regarding “excessive pricing” by a dominant firm, accepted the appeal filed by our firm on behalf of the Central Bottling Company, the local Coca-Cola bottler. The Supreme Court canceled the District Court’s certification of a class action which claimed that the price of 1.5 liter bottles of Coca-Cola was, allegedly, “excessive” and as such breached CBC’s obligations as a dominant firm under Israeli Competition Law. As part of its decision, the Supreme Court outlined how courts should handle such class actions.
The District Court Ruling
The prohibition on collecting an “excessive and unfair price” by a dominant firm under Israeli competition law, is of course derived from European competition law. According to the District Court, Israeli law should advance “a broader use of the excessive pricing cause” than what is customary in European law, especially through consumer class actions. In accordance with this policy, the court stated that the cause arises when a monopolist, who possesses market power, charges a price that has an excessive gap “between the actual pricing and the cost-based pricing”. As a result, the District Court certified the class action against Coca-Cola Israel on the basis of a single piece of evidence – the cheaper price of other cola taste carbonated beverages in Israel (Pepsi and RC).
The Supreme Court Ruling
In its precedent ruling, the Supreme Court rejected the District Court’s approach and ruled that a more cautious, narrow, and restrained approach must be adopted in Israel in accordance with European law. In addressing the current situation in Israel, where dozens of similar “excessive pricing” class actions are pending in District Courts, the court stated it is not desirable for the courts to become the “superior regulator of prices in the Israeli economy”. Moreover, the Supreme Court noted the importance of the Competition Authority’s opinion which stated that enforcement of the cause should be reserved for “exceptional and extreme cases which sting the eye”.
As part of this narrowing approach with regard to excessive pricing litigation, the Supreme Court followed European jurisprudence in its two-prong test to determine the cause. The first examines the “excessiveness” of the price, adding a second “fairness” test to it. The court ruled that the “fairness” test should also be based on an economic analysis including considerations such as the existence of substitutes in the market, the degree of product vitality, the degree of “differentiation” of the product in comparison to its competitors, etc. The court also ruled that both parts of the test should be examined already at the stage of certifying the class action and that the burden of proving “fairness” will be placed on the defendant monopolist. The court therefore nullified the class action certification.
Documents Discovery in Class Actions
Another aspect of the precedent ruling concerned the burden of proof and documents discovery in the preliminary stage of certifying a class action. The District Court ruled that when the defendant objects to the representative plaintiff’s request for disclosure of documents, the court will not force disclosure, but instead will attribute it to the defendant’s detriment by lowering the standard of proof required from the representative plaintiff at the class action’s certification stage. However, The Supreme Court overruled this part of the decision as well. The court stated that there should be no connection between the defendant’s willingness to disclose information and the standard of proof required from the representative plaintiff. The Supreme Court explained that linking the two issues is not consistent with the law’s established arrangements and its purpose.
In addition, the Supreme Court criticized the District Court’s conduct and stated that “due to the absence of document discovery procedures and the significant lowering of the standard of proof, the claim was approved as a class action on the basis of poor and insufficient evidentiary grounds”. It was also noted that unambiguously, the request to conduct a class action was approved despite the fact that the expert economist’s opinion brought on behalf of the representative plaintiff was only theoretical and based on simple assumptions that lacked any foundation. Since the District Court did not actually decide on the request for the discovery of documents, but left it to the defendant’s discretion while imposing a “sanction” for the objection to discovery, the Supreme Court ordered a rehearing in the District Court to examine whether, and to what extent, to grant the representative plaintiff’s request for disclosure of documents.
This landmark ruling sets the guidelines for future court decisions in lawsuits based on “excessive pricing” claims. Companies which may be deemed a monopolist under Israeli competition law, should consider how this precedent affects their risk of such lawsuits and how this risk can be mitigated.
CBC was represented by Adv. Benjamin Rotenberg, Adv. Moti Arad, Adv. Amir Vang, Adv. Boaz Sity and Adv. Maayan Bronshtein.
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