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Arbitration

Is an arbitration clause in a standard-form Israeli commercial contract always enforceable?

Not automatically. Israeli courts apply heightened scrutiny to arbitration clauses in standard-form contracts (khozeh achid) under the Standard Contracts Law 5743-1982. A clause that strips one party of effective access to courts, creates an unfair procedural advantage, or was never specifically brought to the weaker party's attention may be declared an "oppressive term" and severed from the agreement. Between sophisticated commercial parties who negotiated the contract at arm's length, arbitration clauses are routinely enforced. The Arbitration Law 5728-1968 generally requires courts to stay litigation in favor of arbitration when a valid agreement exists.

The Arbitration Law 5728-1968 generally requires courts to stay litigation in favor of arbitration when a valid arbitration agreement exists between the parties. However, the Standard Contracts Law 5743-1982 gives the Standard Contracts Tribunal (Beit Din Lakhozim Achidim) authority to scrutinize any clause in a standard-form contract that creates a significant imbalance between the parties. An arbitration clause is not automatically oppressive, but courts examine whether it effectively denies one party access to justice — for example by requiring arbitration in an inconvenient location, imposing disproportionate upfront fees, or applying rules that restrict necessary evidence-gathering. Clauses buried in fine print without specific disclosure to the contracting party have been severed by Israeli courts. For guidance on drafting an enforceable arbitration clause under Israeli law, the drafting choices — forum, rules, seat, language — directly affect whether the clause will withstand scrutiny.

For foreign parties entering Israeli commercial agreements on standard terms, the distinction carries practical weight. A foreign company accepting Israeli standard terms online or via click-wrap should document the negotiation trail and confirm the arbitration clause was clearly presented. A company seeking to enforce its own standard-form arbitration clause should ensure it was: clearly identified in the contract text, explained to the counterparty if they were a smaller business or individual, and structured around a genuinely accessible forum. Israeli law does not recognize a blanket consumer exemption to arbitration, but consumer contracts receive more rigorous scrutiny under the Consumer Protection Law 5741-1981. An application to declare a clause oppressive must be filed before the arbitration proceeding is completed — a party who participates in arbitration without objecting early may lose the right to challenge the clause's validity.

⚖ In Practice
  • Governing law: Arbitration Law 5728-1968; Standard Contracts Law 5743-1982, Sections 3–4
  • Competent tribunal: Standard Contracts Tribunal (Beit Din Lakhozim Achidim); District Court for stays of proceedings
  • Test applied: Whether the clause creates a "significant imbalance" — assessed case by case; courts presume against oppressive terms
  • Safe harbor: Clauses freely negotiated between businesses of equal bargaining power are almost always enforced
  • Challenge deadline: Application to declare a clause oppressive must be filed before the arbitration proceeding concludes
  • Consumer note: Consumer contracts are scrutinized more rigorously under the Consumer Protection Law 5741-1981, though no blanket exemption applies

From the full guide: Drafting an Arbitration Clause Under Israeli Law: What Works and What Gets Struck

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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