IsraelLaw
Foreign parties who win an arbitration in Israel tend to focus on one number: the figure at the bottom of the award. That figure is a snapshot of a moment that has already passed. What matters commercially is what the award is worth on the day the money lands in your account, and in Israel the gap between those two numbers is unusually wide.
Israel spent decades managing high inflation, and its legal system built the response directly into the law of money judgments. Every shekel obligation carries an inflation adjustment as a matter of course, and a separate interest charge sits on top of it. Understanding how those two elements work is the difference between an award you can price accurately and one you settle for far less than it is worth.
1. What Linkage and Interest Mean in Israel
Israeli practice separates two concepts that many legal systems merge into a single interest rate.
Linkage differentials, in Hebrew hefreshei hatzmada (הפרשי הצמדה), track the Consumer Price Index published monthly by the Central Bureau of Statistics. The index for a given month is published around the middle of the following month. Linkage is not compensation for delay and it is not a penalty. It restores the purchasing power of a shekel sum between two dates, so that NIS 100,000 awarded in 2023 buys in 2026 roughly what it would have bought when the obligation arose.
Interest, ribit (ריבית), is the separate charge for having been kept out of your money. It is calculated on top of the linked figure, not instead of it. This layering is what surprises foreign counsel most: a debtor does not choose between paying inflation or paying interest, and a shekel award that sits unpaid grows on both fronts at once.
Both elements come from the Adjudication of Interest and Linkage Law, 5721-1961 (Chok Pesikat Ribit VeHatzmada). Section 2 gives a judicial authority that awards a sum of money the discretion to add interest and linkage on the whole or part of that sum, for a period it defines. An arbitrator sitting in Israel operates within that same framework.
A surprising number of Israeli awards say "plus linkage and interest according to law" without stating from when. That single omission creates a second dispute. The debtor argues accrual starts on the date of the award; the creditor argues it starts on the date the debt fell due, which in a construction or supply dispute may be four or five years earlier. On a NIS 3,000,000 award those two positions can be NIS 400,000 apart. If you are drafting post-hearing submissions, ask the tribunal explicitly for accrual "from [specific date] until actual payment," and identify the date in the operative part of your prayer for relief rather than burying it in the narrative. If the award has already issued and is silent, Section 22 of the Arbitration Law, 5728-1968 allows an application to the arbitrator to complete or clarify the award, and the window for that is short.
2. Where the Arbitrator's Power Comes From
Three sources give an Israeli arbitrator authority over interest, and they apply in a clear order of priority.
The contract comes first. Where the parties agreed a rate for late payment, that rate governs. Section 6 of the Adjudication of Interest and Linkage Law recognises that a judicial authority does not impose its own statutory interest on a debt that already carries an agreed rate. A supply agreement specifying 1.5% per month is enforced at 1.5% per month, subject to the general limits Israeli law places on penalty clauses.
The default rules come second. Section 2 of the Arbitration Law, 5728-1968 reads the First Addendum into every Israeli arbitration agreement unless the parties agreed otherwise. The First Addendum is a compact default rulebook covering the number of arbitrators, procedure, timing and the relief the arbitrator may grant. Israeli tribunals treat the power to award a money sum as carrying with it the power to award the linkage and interest a court would have granted on that sum.
The 1961 Law supplies the mechanics. Once the tribunal decides that interest is due, the rates and calculation method come from the 1961 Law and the regulations made under it, with the current figures published by the Accountant General at the Ministry of Finance.
Arbitrations conducted under the International Commercial Arbitration Law, 5784-2024, Israel's UNCITRAL Model Law statute, follow the same logic through a different door: the tribunal applies the substantive law the parties chose, and if that law is Israeli law, the 1961 Law comes with it.
Respondents regularly try to attack the interest component under Section 24(3) of the Arbitration Law, arguing the arbitrator exceeded the powers granted by the agreement. This rarely works. The District Court, which is the competent court for arbitration applications, treats interest as ancillary to the monetary relief the parties asked the tribunal to grant. Section 26(a) also allows the court to dismiss a set-aside application where the defect caused no miscarriage of justice, and a debatable interest start date is close to the paradigm case for that provision. Meanwhile the challenge itself takes months, and interest keeps running throughout. A respondent who files a set-aside application under Section 27(a), which allows 45 days from receipt of the award, and loses eighteen months later has usually paid more for the attempt than the interest it disputed.
3. The Two Interest Tiers Under the 1961 Law
The 1961 Law does not have one rate. It has a lower tier and a higher tier, and which one the tribunal applies changes the arithmetic considerably.
The ordinary tier combines linkage to the Consumer Price Index with a modest rate of simple interest. It is the standard treatment for a shekel sum and is designed to leave the creditor roughly whole rather than to punish the debtor.
The arrears tier, ribit pigurim (ריבית פיגורים), applies where the tribunal decides that the debtor is in default rather than merely late in a technical sense. It runs at a materially higher rate on top of linkage, and it compounds at three-month intervals rather than accruing in a straight line. Over a short delay the difference is unremarkable. Over three or four years, compounding does most of the work.
The rates themselves are set by regulation and republished periodically. In recent years the arrears rate has run in the region of 4% to 6% a year above index linkage, but that figure moves with the interest rate environment, and you should confirm the current published rate with the Accountant General before you rely on any calculation. The ordinary rate is significantly lower.
- Ordinary interest and linkage: a CPI adjustment plus simple interest, accruing in a straight line.
- Arrears interest: a CPI adjustment plus a higher rate, compounded every quarter.
- Contractual interest: the rate the parties agreed, applied instead of either statutory tier.
- Foreign currency sums: interest at a rate suited to that currency, with no shekel linkage applied.
Tribunals do not award arrears interest on their own initiative. If your statement of claim asks for "interest according to law" and nothing more, you will usually get the ordinary tier. Claimants who want the arrears tier should plead it as a separate head of relief and support it with the facts that show genuine default: an invoice that went unpaid past its stated terms, a demand letter that got no response, a payment schedule the respondent abandoned. In a commercial arbitration over an unpaid supply balance of NIS 1,500,000, moving from the ordinary tier to the arrears tier across four years of delay is frequently worth NIS 150,000 or more. It costs one paragraph in the pleading.
4. What Three Years of Delay Actually Costs
The abstract explanation obscures the scale, so here is an illustrative calculation. Assume an arbitrator awards NIS 2,000,000 in a distribution dispute, accruing from the date of the award, and the respondent pays nothing for three years while a set-aside application runs its course.
Step one: linkage. If the Consumer Price Index rises by roughly 9% over those three years, the linked principal becomes about NIS 2,180,000.
Step two: arrears interest. At an assumed 5% per year compounded quarterly, the multiplier over twelve quarters is approximately 1.16. Applied to the linked figure, the balance reaches roughly NIS 2,530,000.
Step three: collection costs. Opening a file at the Execution Office (Hotza'a LaPoal) carries a fee of approximately 1.25% of the debt, which on NIS 2,530,000 is about NIS 31,000, and that fee is added to what the debtor owes rather than absorbed by the creditor. Statutory attorney's fees under the Execution Regulations are added on the same basis.
The award that read NIS 2,000,000 is now a claim of roughly NIS 2,560,000, an increase of about 28%. Those figures are illustrative and depend on the actual index movement and the published rate for the period, but the order of magnitude is realistic. It also explains why Israeli respondents who genuinely cannot pay are usually better served by negotiating a payment arrangement early than by litigating the award and paying the accrual.
5. Awards in Dollars, Euros and Other Currencies
Cross-border contracts are often priced in dollars or euros, and an Israeli tribunal can render its award in that currency. Doing so changes the interest analysis in a way foreign parties frequently miss.
Shekel linkage exists to neutralise shekel inflation. A dollar obligation is not exposed to shekel inflation, so applying the Israeli CPI to it would compensate for a risk the creditor never carried. The 1961 Law accordingly treats foreign-currency sums on a different footing, providing interest suited to that currency rather than index linkage. In practical terms a dollar award accrues a dollar-appropriate rate and nothing else.
Conversion happens at the point of enforcement. The Bank of Israel publishes a daily representative rate (sha'ar yatzig) for the main currencies, and that is the rate the Execution Office uses when it converts a foreign-currency debt into shekels for collection. The conversion date matters: between the date of the award and the date of collection the shekel may have moved several percent in either direction, and neither party can control which.
The currency of the award is a strategic decision and it belongs in your prayer for relief. If your losses were incurred in dollars and your working capital is in dollars, ask for a dollar award and remove the exchange-rate exposure. If the shekel has been weakening and you expect the trend to continue, a shekel award with CPI linkage and arrears interest may outperform a dollar award carrying only dollar interest. What you should not do is leave it to the tribunal to pick. Israeli arbitrators default to shekels when the pleadings are ambiguous, and by the time the award issues the choice is spent. Amending currency after the fact is not something Section 22 corrections were designed to accommodate.
6. From Award to Cash: Confirmation and Collection
An award is binding on the parties from the moment it is given, but binding is not the same as enforceable. Turning it into money follows a defined sequence.
Confirmation. Under Section 23 of the Arbitration Law, a party applies to the District Court to confirm the award. Once confirmed, the award has the force of a judgment of that court. The court fee for the application is a fixed sum rather than a percentage of the amount in dispute, which makes confirming a large award proportionally inexpensive. Confirm the current figure against the Courts (Fees) Regulations, 5767-2007, before filing.
Challenge window. The respondent has 45 days from receipt of the award to apply to set it aside under Section 27(a), and a shorter window of 15 days once a confirmation application has been served. Filing a challenge does not suspend the accrual of interest and does not automatically stay enforcement.
Execution. With a confirmed award in hand, you open a file at the Execution Office. The debtor is served with a warning notice (azhara) and has a short statutory period, generally around 20 days, to pay, propose an arrangement, or raise a permitted objection. From that point the Execution Office has a wide toolkit: attaching bank accounts, garnishing wages, registering liens on real property, and imposing a stay of exit order preventing the debtor from leaving Israel. Our guide to the Execution Office in Israel covers that machinery in detail.
Interest continues to accrue at every stage. The Execution Office recalculates the debt automatically as time passes, which means the payoff figure a debtor is quoted in March is not the figure they owe in September.
Respondents who intend to challenge an award often assume that filing under Section 24 pauses the meter. It does not. The only reliable way to stop interest running while you litigate is to pay the sum into court or deposit it with the Execution Office, which converts the dispute from "will you pay" into "who gets the deposit." On a NIS 2,000,000 award, an eighteen-month challenge that fails costs roughly NIS 250,000 in accrued linkage and arrears interest on top of legal fees and, since January 2025, VAT at 18% on those fees. Depositing the money is also tactically useful: it signals solvency and good faith to the court, and it takes the creditor's most effective pressure point away.
7. What Your Contract Should Say in Advance
Almost every problem in this article is cheaper to solve at the drafting stage than at the enforcement stage. Four clauses cover the ground.
Name the late-payment rate. A specified rate removes the discretion question entirely and gives both sides a number they can model. Keep it commercially defensible; an Israeli court asked to enforce a rate that functions as a penalty may reduce it.
Fix the currency of the obligation and of any award. One sentence stating that sums are payable in a named currency and that any arbitral award shall be rendered in that currency prevents the conversion argument before it starts.
State when interest begins. Tie accrual to the date payment fell due rather than the date of the award. This is the single most valuable line for a claimant and the one most often left out.
Confirm the tribunal's authority. Add express language that the arbitrator may award linkage differentials, interest, arrears interest and costs through to the date of actual payment. It costs nothing and closes off the Section 24(3) argument entirely. Our guide to drafting an arbitration clause for Israeli contracts sets out model language for the surrounding provisions.
8. Where Foreign Parties Lose Money
Settling on the face value. A creditor negotiating a settlement two years after the award who anchors on the original figure has already given away the accrual. Calculate the current balance before the first settlement call, and use that number as the starting point.
Missing the correction window. Where an award is silent on interest or contains an arithmetic error, Section 22 of the Arbitration Law allows an application to the arbitrator to correct or complete it. The period for doing so is measured in weeks, not months, and once it closes the District Court will not generally supply what the tribunal left out.
Assuming enforcement abroad carries Israeli interest. A creditor enforcing an Israeli award in another jurisdiction under the New York Convention, which Israel ratified in 1959, will find that the enforcing court applies the award as written. If the award does not state that interest runs to the date of payment, the foreign court has nothing to enforce on that point. See our guide to enforcing an Israeli arbitral award abroad.
Ignoring the tax treatment. Interest received on an award is generally taxable income in Israel, and a non-resident recipient may face withholding at source. That is a separate analysis from the award itself and should be run before the money moves, not after.
An unpaid Israeli award behaves like a live financial instrument. It moves with the index, it compounds while the parties argue, and it is worth a different amount every month. Price it on the day you are negotiating, not on the day it was signed.
Frequently Asked Questions
Yes. Where the contract sets its own rate for late payment, the arbitrator applies that rate. Where the contract is silent, the arbitrator draws on the Adjudication of Interest and Linkage Law, 5721-1961, which allows a judicial authority awarding money to add linkage and interest at its discretion. Section 2 of the Arbitration Law, 5728-1968 reads the First Addendum into the agreement by default, and Israeli tribunals treat monetary relief as carrying the interest a court could have granted.
Linkage differentials, hefreshei hatzmada, track the Consumer Price Index published by the Central Bureau of Statistics and restore the purchasing power of a shekel sum. They compensate for inflation rather than for delay. Interest is the separate charge for being kept out of your money, and it is calculated on top of the linked figure. A debtor who stalls on a shekel award pays the inflation adjustment and then interest on the adjusted amount.
No. Israeli CPI linkage applies to shekel obligations. A sum expressed in dollars or euros already carries its own currency exposure, so the 1961 Law provides interest suited to that currency instead of shekel linkage. When enforcement starts, the Execution Office converts the foreign-currency figure into shekels using the Bank of Israel representative rate, and the rate on the conversion date can shift the shekel value by several percent either way.
Interest runs until the money reaches the creditor, not until the award is signed or confirmed. A respondent who wants to stop the clock while challenging the award has to deposit the sum with the court or the Execution Office. Filing a set-aside application under Section 24 of the Arbitration Law does not freeze accrual, so an unsuccessful eighteen-month challenge adds eighteen months of linkage and interest to the bill.
You need confirmation before enforcing anything. Under Section 23 of the Arbitration Law the District Court confirms the award, which then carries the force of a court judgment, and the Execution Office requires that judgment to open a collection file. Interest and linkage accrue from the date fixed in the award regardless of when you apply for confirmation, so delay costs you collection time rather than accrual.