Corporations the world over engage in agreements with Israeli corporations. Naturally, each party wants to litigate in its home country when disputes arise. Foreign corporations will include jurisdiction stipulations in their agreements that are favorable to them. But when will Israeli courts enforce or refuse to enforce foreign jurisdiction stipulations?

Jurisdiction Stipulation

The Israeli legal system supports freedom of contract and enforces agreements between parties. Israeli courts generally honor a jurisdiction clause designating a foreign jurisdiction for resolving disputes. Exceptions to this rule exist only in exceptional circumstances. One such example is when a plaintiff may not receive a fair trial in the foreign forum because of racial or religious discrimination.

The Israeli Supreme Court requires that jurisdiction clauses be clear and not open to multiple interpretations. This is because a jurisdiction stipulation has the power to prevent a party from the right to litigate in a qualified forum.   

Exclusive or Non-Exclusive Foreign Jurisdiction

A foreign jurisdiction stipulation may grant exclusive or non-exclusive jurisdiction. An exclusive jurisdiction stipulation grants sole jurisdiction to a particular court. Alternatively, a non-exclusive jurisdiction stipulation grants jurisdiction to a particular court but does not exclude the possibility of the dispute being litigated in other courts.

The question of whether this is a unique or parallel condition is interpretive. However, contrary to the usual rules of interpretation of an agreement, which include both the language of the agreement and its purpose, in the case of interpreting a jurisdiction stipulation, the court will give more weight to the language of the agreement, which should be unambiguous, explicit and clear.

For example, in cases where a jurisdiction stipulation was printed on purchase orders or invoices, but no signed agreement regulated the relationship between the supplier and the customer as a whole, courts have not allowed the jurisdiction stipulation to apply to the overall relationship between the parties. This means that a lawsuit pertaining to the overall relationship, such as a lawsuit over the termination of the engagement, may be litigated on Israeli court and not according to the jurisdiction stipulation printed on the specific purchase orders.

Foreign Jurisdiction Stipulation in a Uniform Contract

The outcome may be different if the foreign jurisdiction stipulation is incorporated in a uniform contract. According to uniform contract law, a foreign jurisdiction stipulation in a uniform contract is considered a discriminatory stipulation. Therefore, the courts can invalidate it and rule that the litigation will take place in Israel, notwithstanding the foreign jurisdiction stipulation. When determining if the contract in question is a uniform contract and if a discriminatory stipulation is involved, the court will examine the power imbalance between the parties to the engagement. The greater the imbalance, the more the court will tend to intervene and invalidate or change the foreign jurisdiction stipulation that disenfranchise the weaker party.

Arbitration Stipulation

The likelihood of enforcing a foreign jurisdiction stipulation increases when it involves an arbitration stipulation. When the court receives a contractual dispute that has been agreed to be sent to arbitration, the court will stay the hearing at the request of one of the parties, in order to refer the dispute to arbitration, unless there are special circumstances not to do so.

, the court will stay the hearing at the request of one of the parties in order to refer the dispute to arbitration, unless there are special circumstances.

When an international treaty to which Israel is a party applies to the arbitration, which prescribes provisions regarding a stay of proceedings, the court will act in conformity with the provisions of that treaty. For example, Israel is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. According to this convention, the court will refer the litigants to arbitration upon request, unless the agreement is null and void, inoperative, or incapable of being performed.

Unless one of these three conditions exists, the courts will stay the proceedings and refer the dispute to arbitration. Although the courts have expressed that there may be exceptional instances when the court will refrain from staying the proceedings, even if none of these three conditions exists, they have clarified that such instances are rare. For example, when an Israeli district court refrained from staying a proceeding for arbitration on the grounds that one of the litigants was not a party to the arbitration agreement, the Israeli Supreme Court reversed the decision and referred the dispute to foreign arbitration because none of the exceptions specified in the New York Convention exist.

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