It’s a small world after all… or is it?

It’s a small world after all… or is it?

Written by

Gilad Bar-Ami
July 6, 2024

It’s a small(er) world…, you no longer need to be a Marco Polo to reach China and you can easily book a room in a hotel in Chile without buying a travel guide, all via a website in Hebrew. ‘Click’ on "Confirm Terms of Service" and the suite is waiting. But what happens when things go wrong? While the website is in Hebrew, the service is provided by the B.V, situated in the Netherlands, and in the terms of service, which we have approved, lies hidden a consent to exclusive jurisdiction in the Netherlands and under Dutch law! In other words, an impossible task with costs that probably outweigh the losses but one to which we "agreed" in that 'click'. Is there really no hope?

The principle of freedom of contract allows the parties to agree on the law that will govern the contract. However, the terms of service approved for the purpose of booking a vacation online are not an agreement that both parties negotiated and freely agreed upon, but rather a contract which terms were dictated in advance by the supplier to an undefined group of customers, who were presented with the following choice: accept the terms as they are; or forgo the transaction as a whole. Which means that they are an ‘adhesion contract‘. A term in such contracts that gives the supplier an unfair advantage in a manner which may result in customer deprivation is defined as a ‘depriving term.’ Additionally, there is a legal presumption that any condition that limits or denies the customer's right to make certain claims in Court - is a ‘depriving term’. The Court has the authority to cancel or change a ‘depriving term’ and the justification for such far-reaching authority lies in the disparity of power and information between the parties and the concern of abuse by the supplier who unilaterally dictates the terms of the contract.

In a case heard in the Central District Court in May, 2015, the Court held that a provision requiring litigation in a foreign country and under a foreign law is to be canceled. In that case, a provision in PayPal service agreement required customers to litigate in Singapore under Singaporean law. The Court canceled that provision in its entirety, inter alia because it effectively bars the customer from litigating due to the very fact that it has to be made in a foreign country and under a foreign law. But would litigating in Israeli Courts but under a foreign law also automatically constitute a denial of the customer's right to claim?! This issue was debated at the Supreme Court in May, 2018, and it was held that the customer must prove that applying the foreign law would deprive him of making certain claims. In that case, a class action plaintiff submitted a motion for approval of a class action against Facebook for a considerable amount. The Court canceled the California exclusive jurisdiction but kept the governing law clause in place because it held that the legal system in California is advanced in the class actions field, and laws and holdings can be accessed over the Internet and are all in the English language, which is familiar to most Israelis, and Californian law being the governing law would not deter a class claimer who stand to make considerable gains from submitting motions for approval of a ss action. However, in a case heard at the Supreme Court in July, 2022, it was determined that a company that operates in Israel expresses an implicit intent that its contracts with costumers in Israel will be governed by Israeli law, otherwise the company electing to conduct business in Israel is given legitimacy to completely disavow the application of Israeli law. A further diminution of foreign governing law clauses came in the Supreme Court holding of May, 2024, where the Court held that, as a general rule, the application of foreign law in adhesion contracts should not be allowed to be forced and a distinction between an individual and a class action plaintiff, should not be made as a class action does not creates new rights but rather is simply a mean for improving the protection of the existing rights of many individuals.

While the Internet gives the feeling that the world is a small global village, the reality is that each of the parties is in a place with its own independent set of laws that cannot be made to disappear by a 'click'. While the costumer can be forced to approve a legal agreement, it is possible that the Court will reject or change some its terms. Therefore, it is advisable to retain the services of a lawyer who is well versed in drafting adhesion contracts, in advance, and not let the Court draft them in retrospect.