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Adv. Moshe Kahn

As is customary in many countries, the Israeli court is not authorized to hear the case of any defendant who is not present in Israel and/or is not an Israeli resident. The basic rule in the question of the court’s “international jurisdiction” is the “territorial rule”, according to which judicial documents (lawsuits, orders, etc.) may be served on any person present in the territory of Israel – even if just for a moment – and to such person only (whether or not he is an Israeli citizen). In addition, the “international jurisdiction rules” anchored in Israeli law in the Civil Law Procedure Regulations, 5744-1984 provide a number of specific circumstances and cases in which the court may hear the case of a person even though he is not present in Israel. In other words, alongside the basic territorial rule which focuses on the defendant, there is a fundamental rule that focuses on the nature of the issue in question, according to which also matters which, by their nature, have taken place in Israel (according to the circumstances defined in the Regulations), will vest the Israeli court with jurisdiction.

Representative of a foreign defendant and “constructive presence”

Within the exceptions to the basic territorial rule, the Civil Law Procedure Regulations prescribe that in certain cases, judicial documents may be served on the defendant’s representative who is in Israel, even though the defendant himself is abroad. In such cases, the foreign defendant will be considered as if he were present in Israel – “constructive presence”  - through his representative. Regulation 477, for example, provides that judicial documents may be served on the Israeli lawyer of the foreign defendant. It should be noted that case law provides that a foreign resident may determine in advance and in writing that his Israeli lawyer is not authorized to accept court documents on his behalf[1].

Regulation 482 to the Civil Law Procedure Regulations provides that if the action is on a matter of business or work, then the court documents may be served on the foreign defendant’s representative who manages or is authorized to manage the business in Israel on the defendant’s behalf.

The relevant question is when will a party, who maintains a business relationship with a foreign resident, be considered a representative who manages his business or is authorized to manage his business on his behalf. There are borderline cases such as an Israeli distributor of a foreign supplier, an Israeli subsidiary owned by a foreign company or an Israeli entity managing joint ventures with a foreign entity, etc., where it is not easy to determine whether we are dealing with a party that “manages business on behalf” of the foreign defendant.

In the leading precedent which dealt with this matter, C.A. 39/89 General Electric Corp. V. Migdal Insurance Company Ltd., the Israeli court held that an authorized business representative is one who maintains “an ongoing business relation” with the foreign defendant. Accordingly, the Israeli courts look for an indication such as that the Israeli representative has presented himself to third parties as being the representative of the foreign defendant or that the representative is obliged to report to the foreign defendant regarding his actions and/or that he shares in the profits with him. This is unlike a distributor, for example, who purchases stock from a foreign supplier and manages his business in Israel at his sole discretion. In the past, the Israeli courts did not often recognize “representatives authorized to manage a business”.

However, over the years, the Israeli court’s approach to this matter has changed and become more flexible. The courts have started to broadly recognize representatives who are authorized to manage a business, so that it is now sufficient that it appears, prima facie, to be a representative of the foreign defendant in order to be able to serve the court documents through him[2]. Moreover, it should be noted that, unlike service on an Israeli lawyer according to Regulation 477 above, in the case of a business representative, the foreign defendant cannot exclude the representative’s authority to accept judicial documents on his behalf.

Regulation 500 and service to a person authorized to manage the business

An additional list of exemptions from the territorial rule is anchored in Regulation 500 to the Civil Law Procedures Regulations. The regulation prescribes a list of ten different factual situations in which it is possible, with the approval of the court, to issue judicial documents to a foreign defendant even if he is not in Israel either himself or through his representative. Thus, for example, when dealing with a lawsuit concerning real estate in Israel, judicial documents may be served on a foreign defendant whether or not he is in Israel. Similarly, a defendant may be sued for a contract entered into in Israel regardless of the defendant’s location (tip: when entering into contracts over the internet, check whether the small letters state that the contract will be considered to have been made in a particular country and in accordance with its laws in order to circumvent the application of Regulation 500).

Similarly, Regulation 500 provides that when we are dealing with a claim concerning the cancellation, enforcement or breach of a contract, etc. (whether or not the contract was entered into in Israel), then judicial documents may be served to the Israeli authorized representative of the foreign defendant. However, also in this regard, the courts examine the degree of relationship between the foreign defendant and his Israeli representative. However, the standard of proof required in this regard is much lower compared to Regulation 482[3]. Thus, for example, the Israeli courts recognize a representative who merely conducted negotiations for entering into the contract on behalf of the foreign defendant, as the person authorized to manage the business[4]. 

On the other hand, it should be noted that in a sense, the service of court documents through Regulation 500 is a little more complex, since the plaintiff needs to also prove that the Israeli court is the “forum conveniens” to hear the case. In other words, the plaintiff needs to convince the court that the case should be heard in Israel rather than in the country of residence of the defendant[5]. Thus, in cases of international business cooperation, for example, between an Israeli company and a foreign partner, where the Israeli company manages most of its operations in this regard outside of Israel (manages warehouses in Europe and has marketers throughout the continent, while only a small portion of its activities is carried out in Israel), it is reasonable to assume that the Israeli court will refrain from hearing the claim of breach of contract between the parties since it is not the “forum conveniens”, even if the foreign partner has an authorized representative in Israel.   

 

 [1] C.A. 694/86 Ostfeld v. Behiri, PDI 43 (3) 95

[2] P.C.A. 11822/05 Philip Morris USA Inc. v. Al Roy (8.5.06)

[3] P.C.A. 2129/10 Atlas Estates Investment BV v. Stronginfo Consultants Ltd. (8.6.2010).

[4] C.C (TLV) 2128-09, Alexander Foreman and 32 others v. Gil Blutrich (16.1.2012).

[5] P.C.A 9810/05 Martin J. Hecke v. Pimcapco Limited (30.8.09).

 

July 2014

 

* Adv. Moshe Kahn specializes in Business Law. He is licensed to practice law both in Israel and in the U.S. and is the founder of the Moshe Kahn Advocates  law firm in Tel Aviv.

  www.kahn.co.il

Moshe Kahn, Advocates,
Beit Amot Hashkaot, 7th Fl. 2 Weizmann St. Tel Aviv, 6423902.
Phone: +972-3-6914775

Israeli Business Law משפט עסקי