Quick Answer: If your contract says only that disputes go to arbitration in Israel, the default arbitration rules in the First Addendum to the Arbitration Law 5728-1968 fill in the rest. Section 2 of the Law reads those 21 provisions into every arbitration agreement unless a contrary intention appears in the agreement itself. They give you a single arbitrator who controls procedure, who is not bound by the substantive law or the rules of evidence, who has three months to issue an award (extendable by three more), who must give reasons, and whose fee the parties split equally. There is no confidentiality, no right of appeal, and no institution running the case. Every one of those defaults can be displaced by one carefully drafted paragraph.

Most cross-border contracts with an Israeli party contain an arbitration clause of one or two lines. "Any dispute arising out of this agreement shall be referred to arbitration in Israel." The commercial team signs it, the deal closes, and nobody thinks about it again until a dispute lands three years later.

At that point the clause turns out to be much longer than what was printed. Israeli law treats a short arbitration clause as an outline and supplies the missing text from a statutory schedule that most foreign parties have never read. Some of what it supplies is sensible. One provision in particular tends to shock American, British and German counsel, because it removes the thing they assumed was guaranteed: the application of law to the facts.

What follows is what the First Addendum actually says, which parts help a foreign party, which parts you should be contracting out of, and how the whole framework sits alongside the newer International Commercial Arbitration Law 2024.

1. What section 2 of the Arbitration Law actually does

Section 2 of the Arbitration Law 5728-1968 is a single sentence with large consequences: unless a contrary intention appears in the arbitration agreement, the agreement is deemed to include the provisions set out in the First Addendum, as far as they are relevant.

Three things follow from that wording.

  • The default rules are contractual terms, not mandatory law. A clear inconsistent provision in your clause displaces them. You do not need to recite the Addendum item you are excluding; a rule that plainly cannot stand alongside your drafting is displaced by implication. Express drafting is safer, because an Israeli court reading your clause years later has only the text.
  • The phrase "as far as they are relevant" means an Addendum item that makes no sense in your arbitration simply drops away. The provisions about umpires and casting votes are irrelevant in a sole-arbitrator case.
  • Because the Addendum forms part of the agreement, breaching it is breaching the agreement. That is the mechanism that gives the defaults teeth. Section 24 of the Law lets the District Court set aside an award where the arbitrator exceeded the authority the agreement gave him, failed to decide something referred to him, or failed to give reasons when the agreement required them. The Addendum is what makes those requirements part of the agreement in the first place.
In Practice — Starting an arbitration when the clause names nobody: A bare clause creates a real practical problem: there is no arbitrator and no institution to appoint one. Section 8(b) sets out the fix. Send the other side a written notice naming your proposed arbitrator (or, in a two-arbitrator clause, naming yours and calling on them to name theirs). If seven days pass with no response, apply to the District Court for an appointment under Section 8(a). Under Section 37(b) and 37(c) this application can be heard by the Court Registrar rather than a judge, which is why appointments usually come through in four to ten weeks rather than months. Realistic budget: NIS 8,000 to NIS 20,000 in legal fees plus the court filing fee for a miscellaneous civil application. Send the Section 8(b) notice by registered post with a delivery certificate; paragraph 21 of the Addendum makes that method of service provable on the date shown on the certificate, which matters when your counterparty is abroad.

2. How many arbitrators you get, and who runs the hearing

Paragraphs 1 through 7 of the Addendum build the tribunal. The headline rule is that arbitration is before a single arbitrator unless a larger number has been fixed. For a foreign party used to three-member tribunals in ICC or LCIA arbitration, that is a substantial difference in both cost and risk: one person, one view of your evidence, and no colleague to dissent.

The remaining provisions handle the mechanics:

  • Where an even number of arbitrators has been agreed, any one of them can demand the appointment of an additional arbitrator, who becomes chairman (paragraph 2). With an odd number, the arbitrators choose a chairman from among themselves (paragraph 3).
  • The chairman fixes the place and times of hearings and decides everything connected with procedure (paragraph 4). This is a wide grant of power to a single person and it applies unless your clause carves parts of it out.
  • Decisions and the award go by majority. If there is no majority on the final award, the chairman has the casting vote, and an arbitrator left in the minority may record a dissent in the award (paragraph 5).
  • Where a substitute or additional arbitrator joins, the arbitration continues from the stage it had reached unless that arbitrator asks otherwise (paragraph 7). You do not automatically start again, and you do not automatically re-hear witnesses.

Removing an arbitrator is not an Addendum matter; it lives in Section 11 of the Law. The District Court may remove an arbitrator who is found unworthy of the parties' confidence, whose conduct is causing a delay of justice, or who is unable to perform the function. The bar is high, and Section 18 confirms that filing a court application does not stop the arbitration in the meantime unless the court or the arbitrator says so.

3. The default that surprises foreign parties: the arbitrator is not bound by the law

Paragraph 14 is the provision to read twice. The arbitrator acts in whatever manner appears to him most conducive to a just and speedy settlement of the dispute and decides to the best of his judgment on the material before him. Then comes the sentence that catches foreign parties out: the arbitrator is not bound by the substantive law, the rules of evidence, or the rules of procedure applied in the courts.

So in a domestic Israeli arbitration under a bare clause, your contract claim is not decided by applying the Contracts Law and the case law on remedies. It is decided by an experienced person doing what seems fair on the papers. Israeli practitioners are used to this. Foreign in-house counsel usually are not, and it is a common source of surprise when an existing clause is reviewed for an overseas client.

The consequences run further than the hearing itself:

  • An award that misapplies Israeli law is not defective. Section 24(7) allows an award to be set aside for not being determined in accordance with law only where the arbitration agreement required the arbitrator to rule according to law. Under the default, it did not.
  • You lose the appeal route to the District Court. Section 29B permits parties to agree on a court appeal for a fundamental error carrying the potential for a miscarriage of justice, but only where the agreement stipulated that the arbitrator should rule according to the law.
  • Evidence you would expect to be excluded comes in. Hearsay, unsworn statements and untested documents are all admissible if the arbitrator finds them useful.

The fix is one sentence: "The arbitrator shall be bound by the substantive law of the State of Israel and shall give a reasoned award." Add "and the parties may appeal the award to the competent court under section 29B of the Arbitration Law" if you want the appeal right as well. Clauses drafted this way are common in Israeli M&A and construction contracts, and Israeli arbitrators accept them without difficulty.

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4. Documents, witnesses and experts under the default rules

Not being bound by the rules of evidence does not mean the arbitrator has no evidentiary powers. The Addendum gives him a set of tools that look a good deal like a civil court's.

  • Disclosure. Paragraph 8 lets the arbitrator direct the parties to answer interrogatories, disclose and produce documents, and do anything else connected with the conduct of the arbitration that a court could order in an action before it. This is Israeli civil disclosure, not US-style discovery: targeted categories of relevant documents rather than everything on a subject.
  • Sanctions with real bite. Paragraph 9 is the enforcement mechanism. Where a party ignores an arbitrator's order without justifiable cause, the arbitrator may, after warning that party, dismiss the claim if the defaulter is the claimant, or strike out the defence and decide the dispute as though no defence had been filed if the defaulter is the respondent. Foreign respondents who treat an Israeli arbitrator's procedural order as optional correspondence have lost cases this way.
  • Witnesses. Section 13 of the Law gives the arbitrator the same power to summon witnesses and order production as a court has, and Section 16 lets either the arbitrator or a party ask the District Court for coercive measures against a witness who refuses. Evidence is taken on oath or affirmation under Section 14 unless the arbitrator and the parties all agree otherwise, and paragraph 11 requires the arbitrator to warn the witness that false testimony carries a criminal penalty.
  • Hearings in absence. Paragraph 10 bars the arbitrator from holding a session in a party's absence unless he has warned that party, orally or in writing, that he will proceed anyway. Section 15(b) then gives the absent party 30 days from delivery of the award to ask the arbitrator to set it aside and reopen, if the absence had justifiable cause.
  • Experts. Under paragraph 12 the arbitrator may appoint his own expert on any matter requiring expert knowledge, after hearing the parties. The opinion goes to the parties, who can oppose it and demand to question the expert as if he were the arbitrator's witness. The arbitrator may then decline to hear competing party experts on that issue, provided he gave advance notice and nobody objected.
  • Access to the file. Paragraph 13 requires the arbitrator to make the arbitration file available to the parties at any reasonable time for inspection and copying, and paragraph 20 requires him to keep it for seven years after the arbitration ends.

5. The three-month clock, and why almost nobody meets it

Paragraph 15 gives the arbitrator three months to make the award, running from the earlier of the day he began dealing with the dispute and the day a party called on him in writing to do so. The same paragraph lets the arbitrator extend that period by up to three additional months on his own initiative. Six months, then, is the outer limit of what the arbitrator can do alone.

Real Israeli arbitrations of any substance run 12 to 24 months. The gap is bridged by extensions, and extensions are where unrepresented parties get hurt. Section 24(8) makes an award determined after the period expired a ground for setting aside. Section 26(c) then takes most of that away: a party cannot argue the award was out of time unless it reserved that right by written notice to the arbitrator before the award was made. Silence while the clock runs out is treated as consent.

Section 19 is the formal safety valve. On the application of a party or the arbitrator, the District Court may extend the period from time to time, even after it has already expired. Time during which the proceedings were stayed under Section 18 or Section 33 does not count toward the period. Courts grant these extensions routinely where the arbitration is genuinely progressing.

In Practice — Protecting the timing point, and the arbitrator's fee lien: Two housekeeping steps save parties a great deal of money. First, if the six months are running out and you want to preserve the Section 24(8) argument, send the arbitrator a short written notice reserving your right to plead that the award is out of time, and copy the other side. Do it before the award issues; afterwards, Section 26(c) shuts the door. Second, watch the fee. Retired Israeli judges and senior commercial arbitrators charge roughly NIS 1,200 to NIS 3,500 per hour plus VAT (18% in 2026), and paragraph 19 of the Addendum splits that equally between the parties unless the arbitrator directs otherwise. Section 33 lets an unpaid arbitrator suspend hearings or simply hold the completed award until he is paid, which means a stalling respondent can freeze your case for months. The standard response is to pay the defaulter's half under Section 31(b), which entitles you to reimbursement from them, and to ask the arbitrator to award it back at the end. If the fee itself looks excessive, Section 32 lets the District Court reduce it, but only on an application filed after the award and within the Section 27(a) 45-day window.

6. Reasons, remedies, interest and costs

The 2008 amendment to the Arbitration Law rewrote the end of the Addendum, and the change is easy to miss in older commentary. Paragraph 16 now states plainly that the arbitrator will explain the award. Reasons are the default. Before 2008 they were not, and an unreasoned one-page award was perfectly normal.

This connects directly to Section 24(6), which allows an award to be set aside where the arbitrator gave no reasons although the agreement required them. Since Section 2 reads paragraph 16 into your agreement, an unreasoned award under a modern bare clause is challengeable. If for some reason you want a bare result with no reasoning, you now have to say so expressly.

The remaining provisions cover what the arbitrator can order:

  • Paragraph 17 lets the arbitrator state a legal question, or all or part of the award, as a case stated for the District Court's opinion. It is rarely used, but it exists.
  • Paragraph 18 gives the arbitrator the court's remedial toolkit: declaratory relief, mandatory and prohibitive injunctions, specific performance, any other relief a court could grant, and an interim award disposing of part of the case. Section 17 then keeps interim relief alive until the award, and lets the arbitrator make it final in the award itself.
  • Paragraph 19 covers costs. The arbitrator may direct payment of all or part of the parties' expenses including advocates' fees, plus his own remuneration, and may require deposits or security for those amounts.
  • Interest and costs are also the subject of Section 22, which allows the arbitrator to complete an award that failed to provide for them.
In Practice — Fixing an award before you fight about it: Israeli awards frequently arrive with something missing: no ruling on interest, no allocation of costs, a transposed figure, a misspelled company name that will not match the Companies Registrar record at enforcement. Section 22 handles all four without a court application. Apply to the arbitrator, with notice to the other parties, within 30 days of the award (30 days from delivery if the award was made in your absence) for a clerical error or a missing costs provision. The arbitrator must decide within 30 days of notifying the other side. Two timing points matter: Section 27(b) restarts the 45-day clock for a set-aside application from the day the arbitrator decides the Section 22 request, and Section 22(d) lets the District Court itself fix clerical or immaterial defects while hearing a confirmation or set-aside application. Getting the company name and ID number right at this stage is not pedantry. The Execution Office (Hotza'a LaPoal) will reject a file whose judgment debtor does not match the registry record exactly.

7. What the First Addendum does not give you

The gaps matter as much as the contents. None of the following is supplied by default, and each has to be drafted:

  • Confidentiality. There is no implied duty of confidentiality in a domestic Israeli arbitration. And confirmation proceedings under Section 23 are ordinary District Court litigation, so the award and the arguments about it become part of a public file.
  • Any right of appeal. Both routes require prior agreement: an appeal to a second arbitrator under Section 21A and the Second Addendum, or an appeal to the District Court under Section 29B. Without agreement, your only route is a Section 24 set-aside application within the 45 days allowed by Section 27(a), on ten narrow grounds that do not include the arbitrator getting the merits wrong.
  • Seat, language and applicable law. The Addendum says nothing about any of them. Hearings will be in Hebrew unless the parties and the arbitrator agree otherwise, and documents will need certified translation, typically NIS 300 to NIS 600 per page for legal Hebrew to English.
  • Consolidation and joinder. Nothing in the Addendum lets an arbitrator pull a related dispute or an additional party into the same proceeding. In a construction chain with separate contracts, that produces parallel arbitrations with inconsistent findings.
  • An institution. A bare clause is ad hoc arbitration. No secretariat holds deposits, chases the arbitrator or scrutinises the award. If you want that, name the Israeli Institute of Commercial Arbitration (ICCA) or another institution in the clause and its rules will replace much of the Addendum.
  • Qualification requirements. The Addendum imposes none. Anyone with capacity can serve. Where the dispute is technical, specify the arbitrator's profession and years of experience, and name a fallback appointing authority such as the President of the Israel Bar Association.

8. Which defaults to override, and how

For a commercial contract between a foreign company and an Israeli counterparty, these are the amendments worth making. Each one is a direct answer to a default described above.

  1. Require the law to be applied. "The arbitrator shall rule in accordance with the substantive law of the State of Israel." This displaces paragraph 14 and unlocks Sections 24(7) and 29B.
  2. Keep the reasons obligation and add the appeal. Paragraph 16 already gives you reasons; adding a Section 29B appeal right or a Section 21A appeal arbitrator gives you somewhere to take them.
  3. Set a realistic timetable. Replace paragraph 15 with a period matched to the dispute, for example an award within 12 months of the arbitrator's acceptance, extendable by agreement. This avoids a stream of Section 19 applications.
  4. Add confidentiality. Cover the existence of the proceedings, the documents produced, and the award, with a carve-out for enforcement and for disclosure required by law or by a securities regulator.
  5. Fix the language, and the seat if the deal is international. "The arbitration shall be conducted in English" is one line and saves five figures in translation costs.
  6. Name the appointing mechanism. An institution, or a named office holder, so that a stalling counterparty cannot force you into a Section 8 application before the case even starts.
  7. Deal with costs security. Paragraph 19 lets the arbitrator require deposits; say expressly that he may order security for costs where a party is resident outside Israel and has no local assets.

9. When the First Addendum does not apply at all

Three situations take you outside this framework entirely.

International commercial arbitration seated in Israel. The International Commercial Arbitration Law 2024 adopts the UNCITRAL Model Law for qualifying international commercial disputes seated in Israel. Where it applies, the Model Law framework governs procedure and the grounds for challenge are the narrow Model Law grounds rather than the ten in Section 24. The Addendum has no role. Existing clauses drafted before the ICA Law generally continue under the 1968 Law, so check which regime your contract falls into rather than assuming.

Institutional arbitration. Naming an institution imports its rules, and those rules displace the Addendum items they cover. ICCA's rules address timetables, appointment, fees and challenge procedures far more thoroughly than the statutory defaults. What survives is the Law itself, which continues to govern court support, confirmation and setting aside.

Religious and specialist tribunals. Arbitration before a rabbinical court sitting as an arbitral tribunal (beit din) usually rests on a signed arbitration deed (shtar borerut) with its own procedural terms, which take precedence over the Addendum in the same way any other agreed terms would.

A last practical note for readers abroad. Section 3 invalidates an arbitration agreement in a matter that cannot be the subject of an agreement between the parties, and Section 4 makes the agreement and the arbitrator's authority binding on the parties' successors. If you buy an Israeli company or take an assignment of an Israeli contract, you inherit its arbitration clause, defaults and all. Reading that clause is part of due diligence, not a post-closing task.

Frequently Asked Questions

Not unless your contract says so. Paragraph 14 of the First Addendum states that the arbitrator is not bound by the substantive law, the rules of evidence, or the rules of procedure applied in the courts. He decides according to what appears most conducive to a just and speedy settlement. If you want the law applied, write it into the clause. Once you do, an award that ignores the law becomes a ground for setting aside under Section 24(7).

Paragraph 15 gives the arbitrator three months from the day he began dealing with the dispute or was called upon in writing to do so, whichever is earlier. He may self-extend by up to three more months. Beyond six months, the parties must agree to a further extension, or a party or the arbitrator applies to the District Court under Section 19, which can extend the period even after it has already expired.

No. The First Addendum says nothing about confidentiality, so a domestic Israeli arbitration carries no implied duty of secrecy. And the moment either side applies to the District Court to confirm or set aside the award under Sections 23 and 24, the award and the pleadings about it enter a public court file. If confidentiality matters, draft an express clause covering the proceedings, the documents produced, and the award itself.

Only if you agreed to an appeal in advance. Two routes exist, both from the 2008 amendment. Under Section 21A you can agree to an appeal before a second arbitrator, governed by the Second Addendum, who rules on the existing record within two months and cannot hear witnesses. Under Section 29B you can agree to appeal to the District Court, but only if the clause also required the arbitrator to rule according to law. Otherwise your only route is a Section 24 set-aside application.

Paragraph 19 splits the arbitrator's fee equally between the parties unless the arbitrator directs otherwise, and the final award usually reallocates costs to the losing side. Section 33 lets an unpaid arbitrator suspend hearings or withhold the award until he is paid, so in practice the cooperative party covers the defaulter's share under Section 31(b) and claims it back. Section 32 allows the District Court to reduce a fee it considers excessive.

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