Commercial arbitration is an agreed alternative to court litigation in which one or more arbitrators determine a dispute and issue a binding award. Israeli law distinguishes between arbitration governed by the Arbitration Law, 1968 and international commercial arbitration governed by the International Commercial Arbitration Law, 2024. Arbitration may offer procedural flexibility, relevant expertise, and privacy, but its speed, cost, confidentiality, and enforceability depend on the agreement, the applicable legal framework, and the circumstances. Cross-border recognition and enforcement may be available under the New York Convention and applicable law, subject to conditions and grounds for refusal.
What is arbitration, and when is it used?
Arbitration is a process in which the parties agree to submit a dispute to one or more arbitrators. An award may bind the parties without prior court approval. Where judicial enforcement is needed, the relevant procedure is approval under the 1968 Law or recognition and enforcement under the applicable international framework, subject to statutory and treaty requirements.
Arbitration is typically triggered by an arbitration clause in a commercial contract, or by a separate agreement reached once a dispute arises. It is common in shareholder disputes, M&A disagreements, construction, distribution, and international commercial contracts.
Two distinct statutory frameworks
The Arbitration Law, 1968 generally governs domestic arbitration. The International Commercial Arbitration Law, 2024 establishes a separate framework for international commercial arbitration within its scope, based on the UNCITRAL Model Law. International status depends on statutory criteria, such as the parties' places of business, the location of substantial performance or the closest connection to the dispute, or an express written agreement that the subject matter relates to more than one jurisdiction; a foreign shareholder alone does not necessarily establish international status.
The 2024 Law generally applies where the seat of arbitration is in Israel, although specified provisions, including those concerning court referral to arbitration, interim measures, and recognition and enforcement, also apply where the seat is abroad. It applies to proceedings commencing on or after 14 February 2024, subject to its scope and any applicable treaty provisions. The seat is the legal home of the arbitration and need not be the place where every hearing occurs. Identifying the applicable framework at the drafting stage is essential.
Advantages of arbitration
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Speed - proceedings can be faster than crowded court dockets.
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Privacy and confidentiality - hearings are generally not open to the public, but privacy does not automatically create a comprehensive duty of confidentiality. The agreement or applicable institutional rules should address disclosure, permitted use of documents, publication of awards, and exceptions. Related court proceedings may disclose information.
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Expertise - parties can appoint an arbitrator with relevant commercial or technical knowledge.
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Flexibility - the parties can agree on procedural rules and other aspects of the process, subject to mandatory law and requirements of procedural fairness.
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Finality - judicial challenges are generally limited, but any agreed appeal route and the applicable statutory framework must be considered.
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Cross-border enforcement - the New York Convention provides a framework for recognition and enforcement in contracting states, subject to its requirements, local procedures, and grounds for refusal.
The arbitration clause: where it all begins
A well-drafted arbitration clause is central to an effective process. It should address the disputes covered, the number and appointment of arbitrators, the seat, language, institutional or procedural rules, the substantive governing law, and confidentiality. Any appeal mechanism must be assessed against the applicable statutory framework: the agreed appeal routes available under the 1968 Law should not be assumed to apply under the 2024 Law.
A poorly drafted or ambiguous clause is a frequent source of satellite disputes - fights about where and how to arbitrate, before the real dispute is even heard. Getting the clause right at the contract stage is far cheaper than fixing it later.
How the process works, step by step
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A dispute arises under a contract containing an arbitration clause.
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An arbitrator (or panel) is appointed, by agreement or through an agreed mechanism.
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The parties exchange statements of claim and defense and disclose evidence.
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The arbitrator or panel conducts the proceedings under the agreed or applicable procedure. Hearings may include witnesses and legal argument, although some cases can be decided on documents, subject to the applicable law and agreement.
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The arbitrator or panel issues a binding award, ordinarily with reasons unless a permitted agreement or applicable exception provides otherwise.
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If judicial enforcement is required, a party applies for approval or recognition and enforcement under the applicable framework. Enforcement abroad requires compliance with the law and procedures of the relevant jurisdiction.
Enforcing and challenging an award
An award may bind the parties upon issuance without prior court approval. Under the 1968 Law, a party may seek court approval, after which the award has the status of a court judgment, except for appeal. Under the 2024 Law, recognition and enforcement are governed by a separate statutory framework. Grounds for setting aside an award and the applicable filing deadlines differ between the two regimes. A setting-aside application is not ordinarily a rehearing of the merits.
Israel is a party to the New York Convention, which facilitates recognition and enforcement of qualifying awards in contracting states. An Israeli award is not automatically enforceable abroad, and a foreign award is not automatically enforceable in Israel: the applicant must follow the relevant procedures, and enforcement may be refused on specified grounds. The location of the counterparty's assets should be considered before the arbitration begins.
Arbitration, mediation, or litigation?
Arbitration vs. litigation
Court proceedings are generally public and follow prescribed procedural rules, subject to exceptions. Appeal rights depend on the type of decision and the applicable law. Arbitration offers greater procedural flexibility and generally private hearings, but confidentiality should be addressed expressly and judicial review is limited. The appropriate choice depends on the issues, available remedies, cost, the need for privacy, and cross-border enforcement considerations.
Where mediation fits
Mediation is a non-binding, facilitated negotiation. Many commercial contracts use a staged clause - mediation first, then arbitration if no settlement is reached - to resolve disputes at the lowest possible level.
Common mistakes to avoid
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A vague arbitration clause that invites disputes about the process itself.
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Choosing an arbitrator without the right commercial or technical expertise.
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Overlooking the seat and governing rules, which affect enforcement.
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Treating arbitration as informal - preparation and evidence matter just as much as in court.
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Ignoring cross-border enforcement when a foreign party or assets are involved.
Why engage an arbitration lawyer in Israel?
Success in arbitration depends on strategy well before the hearing - drafting the arbitration clause, selecting the right arbitrator, framing the claims, and presenting the evidence persuasively. An experienced arbitration lawyer manages each of these stages and positions the client for a favorable, enforceable result.
Moshe Kahn Advocates represents Israeli and international clients in commercial arbitration, advising on dispute-resolution clauses, representing parties throughout proceedings, and assisting with enforcement of awards, drawing on its commercial-litigation experience.
Frequently Asked Questions (FAQ)
What law governs arbitration in Israel?
Domestic arbitration is generally governed by the Arbitration Law, 1968. International commercial arbitration falling within the scope of the International Commercial Arbitration Law, 2024 is governed by that separate framework. Applicable treaties and any agreed institutional rules must also be considered.
Is an arbitration award binding?
Yes. An award may bind the parties without prior court approval. Judicial enforcement requires the applicable approval or recognition and enforcement procedure, subject to any available challenge and the relevant legal requirements.
Can an arbitration award be appealed?
Under the 1968 Law, parties may agree to an appeal before another arbitrator or, subject to statutory conditions, an appeal with leave of the court for a fundamental error in applying the law that may cause a miscarriage of justice. The 2024 Law provides for a setting-aside application on specified grounds rather than an ordinary judicial appeal on the merits. The availability of any appeal mechanism must be assessed under the applicable framework.
How is an arbitrator chosen?
By agreement of the parties or through a mechanism in the arbitration clause - for example, appointment by an institution or a nominated authority.
What makes a good arbitration clause?
Clear scope, an effective appointment mechanism, a defined seat, language, procedural rules, substantive governing law, and express confidentiality arrangements. Any appeal provision should be compatible with the applicable statutory framework.
Is arbitration confidential?
Arbitration hearings are generally private, but comprehensive confidentiality should not be assumed. The agreement or institutional rules should define confidentiality obligations and permitted disclosures. Related court proceedings may bring information into the public domain.
Is arbitration faster than court?
Often, because the parties control the timetable and avoid crowded dockets, though complex cases still take time.
How much does arbitration cost?
Costs may include arbitrators' fees, institutional charges, legal representation, experts, and hearing expenses. Arbitration can be cost-effective, but it is not necessarily cheaper or faster than litigation; the number of arbitrators, procedure, and complexity materially affect cost.
Can arbitration be used for shareholder disputes?
Yes. Many contractual shareholder disputes can be arbitrated under a valid arbitration agreement. The suitability of arbitration depends on the issues and remedies involved, any mandatory legal restrictions, and whether all necessary parties are bound by the agreement.
Are foreign arbitration awards enforceable in Israel?
Recognition and enforcement of qualifying foreign awards may be sought in Israel under the applicable statutory and treaty framework, including the New York Convention where applicable. Enforcement is subject to procedural requirements and specified grounds for refusal.
What if there is no arbitration clause?
The parties can still agree to arbitrate once a dispute arises, by signing a separate submission agreement.
Can the court intervene during arbitration?
Courts may assist or supervise arbitration where the applicable law permits, for example in appointing or removing arbitrators, granting interim relief, assisting with evidence, or deciding specified jurisdictional challenges. Under the 2024 Law, court intervention in matters governed by that Law is limited to the powers it provides.
What is the difference between arbitration and mediation?
Arbitration ends in a binding award; mediation is a non-binding, facilitated negotiation. They are often combined in a staged clause.
How do I choose an arbitration lawyer in Israel?
Choose a firm experienced in commercial arbitration and litigation, skilled in drafting clauses, selecting arbitrators, and enforcing awards.
