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Israel: Jurisdiction over Suits Involving Provision of Services to Israeli Customers via Internet by International Corporations

(June 16, 2015) On May 31, 2015, Israel’s Central District Court approved the filing of a class action suit against PayPal Corporation for requiring Israeli customers wishing to transfer foreign currency to Israeli bank accounts managed in foreign currency to first change the foreign currency to Israeli currency and pay a commission for the procedure. The forced currency exchange requirement had been removed shortly after the filing of the complaint. The requester alleged, however, that in addition to returning the commission paid for the exchange, PayPal must compensate its customers for damages caused by the forced exchanges that had been conducted prior to the amendment of the users’ contract. (File 39292-04-13 DC (CT) Klinghofer v. PayPal Pte. Ltd (May 31, 2015) ¶¶ 7-9, TAKDIN LEGAL DATABASE (by subscription, in Hebrew).)

The respondent asked the court to reject the claim based on lack of jurisdiction. The users’ agreement posted on PayPal’s Internet site included a stipulation that required any dispute between PayPal and its international customers to be adjudicated in Singapore. (Id. ¶ 14.)

Rejecting PayPal’s claim, Judge Ofer Groskopf held:

The respondent is a corporation that provides, via the Internet, service to hundreds of thousands of Israeli citizens. For the purpose of providing such service [the respondent] operates an Internet site in Hebrew that is designed for Israeli citizens and even provides help services to its huge pool of customers in Israel. In this state of affairs, forcing Israeli PayPal customers to adjudicate in a court in Singapore (while preserving the respondent’s right to sue its customers in Israel) and according to Singaporean law is clearly a provision the objective of which is to block customers’ access to realization of their rights against the respondent. Under these circumstances, I tend to be of the opinion that the stipulation should be regarded as void according to section 5(a) of the Standard Contracts Law [which states]: ‘[a] condition in a standard contract denying or limiting the customer’s right to apply to judicial authorities shall be void.’ …

PayPal operates in the Israeli market exactly the same way as other mega international corporations, such as Microsoft, Facebook and Google, do. The Supreme Court has clarified that an international corporation that distributes its products to an Israeli customer must expect to be sued in Israel … [and] this precedent applies, even more so, when it involves a mega international corporation that distributes its products and services to tens and hundreds of thousands of customers in Israel. … The fact that the activity of these mega corporations is done primarily or exclusively via the Internet does not provide such corporations immunity from litigation in courts in Israel and according to Israeli law. … (Id. ¶¶ 19-20.)

Determining that there was more than a reasonable likelihood that the two main claims of the class action, namely, the alleged unlawfulness of forced currency exchange and of payment of a commission would be determined in favor of the plaintiff class, Judge Groskopf approved the class action against PayPal for customers who paid commissions for the exchange of currency, held PayPal accounts in foreign currency, and withdrew money from such accounts into Israeli bank accounts during a period beginning seven years prior to the filing of the complaint and continuing until the entry into force of the updated users’ agreement. (Id. ¶ 47.)