The Cost(s) Of Noncompliance with an Arbitration Agreement (Part One)

© 2017 Sherby & Co., Advs.

Israel is a pro-arbitration jurisdiction.  But even in a pro-arbitration jurisdiction, when a dispute arises between parties to an arbitration agreement, sometimes one party attempts to avoid its contractual commitment to arbitrate.  If the agreement does not include a mechanism for the appointment of the arbitrator by a third party (such as an arbitral institution), then when one contracting party wishes to commence arbitration but the other contracting party refuses to cooperate in the appointment/selection of the arbitrator, the first party will usually have no choice but to file a motion (application) with a court for the appointment of an arbitrator.

Israel’s Arbitration Law (1968) provides expressly (section 8) that a court may order the appointment of an arbitrator under such circumstances.

Because the general rule under Israeli law is for the court to award some level of “legal costs” against the losing party (see Encyclopedia of International Commercial Litigation (Israel Chapter) § A10.7), our firm decided to examine the extent to which Israeli courts use cost orders to incentivize parties to arbitration agreements to cooperate in the selection of an arbitrator when and if a dispute arises.  (Another way of couching the issue is the extent to which courts attempt to use cost awards to “punish” foot-dragging parties.)

For purposes of this examination, our firm reviewed all of the published decisions from January 2015 through December 2016 (the “Time Period”) rendered by the three busiest Israeli districts courts – the Tel Aviv District Court, the Jerusalem District Court, and the Haifa District Court.

In this post, we summarize noteworthy conclusions gleaned from decisions rendered by the Tel Aviv District Court, which is the district wherein most of the country’s international commercial disputes are litigated.

In subsequent posts, we will report on similar findings concerning Jerusalem and Haifa, and we will also report on points of interest regarding the profile(s) of arbitrators appointed by those three district courts.

Cost Orders Issued by the Tel Aviv District Court – The Numbers:

During the Time Period, there were eleven (11) cases in which (a) a party to an arbitration agreement filed a motion (application) with the Tel Aviv District Court for the appointment of an arbitrator, and (b) the court granted such motion.  All eleven of those decisions were rendered by the Honorable Yehudit Shevah.

Because all eleven decisions from Tel Aviv during the Time Period were rendered by the same judge (which was not the case in Haifa), any similarities in the analysis are likely not mere coincidences.

Of those eleven cases, three (3) times the court ordered the respondent to pay NIS 20,000 of costs to the applicant (movant).  (The amount of NIS 20,000 is roughly equivalent to US$5,500.)

The sum of NIS 20,000 was the maximum amount that the Tel Aviv District Court ordered in any of the eleven cases during the Time Period.  The average amount of costs awarded by the Tel Aviv District Court during the Time Period was approximately NIS 11,000.

In none of the eleven decisions did the Tel Aviv District Court explain its reasoning for the amount of costs awarded.  Yet in the three cases in which the award of costs was NIS 20,000, the court seemed to have formed the view that the applicant had a strong case on the merits.

A Subset – Conditional Orders:

There were three (3) cases in which the Tel Aviv District Court issued an order stating that it would appoint an arbitrator but that first the parties would be given several days (anywhere from seven to twenty) to attempt to come to an agreement on their own as to the specific arbitrator.  (These three cases are referred to as the “Conditional Cases.”)  In none of the Conditional Cases was the award of costs near the “maximum” level of NIS 20,000.  Rather, in each such case, the award was between NIS 7,500 to 10,000.

The three Conditional Cases share a common factor – one that distinguishes them from the other eight cases.  Whereas in the other eight cases, there was at least some clear indication that the failure to arrive at an agreement as to the appointment of an arbitrator (prior to the court filing by the applicant) was the result of foot-dragging by the defendant, in the three Conditional Cases, it does not appear that the lack of agreement (pre-filing) on the issue of selection of the arbitrator was caused primarily by foot-dragging on the part of the defendant.

Rather, in the three Conditional Cases, there was some indication as to a good faith disagreement between the parties as to either (a) the identity of the arbitrator or (b) the propriety of the timing of the applicant’s filing with the court.  It appears that the existence of a good faith disagreement as to one or both of these issues renders it less likely that the Tel Aviv court would impose the “maximum” costs of NIS 20,000.  Put slightly differently, absent a showing by the respondent of a good faith reason for disagreement on these (or similar) issues, the greater the risk to that respondent that the court will impose costs of up to NIS 20,000.

As indicated above, one or more of our future posts will address these issues regarding the Jerusalem District Court and the Haifa District Court.  (Here is a short sneak preview – the “maximum” awards in those two districts are remarkably similar to those of Tel Aviv.)

 

חשיבותו של סעיף שיפוט – דעותיהם של המשרדים המובילים

לאחרונה לשכת עורכי-הדין של ארה”ב הוציאה לאור ספר הנקרא  International Aspects of U.S. Litigation, ראה https://tinyurl.com/z5j8mrk.

שני פרקים בספר הנ”ל נכתבו על-ידי עו”ד אריק שרבי – אחד מהם הינו הפרק על תניות שיפוט בהסכמים בינלאומיים.

לרגל הוצאה לאור של הספר הנ”ל, ראינו לנכון לאסוף ציטוטים מהמשרדים הגדולים ביותר בתחום הבינלאומי אודות החשיבות של תניית שיפוט בהסכמים בינלאומיים.

בספר הנקרא International Contracts and National Economic Regulation:  Dispute Resolution Through International Commercial Arbitration, https://tinyurl.com/mhz8fb4  כתב המחבר בגהרי כי תניית שיפוט יכולה להיות הסעיף הכי חשוב בכל ההסכם.  באמירה זו, מפנה המחבר לאמירה מאת שותף בכיר במשרד ווילמר הייל (וושינגטון);

משרד די. אל. אי. פייפר כתב (בשנת 2014) כי, בהסכם בינלאומי, עניין השיפוט הינו אחד הנושאים הכי חשובים.  ראה

DLA Piper

משרד בייקר אנד מקנזי כתב (גם בשנת 2014) כי הסכם בינלאומי תמיד צריך לכלול תניית שיפוט.  ראה

Baker

משרד גודווין פרוקטור כתב (אף זה בשנת 2014) כי תניית שיפוט הינה קריטית בכל הסכם וקל וחומר בהסכם בינלאומי.  ראה

goodwyn

משרד בראדלי כתב (אף הוא בשנת 2014) כי כדאי להשקיע את הזמן הנדרש בתניית השיפוט מכיוון שבמקרים רבים לסעיף הזה תהיה השפעה רבה בנוגע לכל סכסוך.  ראה

Bradley

Israeli Supreme Court: Enforcing Even an “Imperfect” Foreign Judgment

© 2017 Sherby & Co., Advs.

This is our third (and presumably final) post regarding the Israeli Supreme Court’s decision in JSC VTB Bank v. Margolis (Civil Appeal 1948/15, March 6, 2017).  Our first post dealt primarily with the Russia-related issues from the JSC case, and our second post dealt with the Court’s express holding that, for purposes of determining whether a non-Israeli court properly exercised jurisdiction over a judgment-debtor, consent to the jurisdiction of that court may include implied consent.

This post discusses the availability of the defense, under Israel’s Enforcement of Foreign Judgments Law (1958), that the respondent (defendant before the foreign court) did not receive a “reasonable opportunity” to present his defense in the proceedings before the foreign court (the “Lack of Reasonable Opportunity Defense”).

Summary of Facts:

The JSC case arose from multiple guaranties executed by Yevgeny Margolis, a dual Russian-Israeli citizen, in favor of Russian banks that had given loans to corporations that he controlled.

In each of the guaranties that Margolis signed, he (a) listed an address in Moscow as his address for purposes of receiving notices concerning the guaranties (the “Contractual Address”), and (b) committed to notify the bank in the event of a change of his address.

However, at the time of execution of those guaranties, Margolis in fact was not residing at the Contractual Address (even though his daughter and ex-wife were living there).  It was also undisputed that, although the notice provision did not accurately set forth Margolis’s address, he never notified JSC of any change of address.

In October 2008, Margolis left Russia for Israel, and a mere two months later (December 2008), liquidation proceedings against his companies began.

Because the corporate borrowers (as noted, entities under the control of Margolis) defaulted on the loans, JSC sued Margolis – in Moscow, based on the guaranty agreements.

As noted above, even though Margolis was not residing at the Contractual Address, his former wife and his daughter were living there.  (Para. 15)

JSC served court papers at that address and then filed, with the Moscow court, documents purporting to be confirmations of service.  JSC subsequently obtained default judgments against Margolis in the total amount of approximately US$14 million.

When JSC commenced proceedings in Israel to enforce the Russian judgments, Margolis asserted that (a) he was never served with court papers concerning the Russian proceedings against him, (b) he did not know of those proceedings, and (c) he could not have known of them.  (Para. 10)  Margolis argued that, on these grounds, he proved the Lack of Reasonable Opportunity Defense and that, therefore, the Russian judgments should not be enforced in Israel.

Israeli Supreme Court’s Analysis:

The Israeli Supreme Court largely sidestepped the question of whether service of papers at the Contractual Address complied entirely with Russian procedure.  The Court concluded that the answer to that question was not dispositive on the issue of proof of the Lack of Reasonable Opportunity Defense – for more than one reason, as described below.

First, the Supreme Court observed that the Moscow court apparently was convinced that the evidence of service of process upon Margolis, consistent with Russian law, was sufficient.  Therefore, as far as Israeli law is concerned, any contention by Margolis that service under Russian law was inadequate should have been raised in an appeal in the Russian court system.  (Para. 15)

Second, the Israeli Supreme Court appeared to be convinced that some documentation related to the lawsuit(s) brought by JSC was in fact served at the Contractual Address, noting in particular that Margolis’s daughter and his former wife resided at that address at the relevant time.  (Paras. 15-16)  The Supreme Court went so far as to conclude that it is “logical” that the signatures on the confirmations of service were affixed by someone who lives at that address – namely, either Margolis’s daughter or his ex-wife.  (Para. 16).  The Court further observed that Margolis could have presented testimony from his ex-wife or from his daughter on this issue and that his failure to present such evidence should be held against him.  (Id.)

In so holding, the Supreme Court in JSC essentially ruled that, once the judgment-creditor presents at least some evidence that service of process was carried out at an address reasonably associated with the defendant (judgment-creditor), the burden is upon that defendant to present evidence that such service was insufficient to put him on notice of the proceedings.

As for the default nature of the Russian judgments, the Supreme Court did not consider that to be a grounds for holding that Margolis met his burden of proof as to the Lack of Reasonable Opportunity Defense:

… more than once it has been held that the fact that the foreign judgment was given by default, ex parte, does not in and of itself constitute the defense under section 6(a)(2) of the [Enforcement of Foreign Judgments] Law. . ., and this is (among other things) because of the concern that defendants will refrain from participating in the foreign proceedings for the very reason that they wish to prevent the enforcement of the judgment in another country.  . . .  For a similar reason, it has been held that the test is not whether the defendant knew of the proceedings, but whether service of process was reasonable in the eyes of the court.  . . .  The emphasis is on the question of whether the defendant had a reasonable opportunity to bring his matter before the foreign court prior to judgment being rendered against him, and the answer to this question will not necessarily be negative if the service was not 100% consistent with the procedural rules practiced before the foreign court, or if the hearing in the case was not the pursuant to these rules.  The issue [of reasonable opportunity] is determined through Israeli eyes, based upon the view of an Israeli court as to whether there was a fair hearing.

(Para. 14)

The Supreme Court concluded that, under these circumstances – in particular, where (a) (some form of) service was carried out at the Contractual Address, and (b) the defendant failed to comply with his contractual obligation to notify the lender of his actual/updated address – if an Israeli court were to accept the Lack of Reasonable Opportunity Defense, doing so would encourage similar attempts (by debtors) to evade their legal obligations.  (Para. 15)

The Supreme Court largely saw the case against Margolis as one of estoppel:

  • Because the court papers were sent to the address that the defendant provided to the bank as his address for receiving notices, the defendant is estopped from asserting that he did not know about the proceedings;
  • In order to determine whether the Lack of Reasonable Opportunity Defense could apply, the “procedural fairness” of the foreign proceeding must be examined;
  • There is no defect in a legal proceeding that is commenced by sending court documents to the address that the defendant himself provided in his contract with the bank; and
  • It is not for the Israeli court to engage in a meticulous and detailed examination as to whether each and every confirmation of service complied with the law of the country in which the judgment was rendered.

(Para. 18)

Take-Aways from JSC v. Margolis:

JSC was not the first case in which Israel’s Supreme Court gave its blessing to enforcing a foreign default judgment.  But in JSC, the Court expressed a relatively low level of interest (for the reasons described above) as to whether the Russian procedures for carrying out service of process were fully complied with.  In this respect, JSC is one of the most pro-enforcement decisions ever rendered by Israel’s Supreme Court.

The JSC decision is good news for banks and other entities that place importance in “boilerplate” clauses such as “notice” provisions.  No lender would agree to make a loan when the primary obligor is a flight-risk, and a notice provision – coupled with the obligation to update – is routinely relied upon by lenders to minimize such risk.  In JSC v. Margolis, the Supreme Court essentially told lenders that Israeli law respects their need to rely upon such contractual provisions and that, in the event that a default judgment were to be rendered in favor of the lender, the default nature of the judgment (in and of itself) would not be an obstacle to enforcement.

 

 

Israeli Court Curbs Runaway Arbitrator [bilingual post]

© 2017 Sherby & Co., Advs.

When an arbitrator acts improperly, the ADR community can either lament such conduct or – if it is stopped by a court – praise the court’s action.

Or possibly both.

In Case No. 9294-05-1 (Feb. 2, 2017), the District Court of Jerusalem recently rejected a claim brought by an arbitrator (we will call him “Oliver”) for the payment of arbitrator fees.  The court also required the arbitrator to refund fees that had been paid to him by the parties.

The underlying dispute was one between a land developer and a purchaser.  The arbitrator, Oliver, was not a lawyer but rather an engineer and real estate appraiser.

The arbitrator asserted that he devoted more than 1,000 hours to the case.  In the Court’s brief discussion of the issue, it suggested that 1,000 hours was excessive.  But the clear-cut error was that the arbitrator ignored a March 15, 2016 joint (presumably written) notification by the parties (the litigants before him) that they were not interested in his continuing in his position as an arbitrator.  In fairness to Oliver, the notification from the parties was arguably ambiguous — there is a difference between saying “we settled our dispute” and saying “we do not want you to continue.”

But despite the joint notification’s ambiguity, it was clear enough to have put the arbitrator on notice either to stop his work on the case or at least seek clarification from the parties.  Instead, the arbitrator issued an arbitral award on April 10, 2016 – more than three weeks after receipt of the parties’ joint notification — and requested over $120,000 in arbitral fees.

Because an arbitrator owes a fiduciary duty to the parties before him, if the kind of conduct described in Oliver’s case had been carried out by a lawyer, it is likely that the District Court would have referred this matter for disciplinary action by the Israeli Bar Association.  (There is no indication in the Court’s decision that the Court would be referring Oliver to disciplinary action by any licensing authority in his field(s).)

There are some in the Israeli ADR community who have been very vocal in their view that a non-lawyer should never be appointed as an arbitrator.  This decision will probably add fuel to that fire.

 

בית משפט ישראלי מרסן את הבורר הבורח

כאשר בורר פועל בצורה לא נאותה, קהיליית יישוב הסכסוכים אלטרנטיביים (ADR) יכולה לגנות התנהלות שכזו, או — אם תופסק על-ידי בית המשפט — לשבח את פעולת בית המשפט.

או אולי גם וגם.

בתיק הפ”ב 9294-05-16 דחה בית המשפט המחוזי בירושלים לאחרונה תביעה שהגיש בורר (נקרא לו “אוליבר”) לתשלום שכ”ט. בית המשפט גם דרש מהבורר להחזיר את הכספים ששולמו לו על ידי הצדדים (בעלי-הדין לשעבר).

הסכסוך במקרה דנן היה בין יזם נדל”ן לבין רוכש. הבורר, אוליבר, אינו עורך-דין אלא מהנדס ושמאי מקרקעין.

בתביעתו בפני בית המשפט, טען הבורר כי הקדיש יותר מ-1,000 שעות לתיק. בדיון הקצר של בית המשפט בנושא זה, רמז בית המשפט כי 1,000 שעות הינה כמות מוגזמת. אך ההתנהגות הבלתי-מקובלת והברורה ביותר היתה שהבורר התעלם לחלוטין מההודעה המשותפת (שכנראה הייתה בכתב) מאת הצדדים (בעלי-הדין לפניו) כי לא היו מעוניינים בהמשך תפקידו כבורר. למען ההגינות כלפי אוליבר, ניתן לומר כי ההודעה של הצדדים היתה עמומה — יש הבדל בין לומר “יישבנו את הסכסוך בינינו” לבין “אנחנו לא רוצים שתמשיך”.

אך למרות עמימות ההודעה המשותפת, היא הייתה מספיק ברורה כדי שהבורר יפסיק את עבודתו או לכל הפחות יבקש הבהרה מן הצדדים. במקום זאת, הוציא הבורר פסק בוררות ביום 10.04.16 — יותר משלושה שבועות לאחר קבלת ההודעה המשותפת של הצדדים — וביקש שכ”ט מעל 120,000 דולר.

מאחר שלבורר חובת נאמנות כלפי בעלי-הדין לפניו, אם ההתנהלות המתוארת במקרה של אוליבר הייתה נעשית על-ידי עורך-דין, סביר להניח שבית המשפט המחוזי היה מפנה את העניין לוועדת  המשמעת של לשכת עורכי-הדין הישראלית . (אין כל אינדיקציה בהחלטת בית המשפט כי הוא יפנה את אוליבר להליך משמעתי אצל גורם מוסמך כלשהו בתחום(ים) שלו.)

בקהיליית יישוב הסכסוכים אלטרנטיביים הישראלית, ישנם שהיו מאוד ווקאלים בדעתם, כי אין למנות כבורר אדם שאינו עורך-דין. ייתכן כי ההחלטה הנ”ל תחזק עמדה זו.

 

Israeli Supreme Court Adopts Doctrine Of Implied Consent to Jurisdiction

© 2017 Sherby & Co., Advs.

 

We recently posted a partial summary of the March 6, 2017 judgment by Israel’s Supreme Court in JSC VTB Bank v. Margolis (Civil Appeal 1948/15, March 6, 2017), in which the Court enforced a series of (related) Russian judgments and addressed multiple issues arising under Israel’s Enforcement of Foreign Judgments Law (1958).  We noted that the JSC decision is significant with respect to the circumstances under which an Israeli court would accept the defense (section 6(a)(2) of the EFJL) that the judgment-debtor was not afforded a “reasonable opportunity” to present its defense before the non-Israeli court.  The March 10 post focused on a number of Russia-specific issues, and we indicated that a subsequent post would address the “lack of reasonable opportunity” defense.

But first we address, in this post, an issue that had not (prior to JSC) been ruled on by the Israeli Supreme Court – namely, whether an Israeli court should consider a foreign court to have properly exercised jurisdiction solely on the basis of implied consent to that court’s jurisdiction.

Coincidentally, in our post of February 8, 2017, we discussed a recent District Court case, Otkritie, and we observed:

For at least 20 years, case law from Israel’s Supreme Court has recognized two grounds . . . for finding that a foreign court had personal jurisdiction over the foreign (usually Israeli) defendant – “residence” or “submission.”  The “residence or submission” rule has been repeated several times by Israel’s Supreme Court.

In analyzing the issue of the personal jurisdiction of an English court, the [District Court in Otkritie] made the following observation:

Consent to jurisdiction may be given in different ways, including orally and implicitly.  One of the ways to give consent to jurisdiction is when a litigant litigates in a foreign court on the merits.

Undoubtedly there is case law from other Israeli district courts that supports the above-quoted statement from the Otkritie court.  But the Otkritie court did not cite to any Supreme Court case in support of that proposition.

The reason appears to be that there simply is no such case law from Israel’s Supreme Court.

We wrote that post on February 8, 2017.  Little did we know that approximately a month later, the Supreme Court would address this very issue.

In the JSC case, the Israeli-based judgment debtor argued that the Russian court did not have personal jurisdiction over him – even though he had executed multiple agreements that included a provision in which he expressly consented to the jurisdiction of the Russian courts.  (Para. 22)

It was a loser of an argument, but it provided a springboard for the Supreme Court to examine generally the issue of the approach, under the Enforcement of Foreign Judgments Law, to the exercise of jurisdiction by non-Israeli courts.  Not surprisingly, the Court referred to its multiple decisions setting forth the general rule that a foreign court will be considered to have had jurisdiction over the foreign (usually Israeli) defendant based upon “residence” or “submission” (consent).

As noted in our blog post of February 8, the Supreme Court had never (as of then) held that “consent” could include implied consent.

In JSC (issued on March 6, 2017), the Supreme Court cited approvingly to an article published by Professor Amos Shapira (Tel Aviv University Faculty of Law) – perhaps the leading Israeli law professor in the field of conflicts of law (referred to in Israel as “private international law”) – in which he opined that consent to the jurisdiction of a foreign court could be “expressed or implied.”  (Para. 22)

That ended the ambiguity.

The Israeli Supreme Court has now confirmed that which had been held by several District Courts – namely, that for purposes of determining whether a non-Israeli court properly exercised jurisdiction over a judgment-debtor, consent to the jurisdiction of that court may include implied consent.

Our next post on the JSC case will address the “lack of reasonable opportunity” defense.

But it can already be observed that JSC should be added to the list of very pro-enforcement decisions of Israel’s Supreme Court.

 

Israeli Supreme Court on Enforcing Foreign Judgment – “Da”

© 2017 Sherby & Co., Advs.

Israel’s Supreme Court has long articulated a liberal interpretation of Israel’s Enforcement of Foreign Judgments Law (1958).  See Encyclopedia of International Commercial Litigation (Israel Chapter) § B11.1.  In the recent case of JSC VTB Bank v. Margolis (Civil Appeal 1948/15, March 6, 2017), the Supreme Court extended that liberal approach.  The JSC decision is noteworthy in at least two respects – (a) it is the second time in less than three years that the Supreme Court has dealt with the issue of enforcement of judgments from Russia, and (b) it contains a detailed discussion as to the availability of the statutory defense that the respondent (defendant before the foreign court) did not receive a “reasonable opportunity” before the foreign court to present his defense.

This blog post deals primarily with the Russia-related issues from the JSC case, and in a subsequent blog post, we will discuss the Supreme Court’s analysis of the availability of the “lack of reasonable opportunity” defense.

Enforcement (again) From Russia:

The first case in which Israel’s Supreme Court dealt with the enforceability of a judgment from a Russian court was in 2014, in Double K Oil Products Ltd. v. Gazprom Transgaz Ltd.  The Double K decision received a great deal of attention (and some criticism), primarily for two reasons – (a) its “benefit of the doubt” approach concerning the integrity of the Russian judicial system, and (b) its flexible (or “open to reexamination”) approach to the issue of reciprocity concerning Russian courts.

On the issue of the Russian judicial system’s integrity, the Court in Double K took note of the fact that courts in the United States and in the UK have enforced Russian judgments notwithstanding contentions by some that the Russian judicial system is corrupt.  Without closing the door to the possibility that a future litigant could successfully oppose the enforcement of a Russian judgment by proving corruption, the Supreme Court relied heavily upon the fact that the respondent in Double K had executed a contract that included a forum selection clause that expressly authorized the Russian courts to exercise jurisdiction.  Essentially the Supreme Court told the respondent:  “Once you consent to the jurisdiction of the Russian courts, don’t come crying to us about that court system’s integrity.”

On the issue of reciprocity, the Supreme Court in Double K held (in a nutshell) that, until proven otherwise, the Israeli judiciary should assume that Russian courts would recognize Israeli judgments.

JSC and Consent to Jurisdiction:

As was the case in Double K, the applicant in the JSC case was able to point to the signature of the respondent on a contract (actually multiple contracts) containing a forum selection clause conferring jurisdiction upon the Russian courts.  To a large extent, the existence of the forum selection clauses was a showstopper – the Supreme Court in JSC cited to its longstanding rule that consent to foreign jurisdiction estops a defendant from denying the jurisdiction of the designated court.  (Pp. 20-21, para. 22)

Reciprocity — Silence is Golden:

As indicated above, in Double K, the Supreme Court left open the possibility that, if it were to turn out that Israeli judgments are not enforced “as a matter of principle” in Russia, there might be a change with respect to the enforceability in Israel of Russian judgments.

Citing to the above observation in Double K, the respondent in JSC asserted that, subsequent to the decision in Double K, no Israeli judgment had been enforced in Russia, and the respondent argued that, therefore, the reciprocity requirement in its case was not met.

The Supreme Court made short shrift of that argument.  The Court observed that the argument was made with little or no proof. (P. 20, para. 21)

Of course, the Court could have been even more critical of the respondent on this issue – because the question is not whether any Israeli judgment has been enforced in Russia.  Rather, the issue is whether enforcement of an Israeli judgment has been denied by any Russian court.  Apparently the respondent was not able to call to the court’s attention any such case.  It is, of course, possible that many judgments have been rendered by Israeli courts in recent years against debtors located in Russia but that there was no need in those cases to seek enforcement in Russia.

As indicated above, a subsequent blog post will address the Supreme Court’s analysis of the availability of the “lack of reasonable opportunity” defense.

 

Israeli Court Refuses to Enforce Forum Selection Clause in Online Foreign Exchange Agreement. What’s Next?

© 2017 Sherby & Co., Advs.

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).

Israeli District Court’s Mini-Treatise on Enforcement of Foreign Judgments

© 2017 Sherby & Co., Advs.

Although Israeli courts tend to take a pro-recognition approach to non-Israeli judgments, it is unusual for an Israeli court to issue a 38-page decision when adjudicating such a matter.  At the same time, not every day does a non-Israeli judgment creditor seek to enforce a foreign judgment in excess of $160 million.  The recent case of Otkritie International Investment Management, Civil File 35884-05-14 was such a decision.  Money “talks” – and sometimes that “talk” results in a detailed judicial decision.

Various aspects of the Otkritie decision are of interest.  In this blog post, we will address only two issues – (a) the court’s analysis of the question of personal (international) jurisdiction, and (b) the award of costs.

Jurisdictional defense available to a judgment-debtor:  Under Israel’s Enforcement of Foreign Judgments Law (1958), one of the defenses available to a judgment-debtor is that the foreign judgment was given by a court “that was not authorized to give it under the rules of private international law as applied in Israel” – or (in common law parlance) that the non-Israeli court was without personal jurisdiction.

For at least 20 years, case law from Israel’s Supreme Court has recognized two grounds (arguably only two grounds) for finding that a foreign court had personal jurisdiction over the foreign (usually Israeli) defendant – “residence” or “submission.”  The “residence or submission” rule has been repeated several times by Israel’s Supreme Court.

In analyzing the issue of the personal jurisdiction of an English court, the Otkritie court made the following observation:

Consent to jurisdiction may be given in different ways, including orally and implicitly.  One of the ways to give consent to jurisdiction is when a litigant litigates in a foreign court on the merits.

Undoubtedly there is case law from other Israeli district courts that supports the above-quoted statement from the Otkritie court.  But the Otkritie court did not cite to any Supreme Court case in support of that proposition.

The reason appears to be that there simply is no such case law from Israel’s Supreme Court.

This state of the case law is interesting for a number of reasons – not the least of which is that, in many areas of international litigation, case law from Israel’s Supreme Court is more favorable to non-Israeli litigants than is case law from Israel’s lower courts.  Two examples of such dichotomy are the enforceability of forum selection clauses (calling for litigation outside Israel) and the exercise by Israeli courts of “long-arm” jurisdiction.  In those two areas, it is common for a non-Israeli defendant to “wish” that the lower court would faithfully apply Supreme Court precedent.

In any event, the implied consent rule, as summarized by the Otkritie court, is reasonably grounded in district court case law such that, when a judgment-debtor asserts the lack of jurisdiction of the non-Israeli court, the judgment-creditor can assume that, as a general matter, a well-grounded assertion of implied consent will prevail.

Award of Court Costs:  As indicated above, the Otkritie decision is 38 pages.  The primary reason for such a lengthy decision appears to be the judgment-debtor’s “hold no punches” litigation strategy – it asserted just about everything.  The District Court did not like that approach, as reflected in paragraph 141 (the final paragraph) of the decision:

Taking into account the [above] and the totality of the [circumstances] and the relevant considerations, including the manner in which the case was litigated, the monetary sum in dispute, the complexity of the case, the testimony that was brought (including expert opinions and from abroad), and other factors . . . , the defendants are required to pay the plaintiffs the amount of NIS 450,000.

It is extraordinary (albeit not unheard of) for an Israeli court to issue a costs order of NIS 450,000.  It appears that the “kitchen sink” approach taken by the defendants was the key ingredient (excuse the pun) in the court’s decision to impose significant costs.

As indicated above, various aspects of the Otkritie decision are of interest, and we will report on those in a future blog post.

 

הצרות באות בצרורות

חברה ישראלית נוספת נושאת בהשלכות של התעלמות מחוקים נגד שחיתות

© Sherby & Co., Advs.

רק שבוע לאחר שפורסם כי חברת ניפ גלובל בע”מ הסכימה לעסקת טיעון עם פרקליטות המדינה בגין הפרת החוק הישראלי למניעת שוחד, ורק מספר ימים לאחר פרסום ההודעה לפיה איש העסקים בני שטיינמץ נעצר בחשד להפרת אותו החוק, חברת טבע תעשיות פרמצבטיות בע”מ —  החברה הגדולה ביותר בישראל ואחת מיצרניות התרופות הגדולות בעולם — הודיעה על עסקת טיעון (להלן– “ההסדר“) עם משרד המשפטים האמריקאי בגין הפרת החוק האמריקאי למניעת שוחד.

על-פי ההסדר, טבע תשלם קנס של למעלה מ-500 מיליון דולר.

אלו לקחים יכולות חברות ישראליות אחרות ללמוד מהמקרה של טבע והסדר טיעון?

הנה מספר לקחים:

כל חברה נמצאת תחת מיקרוסקופ: כל חברה ישראלית אשר פעלה תחת ההנחה כי אינה צריכה לחשוש מאכיפת החוק האמריקאי למניעת שוחד חייבת לחשוב בשנית. אם לחברה שלכם יש כל קשר משמעותי לארה”ב (לרבות מניות שנסחרות שם או שיש חברה אמריקאית קשורה), עליכם להניח כי אתם מתחת למיקרוסקופ של מחלקת ההונאה של משרד המשפטים.

כפי שההצלחה של קומץ חברות היי-טק ישראליות גורמת לקהילת המשקיעים לשים לב לחברות היי-טק ישראליות אחרות, כך גם פרשת השחיתות של טבע תגרום למשרד המשפטים האמריקאי להקדיש יותר תשומת לב לחברות ישראליות שאינן גדולות כמו טבע אך פועלות במישור הבינלאומי.

בורות לא תהווה תירוץ: הערה קשורה היא קל וחומר מההוראה לעיל — אם כי ברמת הפרט. משרד המשפטים יניח כי המנהלים הבכירים בחברה בסדר גודל של טבע — ללא קשר לשאלה אם הם יזמו את מתן השוחד או עצמו עיניים בנוגע לתשלומים אלה — היו מִשּׁוּפְרָא דְּשׁוּפְרָא של הקהילה העסקית בישראל. מכיוון שטבע נסחרת בארה”ב, יש להניח כי מנהליה הבכירים עברו הכשרה כלשהי במניעת שחיתות.

משרד המשפטים יניח כי אם מנהלים שבאמת עברו הכשרה במניעת שחיתות היו מוכנים לשים הכשרה זו בצד במטרה של הגדלת רווחי החברה, אז כמובן שמנהלים בחברות ישראליות קטנות יותר — בהן הכשרה במניעת שחיתות היא לאו דווקא חלק מהשגרה — יהיו מוכנים לעשות זאת.

אין הטענה “לא ידענו שזה לא חוקי לשלם שוחד במדינה זרה על-פי החוק האמריקאי” מהווה טענת הגנה.

קחו גילוי עצמי (self-disclosure) ברצינות: נקבע בהסדר כי טבע לא גילתה מרצון בזמן את התנהלותה הלא חוקית למשרד המשפטים:

טבע… לא גילתה מרצון בזמן את ההפרות [של ה- FCPA] שלה [מחלקת ההונאה של משרד המשפטים], וכתוצאה מכך החברה [טבע רוסיה] לא הייתה זכאית להנחה משמעותית יותר מסכום הקנס או דרך של יישוב העניין…

לאנשי עסקים ישראליים רבים, הביטוי “גילו עצמי” מכיל מילה שלישית, מוסתרת – המילה “פרייר“. אנשי עסקים ישראלים רבים מגיבים בתדהמה לרעיון שחברה עשויה להודיע לרגולטורים (או לגורמי אכיפת החוק) על התנהלות בלתי חוקית, כולל התנהלות פלילית, שהחברה מגלה בכוחות עצמה. אנשי עסקים אלה מעדיפים לקחת את הסיכון שלא ישימו לב להתנהלות זו.

אך כל איש עסקים ישראלי שאינו רוצה להיחשב לפרייר צריך לזכור כי הקנס שטבע הסכימה לשלם הוא למעלה מ-500 מיליון דולר. אין ספק שבעלי המניות של טבע אינם מרוצים מהקנס הנ”ל.

לכל אלו שחושבים כי גילוי עצמי הינו לפריירים בלבד, המקרה של טבע גורם להם לחשוב על תפיסה זו מחדש.

הבעיה הבאה תגיע מבעלי המניות: כפי שצוין לעיל, בהסדר, משרד המשפטים למעשה הודיע לבעלי-המניות של טבע כי, אילו הייתה החברה מבצעת גילוי עצמי, סכום הקנס עלול היה להצטמצם.

עם זאת, יש קביעה נוספת (שחזרה על עצמה מספר פעמים) בהסדר שצריכה לעורר דאגה בקרב הנהלת טבע. בהסדר צוין לפחות חמש פעמים כי התנהלותה הבלתי חוקית בוצעה על-ידי מנהלים “בכירים” של טבע או של חברת הבת הרוסית שלה.

אם וכאשר בעלי-המניות של טבע יגישו תביעה נגזרת כנגד המנהלים של החברה, תהיה להם תחמושת מן האמור בהסדר הן בכדי לטעון כי ההחלטה על-ידי ההנהלה הבכירה לשלם שוחד מהווה הפרה של חובות נאמנות, והן בכדי לטעון כי ההחלטה שלא לבצע גילוי עצמי (או לא לעשות זאת בזמן) מהווה הפרה של חובות אלה.

אין ספק כי טבע הייתה מעדיפה שההסדר לא יכלול (א) כל התייחסות למעורבותה של ההנהלה הבכירה, או (ב) כל אזכור לעובדה כי גילוי עצמי על-ידי טבע היה יכול להוביל לקנס נמוך יותר.

אך משרד המשפטים רואה עצמו כבעל מחויבות לציבור המשקיעים. גם אם טבע הייתה מתחננת למחוק את האמירות הנ”ל מטיוטת ההסדר, סביר שמשרד המשפטים לא היה נענה לבקשה זו.

על כל חברה ישראלית שמניותיה נסחרות בארה”ב ללמוד מכך כי — ללא קשר לשאלת מעורבות ההנהלה הבכירה בתשלום שוחד, אי-גילוי עצמי, או כל שיקול אחר — הסדר הטיעון עם משרד המשפטים עשוי להכיל מידע רב שישמש את בעלי-המניות התובעים בתביעה נגזרת נגד החברה.

אחת הדרכים להפחית בעיה כזו (במקרים רבים) היא דרך גילוי עצמי.

ברוכים הבאים לאמריקה.

לסיכום, אין זה מקרי כי, בהודעה לעיתונאות בנוגע לעסקת הטיעון, המנכ”ל של חברת טבע השתמש ארבע (4) פעמים במונח “culture of compliance”.  כפי שציינו בפוסט שלנו מיום 20.12.16, הדרך הטובה ביותר (אולי הדרך היחידה) להימנע מבעיות משפטיות בנושא שוחד בינלאומי הינה לאמץ תכנית שמאפשרת לחברה להוכיח לגורמי אכיפת החוק שהחברה פועלת בהתאם ל-“culture of compliance”.  שימוש גרידא במונח לא יספיק.

 

ייזהר המוכר” — עידן חדש במניעת שוחד בינלאומי”

© Sherby & Co., Advs.

 

העולם העסקי הישראלי הוכה בתדהמה כתוצאה מפרסומם של שני אירועים תוך ארבעה ימים – (א) הסדר טיעון (שפורסם ביום 15.12.16), עם חברת ניפ גלובל לפיו החברה תיקנס ב-4.5 מיליון ש”ח בגין מתן שוחד בממלכת לסוטו (באפריקה), ו-(ב) מעצרו של איש העסקים בני שטיינמץ (פורסם אתמול) בחשד שהוא שילם שוחד לבכירים בממשלת גיניאה.

א. הרקע

לפני כ-20 שנה, מס הכנסה הישראלי היה מכיר כהוצאה מוכרת מתן שוחד על-ידי חברה ישראלית כאשר הדבר היה נדרש על-מנת להשיג פעילות עסקית בחו”ל (בעיקר במדינות עולם שלישי). אך בשנת 2008 תוקן החוק הישראלי (סעיף 291א לחוק העונשין), כך שמתן שוחד לעובד מדינה זרה מהווה עבירה פלילית.

החל משנת 2009, ארגונים בינלאומיים, וביניהם ה-OECD, עקבו אחרי רמת האכיפה של החוק בישראל, וחלק מהארגונים הנ”ל הביעו ביקורת על כך שבמדינת ישראל לא נפתח אף תיק פלילי בקשר למתן שוחד בחו”ל.

בכנס שהתקיים בתל אביב, לפני כשלוש שנים, ניסה פרקליט בכיר בפרקליטות המדינה להסביר כי העובדה שלא הוגשו כתבי אישום בנושא שוחד בחו”ל נובעת מכך שבישראל צריכים רמה גבוהה של ראיות על-מנת להרשיע וכי בדרך כלל קשה להשיג את רמת הראיות הנדרשת כאשר פעולת מתן השוחד בוצעה במדינה זרה.

ב. אירועי השבוע שעבר

כנראה שהמצב השתנה.

על-פי הדיווחים הראשונים, בתיק של שטיינמץ, הרשויות הישראליות נעזרו בסיוע מגורמים אמריקאיים, ובעניין ניפ גלובל, הרשויות הישראליות נעזרו בסיוע של הארגון UNCAC. בעסקת הטיעון הסכימה ניפ לשלם קנס של 4.5 מיליון ש”ח.

ג. עם הפנים קדימה

כל חברה ישראלית הפועלת בחו”ל – במיוחד אלו שפועלות במדינות עולם שלישי – צריכות להפיק לקח מפרשת שטיינמץ ומפרשת ניפ גלובל.

רשויות אכיפת החוק מודעות לטענה לפיה “אי-אפשר לנהל עסקים” במדינות רבות בעולם מבלי לתת שוחד לעובדי אותה מדינה. לטענה זו אין ערך משפטי. על-פי החוק, חברה ישראלית הפועלת בחו”ל חייבת לעמוד בסטנדרטים של הדין הישראלי – אפילו כאשר הנוהג במדינה זרה דורש פחות.

בתחום של מניעת שוחד, אחת מהבעיות הנפוצות ביותר היא דרישה מאת סוכן במדינה זרה לקבלת כסף עבור תשלום “מיוחד” או עבור “לוגיסטיקה מיוחדת”. במקרים רבים דרישה כזו היא בקשה בכסות מאת הסוכן לקבלת כסף עבור שוחד שיינתן לעובד המדינה בה החברה הישראלית מנסה לעשות עסקים.

לפי הדיווחים, המצב המתואר לעיל היה בדיוק הפלונטר בו נפלה חברת ניפ גלובל – היא שכרה את השירותים של “מתווך” בממלכת לסוטו, ואותו מתווך העביר כספים לעובד המדינה או לקרוב משפחתו.

על-פי הדין, מתן שוחד על-ידי סוכן או מתווך (זר) דינו מתן שוחד על-ידי החברה הישראלית.

בכל רחבי העולם, חברות ממדינות מערביות מנסות להתמודד עם הבעיה של פעילות לא חוקית ע”י סוכנים/מתווכים. הפיתרון אינו עצימת עיניים – אלא אימוץ תוכנית למניעת שוחד.

כבר כ-40 שנה חברות אמריקאיות מודעות לסכנה במתן שוחד בעסקים בינלאומיים, והדבר גרם לקהיליית העסקים בארה”ב לאמץ תוכניות למניעת שוחד. תוכניות אלו מבוססות הן על לימוד עובדים על האיסור למתן שוחד והן על הקפדה, בבחירת סוכנים זרים/מקומיים, על כך שגם הם יבינו את חומרת האיסור ואת ההשלכות המשפטיות של עבירה על החוק.

אנשי עסקים רבים בעולם המערבי שואלים: “מה יקרה אם, למרות כל המאמצים הסבירים למנוע מתן שוחד ע”י נציגינו וסוכנינו, אחד מהם עדיין משלם שוחד, ללא ידיעתנו, בקשר לעסקה שלנו?” התשובה אינה פשוטה. בהנחה שהניסיון בארה”ב יהיה רלבנטי גם בארץ, ככלל חברה שמצליחה לאמץ “culture of compliance” יכולה להתגונן בפני אשמה שסוכן מטעמה שילם שוחד.

בארה”ב היו מקרים בהם סוכן זר שילם שוחד, ללא ידיעתה של החברה, והרשויות החליטו לא להגיש כתב אישום כנגד החברה. מדוע לא? מכיוון שהחקירה שבוצעה ע”י גרומי אכיפת החוק גילתה שבאותה חברה ההנהלה אכן אימצה תוכנית למניעת שוחד ואכן יצרה  “culture of compliance” בחברה.

מהי “culture of compliance”? בקליפת האגוז, היא מודעות אצל כל אחד בחברה לפיה החברה לא תסבול פעולה כלשהי שאינה חוקית.

לסיכום, אירועי השבוע שעבר מוכיחים כי עולם העסקים הישראלי עובר מעבר – מה שנחשב עד לאחרונה כעבירה “תיאורטית” הוכיח את עצמו כסיכון של ממש. לאור הסיכון של קנסות של מיליונים והאפשרות להרשעה בעבירה פלילית, כל חברה ישראלית בתחום הבינלאומי חייבת להשקיע את המאמצים הנדרשים לוודא שהיא עומדת בדרישות הדין.

כל חברה שכזו חייבת לאמץ תוכנית למניעת שוחד.