Case Law Update: Service of Process to Foreign Entities Advising Their Products Online
15/05/2019

Memorandum concerning the Court’s Decision in Registrar Appeal (Tel Aviv) 67771-07-18 Booking Com B.V. v Shapira
On February 20, 2019 a decision was handed down by the Tel Aviv District Court in its capacity as an appellate instance on the decisions of the court’s registrars, in the matter of Registrar Appeal 67771-07-18 Booking Com B.V. v Shapira (the “Ruling”). In the Ruling, the District Court rejected an appeal filed by Booking Com B.V. (“Booking”) against the decision of the District Court’s registrar in Class Action (Tel Aviv) 8295-10-17 Booking Com B.V. v Shapira to deny Booking’s motion to quash a leave of extraterritorial service of process to Booking (henceforth, respectively, the “Leave” and the “Registrar’s Decision”).

The Ruling concerns several points relating to the possibility of bringing claims against international corporations engaging in e-commerce or advertising their goods and services online to Israeli customers. An Israeli court can grant leave of extraterritorial service of process, inter alia, in instances where a claim is based on an act or omission that “occurred in Israel.” The Ruling adopts a broad interpretation with respect to this cause for service, finding that any advertisement made online by a foreign entity and viewed by customers in Israel could (depending on the circumstances) be regarded as a publication that “occurred in Israel,” regardless of its content and the location from which it was uploaded.

In addition, the Ruling also provides some insight into how the courts might address and interpret the recent amendment made to Regulation 500(7) of the Civil Procedure Regulations, 5784-1984 (for a more thorough review of said amendment, please see our firm’s memorandum on the matter, available at: https://app.activetrail.com/S/eiwixdzd3j3.htm. In the Booking Ruling, the court regarded the amendment as justifying a broader interpretation of the causes for leave of extraterritorial service.

The Ruling is also relevant to entities including foreign judgements and applicable law clauses in their User Agreements. In this regard, the court rejected arguments by Booking that such clauses in its User Agreement made the Israeli courts an inappropriate forum for the adjudication of the claim.

In the below memorandum, we will review the factual background leading up to the Ruling, and then review the main points of the District Court’s reasoning. Finally, we will highlight several points that, in our view, can be inferred from the Ruling.

It should be noted that, under Israeli law, a District Court ruling does not constitute binding precedent, and other courts can decide on the matter differently. However, Israeli courts tend to rely on previous decisions in their rulings, such that the Court’s decision is likely to influence future decisions on similar matter.

A. Factual Background
Booking is a Dutch company that, in the relevant period, operated a website and a mobile app allowing users to book accommodations with various providers all over the world. A motion to certify a class action was submitted against Booking, alleging that Booking had acted unlawfully by not notifying the users of its mobile app, prior to the confirmation of their orders, of the fact that the ostensible “final price” displayed did not include the currency conversion fee (the “Fee”) that would be charged by the users’ credit card issuers. Contrary to this, on its website, Booking did inform customers prior to the confirmation of their orders that the price might vary if the user’s credit card issuer charges a currency conversion fee. Movant alleged that such conduct by Booking constituted a tort of consumer misrepresentation, as well as a violation of the obligation to conduct contractual negotiations in good faith.

Alongside the motion to certify a class action, Movant filed an ex parte motion for leave of extraterritorial service of process to Booking’s HQ in Holland, in accordance with Regulations 500(4) and 500(7) of the Civil Procedure Regulations, 5744-1984 (the “Regulations”). In brief, the subsections of Regulation 500 provide various circumstances in which the Israeli court may grant leave to effect service of process outside the territory of the State of Israel (the common denominator of which being that they all indicate some linkage between the subject matter of the claim and the State of Israel). These are known as “causes for service.” Specifically, Regulation 500(4) concerned a claim relating to a contract entered into within the territory of Israel, or wherein the laws of Israel applied to the contract. Regulation 500(7), at the time, concerned a claim based on “an act or omission that occurred within the territory of Israel”. Thus, if the court found that the conditions of either of Regulation 500(4) or Regulation 500(7) were fulfilled in the case of Booking, it had the discretion to grant Movant leave to affect service of process of the motion to certify a class action to Booking’s HQ in Holland.

On October 3, 2017 the court acceded to Movant’s motion in an ex parte decision, granting the Leave of extraterritorial service requested. The court found that at least one of the subsections of Regulation 500 was fulfilled, and that the Israeli forum appeared to be the forum conveniens to deliberate the claim. Booking filed a motion to quash the Leave granted (the “Motion to Quash”), and it was rejected by the District Court’s Registrar (Judge Naftali Shilo, in his function as registrar) on May 16, 2018.

 

B. The Registrar’s Decision
The Registrar began the Decision by clarifying that there are several cumulative conditions that must be satisfied before the court might grant the Leave (and the burden to prove that they are satisfied rests on the Movant, who initially motioned for the Leave). These conditions are: (1) Showing that the circumstances of at least one of the “causes for service” outlined in Regulation 500 of the Regulations are fulfilled; (2) That the claim presents a “cause of action” that, on the face of it, raises “serious questions that bear deliberation.” In addition, even if both conditions are fulfilled, the court still reserves the discretion to determine that there is no justification to grant leave for extraterritorial service, particularly in instances where the court is convinced that Israel is forum non conveniens for adjudicating the claim.

In its decision, the Registrar found that the above conditions were adequately fulfilled:

1) First, the Registrar found that there was a cause for service, under the circumstances of the matter, in accordance with Regulation 500(7). The Registrar opined that the failure to disclose that a foreign currency fee (the “Fee”) would be collected was an act/omission occurring within the State of Israel. In this regard, the Registrar established that when an advertisement is made online and is viewable by users from all over the world, it can be considered as an act that “occurs everywhere,” for the purpose of Regulation 500(7). It should be noted that in support of its ruling, the Registrar took note of the fact that Booking’s mobile app was uniquely adapted to the Israeli audience, in that it was accessible in the Hebrew language and displayed the listing prices in Israeli shekels.

As for the cause based on Regulation 500(4), the Registrar rejected the Movant’s arguments – the Registrar found that the contract was not entered into in Israel, because the acceptance of the offer to enter into the contract occurred when and where the user’s acceptance was received by Booking (i.e. Holland).

2) The Registrar also found that Movant’s arguments in the motion for certification of a class action i.e., that the mobile app’s display of the price as a “final price” could mislead users – were sufficient to justify a discussion on the merits, and that the claim was not frivolous or without merit, on the face of it. The Registrar rejected a lack or privity argument raised by Booking. In this regard, Booking argued that the Fee was not charged by it, but rather by the users’ credit card issuers. The Registrar emphasized that Movant’s arguments were not directed against the collection of the Fee per se, but rather, against the failure to disclose information concerning the possibility that such Fee might be collected, as well as the alleged misrepresentations to the effect that the price displayed in the application was the “final and inclusive price.”

3) The Registrar determined that, under the circumstances, Israel has “the most affinities” to this case, and therefore is the forum conveniens. This finding was based, specifically, on the adaptation of Booking’s mobile app to the Israeli audience and the fact that the cause of action concerned Israeli customers. Booking argued that the parties’ reasonable expectations were that the claim would be adjudicated in Holland, particularly in light of a foreign jurisdiction clause in Booking’s User Agreement stating that any dispute must be resolved in front of the Dutch forum, as well as a choice of law clause applying Dutch law to all disputes. The Registrar rejected this argument, finding, based on previous case-law, that there was a distinct possibility that the aforementioned clauses would be deemed oppressive clauses in a standard form contract, as defined in the Standard Form Contracts Law, 5742-1982 (the “Standard Form Contracts Law”), and should therefore be deemed void. In the context of said analysis, the Registrar also stated that international corporations operating around the world and, all the more so, companies that conduct business on the internet, must expect that they will be sued in the countries in which they operate. Given the significant power gaps that exist between international corporations and the “simple” consumer, the Registrar found that it was also normatively justified, under public policy, to allow the adjudication of the dispute in the Israeli forum.

Based on the above analysis, the Registrar granted Movant the Leave to effect extraterritorial service.

To provide a complete picture, it should be pointed out that the Registrar’s reasoning concerning the prima facie oppressive nature of choice of law clauses (as opposed to foreign judgement clauses) was later negated by the Supreme Court of Israel in a different matter – Civil Leave of Appeal 586/16 Facebook Inc. vs. Ben Hemo (published on May 31, 2018) (the “Facebook Decision”). In said decision, the court found that choice of law clauses are not oppressive clauses in and of themselves, and that the burden of proof is placed on the plaintiff to show that such a clause is oppressive in the circumstances of the given case.

 

C. The Parties’ Arguments in Appeal
Booking filed an appeal against the Registrar’s Ruling, and the appeal was adjudicated before Judge Einat Ravid of the Tel Aviv District Court. In this regard it should be noted that, under Israeli procedural law, a decision by a registrar of a certain court can be appealed by right to a judge of the same court.

In its appeal, Booking presented the following main arguments:
First, Booking argued that the Registrar erred in determining that the circumstances of the matter fulfilled the conditions set in Regulation 500(7) of the Regulations. Booking argued that a publication made online must be physically made from Israel in order for it to be considered as an act that occurred in Israel – and that issues like the language of the publication and the contents of the mobile app are irrelevant to this question. Booking added that the Registrar ignored the far-reaching implications of its Ruling – i.e., that every
advertisement made on the Internet will be considered as though it occurs in Israel, thus subordinating every foreign website and application to the jurisdiction of Israeli courts.

Second, Booking argued that the Registrar erred by not finding that Dutch law applies to the matter at hand, based on the choice of law clause in its User Agreement.

Third, Booking argued that Movant had no cause of action based on Israeli law, either – per its argument, there was no obligation, under Israeli law, for Booking to inform users of fees that third parties might collect.

Fourth, Booking alleged that the Registrar erred in finding that Israel is the forum conveniens in the dispute. Booking argued that its mobile app is translated into dozens of languages and presents the price in the local currency in each country – and that the language of the app and the currency presented cannot be viewed as affinities to Israel. Alternatively, Booking argued that even if this constitutes an affinity, it is still only one affinity, whereas there are many other affinities to other forums – such as the fact that the app is operated from abroad, the relevant witnesses are located abroad, and the fact that the transaction concerned accommodations outside of Israel. Booking also argued that the reasonable expectation of the parties was not to adjudicate disputes in Israel, as evident from the foreign jurisdiction clause they agreed to.

Movant defended the Registrar’s reasoning, and argued the following:
Movant argued that Registrar properly found that the publication in question is an act that occurred in Israel. Movant argued that Booking is not a foreign entity operating a local website in a different country that was “dragged” to Israel – but rather, an international entity that decided, for financial considerations, to operate in Israel, and adapted its app for Israel in order to simplify the use of its services by Israeli users.

As for the choice of law clause, Movant argued that the applicable law clause is oppressive based on relevant case-law. Movant specifically mentioned the Facebook Decision, and argued that it supports their position, given that Dutch law is not accessible to the Israeli user, and that its class action law is not deemed to be very developed (contrary to the law of the state of California, which was the subject of the Facebook Decision).

In other matters, Movant repeated the Registrar’s reasoning.

 

D. The Court’s Ruling in the Appeal:
The District Court rejected Booking’s appeal and approved the Registrar’s decision to grant the Leave.

With respect to the issue of cause for service based on Regulation 500(7), the District Court rejected Booking’s assertion that the point of the physical location from which the publication is posted online is the relevant question for the finding of where the act occurred. The court emphasized that following the technological change and the globalization, it is not correct to narrow the scope of the “act” only to the physical location of the alleged violator.

The Court stated that it had already been established in Israeli case law in other contexts (specifically concerning local jurisdiction) that a publication made on the internet is considered an “act” that occurs “everywhere,” and is presented to all, no matter where they are located – and that the same logic applies to the issue of extraterritorial jurisdictions.The Court cited in agreement several previous rulings, in which it was emphasized that provisions of law must be interpreted in a manner that addresses the unique characteristics of operations in the “digital sphere,” so that they are congruent with the intention of the law and the rule of reason. The Court also referred to the recent amendment to Regulation 500 that entered into force in January 2019, and added a new cause for service in circumstances where damages were caused to a plaintiff in Israel from a product or service of a foreign entity, so long as that entity engages in international trade of a significant extent and could expect that damage might be caused in Israel (for a review of said amendment and its implications, please see: https://app.activetrail.com/S/eiwixdzd3j3.htm.

Based on the above analysis, the Court found that the decision as to whether a certain publication on the internet will be considered an act that occurred in Israel, for the purpose of Regulation 500(7), must be determined on a case-by-case basis, in accordance with the specific circumstances of each matter. The Court added that in instances where it is clear that an entity published its services online with the intention to broaden its customer base globally, and thus enjoyed the positive effects of the internet – it should also suffer the negative effect of being sued in foreign countries.

Reviewing the specific aspects of Booking’s case, the Court upheld the Registrar’s finding that the publication on Booking’s mobile app is an “act” that occurred in Israel. The Court emphasized the fact that the app was specifically tailored to Israel and intended for the Israeli public; that an uninformed Israeli could reasonably think that Booking is a local company, or a foreign company with an Israeli affiliate, based on the mobile app ostensibly appearing as an Israeli app; and the high volume of international business Booking engages in, including with many Israeli customers. The Court also mentioned the fact that, after the transaction is finalized, Booking sends the user a confirmation e-mail – but fails to mention the possibility of the Fee being charged in said e-mail as well. Citing a previous ruling (Class Action 10822-02-15 Lanoel v Linkedin Corporation (published on April 9, 2017)), the Court found that the e-mail received in Israel can also be viewed as act occurring is Israel, and thus justifies the Leave granted to Movant.

Finally, the Court rejected Booking’s argument that the Registrar’s decision creates far-reaching implications for international firms making publications on the internet. The Court reiterated that its decision is not a sweeping one – but rather, that in every future case, the specific circumstances will need to be examined. In addition, the Court referred to the recent amendment to Regulation 500 of the Regulations, stating that it “clarifies the direction and trend in issues relating to Regulation 500” – i.e., towards broadening the scope of matters in which foreign entities engaging in international trade could be sued in Israel.

As to the issue of “cause of action” – The Court mentioned that the threshold required at the stage of a motion for leave of extraterritorial service is seemingly low, with a more thorough review to the merits reserved for the adjudication of the claim itself. The burden on the movant is to show that its claim is a “good, arguable case,” in the sense that it is not frivolous or baseless. Applying said standard of review, the Court upheld the Registrar’s finding that the question of whether the mobile app’s display of the price as a “final price” could mislead users is one that bears deliberation, and, therefore, was sufficient to justify granting the Leave.

Concerning Booking’s assertion that it had no legal obligation to inform its customers that credit companies might collect the Fee, the Court referred to the fact that on its website (contrary to the app), Booking did, in fact, warn its customers of exactly that. Based on that, the Court opined the such behavior by Booking shows that it, at the very least, suspected that it has an obligation to inform its user of the possibility of an additional charge by a third party.

As to the issue of forum conveniens, the Court fully embraced the Registrar’s reasoning why most affinities in the matter at hand are to the Israeli forum. Specifically, concerning the foreign judgement and choice of law clauses, the Court reiterated that, on the face of it, there is reasonable chance that the clauses would be declared oppressive and, therefore, voided. This aspect of the Court’s decision seems peculiar, as it fails to address the Facebook Decision and its
effect on the prima facie validity of choice of law clauses. The Court did mention, however, that even if the choice of law clause were to be valid, it would not be sufficient to make Israel a forum non conveniens, as it is, at most, an affinity to a different jurisdiction.

 

E. Relevant Points Arising out of the District Court’s Decision
In our assessment, there are several matters that can be inferred from the District Court’s decision that are relevant to international companies operating websites accessible by the Israeli public. We will review these below very generally. We are available to answer any questions and to provide a more thorough analysis, if needed.

1. Online publications as establishing a cause for service: The Booking decision adopts a very broad wording when discussing publications made online, essentially regarding any such publication as “occurring in Israel,” regardless of its content and the location from which it is published.
However, we are of the opinion that such language was adopted given the circumstances of the matter, where it was evident that Booking’s activity was specifically directed to the Israeli public (Hebrew mobile app, shekel price, etc.). The Court specifically emphasized that its decision was limited to the confines of the circumstances of the Booking case, and that every subsequent matter would need to be reviewed separately.

In circumstances where the publication in question is not specifically directed to the Israeli customer in any way, the Court’s analysis might lead to a different result. In Civil Action 32391-01-17 Amazon.com Inc. v. Ototo Design Ltd. (published on October 4, 2018), the same Registrar (judge Naftali Shilo) rejected a motion for leave of service submitted against Amazon, finding that the publication was not an act occurring in Israel. In that case, Amazon’s website was only available in English and Spanish, and did not feature a NIS price – leading the Registrar to differentiate it from the Booking case. An appeal against this decision is still pending, and it remains to be seen whether the courts will indeed accept the distinction between publications made online by e-commerce companies.

2. Confirmation e-mails as establishing a cause for service: In its ruling, the District Court referred to an e-mail confirmation of the transaction, sent to the users after the completion of the transaction, as also constituting an act that occurred in Israel. The implication is that even if an entity shows that it does not specifically target Israeli users in its online publications (as in the Amazon decision mentioned above), but it does send its users an email confirmation after the purchase that does not correct the alleged misrepresentation, the court might still grant leave of service based on said e-mail.

3. The District Court’s view of the impact of the amendment to Regulation 500: As mentioned above, in its decision, the District Court relied, inter alia, on the recent amendment made to Regulation 500.
The District Court seemed to view the amendment as being part of a trend towards broadening the scope of matters in which the Israeli court may gain international jurisdiction over a foreign defendant, and, therefore, justifying a wider interpretation of the relevant provisions.
As we mentioned before, it is interesting to see how the courts will address said amendment and interpret it – and the Booking decision gives some initial insight into one possible approach towards said amendment’s effects.

4. Choice of Law and Foreign Judgement Clauses are not a defense against a motion for leave of service in class actions: In both the Registrar’s decision and the District Court’s decision, Booking argued that the choice of law and foreign judgement clauses established that the parties’ intent was not to adjudicate that matter in Israel.The Court found the foreign judgement clause to be prima facie oppressive. As for the choice of law clause, as mentioned above, the Court did not address the Facebook Decision in its analysis – however, the Court did specifically state that a choice of law clause can, at best, serve as one affinity supporting a different forum for the adjudication of the claim. It remains to be seen whether future decisions on the matter will vary in light of the Facebook Decision.

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.

 

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