I don't usually appear in courts. In recent years our office has refrained from taking litigation cases; since our work is in accompanying developers and investors abroad, we decided to invest our effort, learning and focus in these fields. In my view, litigation is a field in its own right, in which you are required to stay up to date with legislation that is amended from time to time in the relevant field and with procedural rules, as well as with current case law and precedents in that field.
And after this preamble, I will note that when Moshe came to me - a developer whom we had accompanied in a project he built in Romania - and brought with him a statement of claim he had received from a customer who bought an apartment, I could not refuse to represent him in court.
Yossi and Yael bought from Moshe's company a 2-room apartment in a building he built in one of Bucharest's neighborhoods. The project was completed and the apartment was delivered to them about two years ago, and now they have filed a claim in the Rishon LeZion Magistrate's Court against Moshe and his brother, who are the company's shareholders, alleging that the apartment was delivered late and that they are entitled to compensation, and that the rent they receive does not match the marketing promises, and therefore claiming also compensation for the difference between the promise they allege and what they actually receive.
Needless to say, Yossi and Yael bought the apartment from a Romanian company owned by Moshe and his brother, and not from the two of them as private individuals. In addition, the sale agreement signed in Romania, before a notary as is customary, expressly provides that any dispute regarding the sale agreement is to be heard before the competent court in Bucharest.
I was so annoyed by the audacity of the two, and of their lawyer, who did not bother to speak with us at all but filed the claim straight away, that I told Moshe that although we do not usually handle lawsuits or represent clients in courts, in this case we would be happy to do so.
We filed a motion to dismiss the claim in limine for lack of jurisdiction. We presented the court with the signed agreement and detailed the jurisdiction clause. We emphasized the attempt at “piercing the corporate veil” and suing the shareholders instead of the company, as would be expected and required.
When we arrived at the hearing this week, the registrar did not need to hear our arguments. He immediately turned to the couple's lawyer and asked to understand whether a claim had been filed in Romania at all, and why not. After the couple's lawyer squirmed, explaining that the negotiations had been conducted in Israel and that he would find it difficult to sue in Romania because of the high costs involved, the judge suggested that he withdraw the claim, without imposing costs on him.
During the recess, at the request of the couple's lawyer so that he could consult his clients, he tried outside the courtroom to open a discussion so that we would pay the couple something. I refused emphatically to pay even a single shekel.
The important lesson: the jurisdiction clause as an essential shield
This story is the perfect example of why the jurisdiction clause is considered one of the most important clauses in international purchase agreements. As we saw, this simple clause became a legal shield that saved Moshe from an expensive and complex legal proceeding.
A study published in the International Journal of Commercial Law found that “more than 85% of disputes in international real estate investments are resolved through proper application of jurisdiction clauses, without the claim ever reaching a substantive hearing.” That is exactly what happened in Moshe's case.
The claim was struck out not because the allegations were unfounded (and had we gone into the merits of the contract and the claims, we would have shown that the allegations and claims were entirely unfounded), but because the court in Israel had no jurisdiction to hear it. This is how a good jurisdiction clause works - it creates an initial barrier that forces the plaintiff to think twice before filing a claim.
What should an effective jurisdiction clause contain?
From my experience accompanying dozens of real estate transactions abroad, an effective jurisdiction clause must include:
1. Precise identification of the competent court - it is not enough to write “the courts of such-and-such country.” You need to state the specific city, the level of the court (district/magistrate's), and where necessary also the professional composition required.
2. The language of the proceedings - a clear definition of the language in which the legal proceeding will be conducted. This is especially vital in multilingual countries such as Switzerland or Belgium.
3. The governing law - sometimes you need to distinguish between the place where the proceeding will be held and the law that will apply to the dispute. For example, a transaction in Berlin may be subject to German law but be conducted in a court in London.
A 2023 report by the consulting firm McKinsey & Company emphasizes that “investors who prevail in legal proceedings thanks to clear jurisdiction clauses save on average 40% of the time of the proceeding and 60% of legal costs compared with cases of defective clauses.”
Common traps that must be avoided
In my experience, there are common traps that come up again and again:
A double or contradictory clause - cases in which the agreement contains more than one jurisdiction clause, or the jurisdiction clause contradicts other clauses in the agreement.
Imprecise reference to local jurisdiction - in federal countries such as the USA or Germany, you need to distinguish between state and federal jurisdiction.
Ignoring local arbitration agreements - in certain countries there are mandatory arbitration arrangements for certain sectors, which can override a jurisdiction clause.
Real-world practice: what does it look like on the ground?
Moshe's case also teaches us the importance of the right legal structure. The fact that Yossi and Yael tried to sue the individual shareholders instead of the Romanian company was another mistake that strengthened our position. In many countries, the separation of liability between a company and its owners is strictly maintained.
As someone who has accompanied over 300 transactions for investors and developers abroad, I see again and again how saving on the cost of legal advice at the purchase stage becomes a double cost when a dispute arises. Yossi and Yael's case is a perfect example - they spent money on a legal proceeding that had no chance of succeeding from the outset, simply because they did not understand the meaning of the jurisdiction clause in the agreement they signed.
I always recommend that my clients examine the jurisdiction clause not only from a legal standpoint but also from a practical one. Questions such as: “Can I afford a legal proceeding in this country?”, “Do I have access to quality legal representation there?”, “What is the expected duration of the proceeding?” - these are questions that must be asked already at the planning stage.
In today's global world, a quality jurisdiction clause is not only a legal matter - it is the pillar of protection for your investment. Moshe's story proves that when the clause is drafted correctly and the agreement is properly structured, even the most problematic case can end in a quick and efficient win.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית