There has been a dramatic decision by the Supreme Court in Israel —the damage caused to Israeli consumers due to the operation of an international cartel among foreign companies, does not constitute an “act or omission” that occurred in Israel.
The significance of the ruling is that the Israeli courts are not vested with international jurisdiction over those foreign companies. This is a significant decision regarding the question of international jurisdiction of the Israeli courts in relation to its ability to hear class actions that are brought in Israel against foreign companies.
Background: in 2013, the non-profit organization “Hatzlacha”—the Consumers' Movement for the Promotion of a Fair Society and Economy (“Hatzlacha”), filed a motion for certification of a claim as a class action (“the certification motion”) against 5 foreign companies on the grounds that during the years 2001-2006 they were involved in an international cartel that colluded to fix the prices of panels for the manufacture of flat screens. S. Horowitz & Co. represented one of the foreign companies in the proceedings.
Hatzlacha claimed that the panels whose prices were fixed, were integrated into products of entities that were also sold in Israel and that, as a consequence of this, Israeli consumers paid a price that was higher than that which would have been offered to them, were it not for the cartel. Since the case involved foreign companies, it was necessary for Hatzlacha to serve the claim on all the foreign companies, in order for the Israeli court to be vested with international jurisdiction to hear it. However, the certification motion did not pass the stage of service of pleadings on the foreign companies.
Hatzlacha was unable to effect service through “an authorised person in the management of the businesses” on behalf of the defendants (the foreign companies) for the reason that the tests as existing in case law for establishing such type of “authorised person”, were not satisfied.
Due to its attempted failure to effect service through “an authorised person”, Hatzlacha filed a motion with the District Court seeking to serve the certification motion on each of the foreign companies “outside the jurisdiction of the State of Israel”, according to their country of domicile (in reliance on Regulation 500(7) of the Civil Procedure Regulations). This Regulation permits the service of pleadings on a foreign defendant, provided that the act or omission was performed in Israel.
In 2014 the District Court registrar granted Hatzlacha leave to serve the certification motion “outside the jurisdiction” on each of the foreign companies.
As a consequence, 4 out of the 5 companies filed a motion seeking cancellation of the “leave of service”. After two years, the District Court registrar left the leave of service that was granted in respect of the foreign companies unchanged, save for the leave of service that was granted in relation to one of the foreign companies in the proceedings which was annulled.
Was the act or omission performed in Israel?
Both the foreign companies and Hatzlacha appealed the registrar decision regarding the grant of leave of service on the foreign companies. The dispute in the appeal focused on the question of the existence of an “act or omission” on the part of the foreign companies in Israel.
Hatzlacha claimed that although the foreign companies did not sell the finished products (in which the panels were integrated) in Israel, there should be attributed to them the sale, and that the sale be considered the “act”. This is because, as claimed by Hatzlacha, the foreign companies expected and intended that the finished products would be sold at a higher price and this applied also with respect to Israel. Alternatively, it claimed that under antitrust laws the “effects doctrine” applies, which provides an exception to the territorial application of the Restrictive Trade Practices Law, such that the Law can apply also to acts that were not fully carried out in Israel, in cases where they were intended to significantly harm and indeed significantly harmed, competition in Israel. A further claim raised by Hatzlacha based on such doctrine was that the undue influence of the cartel in Israel constituted an “act” performed by the foreign companies.
To counter the above claims, the foreign companies argued that they did not perform an “act or omission” in Israel, and that it was insufficient to deem the damage caused in Israel as establishing grounds for the grant of leave of service. It was further argued that the sale of the finished products in Israel should not be attributed to them, since they did not sell anything in Israel and also because the sellers are independent bodies unrelated to them. In addition, the foreign companies argued that the “effects doctrine”, if and to the extent applicable under Israeli law, is relevant only regarding the question of governing law and not that relating to international jurisdiction and, in any event, the “undue influence” as claimed is nothing but “damage”.
The District Court accepted all of the arguments raised by the foreign companies. As a consequence, Hatzlacha filed a motion seeking leave to appeal to the Supreme Court. On 31.7.2017 the Supreme Court rejected the motion, holding that “this is a clear case where damage was caused in Israel due to an act or omission that was performed abroad, and does not fall within the ambit of Regulation 500(7) of the Regulations”. It was also held that the alleged cartel had no “undue influence” on the Israeli market, in order to establish grounds for the “act” as required in Regulation 500(7), and that even if the “effects doctrine” applies under Israeli law, it would apply only to the issue of governing law and not to a case of “shopping” for international jurisdiction over a foreign company.
This Supreme Court decision has broad operative significance. At present, several motions for the certification of claims as class actions against foreign companies are pending in Israel, based on grounds of the operation of various international cartels. Some of these proceedings are still in the initial stage of “service outside the jurisdiction” and raise a similar question to that decided by the Supreme Court.
In addition, the Supreme Court’s decision is equally relevant with respect to any future attempt being made to file a claim in Israel against a foreign company under similar circumstances.