Global Cartel – Follow-on Class Actions in Israel – Is This The End?
We would like to update you with regard to the Israeli Supreme Court Ruling of July 31, 2017, which establishes that, for the purpose of service out of the jurisdiction based on Regulation 500(7) of the Israeli Civil Procedure Regulations, 5744-1984 (“Civil Procedure Regulations“) – it is not sufficient to indicate damage which allegedly occurred within Israel, but rather an act or omission in Israel must be shown.
This ruling has a significant impact, inter alia, on “follow-on” class actions filed in Israel against non-Israeli entities based on allegations of a global cartel. Generally, in these cases, the act of entering the alleged global cartel occurs outside the State of Israel, and the only affiliation to Israel is through sales of the “cartelized” product by unrelated third parties, which allegedly cause damage in the Israeli market to indirect purchasers.
It should be noted, that the Supreme Court’s ruling addresses service under Regulation 500(7) of the Civil Procedure Regulations and it does not refer to other methods of service (e.g., service through other alternatives in Regulation 500 of the Regulations; service through Regulation 482 to a “business representative” in Israel; etc.).
A. Background to The Supreme Court Ruling
In November 2013, a Motion to Certify as a Class Action (“Motion to Certify“) was filed against Chi Mei, Sharp, Samsung Electronics, AU Optronic, and LG Display (“LCD Respondents“) alleging that the LCD Respondents participated in a cartel that coordinated the prices of LCD panels. The Motion to Certify was submitted following administrative, criminal and civil proceedings against the LCD Respondents worldwide. The Civil Procedure Regulations regulate the means of service of pleadings. Regulation 500 of the Civil Procedure Regulations establishes the circumstances under which the Israeli Courts may grant leave for service out of the jurisdiction, and accordingly, broaden the jurisdiction of the Israeli Courts. One of the circumstances – and the relevant one for the LCD case – is Regulation 500(7) to the Civil Procedure Regulations (“Regulation 500(7)“), which establishes that the Court may grant leave for service out of the jurisdiction if “the suit is based upon an act or omission in Israel”.
Pursuant to the Central District Court Registrar’s (“Registrar”) decision to grant leave to serve the LCD Respondents out of the jurisdiction, the LCD Respondents submitted motions to cancel leave for service out of the jurisdiction – which the Registrar rejected. The Registrar determined, inter alia, that due to the “Effects Doctrine” (which applies, in his view, to the Israeli antitrust law), the act of the restrictive arrangement, which allegedly influenced the competition in the Israeli market, was performed, in part, in Israel, for the purposes of Regulation 500(7). Following the Registrar’s decision to allow service out of the jurisdiction, the LCD Respondents appealed to the District Court (Hon. Judge Amir) which overturned the Registrar’s decision and cancelled the leave for service out of the jurisdiction.
The Hon. Judge Amir stated that for service purposes, the “act or omission” in Regulation 500(7) must be the Respondent’s act or omission, or someone on its behalf, on the basis of this act or omission. Furthermore, the Hon. Judge Amir established that the LCD Respondents did not sell products in Israel, as none of the third parties that sold the LCD Respondents’ end products in Israel were connected in any way to the LCD Respondents, whether as their representatives, agents or otherwise. Accordingly, it was not possible to attribute to them any act or omission that took place within the State of Israel.
Also, the Hon. Judge Amir adopted the position of the Director General 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. Pursuant to Hon. Judge Amir’s decision, the Applicants in the LCD case submitted a Motion to Appeal the Court’s decision to the Supreme Court (“Motion to Appeal”).
 The Registrar approved Chi Mei Corporation’s Motion to Cancel Leave.
 The “Effects Doctrine” is a doctrine applied by the Israel Antitrust Authority with regard to the extraterritorial application of the restrictive arrangement control regime, in order to acquire extraterritorial jurisdiction over restrictive arrangements, including cartels, executed outside of Israel which harm competition in Israel. The Supreme Court did not determine in its decision whether this Doctrine is adopted under Israeli law.
B. The Supreme Court Ruling – It Is Not Sufficient to Indicate Damage In Israel
On July 31, 2017 the Israeli Supreme Court (the Hon. Judge Hayut) rejected the Motion to Appeal. The Supreme Court upheld Hon. Judge Amir’s decision not to grant leave to serve the LCD Respondents out of the jurisdiction. The following is an overview of the Supreme Court’s ruling:
C. Possible implications of the Supreme Court Ruling
We expect that following the Supreme Court’s decision, it will be harder in cases with similar circumstances to serve pleadings outside of the jurisdiction on non-Israeli respondents in class actions based on restrictive arrangements (e.g., cartels) which were executed outside of Israel, when the only affiliation between the alleged cartel and the Israeli market, is the sale of “cartelized” products by third parties that are unrelated to alleged cartel members (and thus, other means of service cannot apply).
Also, as noted in the Supreme Court’s decision, the local legislature has considered in 2004 an amendment to Regulation 500(7) of the Civil Procedure Regulations, which – if enacted – will allow service outside of Israel based also on damage occurring within Israel. Such amendment, if enacted, may allow follow-on class action in Israel with respect to corporations, which do not have direct or indirect local presence in Israel as well.
Time will tell if this ruling will put a stop to the “global cartel-chasing” phenomenon- in similar circumstances – which has been prevalent in Israel in recent years.
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For further information, please contact:
Adv. Tal Eyal-Boger email@example.com +972.3.6944141
Adv. Ziv Schwartz firstname.lastname@example.org +972.3.6944141
Adv. Shani Brown email@example.com +972.3.6944325