The Ministry of Justice has published a draft bill (the “Draft Bill”) that would expand the application of certain mandatory Israeli laws to foreign businesses that actively target customers in Israel. The initiative is intended to address the growing volume of cross-border online commerce and the practical difficulty faced by Israeli customers when contracting with foreign service providers under standard-form terms that select foreign law. The Draft Bill seeks to provide greater legal certainty and strengthen consumer and small-business protections in appropriate cases.
Who is covered – “customer” and “foreign merchant”. A “customer” is defined as a person physically present in Israel who (i) purchases goods or services for personal or household use, or (ii) is a small business (up to five employees or up to NIS 2 million annual turnover) contracting under a standard-form agreement. A “foreign merchant” is a merchant whose center of activity is outside Israel, whether or not registered in Israel.
When Israeli mandatory laws apply. The Draft Bill provides that the laws listed in a schedule will apply to a foreign merchant that directs its activity to customers in Israel (including through an intermediary) when selling goods or services to such customers. “Directing activity” includes taking proactive steps to sell into the Israeli market (for example, Israel-focused marketing or localization), and also covers real estate transactions relating to property located in Israel.
Key practical effects. The scheduled laws currently include the Israeli Consumer Protection Law, 1981, the Protection of Privacy Law, 1981, the Standard Form Contracts Law, 1981 and the Payment Services Law, 2019. In parallel, the Draft Bill proposes an indirect amendment to the Standard Form Contracts Law to create a presumption that a choice-of-law clause selecting non-Israeli law (or granting the supplier unilateral discretion to choose the applicable law) constitutes an unfair term in a standard-form contract.
Litigation and process considerations. Foreign merchants directing activity to Israel would be required to publish prominently (where a website exists) an Israeli representative’s address or an email address for service of pleadings. A court may, in exceptional circumstances and for special reasons recorded, decide not to apply the Draft Bill if doing so would significantly harm the public interest.
Please note that the publication of the Draft Bill is merely the first step in a long and unpredictable journey. The legislative process may be lengthy and its outcome is uncertain, and the Draft Bill may be amended, delayed, or not enacted at all. Nevertheless, it is advisable to remain attentive to this legislative trend and to monitor ongoing developments.
We will continue to monitor the legislative process and would be pleased to assist businesses in assessing Israel-targeting indicators, updating online terms, consumer flows, privacy disclosures, and compliance roadmaps.