Draft Bill on Application of Israeli Law to Foreign Dealers and International Companies
Summary
- Purpose of the draft bill: The Ministry of Justice published a draft bill seeking to regulate the application of Israeli mandatory law to foreign dealers targeting the Israeli market. The proposal anchors recent Supreme Court case law in primary legislation and aims to eliminate legal uncertainty by ensuring that foreign corporations deriving economic benefit from Israel are subject to Israeli consumer-protective norms, even if their core operations are located abroad.
- The “directing activities” test: The draft bill introduces a substantive test under which Israeli law will apply where a foreign dealer “directs its activities” toward Israeli customers. This assessment is based on the overall connection created with the Israeli market, including indicators such as Hebrew-language interfaces and documents, pricing and payment in ILS, Israel-focused marketing, Hebrew customer support, and transactions involving Israeli real estate.
- Expanded scope and mandatory law: Protection under the proposed framework extends beyond private consumers to include micro-businesses engaging in standard contracts, thereby covering certain B2B transactions as well. The draft bill further establishes the mandatory application of key Israeli statutes—regardless of contractual stipulations—including consumer protection, standard contracts, privacy, and payment services laws, and creates a presumption that foreign choice-of-law clauses in standard contracts are unfair.
- Procedural obligations and practical implications: Foreign dealers directing activities to Israel will be required to provide a local address or designated channel for service of process, easing enforcement and litigation in Israel. Overall, the memorandum reflects a regulatory shift toward stronger local consumer protection in the digital economy and significantly increases Israeli regulatory exposure for international companies, calling for a reassessment of contractual terms, privacy policies, and engagements with Israeli micro-businesses.
The Ministry of Justice recently published a draft bill for public comments, aimed at regulating the application of Israeli law to foreign dealers who target customers in Israel. The draft bill seeks to codify trends established by Supreme Court rulings in recent years into primary legislation and to set clear rules under which mandatory Israeli legal provisions will also apply to corporations headquartered outside of Israel, when their activities actually target the Israeli market.
Underlying the draft bill is the recognition that international trade patterns have created a reality in which foreign dealers engage extensively with customers in Israel, often through standard contracts containing foreign law stipulations (terms of use or website regulations). The purpose of the draft bill is to reduce legal uncertainty and ensure that businesses actively targeting the Israel market and generating economic benefit from it are subject to Israel’s local protective norms and consumer protection laws.
When Will Israeli Law Apply? The “Directing Activities” Test
The draft bill’s introduces a substantive test to determine the applicability of Israeli law, focusing on the connection the foreign dealer establishes with the Israeli market. Israeli law will apply if a foreign dealer “directs its activities” toward customers in Israel. The extent of this direction is assessed based on the dealer’s overall actions, with the draft bill listing a series of indicative factors, including:
- Adapting the website and legal documents to Hebrew.
- Displaying prices and collecting payments in Israeli currency (ILS).
- Marketing and advertising activities specifically targeting the Israeli market.
- Offering customer service in Hebrew.
- Executing transactions involving real estate in Israel.
Expanding Exposure: From Private Customers to Micro-Businesses
The draft bill is designed to protect customers in engagements with built-in power imbalances. A “customer” is defined as a person residing in Israel who purchases an asset or service for personal or household use.
The draft bill also extends protection to micro-businesses, defined as businesses employing up to five employees or with annual turnover not exceeding ILS 2 million, when they engage in a standard contract with a foreign dealer. This means that B2B transactions with micro-businesses in Israel will also be subject to the law’s limitations and local mandatory laws.
Nullification of Choice of Law Clauses in Standard Contracts
The draft bill include a schedule of mandatory laws that will apply to foreign dealers, regardless of any contractual waiver or choice-of-law provision. These currently include the Consumer Protection Law, the Standard Contracts Law, the Privacy Protection Law, and the Payment Services Law.
In addition, the draft bill proposes an indirect amendment to the Standard Contracts Law, creating a legal presumption that any standard contract containing a choice-of-law clause other than Israeli law, or granting the supplier exclusive right to choose the applicable law, is unduly disadvantageous. This aims to curb the common practice of applying foreign law in consumer contracts and ensure Israeli customers’ ability to litigate under familiar local laws.
Procedural Duties: Appointing a Representative and Service of Process
At the procedural level, the draft bill obligates foreign dealers whose activities target Israel customers to clearly display on their websites either the address of their representative in Israel or a designated email address for service of process. This measure seeks to remove technical obstacles that have previously prevented customers from exercising their rights and to simplify service of process abroad, thereby facilitating lawsuits and class actions in Israel.
Implications and Recommendations for International Companies
The draft bill reflects a policy shift from honoring contractual stipulations to regulating and protecting local consumers in the digital era. For international companies operating in Israel, this entails increased exposure to Israeli regulations and the associated risks. We recommend that foreign dealers and international companies review terms of use and operating models, adapt privacy policies to Israeli law, and map existing engagements with micro-businesses.
Our firm is at your service to answer questions regarding the draft bill and to assist in mapping risks and assessing potential legal exposures arising from the expected amendments.
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Adv. Eran Elharar is a partner in the firm’s Regulation Department.
Adv. Or Levi is an associate in the firm’s Regulation Department.