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Arbitration

Can a respondent in an Israeli arbitration bring a counterclaim or raise a set-off?

Yes, provided the counterclaim falls within the arbitration agreement. An arbitrator's authority under the Arbitration Law 5728-1968 comes entirely from that agreement, so a counterclaim arising from the same contract under a broadly worded clause is normally heard in the same proceedings. A counterclaim outside the clause can be decided only if the parties extend the agreement to cover it, because an award on it could otherwise be set aside under Section 24(3) for exceeding authority. Set-off under Section 53 of the Contracts (General Part) Law 5733-1973 is a defense that can reduce or extinguish the claim but cannot produce an award above it.

The 1968 Arbitration Law gives the arbitrator broad control of procedure, and Israeli arbitrators routinely hear counterclaims as part of the same reference. The International Commercial Arbitration Law 5784-2024, which follows the UNCITRAL Model Law, applies its rules on claims to counterclaims as well. The test in both regimes is scope: a clause covering disputes arising out of or in connection with the contract will usually capture a cross-claim for defective performance, while a clause limited to one issue may not. Set-off works differently, because it is a defense to the claim rather than a claim of its own. It can wipe out the claimant's recovery, but any surplus owed to the respondent needs a counterclaim.

Foreign respondents often treat an Israeli arbitration as purely defensive and hold their own claims back for a later lawsuit. That can mean paying court fees on a separate case and litigating the same facts twice, and the other side may ask the court to stay that lawsuit in favor of the same arbitration clause. The counterclaim should be set out with the statement of defense, within the timetable the arbitrator or the institutional rules fix, because later additions need the arbitrator's permission. Before filing, the respondent should check whether the cross-claim arises under the same contract or under a separate agreement with a different dispute clause. Our guide to counterclaims in Israeli arbitration covers deadlines under common institutional rules.

⚖ In Practice
  • Governing law: Sections 5 and 24(3), Arbitration Law 5728-1968; Section 53, Contracts (General Part) Law 5733-1973
  • Competent authority: the arbitrator decides scope in the first instance; the District Court (Beit HaMishpat HaMechozi) hears applications to confirm or set aside the award
  • Fees/amounts: bringing the cross-claim as a separate lawsuit would add court fees of about 2.5% of its value, roughly NIS 25,000 on a NIS 1 million claim
  • Timeline: an application to set aside an award for exceeding authority must be filed within 45 days of the award
  • Set-off limits: set-off between debts from different transactions requires both to be liquidated sums, and it takes effect by written notice

From the full guide: Counterclaims in Israeli Arbitration: Rights for Foreign Respondents

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