Can the expiry of a limitation period in a foreign forum justify ignoring an exclusive foreign jurisdiction clause? – the Israeli Central District Court clarifies when

Preamble

According to well-established Israeli case law, the mere existence of an exclusive jurisdiction clause, which, empowers a foreign court to adjudicate a conflict and at the same time negates the authority of the Israeli courts to adjudicate said conflict, does not, by itself, undermine the jurisdiction of the Israeli courts. Thus, the Israeli courts have the discretion whether to adjudicate a conflict which is the subject matter of such foreign exclusive jurisdiction clause. Nevertheless, said long-standing case law further provides that, as a rule, the Israeli courts should uphold and enforce a foreign exclusive jurisdiction clause, unless special and heavy-weighted circumstances justify deviation from this rule.

According to Israeli Supreme Court rulings, the expression "special and heavy-weighted circumstances" should be narrowly interpreted and the burden of proving their existence lies within the party seeking the deviation from the foreign exclusive jurisdiction clause. Examples of such special circumstances include situations whereby: (a) the exclusive jurisdiction clause refers to a forum in which it is clear that the foreign courts will not apply fair justice due to racial or religious discrimination; or (b) the party relying on the exclusive jurisdiction clause shall in any case be subject to the Israeli jurisdiction with respect to the same conflict (e.g., a claim against such party was filed in Israel by two separate plaintiffs, only one of which is subject to the foreign exclusive jurisdiction clause, thus enforcing the clause will not prevent litigating the conflict in Israel but will only lead to an unnecessary and unjustified split of the proceedings).

In a decision very recently rendered by the Israeli Central District Court,¹ the Court dealt with the question as to whether the possibility that a claim might be regarded as time-barred due to the statute of limitation existing in the foreign forum to which the exclusive jurisdiction clause refers, should be regarded as “special and heavy-weighted circumstance” which justify deviation from such clause.

Discussion

The District Court analysed previous case law which dealt with said question and reached the conclusion that, in general, the possibility that a claim might be regarded as time-barred in the foreign forum may justify deviation from an agreed exclusive jurisdiction clause.

However, according to the decision, when deciding whether a limitation period should justify deviation from an agreed exclusive jurisdiction clause, the court should take into account the specific circumstances of each case and should also consider whether: (a) there was anything preventing the party seeking the deviation from the exclusive foreign jurisdiction clause from bringing an action before the foreign forum prior to the expiry of the alleged limitation period in the foreign forum; and (b) the limitation period applicable in the foreign forum is exceptionally and unreasonably short.

The Court concluded by stating that only when the conduct of the party seeking to rely upon the exclusive foreign jurisdiction clause may be regarded as cunningness and action in bad faith, this could merit disregarding the exclusive foreign jurisdiction clause on the basis of the possibility that a claim might be regarded as time-barred in the foreign forum.

Implementing the above mentioned criteria to the case at hand, the District Court ruled that Wacker – the third party which relied on the exclusive jurisdiction clause – had not prevented, in bad faith or through any other cunning act, the filing of a claim against it in Germany by the Notifiers prior to the expiry of the limitation period applicable under German law. Thus, the Court did not accede to the Notifiers’ request to deviate from the foreign exclusive jurisdiction clause and instead decided to enforce it and, in so doing, ruled that the Third Party Notice should not be heard before the Israeli courts and accordingly cancelled the previously granted leave of service of the Third Party Notice in Germany, outside the jurisdiction of the Israeli courts.

Conclusion

The applicability and power of an exclusive foreign jurisdiction clause is not always clear-cut. Under certain circumstances, the Israeli courts may elect to deviate from such clause and apply their jurisdiction. Being aware of such possible circumstances is very important and may even turn out to be crucial. Thus a careful drafting of the clause, as well as wise and mindful conduct in the event of any conflict arising which may be subject to such clause, may minimize the risk that the Israeli court could elect to disregard an exclusive foreign jurisdiction clause on the basis of the claim being time-barred in the foreign forum.