The District Court of Tel Aviv, Economic Division ("District Court") held that even where a dispute jurisdiction clause in an agreement between a company and its shareholders specifies a non-Israeli forum and choice of law, such a clause will generally not apply to shareholder derivative actions in the name of the company against its office holders.

This case involved a request to file a derivative claim against an Israeli company's ("Company") officers in connection with an alleged breach of their duties. Relevant facts included provisions in both the Company's Articles of Association ("Articles") and the Share Purchase Agreement between the Company's founders and the US-based venture capital fund investors in the Company that required that disputes between the parties be settled in the State of New York pursuant to the laws of New York. The office holder defendants argued that these provisions preempted derivative shareholder claims from being initiated under Israeli law and from being heard in Israel.

The District Court disagreed, holding that the current question of jurisdiction involved a derivative claim rather than shareholders' dispute, and that as a matter of policy, jurisdiction for filing derivative claims cannot be fixed by an agreement between a company and its shareholders. In the event the parties had explicitly agreed that derivative claims were not to be filed in Israel, the onus of proving that such agreement prevails over the provisions of the Israel Companies Law ("Companies Law") that specifically provide for the filing of derivative claims in Israel falls on the party attempting to enforce such agreement.

The District Court held that in the present case the Articles made frequent reference to the Companies Law, and as the Company's officers were clearly aware of the applicability of the Companies Law to the Company, the officers should also have been cognizant that a breach of their duties would be governed by and enforceable under Israeli law.

The District Court concluded that based on the facts before it and notwithstanding that the US fund's representatives were foreign residents, the proper forum for a derivative suit was Israel. The Company was an Israeli entity that manufactured its products in Israel, the Companies Law applied to its corporate officers, and disputes concerning breach of duties were to be adjudicated in Israel.

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