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Insider Trading in Israel and England, Part I*
Published online by Cambridge University Press: 12 February 2016
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It is generally assumed that English directors have a carte blanche privilege to engage at arm's length in transactions involving securities of a corporation which they manage. Thus directors of English corporations may utilize inside information for their personal benefit at the expense of their trading partners. This assumption is derived from the calamitous decision of Percival v. Wright which, subject to illusory limitations imposed by Allen v. Hyatt, is still believed to be the law in England today. Israeli directors, it is believed, share this carte blanche privilege with their English counterparts. This belief derives from the fact that Israeli courts resort to English jurisprudence, when necessary to fill in the gaps which are found to exist in Israeli law.
This paper questions the validity of the above assumptions. It is an attempt to evaluate whether or not an English or Israeli director, or another insider, may indeed utilize inside information to trade in the securities of his corporation without regard to rules governing fiduciary relationships and other legal principles, which, it is submitted, the English judiciary and bar have thus far overlooked.
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References
1 The following statement from the report of the Jenkins Committee is illustrative: “The case of Percival v. Wright provides authority for the proposition that no fiduciary duty is owed by a director to individual members of his company, but only to the company itself and a fortiori that none is owed to a person who is not a member. The result is that a director who has by reason of his office acquired in confidence a particular piece of information materially affecting the value of the security of his company (or any company in the same group) will incur no liability to the other party if he buys or sells such securities without disclosing that piece of information.” Report of the Company Law Committee, Cmnd. 1749, Para. 89 (1962) (hereinafter cited as the Jenkins Report).
2 Mr. Charles Clore testified before the Jenkins Committee that it was his experience that directors of target companies trade on the market before the bid is announced, sometimes in order to foil the takeover. Minutes of Evidence to Jenkins Committee, pp. 531–32. See also Wedderburn, K. W., Company Law Reform (1965) 10.Google Scholar
3 [1902] 2 Ch. 421.
4 (1914) 30 T.L.R. 44, P.C.
5 Rules 5, 29, and 30 of the City Code on Take-overs and Mergers, April 1969 (obtainable from the Secretary, The Issuing Houses Association) are designed to eliminate this result in takeover situations. However, these extralegal rules have proved to lack teeth. See Hadden, , The Control of Company Fraud (1968) 301 (PEP Broadcast No. 503).Google Scholar
The Stock Exchange Rules do not in so many words prohibit trading on inside information, yet attempt to curtail the practice by several provisions. First, the annual report must include particulars of the shareholdings of the directors and their associates in the company and its subsidiaries, distinguishing between beneficial and other interests in the shares. General Undertaking, Sch. VIII, Part A, Para. 6(d). Second, a statement of the securities transactions of directors and their associates must be prepared for shareholders' inspection before and during the annual meeting. Id. at Para. 7(a)(1). The requirement of Para. 6(d) is waived if the aggregate interest of all directors and associates does not exceed 5% either of share capital or of voting control. A statement to that effect suffices. If the directors register under the Companies Act, 1967, reflects all the transactions under Para. 7(a)(1) a reference to the register can substitute for the 7(a)(1) statement. Third, prompt release of material information by the company is commanded. Communications Memorandum Paras. 1–8. Furthermore the rules recommend that, no information be supplied to inquiring shareholders unless the board satisfies itself “that it will not be placing anyone in a privileged position.” Id. Para. 10.
6 See Felman, A., Company Law in Israel (1960, Hebrew) 316, 338Google Scholar citing Percival v. Wright, which is incorrectly described as a damage action. Id. at 338.
7 Suffice it to say that as a result of the Israel legislature's endorsing an importation clause enacted by the British during their mandate of Palestine, the principles of English Common Law and Equity prevail in Israel when there is a lacuna in the other sources of Israel law. See generally Yadin, , “Sources and Tendencies of Israel Law” (1951) 99 U.Pa.L.R. 561CrossRefGoogle Scholar and Ginossar, , “Israel Law: Components and Trends” (1966) 1 Is.L.R. 380Google Scholar; Jacobson, , “The Legal System of Israel” (1954) 40 A.B.A.J. 1067Google Scholar; Gurney, , “American Precedent in the Supreme Court of Israel” (1955) 68 Harv.L.R. 1194CrossRefGoogle Scholar; Dror, , “Some Recent Developments of the Doctrine of Precedent in Israel” in Studies in Law, Scripta Hierosolymitana (Jerusalem, 1958) 228.Google Scholar
8 As we shall see, the other theories of liability stem from the fact that trading on undisclosed inside information is a crime. It has been a crime in England since 1939, but has become one in Israel only as of 1969. See infra n. 177. It is the belief of the writer that concealment of material information, even by an insider, does not constitute a crime under sec. 3 of the Penal Law Amendment, (Deceit, Blackmail and Extortion) Law 1963, ((1963) 17 L.S.I. 153). Sec. 3 provides: “A person who obtains anything by a trick, or by deliberately taking advantage of another person's error, such trick or taking advantage not amounting to deceit, shall be liable to imprisonment for a term of two years.” The term “error” is not defined in the Law. We believe that the hapless outsider who was not aware of the concealed fact was not in error concerning it. “Error” connotes reference to a certain fact and belief in the opposite of the real situation. See generally Tomkiewicz, , “Aspects on the Law of Deceit,” (1969) 25 HaPraklit 416Google Scholar, continuing 570. A proposed amendment to the Companies Ordinance ((1971) Hatzaot Hok No. 976) would add secs. 9C and 9D to the Penal Law Amendment (Deceit, Blackmail and Extortion) Law, 1963. Sec. 9C states “a director or a managing director of a company, who takes advantage of information he possesses for his personal benefit or for the benefit of any person other than the company will be punished by imprisonment for a year or a fine of IL20,000.” Sec. 9D(1) provides “a director or a managing director of a company who had, directly or indirectly, a personal interest in securities of his company and entered into a transaction in such securities, not for the benefit of the company, will be punished by a fine in the amount of three times the subject matter of the transactions.” Sec. 9D(1) by virtue of sec. 9D(2) applies not only to transactions in the securities of the company but also to transactions in the securities of a holding company or a sister company. The extent to which secs. 9C and 9D make trading on inside information an No. 2, offence is however far from clear. The writer critizes the provisions for their inadequacy and lack of clarity in an article to be published in (1972)4 Mishpatim. Damage to the company may be a necessary element both under sec. 9C and 9D. Further, it is doubtful whether a civil remedy for the trading party of the director may be inferred from secs. 9C and 9D which seem to be designed to protect the company and not the shareholders.
9 Diamond v. Oreamuno 24 N.Y. 2d 494, 248 N.E. 2d 910 (1969), aff'g 29 A.D.2d 285, 287 N.Y.S.2d 300 (1968). A Delaware court ruled so earlier, but there the directors also appropriated a corporate opportunity. Brophy v. Cities Service Co. 31 Del Ch. 241, 70 A.2d 5 (1949).
10 Gower, , Modern Company Law (3rd ed., 1969) 547Google Scholar [hereinafter cited as Gower]. Yoran, , “Limiting Fringe Benefits” (1972) 28 HaPraklit. Recommendation 99Google Scholar(a)(ii) of the Jenkins Committee (see supra n. 1) would, perhaps unwittingly, prevent such recovery because it would allow the company to have an action against the director only when he used inside information for himself “at the expense of the company”. Sec. 111 of the abortive Draft Companies Bill of Israel, 1957 (See infra p. 240) would codify the corporate action: “A director shall be bound to account to the company for all profits made by him in consequence of a breach of duty or by taking unfair advantage of his position as a director of the company or of any information obtained thereby”.
11 Report of the Attorney General's Committee on Securities Legislation in Ontario [hereinafter cited as the Kimber Report], Para. 225 (see also infra n. 448). The Kimber Committee thought that the Zwicker case (Zwicker v. Stanbury [1953] 2 S.C.R. 438), strengthened the proposition that the director is accountable to the company at common law for profits made from trading on inside information. Id. With all due respect, it is our view that this result does not follow from Zwicker. There the directors purchased a mortgage on their company from the mortgagee company at a discount. The mortgagee also turned over the common shares in the mortgagor company to the directors because it had written off its investment in the mortgagor company. The Supreme Court of Canada held that the directors had to deal with the mortgagee for the benefit of their company. Therefore, it ordered them to turn in the shares to the company for cancellation and allowed them to recover on the mortgage only the discount price and not the face value. Unlike a case of insider trading, the directors in Zwicker enriched themselves at the possible expense of the company. See infra pp. 236–7.
12 E.g., Carpenter v. Danforth 52 Barb, 581 (N.Y. 1868); Ryder v. Bamberger 172 Cal. 791, 806, 158 P. 753 (1916), where the court stated: “The officers are not bound to acquaint a stockholder willing to sell his shares with facts which would enhance the price of the stock. The officers are trustees for the shareholders only as to the management of the corporation and not in their private dealings”. Id. at 807, 158 P. at 759. See cases Annot., 84 A.L.R. 615 (1933).
13 A doctrine stemming from a decision of the Supreme Court of the United States in Strong v. Rapide 213 U.S. 419 (1909).
14 This rule, also called the “trusteeship” or “fiduciary” rule flourished in the less industrial states. E.g., Oliver v. Oliver 118 Ga. 362, 45 S.E. 232 (1903); Stewart v. Harris 69 Kan. 498, 77 P. 277 (1904). It is now making its triumphant entry into industrial states. Cf., Brown v. Halbert 76 Cal. Reptr. 781 (1969); Jones v. Ahmanson & Co. 1 Cal. 3d 93, 460 P. 2d 464 (1969).
15 In Buckley v. Buckley 230 Mich. 504, 508, 202 N.W. 955, 956 (1925) the Michigan court defined special circumstances as any “fact or condition enhancing the value of the stock, known by the officer or officers, not known by the stockholder, not to be ascertained by an inspection of the books”. In Brown v. Halbert 76 Cal. Reptr. 781, 787–788, the California Court of Appeals observed that the “majority view” … “has become so eroded by exceptions and statements of fiduciary obligations in more recent decisions (specially those involving fraud, concealment, looters and incompetents) that it can be said it no longer exists”. The Brown court upheld a direct class action by minority stockholders against the controlling stockholder to disgorge the control premium he made on the sale of his stock to outsiders. While Draper, presiding justice, based his decision upon the special facts doctrine, the majority of the court (per Judge Brown) established a rule as follows: “It is the duty of the majority stockholder-director, when contemplating the sale of the majority stock at a price not available to other stockholders and which sale may prejudice the minority stockholders, is [sic.] to act affirmatively and openly with full disclosure so that every opportunity is given to obtain substantially the same advantages that such fiduciary secured and for the full protection of the minority”. Id. at 793, 794. This is a significant extension of the duty of the insider to the individual shareholders, because he not only does not act on behalf of the corporation, he also does not deal with the shareholders. But note that there are several factors in this case which might limit the reach of its holding: (a) the insider told the minority shareholders to sell cheaply to the takeover buyer, (b) prejudice to the minority shareholders was forseeable, because the new management did not intend to pay dividends for a very long period. All the same the Supreme Court of California espoused shortly thereafter a similar proposition in Jones v. Akmanson & Co. 1 Cal. 3d 93, 460 P. 2d 464 (1969).
16 Loss, L., Securities Regulation (2nd ed. 1961 and Supp.) 1447Google Scholar [hereinafter Loss].
17 In Greenhalgh v. Arderne, Ltd. [1951] Ch. 286, 291, C.A. Evershed M.R., referring to the duty of a controlling shareholder voting in a general meeting, stated: “The phrase ‘the company as a whole’ does not (at any rate in such a case as the present) mean the company as a commercial entity, distinct from the corporators; it means the corporators as a general body. That is to say: the case may be taken of an individual hypothetical member and it may be asked whether what is proposed is, in the honest opinion of those who voted in its favour, for that person's benefit”. This test is applicable also to directors in the discharge of their duties. Gower at 521 n. 34. See the formula endorsed by the investigator in the takeover bid of the Savoy Hotel that the “interests of the company” means the interests of shareholders present and future, balancing a long term view against the short term interests of present members. The Savoy Hotel Ltd. and the Berkeley Hotel Company Ltd.: Investigation under Sec. 165(b) of the Companies Act, 1948: Report of Mr. E. Milner Holland, Q.C. (Her Majesty's Stationary Office, 1954), discussed in Gower, , “Corporate Control: The Battle for the Berkeley” (1955) 65 Harv. L.R. 1139.Google Scholar See also the test of Romilly, M. R. in The York & North-Midland Ry. Co. v. Hudson, infra p. 231.Google Scholar
18 Oliver v. Oliver 118 Ga. 362, 45 S.E. 232, 235 (1903).
19 Judge Learned Hand in Gratz v. Claughton 187 F. 2d 46, 49 (2d Cir. 1951), observed that the very transaction in question makes a purchaser of shares a beneficiary of the director, and “… it would be a sorry distinction to allow him to use the advantage of his position to induce the buyer into the position of a fiduciary, although he was forbidden to do so, once the buyer had become one”. This observation was by way of dictum. There are, however, no reported cases in which a buyer succeeded at common law on the allegation of non-disclosure per se. Oliver v. Oliver itself contains also an obiter: “… and to say that a director … may … buy from or sell to one whom he is directly representing, without making a full disclosure … would offer a premium for faithless silence, and give a reward for the suppression of truth”. (emphasis added), 45 S.E. 232, 235 (1903).
20 Loss at 1446 n. 4.
21 Sec. 13 of the Prevention of Fraud (Investments) Act, 1958 [hereinafter, sec. 13] reads as follows:
(1) Any person who, by any statement, promise or forecast which he knows to be misleading, false or deceptive, or by any dishonest concealment of material facts, or by the reckless making (dishonestly or otherwise) of any statement, promise or forecast which is misleading, false or deceptive, induces or attempts to induce another person—
(a) to enter into or offer to enter into—
(i) any agreement for, or with a view to, acquiring, disposing of, subscribing for or underwriting securities or lending or depositing money to or with any industrial and provident society or building society, or
(ii) any agreement the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities, or
(b) to take part or offer to take part in any arrangements with respect to property other than securities, being arrangements the purpose or effect, or pretended purpose or effect, of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of the property or otherwise) to participate in or receive profits or income alleged to arise or to be likely to arise from the acquisition, holding, management or disposal of such property, or sums to be paid or alleged to be likely to be paid out of such profits or income,
(c) to enter into or offer to enter into an agreement the purpose or pretended purpose of which is to secure a profit to any of the parties by reference to fluctuations in the value of any property other than securities, shall be guilty of an offence, and liable to imprisonment for a term not exceeding seven years.
(2) Any person guilty of conspiracy to commit an offence under the preceding subsection shall be punishable as if he had committed such an offence.
22 Securities Law, 1968, sec. 54 (1968), 22 L.S.I 280 [hereinafter sec. 54].
23 Securities Exchanges Act, 1934, 15 U.S.C. Sec. 78(j)(6) (1964) [hereinafter 1934 Act].
24 17 C.F.R. 240, 10b–5. Rule 10b–5 is set out infra, n. 438.
25 See S.E.C. v. Great American Industries 407 P. 2d 453 (2d Cir. 1968). In this case, a seller of property in exchange for shares did not disclose to the issuer the fact that 2/3 of the shares were given to finders. The S.E.C. seeking an injunction argued that the seller and the finders violated Rule 10b–5. Judge Friendly (with whom Judge Waterman concurred) found that there were statements which amounted to half truths and did not dispose of the S.E.C.'s contention. Judge Kaufman held that “in not revealing the percentage of the purchase price that was destined for the finders, the defendants failed to disclose a material fact”, but hastened to add “that it should not be inferred from what I have said that I am expressing any view on the propriety of a private action for damages”. Id. at 463. Judge Hays found that the finders were not mere outsiders, but rather quasi fiduciaries, and therefore under a duty to disclose their proceeds. A vigorous dissent was written by Judge Moore. He referred to the contention of a seller's duty to disclose as “an astounding proposition of law” (Id. at 470) and regarded the finders' duty to disclose as one that “only an Alice in a legal Wonderland could conceive of”. Judge Kaufman's statement is, of course, not the ratio of the case even regarding an injunction action by the S.E.C. But his opinion, plus the observations of Judge Friendly (Id. at 460) and Judge Hays might be the seeds of a new tree of liability based on Rule 10b–5.
26 It is the opinion of the writer that the Israeli Sales Law, 1968 (22 L.S.I. 107) is not germane to concealment of material facts in securities transactions. Although sec. 4 (a) of the Sales Law declares that the law, which is primarily concerned with movables, shall apply also to a sale of rights, the section of non-compliance, (sec. 11) finds a seller to be in default only if his consideration did not amount to something agreed upon in the sale contract. See generally, Arnovsky, , “Comments on the New Law of Sales” (1969) 4 Is.L.R. 141.Google Scholar
27 Kiriti Cotton Co. Ltd. v. Demani [1960] A.C. 192, P.C.
28 As to the duty of directors to individual shareholders, before the fetish of separate corporate entity set in to deny the duty, see Hossie, , “The Civil Liability of Directors of a Corporation” (1951) 30 Can. Bar. R. 908Google Scholar; Palmer, E.E., “Directors' Powers and Duties” in Ziegel, , Canadian Company Law (1967) 365, 380.Google Scholar
29 [1902] 2 Ch. 421, 426, per Swinfen Eady J.
30 The editor of the report tells us “… no firm offer was ever made which the board could lay before the shareholders, and the negotiations ultimately proved abortive. The court was not in fact satisfied on the evidence that the board ever intended to sell”. Id. at 422. The court, however, did not rest its decision on this fact.
31 Id. at 426–7.
32 Id. at 426.
33 “A director purchasing shares need not disclose [favourable information]…, and similarly a director selling shares need not disclose [detrimental information]”. Id. at 426. The equal treatment for the purposes of exempting from a duty might, perhaps, extend to the situation of “unfair dealing” where the Percival court would find liability.
34 Gower, , “Investor Protection in the U.S.A.” (1952) 15 Mod. L. R. 446, 452–453.CrossRefGoogle Scholar
35 (1914) 30 T.L.R. 444 at 445.
36 213 U.S. 419 (1913). Repide was labelled an agent by virtue of his treble capacity (general administrator, chief negotiator, and dominant stockholder) and not by virtue of special authorization.
37 (1914) 30 T.L.R. 444 at 445.
38 Id.
39 Levin, , “Insider Trading” (1967) 30 T.H.R.—H.R. 137, 142–143Google Scholar; Hahlo, R., Company Law (2nd ed., 1969) 316.Google Scholar
40 Pretorius v. Natal South Sea Investment Trust (1965) (3) S.A. 410 (N).
41 Id. at 318, citing Millner, , “Fraudulent Non-Disclosure” (1957) S.A.L.J. 177, 189.Google Scholar
42 See Northern Trust Co. v. Essaness Theatres Corp. 348 III. App. 134, 108 N.E. 2d 443 (1952) for the proposition that when the director acts on behalf of the company, he may have a duty of disclosure to the shareholder even if he can trade at arm's length for himself.
43 (1958) 15 P.M. 372.
44 Id. at 375, in free translation from the Hebrew. All translations from the Hebrew, unless otherwise designated, are unofficial.
45 It is surprising that the legal writers just ignore this dictum and if Hameshavek v. Kupler is cited at all, it is for the proposition it purported to apply. See Barak, infra, n. 53, at 117.
46 (1962) 17 P.D. 758.
47 The other director was not notified; there was no meeting.
48 [1866] 2 Ch. App. 55.
49 (1962) 17 P.D. 758, 764.
50 [1845] 51 E.R. 866, 868.
51 (1962) 17 P.D. 758, 764.
52 [1916] 2 Ch. 426.
53 See Barak, notes from his lectures on Corporations in the Faculty of Law of the Hebrew University of Jerusalem, (1968) 117.
54 [1845] 51 E.R. 866, 870.
55 [1902] 2 Ch. 421, 425.
56 See supra p. 12–13.
57 One should not be too worried about the binding force of Percival v. Wright in Israel. First of all, even Oliver v. Oliver, itself, was a Georgia declaration of English common law because Georgia has an “adopting statute”, adopting English common law prior to 1776, where there are lacuna in Georgia law. Cont. Art. 12 Sec. 1 Para. 3 (1945). GA. CODE ANN. Sec. 2—8003 (1933). See Eady v. Newton Coal & Lumber Co., 123 Ga. 565, 51 S.E. 661, 664 (1905); Georgia courts look at later English decisions to the extent that they declare the common law prior to 1776. Brooks v. Ready Mix Cement Co., 94 GA. App. 791, 96 S.E. 2d 213, 214, (1956). Such was the situation in Oliver v. Oliver. Secondly, the Supreme Court of Israel is not bound by its own decisions. See The Courts Law, 1957, Sec. 33(b) (1957, 11 L.S.I. 157). Once it accepts Percival v. Wright, it can immediately overrule it. This fact led to a growing independence of Israeli Courts from English precedents. See Procaccia, , “Problems of Legislation in Company Law” Studies in Israel Legislative Problems, Scripta Hierosolymitana (Jerusalem, 1966) 155, 156–7.Google Scholar
58 Kimber Report Para. 2.24; Diamond v. Oreamuno 24 N.Y. 2d 494, 502–503; 248 N.E. 2d 910, 914–915 (1969).
59 Like the Companies Registrar in Ghana, Companies Code Act, 1963, 170, sec. 210 (4), or the Securities Commission in Ontario. Ontario Securities Act, 14 & 15 Eliz. 2, c. 142 part XI sec. 114 (1966).
60 The derivative suit by a shareholder can be a successful device only if the legal system contains sufficient incentives for the individual to bring such a suit. Loss, , “The Fiduciary Concept as Applied to Trading by Corporate ‘Insiders’ in the United States” (1970) 33 Mod.L.R. 34.CrossRefGoogle Scholar For a derivative action by a minority director, sec Note, “Directors Statutory Duty in New York” (1961) 36 N.Y.U.L.R. 190.
61 Secs. 210 (1) & 210 (2) (a).
62 Secs. 210 (1) of the 1948 Act and 35 (2) of the 1967 Act.
63 Sec. 210 (2) (b).
64 For the definition of oppression for the purpose of sec. 210, see Scottish Cooperative Wholesale Society v. Meyer [1959] A.C. 324, H.L., In Re Jermyn St. Turkish Baths Ltd., [1971] 1 W.L.R. 1042Google Scholar, C.A.
65 Cf. R. v. Board of Trade, ex p. St. Martins Preserving Co. Ltd. [1965] 1 Q.B. 603.
66 See generally Magnus, S. and Estrin, M., Companies Law and Practice (4th ed., 1968) 220–1Google Scholar for an analysis of a sec. 210 action. As to some types of oppressive conduct not reached by sec. 210, see Afterman, , “Statutory Protection for Oppressed Minority Shareholders: A Model for Reform” (1969) 55 Va.L.R. 1043, 1056–66.CrossRefGoogle Scholar
67 Another specified source of information is a document or information obtained under the power of the Board to require production of the books and papers of the corporation. Secs. 37 & 109. However, it is inconceivable that a corporate document will reveal trading on inside information.
68 Naming both the direct (non-derivative) class action and derivative action, “representative” fails to convey the idea that the last mentioned suit is brought on behalf of the corporation.
69 There is one illusory exception to this rule. When the directors act out of proper motives to achieve an improper (collateral) result their action is ratifiablc by the general meeting and yet a derivative action can be brought. However, the court will stay the action, refer the matter to the general meeting and if the latter approves the act, will dismiss the action. Hogg v. Cramphorn Ltd. [1967] Ch. 254. Approved in Bamford v. Bamford [1968] 3 W.L.R. 317. See Barak, , “Ratification by the General Meeting” (1970) 5 Is.L.R. 249CrossRefGoogle Scholar, and also Wedderburn, K. W., “Note on Hogg v. Cramphorn, Shareholders Control of Directors Powers: A Judicial In novation” (1967) 30 Mod.L.R. 77CrossRefGoogle Scholar; Wedderburn, , “Going the Whole Hogg v. Cramp horn?” (1968) 31 Mod.L.R. 688, 692–3.Google Scholar See generally the famous basic work of Prof. Wedderburn about minority suits, “Shareholders Rights and the Rule in Foss v. Harbottle” (1957) C.L.J. 194, continued in (1958) C.L.J. 93. See Boyle, infra n. 76 at 197–202 for an analysis of the unimplemented recommendations of the Jenkins Committee to widen the minority's remedy.
70 See Gower at 588 for the list of conduct which constitutes fraud on the minority.
71 The writer entertains considerable doubt whether an additional argument can be made. Such an argument, that a ratifying decision of a general meeting cannot be passed in the interest of the company, starts where the “misappropriation of assets” argument fails. It proposes that because the information as used, was useless to the company, ratification by the shareholders is not in the interest of the company, but for a collateral purpose—to absolve the insiders. The obiter in the Regal case (see infra p. 238 that ratification would have protected the directors, can be distinguished by arguing that there, the directors' purchase of the shares in the subsidiary was in the interest of the company. See Re W. & M. Roith, Ltd. [1967] 1. W.L.R. 432 and Gower at 566.
72 There are many cases which have held that certain pieces of corporate information are corporate assets, e.g., Measures Bross v. Measures [1910] 1 Ch. 336, aff'd [1910] 2 ch. 248, C.A. regarding lists of customers; Bell Houses Ltd. v. City Wall Properties Ltd. [1966] 2 Q.B. 656 regarding knowledge of a source of financing and Peter Pan Manufacturing Corp v. Corsets Silhouette, Ltd. [1964] 1 W.L.R. 96 regard ing a design of product. See the discussion in Gower at 535–547 and 564–566.
73 Since it would amount to a reduction of capital. Trevor v. Whitworth [1887] 12 App. Cas. 409, H.L.
74 A similar situation arises when the company is financially or legally (i.e., the opportunity is ultra vires the company) unable to utilize an opportunity and the director grasps it. But in the case of financial inability it is to be remembered that the directors are the fund raisers for the company. A rule which enables them to use corporate opportunities when the company is unable to do so might have adverse effects on their efforts to find sources of capital. In the case of the ultra vires opportunity, it might be said that it is the directors' duty to initiate an amendment of the memorandum. Cf. Fine Industrial Commodities v. Bowling [1954] 79 R.P.C. 253, at 288. Insider trading is, thus the purest case in which the company loses nothing. It is equal to a case of absolute legal and financial inability of the company.
75 A restitionary action can succeed even if the plaintiff suffered no loss (minus) if the defendant obtained a profit (plus) to which the plaintiff has a higher claim. “The point is not whether a definite something was taken away from the plaintiff and added to the treasury of the defendant. The point is whether the defendant unjustly enriched himself by doing a wrong to the plaintiff in such a manner and in such circumstances that in equity and good conscience the defendant should not be permitted to retain that by which he has been enriched”. Federal Sugar Refining Co. v. United States Sugar Equalization Board, Inc. 268 F. 575, 582 (S.D. N.Y. 1920). This is also the law in England and in Israel: Reading v. A.G. [1948] 2 K.B. 268, aff'd C.A. [1949] 2 K.B. 232, aff'd H.L. [1951] A.C. 597; Aviam v. The State of Israel (1971) (I) 25 P.D. The fiiduaciry relationship between the director and the company is the base of establishing the company's higher claim to the director's profit, obtained by him by virtue of his office. Jones, G., “Unjust Enrichment and Fiduciary Loyalty” (1968) 84 L.Q.R. 472, 476–8.Google Scholar The gist of the action is significant not only to the question of a minority suit but also to the question of recovery against “tippers” and “tippees”. If the director sells the information, the company can recover his profits even on the grounds of unjust enrichment. In most cases the tip will be accompanied by some profit to the director, on a short or long term “back scratching” arrangement. But when the director tips and makes no profit, the company can recover from him only if he expropriated a corporate asset. We do not base this conclusion on the fact that the “tipper” in the Regal case (Gulliver) was not made accountable. In that case it can be said that Gulliver did not breach his duty to the company, because he brought the “tippees” in, to assist the company. See Crawford, H.P., “Insider Trading” (1965) 8 Can. B.J. 400, 405.Google Scholar Our conclusion stems from the fact that in the absence of a “plus” to the director there would never be a breach of duty on the theory of unjust enrichment. The company will have an action against a buyer of the information because he participated in a breach of duty by the director. However the “tippee” proper will not have to disgorge his profits to the company because, again, in the absence of a profit to the director, there was no breach of duty by the director. If the director is deemed to misappropriate property, the company can recover against the “tippee”, if the latter had notice that he was tipped on the basis of a “constructive trust”. Gower at 556.
76 Stemming from Foss v. Harbottle [1843] 2 Hare 461, 67 E.B. 189, which, carrying over from the unincorporated company, held that when ratification by the majority is valid, it cures the directors' wrong and precludes a minority suit. The court in Foss supplemented the rule of no interference, by stating that an incorporated company, being a separated legal entity, should itself redress its wrongs. See Boyle, , “The Minority Shareholder in the Nineteenth Century” (1965) 28 Mod.L.R. 817Google Scholar and Boyle, , Shareholders Derivative Action in Anglo-American Law (1968) (Unpublished thesis in Harvard Law School Library).Google Scholar
77 G. Jones, supra n. 75, at 473 argues convincingly that the question of accountability of the director to the company should be decided by rules of policy and not by the inquiry, paralleling the formula of Cook v. Deeks [1916] 1. A.C. 554 at 563 P.C., where the director acquired property “which, though his own at law, in equity belonged to the company”.
78 [1967] 2 A.C. 139 N; [1942] I All E.R. 378.
79 Sealy, L.S., “The Directors As Trustees” (1967) C.L.J. 83, especially at 98 n. 83.CrossRefGoogle Scholar
80 [1942] I All E.R. 378 at 389 per Lord Russell. See also per Viscount Sankey at 382 and per Lord Wright at 394. See the discussion in Wedderburn, “Shareholders' Rights and The Rule In Foss v. Harbottle” supra n. 69 at 99–106.
81 [1967] 2 A.C. 46 H.L. affirming sub nom. Phipps v. Boardman [1965] Gh. 992 (CA.), affirming [1964] I.W.L.R. 993 (Ch. D.).
82 See the eloquent discussion in Gower at 555–556. See also the statements of Lord Denning, M.R. in the Court of Appeal [1965] Ch. 992, 1019, 1020.
83 In Peso Silver Mines, Ltd. v. Cropper [1966] 58 D.L.R. 2d 1, the board of directors (bona fide) rejected an opportunity to purchase shares. Then some directors pur chased the shares themselves. The Supreme Court of Canada observed that if re covery would be allowed, it would be for the shares. But the court decided that the directors did not use confidential information and that the purchase after the board rejected the offer was not made in their corporate capacity, but as members of the public. The value of this observation, as well as the speeches of those Lords in Phipps v. Boardman, who stressed the proprietary nature of the information and the fact that in Zwicker v. Stanbury (1953) 2 S.C.R. 438, a minority action was sustained, is weakened somewhat by the theoretical possibility of loss to the company (or trust) in these cases. See supra n. 74. Cf. Sealy, supra n. 79, at 93 n. 83.
84 “They [the directors] are being charged because they converted into money to their own use something belonging not to them but to their corporation—inside information”. 287 N.Y.S. 2d 300, 303–304 (1968).
85 “A corporate fiduciary, who is entrusted with potentially valuable information, may not appropriate that asset to his own use even though in so doing he causes no injury to the corporation”. 29 N.Y. 2d 494, 498, 248 N.E. 2d 910, 912 (1969).
86 “The primary concern, in a case such as this, is not to determine whether the corporation has been damaged but to decide as between the corporation and the defendants, who has a higher claim to the proceeds derived from his exploitation of the information”. Id. 248 N.E. 2d at 912. This is what Prof. J. P. Dawson calls “to express the complex equation between [the company's] losses and [the directors'] gains”. Dawson, , “Restitution or Damages” (1959) 20 Ohio State L.J. 175, 179–180.Google Scholar In another passage the court makes the point even clearer: “Sitting as we are in this case as a court of equity, we should not hesitate to permit an action to prevent any unjust enrichment realized by the defendants from their allegedly wrongful act”. 24 N.Y. 2d 494, 501, 248 N.E. 2d 910, 914 (1969).
87 The inclination in Israel is to adopt the English rules for non-interference. See Barak, A., “Minority Shareholders and Their Rights to Management” (1969) 25 HaPraklit 88, 509.Google Scholar Prof. Barak criticizes this trend and argues that even in terms of the importation channels from English law (See supra n. 7.) rules stemming from partnership law, as it stood in England in the 19th century do not answer the needs and conditions of Israel today. According to sec. 112 of the 1957 Companies Draft Bill, actual ratification by the general meeting will defeat a minority action alleging insider trading. See supra n. 10.
88 Companies Ordinance, May 15, 1929, Drayton, vol. 1 ch. 22.
89 19 & 20 Geo 5, C. 23.
90 Appointed in November, 1949 “to consult the Ministry of Justice in the matters of company law, to make suggestions to amend the law and to examine suggestions submitted to the committee by the Ministry of Justice and by the public”. Its report was published by the Ministry of Justice in June, 1953. The Committee included experts in company law and is named after its chairman, Z. Zeltner, President of the District Court of Tel-Aviv.
91 Appointed by the Ministry of Justice in May, 1962 to update the work of the first Zeltner Committee, taking into account amendments in English and other Company Laws. The Report of the Committee was published in November, 1965.
92 Appointed by the Minister of Finance in March, 1962 “to advise me and make recommendations in connection with legislative and administrative provisions re garding the issuance of shares and other securities, the methods of their distribution and trading in such securities within and outside the stock exchange”. The report of the Committee was published in June, 1963, named “Yadin Committee” after its chairman, U. Yadin, Deputy Attorney General of Israel. Citations from the Yadin Report are taken from the English translation by William B. Goldfarb (1963).
93 Prepared by the Ministry of Justice in conjunction with the Harvard-Brandéis program for the development of the law of Israel.
94 (1968) 22 L.S.I. 266.
95 Sec. 29 of the Companies Ordinance.
96 A public company can, if authorized by its articles, issue “bearer warrants” in respect to its paid up shares. Sec. 28. In such a case the company strikes from the members register, the shares specified in the warrant and enters the fact of the issue of the warrant and the shares included in it.
97 Sec. 126 (1).
98 Sec. 122 (1).
99 Sec. 76.
100 para. 6 of the report.
101 Para. 7 of the report.
102 Para. 22 (d).
103 Secs. 166 and 167 of the draft.
104 Sec. 170 of the draft.
105 Para. 196 and 197 of the report.
106 Para. 68–71 of the report.
107 Para. 68–71 of the report.
108 Para. 126.
109 Para. 128.
110 Para. 129.
111 Sec. 16, Israel Securities Law.
112 Sec. 36, Israel Securities Law.
113 Sec. 36 (c), Israel Securities Law.
114 Secs. 16 (c) and 36 (d), Israel Securities Law.
115 The term “holding” as defined in sec. 1 of the Securities Law, and in all the regs. under that Law includes holding through nominees.
116 Sec. 37, Israel Securities Law.
117 Regulations of Securities (Preparation of Financial Reports), 1969; Collection of Regulations, No. 2417, July 13, 1969.
118 Collection of Regulations, No. 2417, July 13, 1969. The prospectus must disclose the share holdings of any shareholder who owns 5% (or more) of the shares, or of the voting power or the power to appoint directors (Reg. 28) and also the share holdings of a group of people defined as interested in the issuer (Reg. 52), which includes (a) any person who holds at least 10% of the issued shares, voting power or power to appoint directors of the corporation; (b) a promoter; (c) any person entitled to appoint the managing director; (d) any director; (e) any corporation, in which one of the following (1) a director; (2) a holder of 10% or more of the shares, voting power or power to appoint directors; (3) a person entitled to appoint the general director—holds more than 25% of its shares, voting power or the power to appoint directors. The holdings of all the interested persons to be disclosed include holdings in the issuer, in a subsidiary or any affiliated company, both on the date of the prospectus and one year earlier. The information is to be filed “to the best of the knowledge of the issuer and its directors” (Regs. 28 and 55) and is, thus, designed to cover bearer and nominee held shares.
119 Securities Regulations (Periodical and Immediate Reports), 1970; Collection of Regulations, No. 2591 July 30, 1970. See also Securities Regulations (Periodical and Immediate Reports of Investment Trusts), 1970; Id.
120 Reg. 38 of the regulations.
121 The periodical report must be published within six months of the financial year and at least a week before the convention of the annual meeting to approve the financial reports. Reg. 7.
122 Reg. 21.
123 The definition of an interested party is almost identical to that under Reg. 52 of the prospectus regulations. See supra n. 118. The only difference is that a promoter is not included.
124 Reg. 24.
125 The date of the report is the date on which it was signed, provided it does not antedate its submission to the S. A. and to the Companies Registrar by more than 14 days. Reg. 6.
126 Regs. 21 & 24.
127 Collection of Regulations, No. 2615, September 17, 1970.
128 Note, however, that sec. 37 requires disclosure only of holdings in the corporation itself, not in a subsidiary or an affiliated corporation. The requirement to disclose holdings in subsidiaries and affiliated corporations may, therefore, be ultra vires.
129 Regs. 2 & 5. Failure to file an appropriate notice constitutes a crime under sec. 53 (c) (6) punishable by a fine of up to IL. 5,000.
130 Reg. 33 (a).
131 Reg. 33 (b).
132 Reg. 30 (b).
133 Regs. 33 (a) & (b).
134 Report of the Jenkins Committee Paras. 99 (d) & 99 (e).
135 See discussion in Magnus & Estrin, op. cit., supra n. 66, at 551–74. Loss at 1131.
136 See the definition of “relevant share capital” in sec. 30 (10).
137 Gower at 390 n. 23.
138 15 U.S.C., sec. 78 p (b) (1964).
139 Although several expressions in Surowitz v. Hilton Hotels Corp. 383 U.S. 363 (1966) can be read to imply a recognition of a private action under Rule 10b–5, Id. at 364, 373–374.
140 It should be noted that when the Supreme Court found civil liability under sec. 14 (a) (the proxy section) of the 1934 Act, in J. I. Case v. Borak, 377 U.S. 426 (1964), it did not in so many words apply the “torts derived from crimes” doctrine. The most significant consideration in the court's decision was the insufficiency of existing remedies. This, however, is also one of the crucial factors in the inquiry whether or not a tort implies a crime, Street, infra n. 179 at 275. As to the query: Does implication of civil liability from sec. 14 (a) logically compel implication of liability from sec. 10 (b) and Rule 10b–5 there under? See the eloquent discussion in Loss at 1763–1764.
141 393 U.S. 453 (1969).
142 15 U.S.C. sec. 78 n (a) (1964).
143 15 U.S.C. sec. 78 1 (g) (1964).
144 15 U.S.C. sec. 78 cc (b) (1964).
145 Kardon v. National Gypsum Co. 69 F Supp. 512, 514 (E.D. Pa. 1946).
146 Cf. Ferraioli v. Cantor 281 F. Supp. 354 (S.D.N.Y. 1967); Stockwell v. Reynolds and Co. 252 F. Supp 215 (S.D.N.Y. 1965); McManus v. Jessup and Moore Paper Co. 5 S.E.C. Jud. Dec. 810 (E.D. Pa. 1948).
147 E.g., Heit v. Weitzen, 402 F. 2d 909 (2d Cir. 1968), where a purchaser in the market recovered from a company which issued a false press release.
148 15 U.S.C. sec. 78 q (1964).
149 852 Stat. 1070 (1938).
150 15 U.S.C. sec. 78 o (c) (1) (1964).
151 This argument has an additional support in the language of the jurisdiction section of the 1934 Act (sec. 27) which is said to imply civil actions for violation of the 1934 Act and regulations thereunder. Kardon v. National Gypsum Co. 60 F. Supp. 512, 513 (E.D. Pa. 1946), J. I. Case v. Borak 877 U.S. 426, 430–431 (1964).
152 I.e., a prospectus under sec. 38 of the 1948 Companies Act.
153 See infra p. 275.
154 15 U.S.C. Sec. 77 1 (2) (1964).
155 Under the 1934 Act there is nationwide service of process. The federal disclosure procedures, unprecedented in most states, can help establish a case, especially in the area of fraud and non-disclosure. There are, presumably, states which still adhere to the so-called “majority rule”, at least in the sense, that they have not yet overruled it. In a case of mere concealment of facts a seller would have a hard time establishing his cause of action in those states.
156 Sec. 13 of the 1934 Act fixes a limitation period of one year. 15 U.S.C. sec. 77 m (1964).
157 15 U.S.C. sec. 77 k (1964).
158 If you decide that sec. 10 (b) overrides sec. 12 (2) the buyer receives more by implication than Congress gave him expressly. If you decide that sec. 12 (2) governs the buyer's action, then you reach an absurd situation that the seller, who received no express remedies, is better off than the buyer—the favourite son. It takes more than traditional judicial law-making to read into a seller's action under 10 (b) the express limitations on a buyer's action under the 1933 Act. See Geismar v. Bond and Goodwin, Inc. 40 F. Supp. 876, 878 (S.D.N.Y. 1941) and Kardon at 514.
159 There are three views, minority view that no 10b–5 action can be brought. A compromise view that a 10b–5 action can be brought only if fraud is alleged, maintaining that fraud is not necessary in a sec. 11 suit. A growing view allowing a 10b–5 action even if no fraud is alleged. See Loss at 1783–1785 and cases cited therein.
160 15 U.S.C. Sec. 77q (a) (1964). The cases originated from a dictum in a footnote in Fischman v. Raytheon Mfg. Co. 188 F. 2d 783, 787 n. 2 (2d Cir. 1951) per Judge Frank. See Loss at 1794–1791. It was lately decided that sec. 17 (a) cannot be made a basis for punitive damages, not disposing of the issue of compensatory damages. Globus v. Law Research Service, Inc. 418 F. 2d 1276 (2d Cir. 1969). The issue is academic only because a sec. 17 (a) civil action does not go further than a Rule 10b–5 civil action.
161 Sec. 15 (b) (5) of the 1934 Act. 15 U.S.C, sec. 78 o (b) (5).
162 Sec. 20 (b) of the 1933 Act, 15 U.S.C. sec. 77t (a) and sec. 21 (e) of the 1934 Act, 15 U.S.C, sec. 78u (e) (1964).
163 An idea expressed in Houldsworth v. City of Glasgow Bank (1880) 5 App. Cas. 317 H.L. followed in Re Addlestone Linoleum Co. Ltd. (1887) 37 Ch. D. 191, C.A. Sec. 31 of the Israel Securities Law permits a damage action against the issuer. Yet one writer expressed doubt whether the action can be maintained by a pur chaser who still holds the security. Gross, , “Civil Liability under the Securities Law” (1969) 9 Quarterly Banking Review 56, 67, 69–70.Google Scholar The present writer thinks this doubt to be unwarranted. Sec. 31 does not contain such limitation. There is no lacuna in our system and the Houldworth ruling cannot be read into sec. 31.
164 Sec. 2 of the Misrepresentation Act, 1967 presumably enables an action against the company, although it does not contain a provision which reverses expressly the rule in Houldsworth. Sec. 2 (1) of the Misrepresentation Act furnishes a damages action against the other party to the contract—in our case the company—and sec. 2(2) states that damages can be awarded in lieu of rescission. See Gower at 319.
165 See the legislative history of these sections, infra n. 270.
166 Loss at 1661–1667.
167 The violations are commonly one of the following: (a) failure to register the security, (b) failure of somebody in the distribution group (issuer, broker, or salesman) to register; (c) failure to file required notices or reports, (d) failure to use proper sales techniques. See Gable, , The New Common Law of Blue-sky Remedies: Civil Liabilities for Criminal Violations (1964)Google Scholar Seminar in the Harv. L.S. Library.
168 Shepard v. City Co. of N.Y. Inc. 24 F. Supp. 682 (1938), appeal dismissed, 106 F. 2d 994 (1939).
169 Dress v. Minnesota Petroleum Co. 189 Minn. 608, 250 N.W. 563 (1933).
170 Heaphy v. Kerr 190 App. Div. 810, 180 N.Y.S. 542 (1920), aff'd 232 N.Y. 526, 134 N.E. 557 (1921).
171 Gable, supra n. 167 at 9. Gable's theme is that civil liability cannot be based on any of the traditional common law theories of liability and that the courts should admit that they are creating new common law.
172 Karamonou v. H. W. Greene Co. Inc. 8 N.H. 420, 124 A. 373 (1922); Napier v. Decar Chemical Products Co. (Pa. C.P. 1951) in 100 Pitts. L.J. 245, 246.
173 [1773] 98 Eng. Rep. 1364.
174 Edgerly v. Hale, 71 N.H. 138, 147, 51 A, 679, 684 (1901).
175 See Loss at 1672 n. 202. The cases which did not condition the recovery held so on the reasoning that because the sale contract is void the security is worthless and tender would be futile. Stern v. National City Co. 25 F. Supp. 948, 952 (D. Minn. 1938), aff'd without discussion of the question sub nom. 110 F. 2d 601 (8th Cir. 1940), rev'd on other grounds 312 U.S. 666 (1941). This reasoning cannot apply to rescissionary actions against insiders. As we shall see there is authority in English law for the proposition that once the innocent party is allowed an action to defeat an executed contract, he can recover without giving up his benefits of the contract.
176 6 and 7 Eliz. 2, C. 45 (1958).
177 (1968) 22 L.S.I., 266. The law came into force on July 1, 1969.
178 (1703) 2 Ld. Raym. 938.
179 Street, , The Law of Torts (4th ed., 1968) 269.Google Scholar
180 (1854) 3E & B 402.
181 Article 823 of the German Civil Code is typical of the approach of civil law countries to the “crime-tort” doctrine which resembles the approach of the early English common law: “Liability also attaches to a person who contravenes a statute designed for the protection of another. If the statute may, according to its terms, be con travened even in the absence of fault, liability in damages attaches only where fault is present”.
182 (1877), 2 Ex. D. 441, C.A.
183 This confusion in turn raised judicial complaints against the legislature for failing to state whether the crime had civil consequences. Cf. per Lord Du Parq in Cutler v. Wordsworth Stadium Ltd. [1949] A.C. 398, at 410 and per Wallace in Jacob v. Construction and Engineering Pty, Ltd. (1966) 83 W.N. (N.S.W.) pt. 2, 331 at 332.
184 A recommendation of the Monckton Committee on Alternative Remedies to restrict recovery to cases in which the breach was at least negligent (Cmd. 6860, para. 82) was not implemented by Parliament.
185 Weir, T., Tort (1967) 104Google Scholar concludes: “The cases where the courts tend to give this remedy are where the damage is of a kind that interests them, where the relationship of the parties involves a common law duty, and where the defendant will be liable only for something approaching fault”.
186 See the somewhat different presentation of the tests in the report of the Law Commission on the Interpretation of Statutes (Her Majesty's Stationary Office, 1969) para. 38 at p. 23 and especially note 92. The commission recommended that in respect to future legislation the court should rely on a presumption that non-compliance with a statute is actionable, unless a contrary intention is expressly stated in the legislation.
187 The refusal of the English courts to find that the “protection test” is met in the case of traffic regulations is explained by them in saying that those regulations are intended to secure the orderly movement of traffic and the safety of those engaged therein and not to impose duties on one class of persons to secure the safety of another class. The reciprocal nature of the duties imposed on all who are engaged in traffic, they reason, precludes the implication of private actions. A recent Australian case makes this point very clear. Abela v. Giew (1965) 65 S.R. (N.S.W.) 485. This case went even further than the English in refusing to imply a private action. See infra p. 263.
188 Per Lord Simonds in Cutler v. Wordsworth Stadium Ltd. [1949] A.C. 398 at 407. See the formulation of this test by Lord Atkin, infra n. 226.
189 Report of the Commission on Interpretation, supra n. 186.
190 (1960) 23 Mod.L.R. 233. For additional articles, see Fricke, , “The Judicial Nature of the Action upon the Statute” (1960) 76 L.Q.R. 240Google Scholar; Alexander, , “Legislation and Standard of Care in Negligence” 42 Can. B.R. 243.Google Scholar For American articles see Thayer, , “Public Wrong and Private Action” (1914) 27 Harv.L.R. 317CrossRefGoogle Scholar; Morris, , “The Relation of Criminal Statutes to Tort Liability” (1933) 46 Harv.L.R. 453CrossRefGoogle Scholar, and “Role of Criminal Statutes in Negligence Actions” (1949) 49 Colum.L.R. 21; Lowndes, , “Civil Liability Created by Criminal Legislation” (1931) 16 Minn.L.R. 361.Google Scholar There are abundant articles about liability under Rule 10b-5, gathered in Loss, 1763–1764 n. 261.
191 (1960) 23 Mod.L.R. 233, 258 n. 79.
192 [1963] 2 Q.B. 502, C.A.
193 Davies L. J. expressed the opinion that “perhaps the nearest one gets to a statement of principle is in the words of Atkin L.J. in Phillips v. Britania [for which see infra n. 224]…and the principle can, in my judgment, be applied in the present case.” Id. 523–524, Pearson L. J. said: “The answer depends on the construction of the particular enactment, i.e., on the intention which it manifests. Here there is no enactment which is directly relevant and I can only consider, perhaps in a rather metaphorical way, what intention is to be inferred from the nature and exercise of the jurisdiction”.
194 Thorne v. British Broadcasting Corporation [1967] 1 W.L.R. 1104, C.A. This was an injunction to restrain alleged violations under sec. 6 of the Race Relations Act, 1965. See text infra at n. 420 in part II of this article (next issue).
195 [1955] 2 Lloyd's Reports 247, C.A. See discussion of the case in Clerk, and Lindsell, , Torts (13th ed., 1969) 416 n. 83.Google Scholar
196 57 & 58 Vict. C. 60.
197 Jenkins L.J. in a concurring opinion, stated: “Without in any way prejudging the result I content myself by saying that I think both points are points of substance”. [1955] 2 Lloyd's Reports 247, 260. Parker L.J. concurred with his two colleagues.
198 Gower, 338–39. See also text at n. 314 in part II of this article (next issue).
199 Loss, , “The Protection of Investors, The Role of The Courts” (1963) 80 South African L.J. 372 at 383.Google Scholar It is, indeed, the theme of this paper that there is sufficient authority for these suggestions to become law in regard to the problem of insider trading.
200 The section is set out supra n. 21.
201 Sec. 17(a), 1933 Act; see 10(b) and Rule 10b–5 (see infra n. 438) under it, 1934 Act.
202 2 & 3 Geo. 6 C. 16.
203 It was the consensus of Donovan J. in R v. Bates (infra n. 209) and Salmon J. in R v. Mackinnon (infra n. 211) that the long title and the crossheading are legitimate aids for the construction of this section, while the side title (“penalty for fraudently inducing persons to invest money”) is not admissible, because it was not debated in Parliament. However, resort to these aids can be made only when the statute is ambiguous. Thus Donovan J., who thought the section ambiguous used these inter pretive aids, while Salmon J. who thought the section unambiguous rejected them. In construing the section for the purpose of implying a private action, there is, of course, no ambiguity in the section, since by definition the section does not deal with its civil consequences. But, by the same token, the resort to the interpretive aids cannot contradict the language of the legislature, but only shed light on it. Resort to the side-title would have no negative effect on our proposition. Again, we start from a penal section. To point out the penal attributions does not mean that they exhaust the consequences of the section.
204 Sec. 13 applies not only to investments in securities, but also to arrangements in respect to property other than securities. But, it is submitted, that the apparently wider scope of the English anti-fraud provision compared with the American and Israeli, should not be an obstacle in the way of establishing the investing sector for the purposes of the “protection test” or “general construction test”. This apparent wider scope is illusory. “Security” as defined in sec. 26(1) of the Protection of Fraud (Investments) Act does not include investment contracts. Sees. 13(b) and 13(c) are designed to afford protection against fraud to investors also in investment contracts. (And see the further crime of sec. 1 of the Protection of Depositors Act, 1963). Investment contracts are included in the definition of security in the 1933 Act (sec. 2(1)) and the 1934 Act (sec. 3(10)) and presumably also in the meaning of security for the purposes of sec. 54 of the Israeli Securities Act, which embraces even securities not included in the definition of security in sec. 1 of that Act. For the judicial gloss on what is an “investment contract” in the United States, see Loss at 483–511.
205 See supra n. 187 for the discussion of the two classes in traffic regulation cases.
206 See Fridman, G., The Modern Law of Employment (1963) 519–20.Google Scholar
207 The damage suffered by the plaintiff, in order that he should be able to bring an implied private action, must be the very damage contemplated by the legislature in penalizing defendant's behaviour: Gorris v. Scott (1874) L.R. 9 Exch. 125. This condition is met in securities fraud cases.
208 According to the Restatement of Torts (1934) a condition for the implied remedy was that “the intent of the enactment is exclusively or in part to protect an interest of the other as an individual…” and not “…to secure to individuals the enjoyment of rights or privileges to which they are entitled only as members of the public”. Secs. 286(a), 288(b). The second Restatement weakened the implied remedies using the discretionary language that the court “may adopt” a statutory standard. Restate ment (Second) of Torts (1965) sec. 286. Note the striking similarity between sec. 286 of the first and second Restatements and sec. 63 of the Civil Wrongs Ordinance (New Version) in Israel. See infra p. 261.
209 [1952] 2 All E.R. 842. In a dictum the Court of Criminal Appeals endorsed this interpretation in R v. Russell [1953] 1W.L.R. 77.
210 [1952] 2 All E.R. 842, 845.
211 [1959] 1 Q.B. 150.
212 [1932] 1 K.B. 442.
213 [1959] 1 Q.B. 150 at 154.
214 But see, Pennington, R., The Investor and the Law (1968) 204–205.Google Scholar Pennington regards the Mackinnon interpretation as more satisfactory than the grammatical reading of the section. His point is that if concealment of material facts be regarded as an independent offence the law would impose a general duty of disclosure in prospectuses, something which he seems to oppose on balance.
215 [1963] 1 Q.B. 935.
216 Id., at 939.
217 In sec. 21 of the Protection of Depositors Act, 1963.
218 E.g., because of a change in the zoning classification in the area, or because oil was discovered on adjacent land.
219 See infra text at n. 425 in part II of this article (next issue).
220 (1968) 22 L.S.I. 280.
221 Civil Wrongs Ordinance (New Version) 1968. In the Civil Wrongs Ordinance 1944 Palestine Gazette Supp. I 1680 p. 93 as amended in 1947, Palestine Gazette Supp. I 1563 p. 32, the section was numbered 55A.
222 Sarag Adiri Ltd. v. The Mayor of Tel-Aviv (1957) 11 P.D. 1110, 1116. In this case, an action against the Municipal Corporation for the breach of a statutory duty was denied on the ground that special rules apply in actions against public authorities. Followed in Posner v. Noiman (1961) (I) 15 P.D. 502. In Shachada v. Atman (1966) (IV) 20 P.D. 619., (additional hearing) an action against the Registration of Vehicles Authority for the failure of one of its clerks to ascertain that the owner had insured himself against third party risks, relief was denied to the victim of a vehicle accident. In Mentel v. The Municipal Corporation of Petah Tikva (1965) (I) 19 P.D. 540, 545, the Supreme Court held that the failure of the forfeiting authority to comply with its duty to publicize a notice of the forfeiting was a ground for the tort of breach of statutory duty. Cf. Degani v. Development Authority (1967) (I) 21 P.D. 365.
223 (1953) 7 P.D. 674. See also Kasem v. Municipal Corporation of Nazeret (1955) 9 P.D. 243 at 249 per Olshan J. where, again, the “general construction” test was applied in the alternative with the “protection test”.
224 [1923] 2 K.B. 832, H.L.
225 [1923] 1 Q.B. 539.
226 “That [i.e., the implication of a tort] depends on the construction of the Act and the circumstances in which it was made and to which it relates” Id. at 841. “The question is whether these regulations, viewed in the circumstances in which they were made and to which they relate, were intended to impose a duty which is a public duty only or whether they were intended in addition to the public duty to impose a duty enforceable by an individual aggrieved”. [1923] 2 K.B. 832 at 843.
227 [1935] 1 K.B. 75.
228 Zeibert v. Bishko (1959) 12 P.D. 40, 48 (per Goitein J.). Followed by the District Court in Haifa, Gabay v. Nagmi (1964) 40 P.M. 61, 76.
229 Schachada v. Atman (1966) (I) 20 P.D. 163, 166–67 (per Cohn J.).
230 [1949] A.C. 155, H.L.
231 Kelley v. W.R.N. Contracting Ltd. & Another [1968] 1 W.L.R. 921.
232 Yet the court imposed on the defendant only a 10? contribution.
233 See, e.g., Vishen v. Clapor (1962) 30 P.M. 121, 130, where the District Court, bowing because of stare decisis to the Parizker precedent said: “Nevertheless, as far as we are concerned with the standard of care required from the defendants, the duty imposed by the regulation 69A is at least a helpful guide, if not more”, citing Witkon J. in Schvilly v. A.G. (1952) 6 P.D. 470, 477. The latter was a criminal prosecution for negligent manslaughter and the court stated by way of obiter, “we may comment that these elements [required for the establishment of the crime] resemble to a certain extent the elements required for civil liability in an action based on negligent manslaughter in English law”. Per Cheshin J. at 475. Witkon J. in a concurring opinion went as far as to say “…the mere fact that the legislature fixed a means of precaution brings it about that anybody who violated his duty would be convicted of negligence”. Id., at 477. In other words, a negligence per se rule. Cf. Schachada v. Atman (1966) (IV) 20 P.D. 617, 621. (additional hearing).
234 Cf. Cohen v. Alei Tabak Ltd. (1969) (I) 23 P.D. 709; Elbar Mfg. Ltd. v. Goldman (1965) (I) 19 P.D. 371.
235 Davies v. Thomas Owen & Co., Ltd. [1919] 2 K.B. 39 decided that if a machine cannot be fenced safely in a way that the use of it will still be profitable, the employer may either lose on the production or forego its use. Lord Simon, cast doubt about this proposition in Lewis v. Denye [1940] A.C. 921, H.L., presumably in light of the wartime efforts of the industry. The Israel Supreme Court stayed firmly behind the Davies principle in Atia v. Rosenbaum (1954) 8 P.D. 1135 even before the House of Lords restated the proposition in Summers & Sons Ltd. v. Frost [1955] A.C. 740.
236 Sec. 44 of the Civil Wrongs Ordinance (New Version), provides: (a) A private nuisance consists of any person so using any immovable property of which he is the occupier as materially to interfere with the reasonable use and enjoyment, having regard to the situation and nature thereof, of the immovable property of any other person: provided that no plaintiff shall recover compensation in respect of any private nuisance unless he shall have suffered damage thereby”.
237 (1959) 13 P.D. 916. Earlier cases, Igra Rama v. The Board of the Municipal Corporation of Tel-Aviv (1951) 5 P.D. 229 and Adama Int'l Co. in Israel Ltd. v. Levy & Singlia (1955) 9 P.D. 1666, 1672, indicated that a private action lies but did not articulate its regimen.
238 Town Planning Ordinance, 1936 Palestine Gazette Supp. I 589 p. 157. Replaced now by the Law of Planning and Building, (1965) 19 L.S.I. 330.
239 A minority view in Israel bases the actions in favour of persons injured by violations of the building law not on sec. 63 but on an independent crime tort theory. This doctrine was shaped by Berinson J. in Levy v. Adama (1955) 9 P.D. 1666, 1672, See Cheshin in Tedeschi et al, General Law of Torts (1969) 105–111. Excluding Berinson J. who has not committed himself, the general concensus among legal scholars is that the legal source for the action is sec. 63. The three elements of the Adama rule were (a) an illegal act, (b) damage, (c) causation. This seems to be an incomplete list of a sec. 63 action elements. The Adama rule eliminates the in quiries, the “protection test” and the “general construction test” are designed to answer. As a matter of positive law the writer thinks the Adama rule is indefensible.
240 (1964) (I) 18 P.D. 384.
241 The Land Bill, 1964, sought, in sec. 66(b), to sanction a civil action complaining of violation of building laws. The Land Law, 1969, deleted this section but in sec. 20 preserved the existing remedies. See (1970) 5 Is.L.R. 292.
242 Here not as an element of the tort of public nuisance like in Boyd v. Great Northern Ry. Co. (1895) 2 I.R. 555, but as a consideration for qualifying as a “protected person”.
243 See also Frou Frou Biscuit (Kfar Saba) Ltd. v. Froumine & Sons, Ltd. (1969) (1) 23 P.D. 43, where the court held that an owner of a registered trade mark may bring a civil suit although sec. 38 of the Trade Marks Act spoke only about a penal action against the violator. But in Frou Frou the court emphasized that the Trade Marks Ordinance itself assumed elsewhere the availability of a private action (e.g., by stating in sec. 34 that if the trade mark is not registered, a private action cannot be brought). Frou Frou is, therefore, not as strong an authority for implied actions as are Gideon v. Saliman and Leibovitz v. Katz. The express tort of fraud requires a representation and a showing of pecuniary damage. Sec. 56 of the Civil Wrongs Ordinance (New Version): “Fraud consists of a false representation of fact, made with the knowledge that it is false or without belief in its truth or recklessly, careless whether it be true or false, with intent that it shall be acted upon by the person deceived: Provided that no action shall be brought in respect of any such representation unless…(a) it was intended to and did deceive the plaintiff and he has acted upon it and has thereby suffered pecuniary damage”. Pecuniary damage, although not an element of a private action derived from sec. 54 of the Securities Law, will of course, exist when the insider conceals successfully material information. The only element which does not exist is that of “false representation”, which must include, at least, a half truth.
244 (1966) (IV) 20 P.D. 619 (additional hearing).
245 Id., at 620.
246 Id.
247 On a literal reading of sec. 63, even if the duty was imposed in order to protect “people generally”.
248 Judge Kirkpatrick put it very ably: “The question is only partly such [i.e., of statutory interpretation]. It is whether an intention can be implied to deny a remedy and to wipe out a liability which normally, by virtue of basic principles of tort law, accompanies the doing of the prohibited act”. Kardon v. National Gypsum Co. 69 F. Supp. 512, 514 (E.D.Pa. 1946).
249 See Thayer, , “Public Wrong and Private Action” (1914) 27 Harv. L. R. 317, 320.CrossRefGoogle Scholar Thayer points out the futility of searching for a supposed legislative intent when the statute is ex hypothesis silent about the intent of implication.
250 The Committee described insiders as “persons who have a larger measure of relevant information than that available to the general investing and trading public”. It thought that for the purposes of insider trading, “insiders should be deemed to include the directors of the company whose securities are being traded, shareholders who own more than a stipulated percentage of the capital of the company, and members of the Exchange who are represented on the Board of Directors of the company” (Yadin Report, para. 194). The securities market in Israel is practically controlled by the banks; they are underwriters, exchange members, investment advisers and also they themselves deal in securities. Through subsidiary investment companies banks own shares in, and are represented on, the boards of many operative companies. (Yadin Report, para. 217). Thus the banks have access to diverse sources of inside information. The Yadin Committee found that this concentration of func tions had not given rise to improper acts (para. 218). In principle it favoured division of the functions and specialization of different institutions in each of them (to avoid conflict of interest, increase investors' confidence and achieve economics of specialization), but “did not see a need for making specific recommendations in this regard at this stage of the development of the Israel economy” and preferred to leave the matter “to the natural processes of development and to the wisdom of the banks themselves”, (para. 220).
251 (Yadin Report, para. 196–197). The Yadin Committee was of the opinion that the combined arsenal of comprehensive reports, disclosure requirements and anti-fraud provisions, plus the stock exchange rules, would be sufficient to eliminate the problem of insider trading. The Committee noted that the Tel Aviv Stock Exchange had already taken a first step in the desired direction, in sec. 3 & 4, Chapter XI of its by-laws of August 10, 1962. These by-laws forbid a member to use certain information which he has acquired and is yet unknown to the other members. The managing director of the exchange is authorized to suspend for one day trading of the securities in question, if there is reason to suspect that the information has not yet become public. In the new June, 1969 by-laws of the Tel Aviv Stock Exchange, the above rules are contained in Part I, Chapter D(4) and in Part II, Chapter J 1 (a) respectively. See also the requirement of listed companies to make immediate reports to the Stock Exchange (Part II, Chapter J). At the present stage of securities trading in Israel, the Yadin Committee did not recommend the adoption of special provisions for insider trading, but recommended that developments in this area be closely followed. The greatest loophole in the scheme proposed by the Committee was that in the absence of a duty to report prices of the insider's dealings, actions against insiders would be less likely. A minority of the Committee wanted to include such a duty (Yadin Report, para. 198).
252 Para. 214.
253 Id.
254 Para. 215.
255 Para. 216.
256 (1968) Hatza'ot Hok 625. The Bill was vigorously criticized by the press, Banks Association and by a public committee appointed by the Tel Aviv Stock Exchange. See Gross, J., “The Securities Law, 1968—Trends and Problems” (1969) 25 Hapraklit 392, 393.Google Scholar
257 Sec. 36(a).
258 Sec. 36(b). The Bill left it to the Finance Minister (after consulting the S.A.) to define a controlling security holder.
259 Companies listed on the Exchange, and companies which have made a public offering.
260 Nevertheless it appears that the power delegated to the Finance Minister was broad enough to require controlling shareholders to report changes in their holdings. The language of the proposed sec. 36(b) reads: “Persons holding securities of the issuer, directly or indirectly, of a kind and of a percentage to be fixed, must notify the S.A., in dates and form to be fixed, about the securities they hold.
261 Sec. 38(b).
262 Sec. 38(a). It might be commented here that all these provisions were not sufficient to achieve their desired purpose because, as they were drafted, it might have been argued that only a present security holder could bring an action, to wit, a security holder who sold out as a result of the failure to report would have no redress. Both sees. 38(a) and 38(b) spoke about liability “to a security holder” for the ensuing injury. If the decisive time for being a “security holder” would be the time of the law suit the seller is out. If it would be the time of the transactions the buyer would be out.
263 To this can be added the routine argument that the legislature is supposed to know the law, including the rules of implication of sec. 63 of the Civil Wrongs Ordinance (New Version).
264 (1968) Divrei HaKnesset 3371.
265 See supra p. 242.
266 Sec. 38 of the Law empowers the S.A. to ask the court to order compliance with the provision on corporate reports. The S.A. cannot, however, obtain an order against directors for non-compliance with their reporting duty.
267 (1968) Divrei HaKnesset 3372.
268 The Law was passed on the last day of the summer session without discussion. It took the public by surprise.
269 There was no debate in the second and third hearings. See supra n. 268.
270 As to the matter of civil remedies for purchasers in the market against the issuer and its directors, see supra p. 250. Our conclusion that because the Law restricts civil remedies it excludes implied civil remedies in favour of those not explicitly afforded them by the Law, renders the examination of legislative history in this respect futile. We shall only say that the bill provided that a purchaser within six months from the issue of the prospectus is presumed to have bought the security in reliance on the prospectus (sec. 31). Thus, those who purchase in the market during the first half year of the date of issue would have a rescission action against the issuer and an action for damages against it and the signers of the prospectus. This presumption was deleted from the final Law because the Finance Committee, as its chairman stated in the Knesset, “thought that such a liability would be too far-reaching”. See supra n. 264. Thus market purchasers have no explicit remedy against the issuer and the other prospectus signers. The legislative history, of course, buttresses the conclusion that civil liability in favour of purchases in the market should not be implied from sec. 54.
271 This is the only question left because there is nothing in the legislative history to indicate that an implied remedy in sec. 54 was discussed. The fact that the Knesset thought that civil liability did not ensue from secs. 36 and 37 should have no bearing on an implication from sec. 54.
272 In Svisky v. Finance Minister (1965) (II) 19 P.D. 369, 375 Cohn J. said: “All these incidents of the Knesset discussions (i.e., the explanatory statements in the bill, the speech of the Minister who brings the bill to first reading in the house, the statement of the chairman of the committee who brings the bill to the house for the final readings and speeches of Knesset Members expressing reservations about the bill) are disqualified from passing the threshold of the court, when the latter deals with the question of the legislative intent of a certain piece of legislation. Not only can they not point to the intent which is relevant in court—which is re flected in the language and provisions of the Law as enacted, but they might mislead and trip the court by attempting to insert into the Law things which are not there, or to give its language a different meaning from its normal and grammatical meaning. Even when the language of the Law is ambiguous, I shall not interpret it by the Knesset material”. (In free translation from Hebrew, which is bound to do injustice to the original). Cohn J. expressed the same view in Director of Stamps Duty v. Levinson (1963) 15 P.D. 2226, 2236–2237.
273 (1962) 16 P.D. 2467, 2481 (additional hearing).
274 (1965) (II) 19 P.D. 369, 379.
275 Id.
276 The best example of such a case is Assessment Officer of Jerusalem v. Krongold (1955) 9 P.D. 27. There the court (per Witkon J.) refused to interpret a tax statute according to a statement in the Knesset of the Finance Minister (who introduced the bill into the house), finding that the statute was unambiguous.
277 This formula gives tremendous discretion to the court, because it decides whether the statute is ambiguous. For example in A.G. v. Weigel (1965) (II) 17 P.D. 712, where Cohn J. found the meaning of the statute to be crystal clear, the majority of the court (per Berinson J.) reached a different interpretation, basing it, inter alia, on a statement in the Knesset by the member who brought the bill to the final readings on behalf of the committee. Berinson J. explained his action by saying: “I brought this statement…, not as authority for the true meaning of the statute. The statute should be interpreted according to its language and the legislative purpose. I brought it only to show that the question sub judice was not directly discussed in the Knesset, but the statement implies…” [the interpretation which he reached]. Id. at 718. Another example of the leeway afforded the court is to be found in the approach of the Deputy President of the Supreme Court, Silbers J. In Cohen & Bousslik v. A.G. (1954) 8 P.D. 4, 42–43, Silberg J. used a statement from the explanatory statements of a bill, not to interpret a statute in its light but because it “can shed light on the legislative background and from this point of view it may add some strength to an interpretation derived already from the body of the Law”. But in a later case Eshed v. A.G. (1954) 8 P.D. 785, 821–822, where the majority of the court reached a result in accord with an explanatory statement, Silberg J. refused to follow suit saying: “It is my opinion that the explanatory statement does not bind the courts, since it is not a part of the positive law and moreover its content is wrong”. One wonders whether this statement meets his test in the Cohen & Bousslik case. On a third occasion, Silberg J. expressed the opinion that explanations by a speaker in the Knesset prior to the vote cannot restrict or extend the meaning of a phrase but can serve to defeat an allegation that a certain interpretation will lead to harsh results, by showing that the Knesset was aware of these results and still passed the Law. Minister of Interior v. Mussa (1962) 16 P.D. 2467, 2472–73 (additional hearing).
278 It is difficult to obtain such a clear indication. E.g., in Tabal Motz v. The Municipal Corporation of Haifa (1953) 7 P.D. 707, the court, per Olshan J. refused to interpret a statute according to a statement made by a Member of the Knesset in explaining his reservation to a bill which caused the house to amend the bill. The court said that the reasons enunciated by this member for his reservation are not necessarily embodied in the law as passed. Sussmann J. in another case, was of the opinion that the fact that an amendment was rejected by the Knesset does not indicate that the majority preferred the results which the dissenting member disliked. The majority, he observed, might have shared the dissenting member's views about the desired results but thought that the bill did not lead to them, and therefore dismissed the amendment. Minister of Interior v. Mussa (1962) 16 P.D. 2467, 2479. (additional hearing).
279 And that is the meaning of the statement that legislative history is relevant for the question of implication, just the same as for statutory interpretation. See supra p. 266 et seq.
280 One might still argue that the statement of the chairman of the Finance Committee is not a clear indication of the Knesset's intent. The majority of the house might have voted in favour of the Law, because they thought that as a matter of law the chairman was wrong in assuming that violations of sees. 36 and 27 do not result in civil liability. See supra n. 278.
281 Without suggesting that they exhaust all possible implication. A handy candidate for implication is, of course, sec. 54 (a) (2). The problem of manipulating prices is altogether a different one from insider trading, and we avoided dealing with it.
282 15 U.S.C. sec. 77 (1) (1) (1964).
283 15 U.S.C. sec. 77 (e) (1964).
284 Sec. 15 (a) of the Securities Law. The punishment for violation is up to a year in prison, or a fine not exceeding IL 10,000. Sec. 53 (b) (1).
285 Sec. 2 of the Securities Law reads: “A securities Authority is herein established (hereinafter the Authority) the duty of which is protection of the interests of the investing sector in securities as provided in this law”.
286 See supra pp. 251–2.
287 [1935] Q.R. 278. See infra text at n. 318 in part II of this article (next issue).
288 [1910] 1 Ch. 630.
289 [1911] 1 Ch. 573.
290 Nash v. Lynde [1929] A.C. 158, H.L.
291 Pretorius v. Natal South Sea Investment Trust 1965 (3), S.A. 410 (N).
292 Sec. 289 of the 1951 Rhodesian Company Law (Act 47) relating to foreign com panies.
293 The proviso of sec. 63 (a) excludes implied remedies which are not reconcilable with the true construction of the statute.
294 The only stock exchange in Israel at present and in the foreseeable future.
295 Sec. 45 (a) of the Securities Law.
296 Sec. 45 (b) (3) and sec. 46 (b).
297 Baird v. Franklin 141F. 2d, 238 (2d Cir. 1944), cert, denied, 323 U.S. 737. Plaintiff did not succeed, however, because the majority of the court found that he did not trace any damages to the exchange's breach.
298 15 U.S.C. sec. 78 (b) (1964).
299 “No registration shall be granted or remain in force unless the rules of the exchange include provision for the expulsion, suspension, or disciplining of a member for conduct or proceeding inconsistent with just and equitable principles of trade”.
300 Baird v. Franklin 141 F. 2d. 238, 244 (2d. Cir. 1944), cert, denied, 323 U.S. 737.
301 Id. at 245.
302 Id. at 244.
303 Pettit v. American Stock Exchange 217 F. Supp. 21 (S.D.N.Y. 1963).
304 See further Loss at 937–938 and 1177–1178 and cases cited therein. Also, Note, “Private Actions as a Remedy for Violations of the Stock Exchange Rules” (1970) 83 Harv.L.R. 825, 826, 829. This note deals with regimens of liability against the violators of the rules. It is highly unlikely that Israeli courts will go that far, but it should be noted that an Israeli plaintiff would have a much better case than his American counterpart. He can argue that the Exchange by-laws are tantamount to administrative regulations because to come into force they need the approval of the Finance Minister (after consulting with the S.A.) and the Finance Committee of the Knesset, and every rule can be changed by the Finance Minister (after consulting with the S.A. and obtaining the approval of the Finance Committee). Sec. 48 (b) of the Securities Law.