After lengthy deliberations that lasted several years, the Knesset has finally passed the International Commercial Arbitration Law, 2024. The new law, which incorporates most of the proposed rules of the UNCITRAL “model law”, formulated by the UN Committee for Commercial Law, may assist Israel in positioning itself as an attractive state, with modern legislation, for at least all matters pertaining to the conducting of international arbitration proceedings.

Companies with international activities often prefer to avoid handling legal proceedings in state courts. This, inter alia, due to the public nature of court proceedings and the entailed exposure; because some of the judges are perceived by foreign companies as lacking the required corporate experience; and because courts are regarded as being inclined to favour the interests of the local company. Indeed, international arbitration for the resolution of disputes is becoming increasingly popular among commercial companies worldwide as an alternative for legal proceedings in state courts.

While the existing Israeli arbitration law is not adapted to the unique features of international arbitration, the new law contains a built-in series of international commercial arbitration proceeding stages, beginning with the consent to arbitration up to the stage of enforcing the arbitration ruling. The new law is adapted to conducting international arbitration proceedings according to recognized procedure worldwide.

In addition to adopting the known and accepted international standard in the field of international commercial arbitration, the new law is also designed to eliminate the existing concern by foreign companies of excessive intervention by state courts in the arbitration proceeding. The law restricts the possibility of intervention by Israeli courts, except for specified cases that require assistance to the arbitration proceeding (such as appointing arbitrators, providing temporary relief, enforcing the arbitration ruling, etc.). The law thereby conveys an important message to foreign companies whereby the law courts in Israel will serve as a supportive instance to the arbitration proceedings, but will avoid intervening on most of the issues that may arise as part of the process – and in which the deciding powers therein are of the arbitrators.

Another innovation in the law is the definition of what is “international arbitration”, in order to increase legal certainty where the parties to the agreement will know in advance the arbitration rules that will apply to the procedure. The law also enables companies to define and select by themselves in advance that the new law shall apply.

The law also increases judicial certainty as it prearranges the rules the arbitrators are required to apply when deciding on a dispute, giving seniority to the law as decided by the parties to impose on their engagement.  The law obliges the tribunal to decide on the dispute according to the directives of the agreement between the parties, and according to accepted practices for transactions in the commercial field of the transaction subject of the contract. Accordingly, the law limits the panel of arbitrators from ruling according to abstract (more obscure) principles of “justice and judicial decency”, unless where the parties have explicitly consented to such in writing.

Finally, in light of the fact that the new law will live alongside and parallel to the existing law, creating a duplicate (or alternative) normative system, it is important to be acquainted with the differences between the two laws, and to pay attention to formulation of the arbitration articles, according to the law that applies to the judicial procedure.

We will be happy to answer any questions or consultations on the matter.

Sincerely,

Gidon Even-Or
Head of the International Arbitrations
Partner in Litigation and Dispute Resolution Department

The stated in this document is general information only and does not constitute a legal opinion or legal advice and should not be used in any other way.