Many contracts with an Israeli company contain a short clause that names a court or an arbitrator. Most people sign it without a second thought. It matters the moment a payment is missed, because it decides where the dispute can be heard and how much a wrong first move costs.
This guide is for foreign businesses with a written contract with an Israeli party. It is general information and not advice on a specific dispute.
Read the clause before you file anywhere
Three different things often sit in one paragraph: the law that governs the contract, the court that may hear a dispute, and an agreement to arbitrate. They are not the same. Our guide on governing law and jurisdiction clauses explains the difference. Here we deal with what follows when you file in a place the contract did not choose.
Exclusive foreign court clauses in Israel
An Israeli court is not stripped of its power to hear a case by a contract. But the general approach of the Israeli courts is to honour an exclusive foreign jurisdiction clause and to decline to hear the case, out of respect for the parties’ agreement. The court departs from the clause only in special circumstances. The ones the Israeli courts have recognised include a real risk of injustice in the foreign forum, a split of proceedings that would be wasteful, a counterclaim already pending in Israel, and a clause that is unfair in a standard-form contract.
The practical lesson runs both ways. If your contract sends disputes abroad, do not assume you can still sue in Israel because the debtor is there. If it sends disputes to Israel, a claim filed elsewhere may be turned away after you have paid to start it.
A forum clause is easy to ignore when you sign it and expensive to ignore when you sue.
Arbitration clauses: the court may stop the case
If the contract has a valid arbitration agreement and one side sues in an Israeli court anyway, the other side can ask the court to stay the proceedings under section 5 of the Arbitration Law, 1958. The party asking must be a party to the arbitration agreement, the dispute must fall within it, and that party must have been, and still be, willing to do what is needed for the arbitration to go ahead. The request has to be made no later than the day the party first argued the substance of the case. Raise it late and you may lose it.
Even when all of that is met, section 5 gives the court discretion not to stay the case if it sees a special reason for the dispute not to go to arbitration. The party opposing the stay carries that burden. Do not count on it.
Why the choice matters for collection
A judgment from the wrong place may not help you. A foreign judgment is enforced in Israel only if an Israeli court declares it enforceable under the Foreign Judgments Enforcement Law, 1958. Section 3 sets out the conditions: the foreign court had jurisdiction under the law of its own country, the judgment is final, its obligation can be enforced in Israel and is not contrary to Israeli public policy, and it can be executed in the country where it was given. Section 4 adds a reciprocity requirement, which the party opposing enforcement must raise. A judgment that fails one of these conditions is paper. See also enforcing a judgment in Israel.
What to do before a dispute
Before you send a demand or file, find the clause and read it with the rest of the contract. Check whether it says exclusive or only permits a court. Check whether it points to a court, to arbitration, or to both. If you have not yet signed, negotiate it with the debtor’s assets in mind. An Israeli company usually keeps its accounts and receivables in Israel, which is where a judgment will have to be collected. Our guide on suing an Israeli company from abroad covers what comes next.
Have a contract with an Israeli party and a dispute coming? Contact RNC Group and we will read the clause with you before you spend on the wrong forum.
Filed in the wrong forum, or dragged into one? The clause decides where the fight happens.
Forum selection and jurisdiction clauses can move, stay or kill a claim. Challenging or defending the forum early saves the cost of fighting in the wrong country.
We litigate jurisdiction and forum disputes for Israeli and foreign parties. Reach us on WhatsApp or by email.
This article provides general information only and does not constitute legal advice. It does not create an attorney-client relationship, and readers should obtain legal advice suited to the facts, jurisdictions, and procedural posture of their specific matter.