Background
Two proposed securities class actions alleged that Shemen Oil & Gas Resources Ltd. and its officers misled investors and intentionally withheld material information about the prospects of the “Yam 3” oil-drilling project. Investors allegedly purchased shares in reliance on the company’s disclosures, after which the company announced that the well was dry and its share price fell dramatically. The Tel Aviv–Jaffa District Court authorized the class actions in 2021, and the parties later reached a settlement providing a total of NIS 22.5 million for eligible shareholders.
The settlement fund was transferred to an appointed administrator pending identification of the eligible shares and their owners. The fund also covered the representative plaintiffs’ incentive awards, class counsel’s fees, and the fees and distribution expenses of the expert and administrator. The District Court approved approximately NIS 3.5 million in combined incentive awards and attorneys’ fees, part payable shortly after funding and the balance after distribution was completed. The administrator placed the unpaid balance in an interest-bearing deposit, which had earned approximately NIS 823,000 by September 27, 2026.
The class representatives and counsel asked to receive the proportionate interest actually earned on their unpaid awards and fees. The District Court denied the request, reasoning that it amounted to an additional award that would reduce the amount available to compensate class members. They sought leave to appeal.
The Court’s Holding
Justice Ofer Grosskopf granted leave to appeal and allowed the appeal. The administrator held the deposited settlement money as a trustee. Under Israel’s Trust Law, a trustee must invest funds not needed for current purposes so as to preserve the principal and generate returns, and the fruits and proceeds of trust property themselves become trust property.
Because the original deposit included amounts allocated both to the class and to the representative plaintiffs and class counsel, each group was a beneficiary of the trust with respect to its portion. The interest earned must therefore be allocated proportionately: class members are entitled to the interest attributable to their compensation, while the representatives and counsel are entitled to the interest attributable to their unpaid awards and fees. The expert likewise is entitled to the interest earned on the portion allocated to the expert’s fee.
The Court emphasized that this was not a judicial award of additional interest under the Interest and Linkage Adjudication Law, nor an increase in compensation or fees. It was the allocation of interest actually generated by the trustee’s investment of the deposited funds. The later correction of an error in the number of eligible shares, which reduced compensation per share, was unrelated. No costs were awarded because the application was filed with the parties’ agreement.
Key Takeaways
- Interest actually earned on settlement money held by an administrator as trustee forms part of the trust property.
- When a deposit contains funds allocated to several beneficiaries, each beneficiary is entitled to the interest attributable to that beneficiary’s share.
- Paying representatives and class counsel their proportional interest does not increase their court-approved compensation or diminish class members’ entitlement to principal and interest.
Why It Matters
The decision clarifies how returns on class-action settlement funds must be treated when distribution is delayed. Courts should distinguish between adding statutory interest to an award and distributing investment income that a trustee has already earned on money belonging to identified beneficiaries.
The ruling also protects both sides of the settlement allocation: class members retain the principal and interest attributable to their compensation, while representatives, counsel, experts, and other entitled recipients do not lose the economic return generated by their unpaid portions merely because those amounts remained temporarily in trust.