Introduction
Facts
Decision
Comment
In a recent judgment,(1) Israel's Supreme Court ruled that the applicable law clause set forth in Facebook's terms of service stipulating the laws of the state of California as the governing law, was, in fact, an unconscionable term in a contract of adhesion and therefore null and void. In its stead, Israeli law shall apply to the parties' relationships and the dispute at hand. This judgment presents caveats with regard to previous rulings made by the Supreme Court, which affirmed foreign applicable law clauses, and provides guidelines as to the circumstances in which foreign choice of law clauses will be enforced. The new judgment broadens the scope of protection granted to Israeli customers while protecting small-scale businesses as well.
The appellants, a local small business and its owner, used Facebook's advertising services as their main advertising platform. They filed a lawsuit against Facebook, claiming that its negligence had severely hampered Facebook users' exposure to the appellants' advertisements, resulting in severe damages to the appellants. Both lower instances of the court accepted Facebook's assertation that, due to the applicable law clause contained in the terms of service agreed to by the appellants, the dispute should be adjudicated according to the laws of California. The appellants appealed to the Supreme Court.
The majority opinion (Justice Willner joined by Justice Grosskopf) ruled that by choosing a foreign law to govern its relationships with customers in Israel, rather than the Israeli law, Facebook had granted itself and its interest to litigate all disputes worldwide according to the law of California, an unfair, improper and overbroad protection at the expense of its Israeli customers. Thus, the applicable law clause was, according to the majority opinion, an unconscionable term in a contract of adhesion according to Israeli law, and therefore void.
The Court expressed the opinion that by conducting business in Israel, a company implies, and its Israeli customers can reasonably expect, that the Israeli law will govern the company's relationship with its Israeli customers. Global entities conducting business in Israel should not be allowed to stipulate in their contracts that foreign law will apply to the transactions between the parties, whether the local party is an individual consumer or a small-scale business. The Court then further set forth a non-exhaustive list of indications of when a business would be considered small scale for the purpose of determining the validity of an applicable foreign law clause.
The judgment supplements earlier rulings by the Supreme Court, including Facebook Inc v Ben-Hamo,(2) which, despite annulling Facebook's venue clause and allowing a class-action lawsuit against Facebook to be litigated in Israel, did enforce its applicable law clause. The Supreme Court did not rule on whether the new judgment, which was made within the scope of a private action, applies to class action lawsuits as well.
While global entities conducting business in Israel should take note of this new judgment when drafting terms and conditions applying to consumers and small businesses, as a general rule, Israeli law provides that contracting parties are free to choose the applicable law governing their agreement when speaking of a commercial agreement that is not a contract of adhesion.
For further information on this topic please contact Dror Varsano or Gabriel Focshaner at Yigal Arnon – Tadmor Levy by telephone (+972 3 684 6000) or email ([email protected] or [email protected]). The Yigal Arnon – Tadmor Levy website can be accessed at www.arnon.co.il.
Endnotes
(1) CA 1901/20 Troym Miller Ltd v Facebook Ireland Ltd (26 July 2022).