Twenty years after Israel's class action law, is it time to recalibrate the system?

The original premise of the law was both simple and compelling. It enabled individual citizens to challenge widespread but relatively small-scale injuries, claims that would not justify individual litigation but, collectively, represent significant public damage. In that sense, class actions opened the courthouse doors to people who otherwise might never have had their day in court.

But any mechanism designed to balance power can itself create imbalance if it expands without sufficient oversight. The question today is no longer whether class actions are necessary, they unquestionably are. The real question is whether the legal system is adequately distinguishing between lawsuits that genuinely serve the public interest and those that ultimately burden it.

This is not merely a theoretical concern. In today's business environment, every legal risk carries a price. Broad litigation exposure inevitably affects the cost of doing business, and those costs may ultimately be reflected in the prices consumers pay for products and services.

In the years immediately following the law's enactment, the emphasis was naturally on encouraging use of the new legal mechanism by making class actions more accessible and creating meaningful incentives to expose widespread wrongdoing.

That phase was necessary. But two decades later, Israel's class action landscape has matured into a sophisticated and highly professional field. If the evolution were compared to sports, it has progressed from amateur competition to the professional leagues.

In such an environment, the courts' role extends beyond simply opening the gates. They must also referee the game.

For example, when a class action is filed without an adequate pre-litigation demand, when a defendant provides a substantive response but litigation nevertheless proceeds, or when a plaintiff continues pursuing claims despite judicial indications that the legal arguments are particularly weak, the courts should send a clear message: meritless litigation carries consequences, including realistic cost awards against unsuccessful plaintiffs.

Israeli case law has already begun moving in this direction, but a more consistent policy may be warranted.

Such an approach would not weaken the class action mechanism. On the contrary, drawing a sharper distinction between strong and weak claims would reinforce public confidence in the system while ensuring that judicial and business resources are devoted to cases involving genuine public harm.

Litigation expenses, settlements, attorneys' fees, system modifications, increased reserves and ongoing legal defense do not exist in a vacuum. In many cases these costs are fully justified because they remedy genuine wrongdoing.

In others, however, where the public benefit is limited and the systemic costs are substantial, an important question arises: can a legal tool designed to protect consumers ultimately increase the prices they pay?

The appropriate test, therefore, should not be limited to whether a legal cause of action exists, but whether the proceeding produces a net public benefit.

Israel need not adopt such an approach. But it should recognize the lesson: when a legal mechanism comes to be viewed as unbalanced, the response may be excessive restriction, leaving the public worse off.

One of the most significant challenges affects institutional bodies such as banks, insurance companies and pension funds, whose relationships with customers often span decades.

When legal claims are characterized as continuing causes of action, decisions and agreements made many years earlier may be judged according to today's legal standards rather than those that existed when the conduct occurred.

The issue is not whether institutions should be held accountable when they harm the public, they should. Rather, the concern is retrospective judgment of conduct that may have complied with prevailing industry practices and regulatory guidance at the time.

As time passes, reconstructing the relevant documents, circumstances and decision-making processes becomes increasingly difficult, even as legal exposure may continue expanding.

This calls for both legislative and judicial balance: protecting consumers from genuine harm while providing reasonable legal certainty for institutions that acted in accordance with the law, accepted market practices and regulatory expectations that existed at the time.

The economic implications are significant. Historical legal uncertainty influences risk pricing, capital allocation, long-term product management and financial institutions' ability to plan for the future.

The next stage in the evolution of Israel's class action system should not involve weakening the mechanism but managing it more effectively.

Courts should continue encouraging lawsuits that expose widespread wrongdoing and generate meaningful public benefit, while discouraging litigation that primarily produces costs, pressure and settlements without sufficient public value through the imposition of realistic legal costs.

The legislature also has an important role to play by establishing clearer boundaries regarding continuing causes of action, pre-litigation notice requirements, economic incentives and the broader public costs of litigation.

A mature legal system is measured not only by its ability to open the courthouse doors, but also by its ability to determine when cases should be filtered, focused and directed.

Class actions should remain a sharp instrument in the hands of the public. But the effectiveness of a sharp instrument depends not only on its power, but on the precision with which it is used. If this legal mechanism is to retain public trust, legitimacy and effectiveness over the next twenty years, it may be time to recalibrate it.