Introduction
Arbitration is a dispute resolution mechanism that operates outside the formal court system. It offers the parties flexibility, privacy, efficiency, and often substantial savings in time and cost. In Israel, the institution of arbitration is governed by the Arbitration Law, 1968, which provides the legal framework for this alternative method of dispute resolution. This law is considered a key tool in promoting alternatives to litigation and has been extensively interpreted by Israeli courts.
This article outlines the fundamental principles of the law, examines its advantages and limitations, reviews selected legal issues discussed in case law, and explores recent trends and proposed reforms.
Core Principles of the Israeli Arbitration Law
The Israeli Arbitration Law is founded on several key principles:
A. Party Autonomy
The law is based on consent — without the parties’ agreement, arbitration cannot take place. Section 1 of the law defines an arbitration agreement as “an agreement whereby the parties agree to submit to arbitration a dispute that has arisen between them or may arise in the future.”
This means that arbitration is voluntary in nature and contractual in character. The parties may agree in advance on procedural rules, the identity of the arbitrator, the venue, the language of the proceedings, and more.
B. Independence of the Arbitration Process
The law grants the arbitrator wide-ranging powers, including the authority to summon witnesses, decide procedural matters, and grant monetary and injunctive relief — including interim measures, if the parties have so agreed.
C. Limited Judicial Intervention
Although courts have certain roles in the arbitration process (such as appointing an arbitrator in the absence of agreement, confirming or vacating an arbitral award), the objective of the law is to minimize judicial intervention and preserve the distinct advantages of arbitration.
The Arbitration Process
Arbitration proceedings commence pursuant to an agreement between the parties or by referring the matter to a mutually agreed-upon arbitrator. The arbitrator may be a lawyer, a retired judge, an engineer, an accountant, or any individual selected by the parties.
The law allows for significant procedural flexibility: there is no obligation to follow formal rules of evidence or civil procedure, and the parties are free to set their own rules. In the absence of such agreement, the arbitrator determines the procedure at their discretion.
The arbitral award must be reasoned unless the parties have waived this requirement. Once the award is rendered, it may be submitted to a court for confirmation as a binding judgment — a routine step that grants the award the enforceability of a court judgment.
Vacating an Arbitral Award – Limited Grounds Only
Section 24 of the law enumerates ten grounds upon which an arbitral award may be set aside. These grounds are listed exhaustively, and Israeli courts have adopted a pro-arbitration stance — demonstrating clear reluctance to interfere with arbitral outcomes.
The grounds include, inter alia:
• No valid arbitration agreement existed;
• The arbitrator was not lawfully appointed;
• The arbitrator exceeded his or her authority;
• A party was denied the opportunity to present its case;
• The award is contrary to public policy;
• The award was obtained through a criminal offense.
Israeli courts have repeatedly emphasized that they do not sit as appellate instances over arbitral awards. A mere error of law or fact is not sufficient grounds for setting aside the award.
Advantages of Arbitration under the Israeli Law
Arbitration pursuant to the Israeli Arbitration Law offers several clear advantages over litigation in the courts:
• Speed – Arbitration proceedings are typically shorter than judicial processes, especially considering the caseload burden on Israeli courts.
• Expertise – Parties may choose an arbitrator with subject-matter expertise (e.g., in construction, finance, or engineering).
• Confidentiality – Hearings are private, unlike court hearings, which are generally public.
• Procedural Flexibility – Parties can tailor the procedure to suit the specific needs of their dispute.
Amendments and Updates to the Law
Since its enactment in 1968, the law has undergone several amendments. The most significant is Amendment No. 2 (2008), which introduced — for the first time — the possibility of appealing an arbitral award before a second arbitrator, if explicitly agreed by the parties. This reform expanded party autonomy by offering a choice between finality and a two-tiered internal review process.
In parallel, notable developments have occurred in arbitral practice in Israel. For example, the Israeli Institute of Commercial Arbitration (IICA) provides a structured framework for institutional arbitration, including published arbitration rules, lists of qualified arbitrators, codes of ethics, and procedures for managing international arbitration cases.
Conclusion
The Israeli Arbitration Law constitutes a cornerstone of Israel’s dispute resolution framework. It successfully integrates contractual autonomy, procedural flexibility, and institutional efficiency.
As the use of arbitration continues to grow — particularly in the context of international commerce — strengthening the institutional infrastructure in Israel is of paramount importance. This will help position Israel as an advanced and reputable arbitration hub with global recognition.
Dr. Menashe Cohen
President