Introduction

On July 31 2017 the Supreme Court confirmed that Regulation 500(7) of the Civil Procedure Regulations, which concerns court approval for service outside Israel, is not met where the alleged act or omission occurred outside Israel and only the anti-competitive effects are alleged to have taken place in Israel. The Supreme Court further ruled that the effects doctrine – the governing doctrine for applying local antitrust law to foreign conduct – pertains only to the substantive applicability of such law to foreign conduct and is not applicable to procedural, service of claim or jurisdictional issues.

Background

To bring a private action against foreign persons or entities (including foreign cartel members), a plaintiff must be able to serve the claim on these defendants (or their representative) in Israel or seek the court's permission to serve outside Israel.

Where the defendant (or its representative) cannot be served in Israel, courts are authorised to approve a plaintiff's request for a foreign service of claim if one or more of the 11 alternative prerequisites in Regulation 500 of the Civil Procedure Regulations is met. Of these provisions, Regulation 500(7) stipulates that the court is authorised to approve a request to serve a claim outside Israel when the claim is based on an act or omission that took place in Israel.

Under established case law, Regulation 500(7) does not apply when only the injury resulting from such an act or omission is alleged to have occurred in Israel. Nonetheless, in the context of a 2013 motion to certify a class action for an alleged price fixing scheme of liquid-crystal display (LCD) panels, the plaintiff sought the court's approval for service outside Israel, pursuant to Regulation 500(7) of the Civil Procedure Regulations.

LCD case

In the LCD case, the plaintiff acknowledged that the accusations against the alleged LCD cartel were the price fixing of panels in foreign markets, which were then integrated into final products (such as television sets) sold in Israel by third parties unrelated to the defendants. In other words, none of the defendants' alleged acts or omissions were carried out in Israel.

However, the plaintiff argued that the effects doctrine justified applying Regulation 500(7) to alleged foreign anti-competitive conduct, even if no action or omission took place in Israel. Per the plaintiff, if the effects doctrine's conditions were substantiated with respect to the defendants' alleged foreign cartel, then the anti-competitive effects resulting from the cartel's actions should be viewed as an act committed in Israel under Regulation 500(7).

The Central District Court registrar granted the plaintiff's motion. The foreign defendants filed a motion to quash service, which was denied by the registrar with respect to the majority of the defendants. The remaining defendants appealed the registrar's ruling, which was reversed by the Central District Court. In response, the plaintiff filed a certiorari motion with the Supreme Court.

The Supreme Court rejected the plaintiff's arguments, stating that this was a clear situation in which Regulation 500(7) did not apply, as the alleged act or omission had occurred outside Israel and only the alleged damages had taken place in Israel. The Supreme Court further ruled that the effects doctrine pertains to the applicability of substantive Israeli antitrust law to foreign conduct (ie, a matter of choice of law) and does not regulate service or jurisdictional matters.

Service as limiting factor in expanded antitrust enforcement

The Supreme Court's decision in the LCD case comes against the backdrop of a rise in private enforcement against alleged international cartels in recent years. The Israel Antitrust Authority's 2013 decision regarding the alleged gas insulated switchgear cartel is to date the only public enforcement action against an alleged foreign cartel. The decision stated that the Restrictive Trade Practices Law (5748-1988) may be applied to foreign cartels that harm competition in Israel based on the effects doctrine.

Following this decision, several motions to certify class actions have been filed against alleged foreign cartels. These motions usually follow a similar pattern. They are based on the decisions of foreign regulators and sometimes on settlements reached between defendants and foreign regulators or private entities. While these foreign decisions do not regularly refer to Israel, Israeli plaintiffs often claim that foreign decisions show that the cartels inflated the input cost of products that were ultimately sold in Israel and hence affected the local market. Accordingly, such claims are often brought by indirect purchasers, which courts have shown a willingness to allow, thereby further expanding the antitrust claims that can be pursued.

Nonetheless, the Supreme Court's decision in the LCD case confirms that such private enforcement may face a key limiting factor: it may be impossible to serve a claim regarding alleged global cartels on foreign entities that have no presence or representatives in Israel when no act or omission has been committed in Israel.

However, the Supreme Court expressed its disquiet in obiter dictum regarding the existing rule governing the foreign service of claims (ie, denying service when harm is alleged only in Israel). The court noted that a situation in which an Israeli consumer cannot sue for harm inflicted by global cartels is undesirable, specifically given the emerging globalisation trends and technological developments. The court further noted that the legislature is considering a revised version of the relevant regulation, which would allow service when harm alone was allegedly incurred in Israel.

Presence of local representative

If a defendant is registered or operates directly in Israel or has a local office, branch or representative in Israel, it will be considered to be located in Israel. As such, the statement of claim may be served directly on the defendant or its representative, without the need for court approval.

Further, the status of a representative for the aims of service is not based on official designations. Even if a foreign defendant did not appoint a representative or authorise it to receive court documents, the court may still find that a local entity is a representative for such purposes. In determining whether a local entity is a representative of a foreign defendant, the courts will look to various indications to determine the nature of the relationship between the local entity and the foreign defendant. If such indications support the conclusion that service on the local entity will be brought to the attention of the foreign entity, the court may find the local entity to be a representative.

Comment

The LCD case represents a welcome confirmation of the established precedent regarding the foreign service of claims and poses a potential setback for plaintiffs seeking to utilise foreign decisions against international cartels in order to bring private actions against alleged cartel members in Israel. Such plaintiffs may now find it difficult to initiate claims against foreign firms that cannot be served in Israel (eg, foreign corporations that are not present in Israel and that have no local authorised representative therein).

Nonetheless, the Supreme Court's decision makes it even more important for foreign entities to assess:

  • whether they may be deemed to have a representative in Israel; and
  • as a direct result thereof, their potential exposure to private litigation in Israel.

Such parties are also advised to seek counsel in order to maximise their ability to defend themselves against private lawsuits, including by way of contesting service, when such step is appropriate.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

For further information on this topic please contact Shai Bakal, Nava Karavany or Ram Yamin at Tadmor & Co Yuval Levy & Co by telephone (+972 3 684 6000) or email (shai@tadmor-levy.com, nava@tadmor-levy.com or ramy@tadmor-levy.com). The Tadmor & Co Yuval Levy & Co website can be accessed at www.tadmor.com.