You won. After two years of litigation against an Israeli distributor that stopped paying, the judgment orders it to pay every shekel of the debt, plus costs. Then the costs decision lands, and you discover the catch: the court awarded you a fraction of what your lawyers actually charged. The debtor’s delay tactics cost you real money, and “winning” recovered the debt but not the price of recovering it.
This outcome is so common that experienced companies treat it as a given. It is not. In Israeli commercial litigation there are two different kinds of “costs”, and a single clause in your contract decides which one you get.
The Israeli rule: the loser pays, but rarely what you paid
Israeli courts follow the costs-follow-the-event principle: the losing party is generally ordered to pay the winning party’s litigation expenses and attorney’s fees. Foreign creditors often read that as “if I win, the case pays for itself”. It does not.
Court-awarded fees are discretionary. Judges weigh the value of the claim, the complexity of the work, the conduct of the parties and proportionality, and the number they land on is routinely far below the actual invoices of a serious cross-border dispute, especially where the debtor dragged the case through procedural skirmishes. The gap between awarded costs and real legal spend is yours to absorb, even when you win on every issue.
The practical consequence: a debtor with no defense still holds leverage. It knows that suing it costs you money you will not fully recover, and it prices its settlement offers accordingly.
The clause that flips the leverage
An attorney’s fees clause, sometimes called a fee-shifting or costs clause, replaces judicial discretion with a contractual promise: the breaching party, or the losing party in any dispute arising from the contract, will bear the other side’s actual legal costs, including attorney’s fees, collection expenses and enforcement costs.
Israeli courts generally enforce such clauses as contractual obligations. A debtor that signed one can no longer count on the costs gap, because the claim now includes your real legal spend, not a discounted judicial estimate of it.
In Israel the winner gets costs, but “costs” and “what your lawyer actually charged” are two different numbers. A one-line clause closes that gap before the dispute is even born, and its presence alone changes how the other side negotiates.
What the clause should actually say
A fee clause earns its keep only if it is drafted for enforcement, not copied from a foreign template. The points that decide whether it works:
- Define “costs” expansively. Attorney’s fees, collection-agency fees, expert and appraisal fees, translation and process-service costs, Execution Office fees, and the costs of interim motions. A clause that says only “legal fees” invites an argument over everything else.
- Anchor it to breach, not just to judgment. The strongest version obligates the breaching party to cover enforcement costs from the first demand letter, whether or not the dispute ever reaches a courtroom.
- Pair it with arrears interest. Contractual late-payment interest on overdue amounts is standard and enforceable in Israeli B2B contracts, and together with the fee clause it makes every month of non-payment more expensive for the debtor than paying.
- Keep it one-directional in your favor. Mutual clauses protect whoever wins. If your counterparty insists on mutuality, the clause is still worth signing, but the asymmetry is worth negotiating for when your side is the likely creditor.
- Secure it. A fee clause against an empty shell is paper. Pair it with a personal or parent-company guarantee, a bank guarantee or retention, so that the promise of costs is backed by an address that can actually pay.
The negotiation moment is where this is won
The fee clause is the easiest clause to get at the drafting stage and nearly impossible to add later. Israeli counterparties sign it routinely when it is presented as boilerplate, alongside the interest and jurisdiction clauses. They resist it only when someone explains to them what it does, which is exactly why your contract draft should come from your lawyer rather than theirs.
In our experience, the presence of a clear attorney’s fees clause changes the debtor’s behavior long before judgment: demand letters get answered faster, settlement numbers climb, and the “sue me, it will cost you more than the debt” posture disappears from the negotiation.
If your contract has no clause and the debt already exists
The absence of the clause is not the end of the claim. Court-awarded costs still follow the event, conduct during the litigation affects them, and a debtor that forced unnecessary procedure can be ordered to pay materially more than the standard tariff. The strategy of the claim, from the demand letter’s wording to the choice of track and the interim motions filed, directly shapes the eventual costs award.
And the clause belongs in your next contract, your next distribution agreement and your next purchase order from this morning onward, not in the dispute you already have.
A foreign company is owed money by an Israeli counterparty, or wants its contracts to make the debtor fund the collection? Contact our firm. We draft enforcement-ready contracts for foreign clients and recover commercial debts in Israel, from the demand letter to the Execution Office.
This article is for general information only and does not constitute legal advice. Laws and their application depend on the facts and jurisdiction and may change. Although we aim to keep this information accurate and current, we do not guarantee that it is complete or up to date. The article may contain omissions or errors. Reading this article does not create an attorney-client relationship with RNC Group. Before making a decision or taking action, seek advice from a qualified lawyer in the relevant jurisdiction.