Gross Law Firm discuss how multi-nationals corporations will face litigation in Israel despite contractual foreign jurisdiction clauses
At the same time, alongside this significant trend, another trend has become noticeable – Israeli courts are continuing to show great deference to provisions under which a contract is governed by the laws of a foreign jurisdiction. Interestingly, at the same time that Israeli courts are finding ways to hear disputes between the parties to contracts despite the existence of exclusive jurisdiction clauses in those contracts, Israeli courts are also enforcing foreign governing law clauses. It means that the case will be litigated in Israel and based on the foreign law provision. In some cases, that also mean that we can find ourselves with a result that the action being dismissed either because the alleged wrongdoing does not create a cause of action under the foreign law governing the contract or because the plaintiff has failed to provide proof to support his claim that he is entitled to a remedy under the applicable foreign law to the court’s satisfaction. These interrelated judicial trends will be briefly covered in this article.
The ruling that started the trend to expand the jurisdiction of Israeli courts was given by the Israeli Supreme Court in May 2018 in the matter of Civil Appeal 5860/16 Facebook v. Ohad Ben Hamo. In that case, the Supreme Court held that a class action against Facebook may be heard in Israel despite a jurisdiction clause in Facebook’s terms of service granting exclusive jurisdiction to courts located in California over any dispute between Facebook and its users. The Supreme Court took the opportunity presented by the Facebook case to rule that in certain cases where large multinational corporations have a significant presence in Israel, Israeli consumers may be entitled to bring their cases before local courts rather than forcing them to pursue their claims in a foreign jurisdiction.
In reaching its decision, the Supreme Court reasoned that Facebook’s terms of service constitute a “uniform contract” to which the Israeli Uniform Contracts Law, (5733-1982) applies. Under Sections 4(8) and 4(9) of that law, terms of a uniform contract which deny or restrict a client’s right to bring certain claims before the courts or which gives the supplier an exclusive right to choose the place of jurisdiction over a dispute between the parties are presumed to be oppressive and therefore may be amended or made unenforceable by the court. Furthermore, the Supreme Court held that the fact that Facebook provides its services to users in Israel free of charge does not give it immunity from lawsuits in Israel. Furthermore, Facebook argument that the court should accept the foreign jurisdiction clause was also rejected. The court clarified under the current circumstances, it is not a standard commercial contract between parties with equal power and therefore found this clause as void1.
However, in Facebook ruling, while the Supreme Court was setting aside the clause of the terms of service which grant exclusive jurisdiction to foreign courts, it also upheld the validity of the foreign governing law clause in the same agreement and reasoned that that the clause under which the laws of the State of California would govern was not oppressive and would therefore be enforced. The Supreme Court ruled that a foreign governing law clause is not in and of itself oppressive and that a court being asked to consider whether a foreign governing law clause is oppressive should consider the specific circumstances of the case in deciding whether the governing law clause is enforceable. In this case, the Supreme Court found that the plaintiff did not prove that applying California law would be oppressive and therefore ruled that the case should be heard according to the California law.
The result was that the conflict was adjudicated before Israeli courts but was governed by California law.
The effect of the Facebook ruling has been enormous and Israeli courts have not hesitated to adopt its rationale in a series of cases such that it is becoming increasingly difficult for foreign companies to evade the jurisdiction of Israeli courts, at least where the Israeli plaintiffs are consumers.
In 23156-04-17 John Doe v. Club Meditrana (Israel) Ltd. (January 2019), the [District] Court held that a clause stipulated in a uniform contract [the General Terms and Conditions document] stating that any claim against the defendants must be filed in France is oppressive and the court will not enforce those kinds of clauses.
In a civil appeal 67771-07-18 Booking COM B.V. v. Daniel Shapira (February 2019), within a discussion that focused on the question of service outside to jurisdiction, the [District] Court permitted a class action to proceed in Israel against Booking.com, a Dutch company, and decided an email correspondence between Israeli residents and Booking.com was sufficient to establish the jurisdiction of the Israeli court. The court went one step further and ruled that conducting business’ in Israel and any activity of foreign companies in Israel even if conducted virtually including through the Internet or email may suffice to grant Israeli courts jurisdiction over disputes involving those foreign international businesses. The court ruled that in cross-border or international transactions, especially in the new internet world, a jurisdiction clause in Booking’s [terms of service] granting exclusive jurisdiction to courts located in Netherlands, may be unduly oppressive and unenforceable pursuant to the Uniform Contracts Law.
In a recent civil appeal 7470/20 Facebook Ireland Limited v. Rotem Gal (January 2022) the [District] Court stated that a class action filed in Israel by Israeli purchasers of business advertising against Facebook USA may proceed in Israel, since according the court’s held that the plaintiffs constituted “consumers” and not “dealers” under the contract with Facebook and therefore the foreign jurisdiction clause does not apply to them2. In addition, the court ruled that the jurisdiction clause constituted an oppressive provision in a uniform contract and was therefore unenforceable. (A similar ruling was also granted in and also civil case 1393-01-17 Eli Nacht v. Facebook Ireland Limited, August 2020).
The foregoing constitute just a few examples of the Israeli courts’ newfound penchant for accepting jurisdiction over disputes between Israeli consumers and foreign multinationals regardless of contractual clauses to the contrary. We will move now to present the other related tendency in which the courts give effect to a foreign governing law clauses.
Similarly, in a civil appeal 11338-10-19 Miler V. Facebook Ireland Limited (January 2020), the court held that the claim should be decided under the substantive law of the State of California (based on a choice of law clause) since it ruled that this clause was not oppressive. An oppressive provision in a uniform contract is a condition that is considered defective in its fairness and reasonableness.
In a class action 54491-01-15 Ido Bashan v. EasyJet Airline (June 2020), A preliminary motion to certify the class was dismissed. The Court ruled that the plaintiff did not prove (with an expert opinion to the English law) that the English law is depriving, and therefore the English law applies. The court also mentioned that the EasyJet’s expert proved that the English consumer protection law has sufficient protections. Here, there was no dispute that EasyJet did not comply with the provisions of the Israeli Consumer Protection Law, however one cannot find similar provisions in the English law that applies. Therefore, in these circumstances the court ruled that there is no reasonable chance for the plaintiff’s arguments to be accepted and thus dismissed the motion.
In a class action 20020-09-19 Eldad Vs Hotels.com (October 2020) The [District] Court dismissed a motion to certify a class on the grounds that the plaintiff based the claim based on an alleged violation of Israeli law, although the terms of service upon which the transactions giving rise to the claim took place contained a governing law clause according to which the laws of Texas govern the contract. The court ruled that for the plaintiff to succeed in having the governing law clause set aside he would need to prove that the laws of Texas were oppressive by means of an expert opinion. Since the plaintiff did not do so, and refrained from claiming based on the causes of action under the State of Texas law and also refrained from proving such causes of action with an expert opinion as required, the motion was dismissed.
Some final issue to be noted, which is in a direct continuation of the trend mentioned above, is to a change that made in the Israeli Civil Procedure Regulations that expands the grounds for permit of service outside the jurisdiction against a foreign defendant and to acquiring Israeli court’s jurisdiction. But this is for the next article.
The above-mentioned increased willingness of Israeli courts to accept jurisdiction over cases brough against foreign defendants while refusing to enforce contractual exclusive foreign jurisdiction clauses while also enforcing foreign governing law clauses scrupulously will increasingly have a considerable impact on multi-national and foreign companies operating in Israel. In light of these trends, companies doing business in Israel and, particularly, those offering goods and services to Israelis over the internet, can no longer assume that an exclusive jurisdiction clause in their terms of service will ensure that they will not need to litigate in Israel. We recommend that companies doing business here pay close attention to the benefits of choosing the laws of a jurisdiction best suited for the nature of their business and the potential legal liability arising from it. We might carefully say, that while the war over the jurisdiction of Israeli courts is over, foreign companies can and should adopt governing law provisions which are best suited to their needs.
International companies whose contracts are regulated by uniform contracts should consider drafted their T&C and the jurisdiction clauses differently and with extra due care.
The main weight of arguments and effort moved towards establishing the foreign law inter alia, by an expert opinion on foreign law. Submitting a professional and well-founded opinion to the foreign law at very early stages can tip the scales and affect the outcome and how the entire litigation will be conducted.
About the authors
Gross & Co Law Firm
Michael Ginsburg is a leading partner at Gross & Co and heads the litigation practice. He has significant experience in civil and commercial litigation. Michael’s extensive litigation practice focuses on the full range of commercial and corporate disputes, including those involving securities litigation; hostile takeovers; shareholder disputes; contracts and commercial disputes; administrative litigation; cross-border litigation; breach of contract and other contractual litigation; unfair competition; creditors’ rights; and enforcement of foreign judgments. Michael’s practice also includes acting for class action defendants from various industries, and he also represents clients in a variety of derivative actions. Michael represents both Israeli and foreign clients before all Israeli courts, arbitration organisations and tribunals, in Israel and abroad. His clients include public corporations, domestic and foreign companies, government-owned companies, hi-tech companies, controlling shareholders in companies, private clients and venture capital funds.
NUFAR STEIN UHR
Gross & Co Law Firm
Nufar Stein Uhr is a senior associate at Gross & Co, specializing in litigation. Nufar represents local and foreign clients in commercial disputes before Israeli courts and arbitrators, including complex lawsuits in commercial matters of all kinds, class actions, derivative claims, representation of clients in disputes concerning company and securities law, complex commercial disputes, shareholders’ disputes in public and private companies, shareholder disputes and aspects of corporate law in family cases. As part of its specialization, Nufar represents foreign clients in Israel, including enforcement of foreign, conducting legal investigations in Israel under the Hague Convention, including collection of evidence and documents, service proceedings, etc.
- Under ordinary commercial contracts between parties with equal powers, the courts still give validity to jurisdiction clauses. See for example – civil appeal 6493/21 Legziel v. RS Design Ltd., the [Supreme Court] gave effect to an exclusive jurisdiction clause which provided that any dispute arising from the agreement would be heard exclusively before the competent court in Belgium. The court also ruled that such an exclusive jurisdiction clause also applies in relation to the CEO of the Belgian company (who is not a party to the agreement) and blocks the filing of the lawsuit against him in Israel as well.
- In this case, the jurisdiction clause distinguished between dealers and users. The court did not accept the claim that the service was provided to dealers and non-regular users.