Class action 21654-12-18 Gutman v. Mizrahi Tefahot: class action over clearing expenses on foreign securities refused (2023)

What this page is based on

This page was written from the full text of the decision, as stored in the Legal Data Hunter legal database as a copy of the Nevo publication. The copy does not include the decision's header, so the court, the judge's name and the date were taken from the catalogue data. We did not find the decision on the courts' website. The names of the bank employees who testified have been omitted.

Background

The Central District Court in Lod heard together four applications to certify class actions against Bank Discount, Bank Hapoalim, Bank Mizrahi Tefahot and Bank Igud. The application against Mizrahi Tefahot is class action 21654-12-18. The decision was given by Judge Shmuel Bornstein, and the date in the catalogue is 26.6.2023. Evidentiary hearings were held on 21.10.2021 and 2.11.2021.

The class defined in the applications was customers who bought, sold or redeemed securities traded abroad through the bank and who, according to the applicants, were charged "an unfair price" in the seven years before the application was filed. For Discount and Hapoalim the claim concerned broker expenses. For Mizrahi Tefahot and Igud it concerned custodian clearing expenses, that is, the foreign body that holds the security for the customer.

What each side argued

The applicant claimed that Mizrahi Tefahot charges a "fee" of USD 3.05, including a "correspondent fee" and "clearing expenses", which does not appear in the tariff by that name or with a rate. He claimed the expense was excessive and that its reasonable cost was a few cents. He also argued that clearing is part of custody services, for which a securities deposit management fee is already paid every quarter, so this was a double charge. Against Igud it was claimed that USD 5.01 and USD 5.02 were charged as "custodian clearing expenses".

The banks replied that they pass the expense on to the third party in full, at actual cost, and receive no refunds from it. They argued that the amount varies with the type of security, the exchange and the executing party, so it cannot be fixed in advance in the tariff; the customer sees it before approving the transaction. They also argued that the applicants carried out artificial transactions in order to "create" a class action.

What the court decided

The court found no defect in the names given to the expenses in the tariffs, and held that it is not reasonable to require banks to state in the tariff an amount that is not fixed, where the customer receives disclosure before and after the transaction. According to the decision, Mizrahi Tefahot showed the customer a text stating an estimated broker fee of USD 0.0050 per share plus USD 3 in clearing expenses. The court held that the burden of proving charges above actual cost lies on the applicants, and that their expert's opinion rested on assumptions that were not substantiated.

As to Mizrahi Tefahot and Igud, the court held that the claim of charges above actual cost was not proven, not even to the standard required at the certification stage. It accepted the banks' explanation that the deposit management fee does not cover the custodian's clearing services, in line with the position of the Supervisor of Banks presented in another case. According to the decision, a Mizrahi Tefahot representative testified that after negotiations the clearing expense on US shares fell from USD 3 to USD 2.5.

The result: the applications and claims against Hapoalim, Mizrahi Tefahot and Igud were dismissed, and the applicants were ordered to pay costs of NIS 40,000 to each bank, NIS 120,000 in total. A class action was certified against Bank Discount, because the bank itself wrote that it receives benefits from the custodian as part of a monthly settlement of accounts. Certifying a class action is not a decision on the merits. The court also criticised the applicants' conduct, saying they carried out transactions "devoid of any economic logic or rationale".

What it means for customers

According to the decision, anyone trading foreign securities through the bank pays, on top of the bank's own fee, broker and clearing expenses that the bank passes on to a third party, and the breakdown is shown before the transaction is approved. It is worth checking that breakdown and the account statements. Refusing certification means no cause for a class action was shown; it is not a general finding about all of the bank's fees. We found no information about an appeal in the sources we opened. For other fee class actions against the bank see the class actions guide and the rulings archive.

Frequently asked questions about court rulings against Mizrahi Tefahot Bank

Source grade: Full text, verified. This article was written from the text of the decision itself.

Written from the full text of the decision as stored in the Legal Data Hunter database as a copy of the Nevo publication (we could not open the Nevo site itself). The copy does not include the decision's header: the court, the judge's name and the date of the decision (26.6.2023) are taken from the copy's catalogue data; in the body of the decision the judge refers to an earlier decision of his own in the Central District Court. The case number against Bank Igud appears in two forms in the decision: 6166-06-19 in the opening and 6166-09-18 in the operative part. Refusing to certify a class action is not a finding that the bank acted lawfully in every respect, only that no cause for a class action was shown. Certification against Discount is a certification, not a decision on the merits. We found no information about an appeal in the sources we opened.

Sources

1. https://www.nevo.co.il/psika_word/decision3285-09-18

How to cite

Class action 21654-12-18 Gutman v. Bank Mizrahi Tefahot Ltd (heard together with class actions 3285-09-18 and 21718-12-18 against Discount and Hapoalim, and class action 6166 against Bank Igud), Central District Court (Lod), Judge Shmuel Bornstein, 26.06.2023. Source: Net HaMishpat (Israeli courts database), case Class action 21654-12-18 Gutman v. Bank Mizrahi Tefahot Ltd (heard together with class actions 3285-09-18 and 21718-12-18 against Discount and Hapoalim, and class action 6166 against Bank Igud).