Contract Rescission: A Comprehensive Consumer Guide

The Legal Basis for Cancelling a Transaction

Cancellation of a consumer transaction is regulated in the Consumer Protection (Cancellation of Transaction) Regulations, 5771-2010. The regulations establish seven categories of transactions and define cancellation rules for each. Underlying all categories is a fundamental principle: only the consumer has a right of rescission (the right of rescission is not granted to the trader); meaning a consumer may notify the trader of their intention to cancel a transaction without providing a reason – simply because they changed their mind.

What are Cancellation Fees?

Traders often make cancellation subject to cancellation fees. This is an amount equal to 5% of the transaction value or NIS 100, whichever is lower. This includes “expenses or obligations due to shipping, packaging or any other expense or obligation which, according to the trader, were incurred by them or to which they committed themselves due to the transaction or contract, or due to its cancellation”.

Basic Conditions for Cancelling a Consumer Transaction

These are the basic conditions for cancelling transactions for the purchase of goods (for cancellation conditions in specific transactions, see below):

1. The product price exceeds NIS 50;
2. The consumer provides proof of the transaction, its date, amount and payment method (such as an invoice, exchange slip or cash register receipt);
3. The consumer returns the product to the trader;
4. The product is undamaged and unused; two important points on this:

• Opening the packaging will not be considered use or damage in certain cases, unless proven otherwise;
• If the consumer was required to purchase goods to receive a specific service from the trader, then the consumer may return them even if used, provided the product is not damaged.

Cancellation of Transactions by Type – A Complete List of Transactions and Their Unique Cancellation Characteristics

Beyond the basic conditions for cancelling a transaction and without considering “special transactions” for now, the Consumer Protection Regulations define seven product categories for which specific conditions apply to the cancellation of transactions for their purchase. For your convenience, we have summarized the categories below:

Cancellation of a Transaction – What Am I Entitled To?

A consumer who has notified cancellation of a transaction will be entitled to a full refund of the amount paid, less “cancellation fees” = 5% of the amount paid or NIS 100 – whichever is lower.

For example: I purchased a product for NIS 5,000 but changed my mind and want to cancel the transaction. 5% of NIS 5,000 = NIS 250, but the maximum cancellation fee is NIS 100. Therefore, the cancellation fee will be NIS 100 and the trader will have to refund me NIS 4,900 (transaction price less cancellation fee).

Important Note! The right of rescission does not exist in every situation, and the legislator has also established a list of products and services for which transactions cannot be unilaterally cancelled (even if all the above conditions are met).

Also, there are special transactions (such as itinerant trading, distance selling and vacation units) for which specific provisions are set out which override the regular provisions relating to products. For example: if I purchased a refrigerator but made the transaction via distance selling, the specific provisions of distance selling transactions will apply, and not the provisions that would apply if, for example, the refrigerator was purchased at the business premises.

Products and Services for Which There is No Right to Cancel a Transaction

1. Furniture assembled at the consumer’s home;
2. Goods manufactured specifically for the consumer according to special measurements or requirements;
3. Goods that cannot be returned by law;
4. Food products;
5. Drugs and dietary supplements;
6. Perishable goods – products that, once supplied to the customer, cannot be used again or supplied to someone else, or products whose value will decrease (or deteriorate) by the time they are returned to the trader;
7. Information as defined in the Computers Law (“data, signs, concepts or instructions, excluding software, expressed in a computer-readable language, and stored in a computer or other storage medium, provided that the data, signs, concepts or instructions are not intended for use in a helper computer only”);
8. Goods that can be recorded, copied or duplicated, and the consumer has opened their original packaging (such as books);
9. Underwear, including swimwear;
10. Liquefied petroleum gas (gas cylinder or tank);
11. Jewelry costing more than NIS 3,000, except for watches;
12. Hospitality, travel, leisure and entertainment services performed entirely outside Israel;
13. Where the consumer requested delivery of a product at a date more than 6 months from the date of the transaction, the transaction cannot be cancelled after the goods have been supplied.
14. Transactions for which the consideration was paid using gift vouchers, gift certificates or rechargeable magnetic cards.

The Trader Refuses to Cancel a Transaction in Accordance with the Law? Compensation Can Be Claimed Without Proof of Damage (“Exemplary Damages”)

Amendment No. 21 to the Consumer Protection Law sets out a list of cases where a court may order a trader to pay compensation without proof of damage up to NIS 10,000 for each breach (hereinafter: “exemplary damages”). However, there are cases where the court may award compensation without proof of damage up to NIS 50,000: repeated breach, ongoing breach or breach committed in aggravating circumstances (Section 31a(c) of the Law).

Furthermore, Section 31a(f) of the Law states that a consumer is not limited to the above remedy and is entitled to claim any other remedy for the same breach.

Note! Section 31a(b) of the Law provides that a consumer may file a claim for compensation without proof of damage only if they have provided the trader with written notice (including electronically – such as a messaging app or email) containing the relevant demand from the trader.

For example – a case of breach of the law regarding the return of goods: the consumer wished to return goods in accordance with the law and the trader’s policy, and the trader refused. The consumer will not be entitled to file a claim for compensation without proof of damage unless the consumer’s demand is supported by documentation that the above request was submitted to the trader in writing.

However, failure to provide written notice is only relevant to claims for compensation without proof of damage; thus, a consumer who does not provide written notice regarding the trader’s breach may still file a claim for other compensation – for example, a claim for compensation with proof of financial or non-financial damage (such as distress).

Court Considerations When Awarding Exemplary Damages

Section 31a of the Law sets a “pro-consumer” standard, whereby the court will not consider the amount of the damage. This makes it easier for consumers to file and manage their claims. This is because they do not need to find evidence that the claim amount is appropriate to the actual damage (especially since sometimes no damage is actually incurred).

According to Section 31a(e) of the Law, the court will take into account the following considerations: (a) enforcement of the law and deterrence against its breach; (b) encouraging consumers to exercise their rights; (c) the severity, financial scope and circumstances of the breach; (d) the financial value of the transaction in connection with which the breach occurred; (e) the financial scope of the trader’s business; (f) the amount of the fine stipulated by law for such a breach (if any).

Statute of Limitations for Consumer Claims – Generally, 7 Years

The Consumer Protection Law does not stipulate a specific limitation period. Therefore, the limitation period for a civil claim under it will be as stipulated in the Limitations Law – 7 years. However, there are cases where the limitation period will be different and usually longer.

Not Just the Court: To Whom Can I Report a Consumer Breach?

In 2006, Amendment No. 20 to the Consumer Protection Law came into force, establishing the Authority for Consumer Protection and Fair Trading. According to the section, the Authority shall appoint an appointee on its behalf with a range of powers: to supervise the implementation and/or breach of the provisions of the law; to investigate suspects of offences under the law and bring them to criminal trial; to take administrative enforcement proceedings against violators; to deal with complaints or harm to consumers; to conduct and initiate surveys and research on consumer matters; and more.