Legal Update: Class Actions & Derivative Suits - March 2017
Israeli Jurisdiction over Foreign Cartelists
Recently, an Israeli District Court addressed the jurisdiction of Israeli courts over foreign companies accused of being part of a prohibited cartel that acted outside of Israel but had an impact on market prices – and caused damages to consumers in Israel. The Court held that if the cartel arrangement was effected outside of Israel, and the cartelists took no actions to implement the cartel in Israel, Israeli courts have no jurisdiction over the cartelists.
The issue arose in a class action proceeding brought against foreign defendants alleged to have participated in a cartel that coordinated the prices of LCD panels. The plaintiffs claimed that the impact of the cartel was also felt in the Israeli market where products that included the panels were sold.
The District Court Registrar granted the plaintiffs’ motion for leave to serve the non-Israeli respondents, and the defendants appealed to the District Court.
Since the defendants were non-Israeli, the question before the Court of whether service of process abroad should be allowed turned on whether an act or omission by the defendants took place within the State of Israel, which would be a condition for an Israeli court to have jurisdiction over the non-Israeli defendants.
The plaintiffs’ principal argument was that while the defendants did not carry out any act with the State – neither coordination of prices nor sale of panels or of end-products – their end-products were sold in Israel by third parties; hence, the plaintiffs argued, it is possible to attribute to the defendants the “act” of the third parties that was carried out in the State. Moreover, the plaintiffs claimed that the alleged cartel was a restrictive arrangement that influenced the Israeli market and thus was an “act” carried out in Israel.
On December 29, 2016, the District Court cancelled the leave for service that the Registrar had granted against the defendants. The Court held that it was not possible to attribute to them any act or omission that took place within the State of Israel.
The Court established that the cartelists did not sell products in Israel, as none of the third parties that sold the companies’ endproducts in Israel were connected in any way to the defendants, whether as their representatives, agents or otherwise.
Furthermore, the Court adopted the position of the DirectorGeneral of the Israeli Antitrust Authority, to the effect that a foreign company that does not have a legal presence in Israel is deemed to act in Israel only if a clear connection exists between the company’s conduct outside Israel and its impact in the local market. Where a restrictive arrangement is formed outside Israel and is not directed “entirely” to the Israeli market, and the foreign participants did not take an active role in implementing the arrangement in Israel, then there will not be a sufficient connection to the Israeli market to support a jurisdictional claim against the foreign parties.
In the matter at hand, the defendants did not direct the alleged cartel “entirely” to the Israeli market, but rather, as the court found, directed the cartel to markets around the world; in practice, the cartelists did not sell the alleged cartelized products – or carry out cartelistic activity – in Israel, and thus no act or omission was carried out in Israel.
This decision provides some measure of comfort for companies alleged to have engaged in cartelistic practices outside Israel, but not in specific cartelistic activities in Israel. While cases such as this are inevitably very fact-sensitive, this decision indicates that in appropriate circumstances, companies in the position of the defendants may not be drawn into the Israeli jurisdictional net.
[Case no. 57451-03-16 Hatzlacha v. AU Optronic Corporation and others (Published in the Nevo Law Repository, December 29, 2016)]
For further information please feel free to contact the Author of this update:
Adv. Dr. Gil Orion gorion@fbclawyers.com +972.3.694.4142
Adv. Tal Wiesengrun talw@fbclawyers.com +972.3.694.1320
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