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Jurisdiction of Israeli
Courts to Adjudicate Dispute Regarding Ownership of Israeli Bank Account
Owned by Non-residents
L. Marc
Zell, Adv.
This note outlines, in brief, legal analysis
concerning the jurisdiction of Israeli courts to adjudicate a dispute
concerning an Israeli bank account jointly owned by two non-residents.
Typically, such joint owners are spouses or other relatives who decide
to open an account in an Israeli bank in their joint names. Our
analysis assumes that there are no other nexuses between either owner,
or the dispute, and Israel, other than the location of the bank account
in Israel.
It should be noted that in Israel the concept of
in rem jurisdiction is not always properly applied where
appropriate.
Analysis
In rem
Jurisdiction
In principle, there is no difficulty for an
Israeli court to acquire jurisdiction over a dispute that concerns the
ownership and disposition of property actually located in Israel. It
has been held that a credit balance in a bank in Israel is subject to
jurisdiction in rem of the courts of Israel whether there is, or
is not, jurisdiction in personam over any person having an
interest therein. Thus, irrespective of whether an Israeli court could
assert personal jurisdiction over a non-resident owner, the courts here
would have jurisdiction to partition or dissolve joint ownership in the
Israeli bank account. While it is likely that in such a proceeding the
court would have to give notice to the non-resident party, that does not
mean that the petitioning party would have to obtain leave under Rule
500 of the Rules of Civil Procedure - 1984 to serve process on the
foreign party. The existence of the in rem jurisdiction does not
depend on extraterritorial extension of Israeli jurisdiction. However,
if the suit in Israel is intended to be binding in personam upon
a foreign party who does not submit voluntarily to the jurisdiction of
the Israeli court, leave for service abroad must be obtained under Rule
500. It should be noted that where the Israeli court disposes of an
asset within its in rem jurisdiction, the Israeli judgment may
not be binding for in personam purposes on the non-participating
foreign resident as to the amount of any judgment, but the
disposition of the asset will not be subject to collateral attack
abroad.
It should also be pointed out that in rem
jurisdiction in Israeli jurisprudence subsumes in personam rights
in a thing as well as the thing itself. This is called the proprietary
aspect of a right in personam. Thus, even though the dispute
between the account holders is in its nature in personam, Israeli
courts are competent to determine to whom the bank account belongs and
how it is to be disposed. Because this determination will be made in
accordance with the in rem jurisdiction of the Israeli court and
(absent leave and extraterritorial service under Rule 500) therefore
effective only with respect to the property in question, the Israeli
court’s determination would not have the effect of an in personam
judgment, since it would be restricted to the property in question. It
is not likely that the holder of such a judgment could enforce it in an
in personam action outside of Israel. The following illustration
should illuminate the point. Let us say that one of the joint account
holders had a monetary claim against the other for misappropriating
property in Israel and abroad, the amount of the claim exceeding the
value of the property. Such claims are in personam in nature.
If the Israeli court exercised its in rem jurisdiction over the
asset to determine the co-owners’ co-relative rights in the account and
then divided and distributed the asset, the judgment would be valid only
up to the value of the property in Israel. The balance of the claim, if
the claim exceeds the value of the property, would not have been validly
adjudicated in Israel and the Israeli in rem judgment would not
be enforceable against the defendant outside of Israel in personam.
However, if the entire dispute is precisely over the amount of the
deposit and nothing more, as a practical matter whoever wins in Israel
will have finally resolved the dispute here because the only item in
dispute is the bank account in question.
In
personam Jurisdiction
So far we have focused on in rem
jurisdiction only. It is entirely possible that either owner of the
bank account suing in Israel could obtain leave to serve the
counterparty abroad under Rule 500. One basis for such an extension of
jurisdiction would be the fact that the depositary contract includes a
non-exclusive Israeli choice of forum clause, although this may be a
relatively weak reed if the bank is not a party in interest to the
litigation.
A more viable alternative may be to persuade the
court to exercise extraterritorial jurisdiction since the determination
of the in personam claims is ancillary to the court’s in rem
jurisdiction over the bank account. This would be consistent with
Israeli practice and theory in the realm of private international law.
Rule 500 does not expressly permit extension of jurisdiction in cases of
disputes over personalty as opposed to land, but good arguments can be
raised in favor of extraterritorial jurisdiction where the in
personam claims are proprietary in nature and relate to the res
which is in dispute.
It should be emphasized that the exercise of
in rem jurisdiction over the bank account does not depend on
obtaining leave of court under Rule 500 even if both owners are
non-residents.
Forum Non
Conveniens
There appears to be no question that an Israeli
court would be competent to resolve the dispute between non-resident
co-owners even if it could not extend its in personam
jurisdiction over the defendant under Rule 500. The only question that
remains is whether the court here would decline to exercise its in
rem jurisdiction on the grounds of forum non conveniens.
Here the question is not one of a lack of jurisdiction, agreed
jurisdiction or concurrent proceedings (lis alibi pendens), but
rather whether for reasons of fairness and prudence an Israeli court
should elect not to exercise jurisdiction even though it has the
authority to do so.
The object of the forum non conveniens
doctrine is to prevent harassment of non-residents by having to defend
suits here. However, harassment alone is insufficient. It must be
shown that it is preferable for the matter to be litigated in some place
outside of Israel and further that the alternate forum is competent to
entertain the litigation. In weighing what is “preferable”, the court
will take into account the balance of convenience between the parties,
the degree of relative effectiveness of the proceedings here and
abroad. Convenience, however, is not determinative. Choice of law
considerations may also be relevant.
It cannot be predicted for a certainty how an
Israeli judge is likely to balance these various considerations. On the
one hand, where both litigants are non-residents, they are probably both
amenable to suit in their country of residence. Where the dispute is
not connected with Israel and took place outside of Israel, any third
party witnesses are probably (but not necessarily) located outside of
Israel and there will be a problem compelling their testimony here.
Hence, the litigants in Israel will be forced to make use of the Israeli
regulations permitting international judicial assistance under domestic
and international treaty law. We note also that Israel does not have a
particular interest in providing a forum to either litigant, since they
are both non-residents.
On the other side of the coin, the dispute
concerns only the asset located in Israel - the bank account – that was
opened with the consent of the two parties, who even agreed to an
Israeli choice of forum clause in the depositary agreement. Because the
asset is situated in Israel, most countries would apply Israeli law to
determine the ownership of the property under widely accepted rules of
private international law. The principal witnesses are likely to be the
co-owners themselves and any other witnesses will be ancillary in
importance. It is likely that both co-owners, given their backgrounds,
are not strangers to international travel and international business, so
there would be no particular hardship in litigating in Israel.
While one can never be sure how a forum non
conveniens defense will turn out, it seems to me that there is a
better than even chance that the Israeli court would retain
jurisdiction.
Conclusion
To summarize: the Israeli courts clearly have
in rem jurisdiction to determine the dispute by virtue of the
presence of the bank account alone. This jurisdiction would be limited
to the bank account and would not have general in personam effect
unless the court could be persuaded under Rule 500 to permit service of
process abroad. However, service under Rule 500 and in personam
jurisdiction would not be necessary to grant effective relief in this
case. Finally, there is a better than even chance that an Israeli court
would elect to retain jurisdiction over any such suit in the face of a
challenge under the forum non conveniens doctrine.
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