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Case law sometimes chips away at well recognized general rules, and it appears that, with respect to the general rule of enforcing forum selection clauses, Israeli district courts are doing their fair share of chipping — at least insofar as online contracts are concerned.
Background:
As noted in our post of June 29, 2016, as a general matter, Israeli courts are deferential to forum selection clauses in international commerce. See Encyclopedia of International Commercial Litigation (Israel Chapter) § A4.23. But in the case summarized in our June 29 post – which was a purported class action against Facebook – a judge in Israel’s Central District refused to enforce a forum selection clause that called for all litigation between Facebook and its Israeli customers to take place in California. The Facebook court made clear that the primary grounds for its holding was that the cause of action asserted was for breach of privacy under Israel’s consumer protection statutes.
Along comes the Tel Aviv District Court in Forex Capital Markets Ltd. (Civil File 39265-04-16) and, purporting to rely (heavily) on the Facebook decision, declares that a forum selection clause that calls for litigation in London is unenforceable against an Israeli citizen who has a claim in excess of NIS 1 million (approximately $260,000) arising from alleged breaches of a contract for online trading.
Before reviewing the details of the Forex decision, we briefly recap our observations concerning the Facebook decision. Our June 29 post concluded as follows:
Did the Israeli court properly deny Facebook’s motion to dismiss? Probably yes – if ever there were a case for applying the presumption of the Standard Contracts Law that a forum selection clause in a standard contract is overly generous to the supplier, it would seem that a claim for breach of privacy, by Israeli consumers, would be such a case.
However, the court’s analysis appears to open the door to attacks on forum selection clauses merely because (a) of the parties’ unequal bargaining position and/or (b) a claim is non-contractual in nature. Hopefully subsequent cases will construe the Facebook decision narrowly.
The Forex case indicates that the Facebook decision is being construed anything but narrowly.
The decision in Facebook was based largely on the applicability of Israel’s Standard Contracts Law (1982) and its presumption that certain contractual provisions are “unduly disadvantageous” and, thereby, subject to annulment or amendment. See Encyclopedia of International Commercial Litigation (Israel Chapter) § A1.31.
As indicated in our June 29 post, the Facebook court took note of the following:
- the claimant was asserting a purported class action;
- the value of each class member’s individual suit was relatively small, which meant that, absent class certification, the claims most likely would not have been pursued (and certainly not outside Israel); and
- the cause of action was not a contract claim but one arising under the consumer protection statutes.
The Forex Decision and Prior Case Law:
Even though the decision in Forex cites extensively to Facebook, the Forex court gives almost no indication that Facebook was based on the above factors. When the Forex court discusses the analysis of Facebook, there is nary a hint that the purported cause of action in Facebook was a violation of the privacy of Israeli class members. Similarly, Forex contains no analysis as to the importance of the quantum of damages allegedly suffered by the plaintiff(s) – which was a significant factor in the analysis of the Facebook court.
Another case on which the Forex court relied was Kalingofer v. Paypal Pte. Ltd (Tel Aviv District Court, Civil File 39292-04-13), which was also a purported class action involving alleged violations of the consumer protection laws. In Paypal, the damages allegedly suffered by Israeli class members were that they were unlawfully charged by Paypal for foreign currency conversions. Although the discussion in Paypal regarding the quantum of damages was sparse, the claim of unlawfully being charged for foreign currency conversions suggests that the damages to any individual class member were not great.
Yet when the Forex court discusses Paypal, Forex is silent as to the issue of the quantum of damages. And just as the Forex court’s analysis of Facebook fails to mention that the cause of action therein was for privacy violations, when discussing Paypal, the Forex court does not mention that the cause of action was for violation of the consumer protection laws.
In summary, even though the Forex court relied heavily upon the Facebook and Paypal decisions, and even though two important factors in those two earlier decisions were (a) that the claims arose under the consumer protection statutes, and (b) they were brought as class actions, the Forex court makes no mention of those factors whatsoever.
Moreover, as noted above, the claim of the plaintiff in Forex was for NIS 1 million – which means that plaintiff was hardly the defenseless consumer who, in Facebook (and apparently in Paypal too), would have likely thrown up his hands because the small claim was not worth pursuing outside of Israel. If the claim of the plaintiff in Forex had been dismissed by the Israeli court, that plaintiff would have had the financial incentive to pursue his rights in London.
The court in Forex completely sidestepped that issue.
The reader of the Forex decision is left with the clear impression that the court was determined to disregard the forum selection clause – regardless of whether case law supports such position.
Going Forward:
In light of Forex, what should be done by a non-Israeli company that had been relying upon a forum selection clause in its online contracts with Israelis?
Such a company has a few different options:
- Use an arbitration clause instead of a forum selection (litigation) clause: Because Israel’s Standard Contracts Law includes a carve-out for contractual provisions that are consistent with an international treaty to which Israel is a party, and because the New York Convention is such a treaty, presumably Israeli courts will recognize that they have no discretion and must refrain from exercising jurisdiction when an arbitration clause is involved.
- Custom-draft contracts that include a forum selection clause: Doing so would arguably take the contract outside the scope of the Standard Contracts Law. But doing so carries with it significant logistical headaches, which means that, as a business matter, it would often be impractical.
- Hope that other Israeli courts do not follow Forex and do construe Facebook narrowly (prayer wouldn’t hurt either).