This has been a dramatic week on the Israeli judicial front. Major amendments passed their first readings in the Knesset. First, it is proposed to prohibit judicial review of the reasonableness of government decisions. Second, it is proposed to abolish the Israel Bar Association.
How will this impact the Israeli business scene? We briefly review these proposals.
Proposed prohibition of judicial review
A bill that passed its first reading in the Knesset on July 11 proposes to ban the High Court of Justice from discussing or giving injunctions concerning the reasonableness of decisions of the government, the prime minister, or any other minister. This would also apply to decisions of others “chosen by the public” as determined in any law.
Why? The commentary to the bill explains that the reasonableness standard currently enables the High Court to disqualify a governmental decision that does not give sufficient weight to different interests that ought to be considered, amounting to material or extreme unreasonableness. The commentary says elected representatives of the public should consider this, not a court. The commentary also says the proposal would not stop the court from considering and issuing injunctions on other grounds, such as proportionality (presumably against a disproportionate decision).
Abolition of Israel Bar Association
Another bill, which passed its first reading in the Knesset on July 5, proposes to wind up the Israel Bar Association and replace it with a quite different Israeli Lawyers Council.
Currently, the Bar is an autonomous body whose leaders are democratically elected by lawyers in Israel. It admits new lawyers, administers disciplinary matters, and promotes other professional matters. This is all legal, pursuant to the Bar Association Law, 1961.
According to the latest bill, the Israeli Lawyers Council would be an appointed body with the following members: a chairman (district court judge) appointed by the justice minister; four private lawyers appointed by the Knesset Constitution, Law, and Justice Committee; a district court judge appointed by the Supreme Court president; three public-sector lawyers appointed by the justice minister; two representatives of the finance minister; and one academic appointed by the Law Committee.
The Lawyers Council would largely take over the Bar’s functions, according to detailed provisions in the proposed bill. Note that the justice minister would issue ethical rules for lawyers. This would be after consulting the Lawyers Council and the Law Committee.
What would the Lawyers Council NOT do?
According to the latest bill (Section 67), the Lawyers Council would not take over the Bar’s function of appointing two representatives to the Judicial Selection Committee.
Currently, judges are appointed by the president, based on the selection of the Judicial Selection Committee, which has nine members: the Supreme Court president; two other Supreme Court justices appointed by the Supreme Court; the justice minister; another cabinet minister; two MKs; and two members of the Bar. According to the proposed bill, the last two would drop out, leaving seven members on the Judicial Selection Committee.
Why? The commentary to this bill says the interests of all citizens should be promoted, not just the welfare of the legal profession.
Comments: These are controversial proposals that the government may or may not refine before they are finally enacted. Regrettably, no written constitution is yet proposed to lay down separation of powers or checks and balances. A simple majority of the Knesset would be sufficient. All this is different from the situation in many other Western democratic countries.
Will there be an impact on business?
Israeli start-ups often set up US parent companies that own intellectual property (IP) and Israeli limited-scope subsidiary companies. This benefits the US Treasury and puts the Israeli hi-tech economy and tax revenues on borrowed time. Whenever an exit deal occurs, the IRS would collect capital-gains tax.
On the legal side, judges must be seen to be impartial, professional, and free from political influence, Israeli attorney Gidon Cohen told us. Otherwise, commercial disputes won’t be heard in Israel, and Israel won’t be the forum for litigation. A left-wing businessman would not want a biased right-wing judge, and vice versa. Impartiality is absolutely vital. Loss of faith in the Israeli legal system to enforce rights would reinforce the need to register IP abroad, among other things.
Also, businesses don’t like surprises. the proposed judicial reform was scarcely mentioned in the last general election, which was mainly about personalities.
As always, consult experienced legal and tax advisers in each country at an early stage in specific cases.