The applicants requested that the District Court approve the filing of a class action against certain shareholders of an Israeli public company (respectively, the "Shareholders" and the "Company"). The applicants alleged that the Shareholders had breached their statutory duty to other shareholders in the Company by having failed to comply with the Israeli tender offer rules regarding their acquisition of a controlling interest in the Company. In their defense, the Shareholders clarified that prior to acting the Shareholders had requested and received a Preliminary Request (or "Pre-Ruling") from the Israel Securities Authority (the "ISA").1 The Shareholders alleged that due to the ISA's position in the Pre-Ruling, they had believed in good faith that they were exempted from the tender offer requirements.
The Court held that as a matter of policy it is appropriate to recognize reliance on ISA Pre- Rulings. The Court noted that although ISA guidelines and circulars are not definitive as far as the Court is concerned, given the ISA's role, its interpretation of the law cannot be disregarded, and the Court will give weight to such interpretation.
In the present case, notwithstanding that the Court disagreed with the ISA's interpretation of the law and the Court believed that compliance with the tender offer rules was required by the statute, the Court held that the Shareholders were not liable for tort or damages based on a breach of statutory duty with respect to their failure to comply with the tender offer rules. The Court clarified that it was a sufficient defense that the Shareholders had turned to the ISA for a Pre-Ruling regarding the matter, and had in good faith followed the instructions provided in such Pre-Ruling.
It is important to note that while the Shareholders were excused from violation of statutory duties, the Court ultimately approved the filing of the class action against the Shareholders on the basis of a different cause of action, unjust enrichment, due to shares subject to tender offer rules being subsequently sold to a third party.
Footnote
1 A Pre-ruling Request is a request to receive the ISA's position regarding a specific potential futuretransaction. A Pre-ruling Request is fact-based, and is binding on the ISA only to the extent that there has been full disclosure of all relevant facts, and only with respect to the transaction that is the subject of the request.
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