A. Background – Private Actions Against Alleged International Cartels
Private enforcement against alleged international cartels has been on the rise in recent years. The Israel Antitrust Authority’s decision regarding the alleged Gas Insulated Switchgear cartel marked the first ever (and to this point – only) public enforcement action against an alleged foreign cartel. The decision states that the Restrictive Trade Practices Law, 5748-1988 (the local antitrust law) may be applied to foreign cartels that harmed competition in Israel (based on the “effects doctrine”).
Following this decision, several motions to certify class actions were filed regarding alleged foreign cartels. These motions usually follow the same pattern. They are based on decisions of foreign regulators (and sometimes on settlements reached between the defendants and foreign regulators or private entities). While these decisions do not regularly refer to Israel, the plaintiffs usually claim that these cartels inflated the costs of inputs of products that were ultimately sold in Israel and hence – affected the local market.
In order to bring a private action against alleged foreign cartel members the plaintiff must serve the claim on these defendants (or their representative) in Israel or seek the court’s permission to serve outside Israel. If the defendant is located in Israel (e.g., is registered or operates directly in Israel or has a local office, branch or representative in Israel), the statement of claim may be served directly on the defendant or on its representative (Regulation 482 of the Civil Procedure Regulations, 5744-1984).
It should be noted, that the status of ‘representative’ (for purpose of service in accordance with Regulation 482) is not voluntary. Even if the foreign defendant did not appoint the representative or authorize the representative to receive court documents, the court may still find that a local entity is a ‘representative’ for purpose of service. The key issue in this respect is the available indicia of the intensity of the relationship between the local entity and the foreign defendant. If there are enough indicia to support the conclusion that service on the Israeli entity will be brought to the attention of the foreign entity, the court may find the local entity to be a ‘representative’ for purpose of service.
If the defendant (or its representative) cannot be served in Israel, the plaintiff is required to obtain the court’s approval to serve the claim on the defendant outside of Israel’s borders. The court is authorized to approve such request if one or more of 11 alternative prerequisites, enumerated in Regulation 500 of the Civil Procedure Regulations, is met.
Regulation 500(7) stipulates that the court is authorized to approve a request to serve a claim outside of Israel, when the claim is based on an act or omission that took place within Israel. According to substantiated case-law, Regulation 500(7) does not apply when only the damage allegedly occurred in Israel.
B. The LCD Case
In 2013, a motion to certify a class action was filed against several defendants regarding an alleged price fixing scheme of LCD panels. The plaintiff sought the court’s approval for service outside of Israel, pursuant to Regulation 500(7) of the Civil Procedure Regulations. The plaintiff acknowledged that the alleged LCD cartel concerned an alleged price fixing of panels in foreign markets, and that these panels were then integrated in the final products (such as television sets) sold in Israel by third-parties (unrelated to the defendants). In other words, no act or omission allegedly committed by the defendants was allegedly carried out in Israel.
However, the plaintiff argued that the effects doctrine, which is the governing doctrine for applying local antitrust law to foreign conduct, justifies applying Regulation 500(7) to foreign (alleged) anti-competitive conduct, even if no action or omission allegedly took place in Israel. As per plaintiff, if the effects doctrine conditions are substantiated with respect to the defendants’ alleged foreign cartel (as the plaintiff argued), then local harm incurred by this cartel, should be viewed as an “act” committed within Israel for purpose of Regulation 500(7).
The plaintiff’s motion was granted by the Central District Court Registrar. Once defendants had been served abroad, they filed a motion to quash service. This motion was denied by the Registrar with respect to most defendants. Defendants appealed the Registrar’s ruling, and the Central District Court reversed the Registrar’s ruling. Plaintiff then filed a certiorari motion with the Supreme Court. This motion was denied last week by the Supreme Court (which upheld the decision issued by the Central District Court).
C. The Supreme Court’s Decision
The Supreme Court rejected the plaintiff’s arguments, stating that this is a clear situation in which Regulation 500(7) does not apply: the act or omission allegedly occurred outside Israel, and only the damages allegedly occurred in Israel. The Supreme Court also ruled that the “effects doctrine” pertains to the applicability of Israeli substantive antitrust law to foreign conduct; that is, it is a matter of choice of law. It does not regulate service issues (or jurisdictional issues).
The Supreme Court expressed, obiter dictum, discomfort with the current rule governing service (i.e., denying service when only harm is alleged in Israel). It noted that a situation in which the Israeli consumer cannot sue for harm inflicted by global cartels is an undesirable situation, specifically given emerging globalization trends as well as technological developments. The court also noted that a revised version of the Regulation, which would allow service when only harm was allegedly incurred in Israel, is currently being considered, but has yet to come into force.
Nonetheless, as mentioned, the court upheld its longstanding ruling, and ruled that at present, such allegations do not suffice to allow service abroad.
D. Implications
The decision represents a potential setback for plaintiffs seeking to utilize foreign decisions against international cartels in order to bring private actions against alleged cartel members in Israel. Plaintiff may find it difficult to serve foreign firms that cannot be served on in Israel (e.g., foreign corporations that are not present in Israel and do not have a local “authorized representative” in Israel).
This decision makes it even more important for foreign entities to assess their potential exposure to private litigation in Israel. Such parties are also advised to seek counsel, in order to maximize their ability to defend themselves against private lawsuits, including by way of contesting service, when such a step is appropriate.
The decision represents a potential setback for plaintiffs seeking to utilize foreign decisions against international cartels in order to bring private actions against alleged cartel members in Israel. Plaintiff may find it difficult to serve foreign firms that cannot be served on in Israel (e.g., foreign corporations that are not present in Israel and do not have a local “authorized representative” in Israel).
This decision makes it even more important for foreign entities to assess their potential exposure to private litigation in Israel. Such parties are also advised to seek counsel, in order to maximize their ability to defend themselves against private lawsuits, including by way of contesting service, when such a step is appropriate.
This publication provides general information and should not be used or taken as legal advice for specific situations, which depend on the evaluation of precise factual circumstances.