Israeli Supreme Court Adopts an “Act-Based Test” for Calculating Consumer Protection Financial Sanctions
Summary
- For the first time, Israel’s Supreme Court has established a clear test for calculating financial sanctions under the Consumer Protection Law, depending on whether the conduct constitutes a single act or multiple separate acts.
- A systemic defect in a standard document or website may be deemed a single violation, even if the violation affects multiple customers.
- Separate acts toward individual customers—such as deception during a sales call or unlawful cancellation charges—may be treated as distinct violations and significantly increase the financial sanction amount.
- This ruling is likely to affect the Consumer Protection and Fair Trade Authority’s enforcement practices and how small and large companies and corporations manage compliance risks.
While the Consumer Protection and Fair Trade Authority’s (CPFTA) enforcement efforts have traditionally focused on large retail chains, the reality on the ground is changing. The CPFTA is now intensifying its enforcement of consumer protection laws and applying high standards of compliance to a wide variety of businesses, regardless of their size.
The CPFTA’s main enforcement tool is the administrative financial sanction, which can quickly reach millions of shekels. One of the issues that has remained vague over the years is how violations are counted for purposes of calculating the sanction. In other words, when does a single wrongful act by a business “multiply” into numerous violations?
In a recent landmark ruling, the Supreme Court set a clear and uniform rule in this respect.
Supreme Court Adopts an “Act-Based Test”
Afikim Water Ltd., which markets water dispensers and filtration systems, was ordered to pay a financial sanction totaling ILS 2.45 million for various violations of Israel’s Consumer Protection Law affecting 13 customers.
The company did not dispute the violations themselves, but rather how the sanction was calculated. According to Afikim Water, it is unfair that a single wrongful act could trigger a sanction that is multiplied by the number of customers adversely affected by it, thereby inflating the total sum far beyond the violation’s severity. Since the lower courts had contradictory approaches to this issue, which was dubbed “doubling of sanctions,” the Supreme Court decided to rule on it and set a precedent.
The Supreme Court allowed the appeal and ruled that the decisive question is whether the business committed a single wrongful act or multiple separate acts.
According to its test:
- A defect originating in a standard document—e.g., a defective contract, defective wording of the conditions for canceling a transaction, or a defect on a business’s website, such as no specific link to cancel a transaction—will be treated as a single violation, even if numerous customers are adversely affected, because it stems from a single act that was applied repeatedly.
- Violations occurring separately in relation to each customer—such as deception committed during telephone sales, failure to cancel transactions, or unlawful charging of cancellation fees—will be treated as multiple violations according to the number of affected customers, since each constitutes a separate act causing concrete damage.
- The Supreme Court also ruled that when a standard document is drafted in a defective manner and results in the unlawful collection of funds from multiple customers, each such collection will be deemed a distinct violation, because the economic harm materializes separately with respect to each customer.
How Is the Total Sanction Calculated?
The Supreme Court emphasized that counting the number of violations is merely the first stage in calculating the sanction.
Even for a large number of violations, the law allows for various mitigation mechanisms, taking into account the absence of previous violations, proactive cessation of the violation, and rectification of the defects, as well as a statutory cap based on the business’s turnover, in order to maintain a proportional total sanction that does not result in the business’s financial collapse.
The Supreme Court also called on the CPFTA to formulate an orderly, clear, and publicly available procedure regulating the counting of violations and the methodology for calculating sanctions, to increase certainty and transparency.
Subsequent to its ruling, the Supreme Court remanded the case to the Magistrate’s Court, instructing it to recalculate the sanction according to the new rule.
Implications for Businesses
The ruling clarifies that the sanction amount is determined not only by the violation committed but also by the way violations are counted.
In today’s reality of heightened enforcement of the Consumer Protection Law, the practical implications for businesses are clear: proactive preparation is invaluable. Compliance and control mechanisms are no longer a recommendation but critical risk management tools. Documentation of compliance procedures, prompt rectification of deficiencies, periodic reviews of engagement documents, transaction cancellation procedures, and website interfaces, as well as precise legal arguments during the administrative hearing stage, may significantly reduce both the number of violations attributed to a company and the sanction amount.
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Adv. Efrat Cohen is a senior partner and head of the firm’s Regulation Department.
Adv. Or Levi is an associate in the firm’s Regulation Department.
Barnea Jaffa Lande’s Regulation Department assists clients both in preventive compliance planning and in managing enforcement proceedings before the Consumer Protection and Fair Trade Authority. The department is available to assess each organization’s specific exposure and develop strategies to mitigate legal risk.