|
Yael Navon, Adv.
In a precedent decision handed down by the Tel Aviv District Court on 7th October 2008, the Court ordered the largest milk distributor in Israel - TNUVA - to compensate its milk consumers for mixing silicon into its products and concealing this fact from the public. The sum awarded by the Court is the highest compensation ever awarded in a Class Action in Israel.
Factual Background
Between the years 1993 and 1995 Tnuva added to its long-life 1% milk fat a certain type of silicon named DMPS without disclosing this on the product's label. Apparently the chemical was added in order to reduce frothing of the milk and to overcome a technical problem Tnuva had in one of its machines necessitating its replacement at a cost of $300,000.
The silicon was added to the milk although Tnuva was aware that it was a prohibited chemical and despite its doubts concerning the affect it may have on the consumers.
Case History
When the silicon affair was published one of the milk consumers, Mr. Tufik Rabi filed a motion to approve a Class Action against Tnuva. Shortly afterwards a criminal indictment was filed against Tnuva and its managers and they were convicted based on their admission of the following:
* Breach of the Standard Law - 1953 due to the inclusion of a prohibited chemical in the milk
* Breach of the Consumer Protection Law - 1981 due to a misleading publication made by Tnuva after the affair was exposed, according to which no silicon was found in laboratory tests which were performed on the milk.
On 13 June, 1996 the District Court accepted the motion to approve the Class Action against Tnuva and defined the Class as including all long-life milk consumers during the period in which the silicon was added to the milk. The Supreme Court rejected the appeals which were filed against the District Court's decision.
The Legal Basis: The Consumer Protection Law
The Consumer Protection Law - 1981 provides that manufacturers have a duty not to mislead consumers concerning any material matter, including the nature of the product supplied, the risks involved in its usage and its compliance with the Standard.
In addition, the Law imposes a duty to disclose to the consumer any defect in the product, and to include on its label a list of the ingredients from which it is produced. In its decision the Court found that there is no doubt that Tnuva misled its consumers. The Court stated that "misleading is a word too soft to describe Tnuva's behaviour which borders on cheating its consumers". By adding the silicon to its milk, Tnuva acted contrary to the obligatory Israeli standard. The concealment of this information constitutes a clear breach of its legal duty.
The Consumer's Damage
One of the main issues discussed in the Court's decision was whether any damage was caused to the consumers of Tnuva's milk. The Court was not presented with any evidence showing that drinking milk which contains silicon causes an immediate health danger. However, the Court stated that several experts believe that there is a long-term risk in drinking such milk and that this is also the position of the Ministry of Health which prohibited the addition of silicon as an ingredient in the milk.
Tnuva was aware that the silicon constitutes a potential risk to the consumer's health however, decided to "take the risk" without disclosing it to its consumers. Furthermore, in order to conceal its action, Tnuva purchased silicon under the disguise of "cleaning materials".
The Court rejected Tnuva's contention that the milk consumers were indifferent to the addition of silicon and that they would not have avoided drinking the milk even if they were aware of the existence of the silicon. The fact that Tnuva concealed the existence of the chemical from the public indicates otherwise. There is no doubt that the consumers purchased the milk based on the assumption that it complies with the standard and legal requirements.
The District Court referred to the Supreme Court's decision which approved the filing of the Class Action against Tnuva while determining that although no physical damages were caused, the consumer's freedom of choice was damaged as "it is the right of consumers to decide what to put into their mouths and bodies and what to avoid". Similarly to a patient who is entitled to receive the full information about a medical treatment proposed for him, the consumer has the right to receive full information regarding the risks involved in consuming a product. Depriving a consumer of his basic right justifies the determination of proper compensation and not only a symbolic one.
In order to prove the damages caused to the class members as a result of Tnuva's acts, Plaintiff presented a survey according to which 54% of the population report negative feelings when the silicon affair was published and 41% developed a fear as a result of the publicity. Only 30% of the relevant long-life milk consumers continued drinking this milk after publication of the affair and 66% of the consumers developed negative feelings such as disgust, fear, anger, disappointment, insult, etc.
The Court accepted Plaintiff's expert testimony that there are different levels of damage to a consumer's freedom of choice. The most severe level is when the product can cause damage to health and this fact was concealed from the consumer. A less severe case, although relatively severe, is a case where the damage to the consumer's freedom caused him to purchase a product against his values and beliefs (for example a vegetarian who purchased a product containing meat). The least severe case is where a product includes a prohibited ingredient which does not involve any health risk. In our case, however, it is doubtful whether indeed there is no risk in silicon. Furthermore, milk is a health product which is expected to be natural and pure, and thus the insertion of a prohibited chemical cannot be considered as immaterial damage to the freedom of choice.
The Remedy for Class Members
Based on an expert opinion the District Court ruled that 220,000 people are included in the Class.
Section 20 of the Class Action Law grants the Court broad discretion regarding calculation of damages and its allocation among the class members. The two main methods of calculation which can be used by the Court are the individual method and the collective method. According to the individual method the Court will determine the damage caused to each class member and will order recovery accordingly. In our case however, the collective method is more relevant. According to this method the Court can award, in the first stage, a global sum to be paid by the defendant and only at the next stage determine how this sum will be allocated.
Use of the collective method is intended to enable Class Actions in cases where it is difficult to identify all class members or to prove each member's damage. The global damage ordered to the class can be calculated using statistical techniques and does not necessarily reflect the exact damage caused.
The Court referred to the "fluid recovery" technique which was developed in the United States, the implementation of which includes three steps: first the defendants total liability is paid to a fund; second, the group members are granted the opportunity to prove their individual damage; and third, the Court orders what to do with the remaining balance in the fund.
In this respect the Court may order a future price reduction or other benefits to the consumers, establishing a fund which will conduct research in the relevant field, creating a consumer trust fund, or escheating the money to the State
In several cases however, the Court can skip the second step, move immediately to the third step and order the use of the money paid by the defendant in some way for the benefit of the Class.
The Court ruled that under the circumstances the calculation of damages should not be based on the specific damage caused to each group member, but rather based on a unified average damage to amount for all group members. The Court ordered Tnuva to pay NIS 55 million (US$15 million) reflecting a personal damage of NIS 250 to each of the 220,000 group members.
The Court stated that it expects the parties to reach an agreement regarding the allocation of the sum while dividing it between three purposes: the first - benefiting the class members by reduction in the price of the product or by enlarging the containers; the second - funding the research of food and its affect on public health; and the third - giving free milk to needy populations.
In addition, Tnuva was ordered to pay NIS 150,000 to the heirs of the original plaintiff, NIS 250,000 to the Israeli Consumer Association which sponsored the claim and NIS 500,000 to the Plaintiffs' attorney.
Comment
Shortly after the new Class Action Law came into force, in March 2006, we already witnessed a wave of motions filed by consumers for approval of consumer's Class Actions. In the past year we see, that Courts also have become more favorable of Class Action procedures, and have adopted a more pro-plaintiff attitude. While several years ago the Courts hardly ever approved filing of Class Actions, we now see the Court's growing tendency to approve such claims.
It seems that in the Tnuva case the District Court took an additional step by awarding the highest amount ever awarded in Israel in Class Action litigation.
|
Home
