Adv. Gill Nadel
Many times foreign companies file lawsuits in the Israeli courts.
In these situations often the defendants ask the court to force these companies to deposit a certain sum at court, which will be used as a guarantee for the legal expenses in case the claim is denied; Since foreign companies have no assets in Israel which can be used to pay a debt. In a verdict recently handed by the District Court in Tel Aviv, the court demonstrated how such cases should be conducted, including, in which situations using a guarantee is just and also what are the criterias to calculate the sum of the guarantee.
The facts of the case and claims of the parties:
Gefg-Nekar company, a German company, filed a lawsuit in Israel against an Israeli company (Mitronix).
The foreign company claimed that Mitronix violated its obligation to purchase an agreed amount of engines manufactured for Mitronix in Germany. According to it, the manufacture procedures had began when Mitronix, without any prior notice started to do business with a competing company. This caused the foreign company heavy damages , which came up to 1 million Euros
(stocks made, purchased raw materials and storage of finished products).
In opposition, Mitronix filed a counter suit and claimed that the foreign company unjustly increased the prices to a great extent, contrary to the agreement between them, which forced Mitronix to purchase thousands of low quality, defaulted, engines manufactured in China. Mitronix estimated its damages at 600,000 USD.
Mitronix asked the court to force the foreign company to deposit a guarantee which will cover court expenses as the company owned no assets in Israel. The foreign company handed the court a document from a financial institution showing that it had liquid monies and asked the court to deny (Mitronix’s) request. Yet at the same time it asked the court to order Mitronix to deposit all court expenses with regards to the counter-action.
The court’s verdict:
The court ruled that according to international conventions, which Israel has signed, it is forbidden to discriminate a foreign company in favor of an Israeli company on the issue of depositing guarantees. The court then ruled that when deciding on such an issue the following considerations must be taken into account:
First, assuming that the action of the appealing company is denied, it is necessary to examine if it is able to cover the defendant’s expenses. On this issue it was ruled that the burden of persuasion lays on the plaintiff (the foreign company), and that it must prove that it is able to bare the expenses, if it wishes the court to prevent it from depositing guarantee.
Later on, the sum of the guarantees needed to cover the expenses of the defendant, must be examined with special attention so to make sure that the guarantee is proportional and balanced.
On the matter of the case, the foreign company presented an authorized document from a financial institution in Germany where it said that it does hold a liquid sum of 50,000 Euro. The court ruled that such a document fails to prove the financial situation of the foreign company, because there is no mention of the company’s obligations nor debts and the company did not hand the court a detailed report of its situation.
In opposition, Mitronix, being a public company, presented the court with financial reports indicating on its stable financial position and lack of debts.
In light of the above, the court dismissed Mitronix from depositing a guarantee for the counter suit, and forced the foreign company to deposit a guarantee at the amount of 25,000 Euro, and ruled that the action will be denied if the guarantee shall not be deposited to the court.
C.F. (civil file)Mitronix Ltd. Nekar Gefeg--(District Tel Aviv) 1593-09 Nekar- Gefeg Vs. Mitronix Ltd., Judge Dania Karet- Meir, Verdict given on 27.12.10. representatives of the parties: Foreign Company- Adv. Govrin, Mitronix- Adv. Ozery.
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