Dear Colleagues and Clients, we would like to update you with respect to a decision that was handed down in the District Court several days ago. The decision limits the possibility of filing an action in Israel against foreign companies that were parties to a cartel, if the parties to the cartel did not perform “an action or an omission” in Israel.
The decision was issued in the case of a class action that was filed against five foreign companies – from Japan, Korea and Taiwan – on the basis of an argument that they were parties to a cartel involving panels for LCD screens. None of the defendants sold panels for LCD screens in Israel or to an Israeli client. Rather, according to that which was argued in the action, products, in which these panels had been installed, were sold, among other places, to the Israeli market. In other words, no Israeli client had directly purchased the alleged cartelized product; rather, the product was installed as a component in end products, and the end products were sold, among other places, in Israel.
The decision pertains to the procedural issue of whether it is possible to serve the petition to certify the action as a class action on the foreign companies, and not to the question of the applicability of Israeli law under those circumstances. The court expressly stated that there may well be situations in which Israeli law applies, but the rules of procedure do not allow an Israeli court to hear the proceeding.
With respect to the rules of procedure, the court decided that it was not possible to serve the petition to certify the action as a class action outside of Israel, when the members of the cartel had not performed any action or omission in Israel. The court rejected the argument that the effect doctrine can constitute a basis for service of process. The court emphasized that the effect doctrine is a source for applying Israeli law to actions that were performed outside Israel, but that it cannot constitute a source for service of process. In the matter of a possible anomaly due to the gap between the applicability of the local law and the ability to file an action for a violation of the local law, the court pointed out that, if the legislature believes there is a problem, then it is up to the legislature to solve it, and that the court acts within the rules of procedure and their limitations.
In excess of that which is required for the purpose of the decision in the petition, the court also expressed doubt as to whether the effect doctrine applied, under the circumstances of the case. The decision stated that “the directness and the significance of the alleged effect are quite remote.” The court gave the example of a hypothetical cartel for the supply of raw material for the manufacture of plastic boxes, where the plastic boxes were sold to foreign refrigerator manufacturers and the refrigerators were sold, among other places, to the Israeli market – whereby the Israeli consumers purchased the plastic boxes together with the refrigerators – and stated that it doubted the applicability of the effect doctrine under such circumstances.
We would like to emphasize two points:
- This decision does not pertain to the filing of merger notifications in Israel. The applicability of The Restrictive Practices Law, 5748-1988 to mergers that involve foreign companies is set forth in the Restrictive Practices Law itself, and the decision in the matter at hand does not pertain to it.
- The decision addressed a specific rule, which enables service of process on a foreign defendant outside of Israel. In addition to that rule, there are other rules that can enable service of process outside of Israel (for example, on a foreign company that has a local representative office). Nonetheless, on the basis of our familiarity with actions that are filed in Israel against parties to cartels that existed outside of Israel, the set of facts in the decision pertains to many actions, and this is a significant decision.