Cancellation of a Contract: A Comprehensive Consumer Guide

Legal Basis for Contract Cancellation

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

What are Cancellation Fees?

Businesses often condition contract cancellation on cancellation fees. This is an amount equal to 5% of the transaction value or NIS 100, whichever is lower. This includes “expenses or commitments due to shipping, packaging, or any other expense or commitment that, according to the business, were incurred by it or to which it was committed 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 business;
4. The product is undamaged and unused; two important points regarding this:

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

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

Beyond the basic conditions for contract cancellation and without considering “special transactions” for now, the Consumer Protection Regulations define seven product categories with specific, tailored conditions for cancelling transactions for their purchase. For your convenience, these categories are summarized below:

Contract Cancellation – What Am I Entitled To?

A consumer who has notified the 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 business will have to refund NIS 4,900 (transaction price less cancellation fee).

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

There are also special transactions (such as itinerant sales, distance selling, and vacation units) for which specific provisions are stipulated that override the standard provisions for products. For example: If I bought a refrigerator but made the purchase via distance selling, the specific provisions for distance selling transactions will apply, 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 by law cannot be returned;
4. Food products;
5. Medicines and dietary supplements;
6. Perishable goods – products that, once delivered to the customer, cannot be reused or supplied to another or products whose value will decrease (or will spoil) until returned to the business;
7. Information as defined in the Computers Law (“data, symbols, concepts, or instructions, except software, expressed in a computer-readable language, and stored in a computer or other storage medium, provided that the data, symbols, concepts or instructions are not intended for use in a helper computer only”);
8. Goods that can be recorded, copied, or duplicated, that the consumer has opened their original packaging (such as books);
9. Underwear, including swimwear;
10. Liquefied petroleum gas (gas cylinder or tank);
11. Jewelry priced above NIS 3,000, except for watches;
12. Hospitality, travel, vacation, and entertainment services that are performed entirely outside of Israel;
13. When the consumer requested delivery of a product at a date later than 6 months from the date of the transaction, the transaction cannot be cancelled after the delivery of the products.
14. Transactions for which payment was made using gift certificates, gift vouchers, or rechargeable magnetic cards.

The Business 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 specifies cases where the court may order a business to pay compensation without proof of damage up to NIS 10,000 for each violation (hereinafter: “exemplary damages”). However, there are cases where the court may award compensation without proof of damage up to NIS 50,000: repeated violation, ongoing violation, or violation committed under aggravating circumstances (Section 31a(c) of the Law).

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

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

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

However, failure to submit a written request is only relevant to a claim for compensation without proof of damage; so a consumer who does not submit a written request regarding the business’s violation can 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. They do not need to find evidence that the claim amount is appropriate to the actual damage (especially as sometimes no damage is incurred).

According to Section 31a(e) of the Law, the court will consider the following factors: (a) law enforcement and deterrence against its violation; (b) encouraging the consumer to exercise their rights; (c) the severity, financial scope, and circumstances of the violation; (d) the monetary value of the transaction in connection with which the violation was committed; (e) the financial scope of the business’s operations; (f) the amount of the fine stipulated by law for such a violation (if any).

Statute of Limitations for Consumer Claims – Generally 7 Years

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

Not Just the Court: Whom to Report to in Case of a Consumer Violation?

In 2006, Amendment No. 20 to the Consumer Protection Law came into effect, establishing the Authority for the Protection of Consumers and Fair Trading. According to the section, the authority will appoint an appointee on its behalf who will have a variety of powers: to supervise the implementation and/or violation of the provisions of the law; to investigate suspects of offenses 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 issues; and more.