ISRAEL: An Introduction to Dispute Resolution

Introduction

2024 has been a difficult year for Israel. The war that ensued following Hamas’ atrocious attack on Israel on 7 October 2023 has spread to multiple fronts, including a direct conflict with the Islamic Republic of Iran. With mounting defence and security expenses, and significant parts of the workforce being called to long periods of reserve duty, the war has taken a toll on the Israeli economy, the full implications of which are still unfolding. The Israeli legal landscape and judicial system have shown resilience throughout these turbulent times, which followed a year of social and political instability due to the Israeli government’s attempts to promote a dramatic judicial overhaul. Court proceedings, as well as alternative dispute resolution proceedings, have continued with minimal delays. This article describes some of the major developments and trends in the Israeli dispute resolution landscape in 2024 and offers some projections into 2025.

Israeli Supreme Court Declares Constitutional Amendment Unconstitutional

In July 2023, the Knesset (Israeli parliament) passed an amendment to the Basic Law: The Judiciary (Basic Laws being considered a constitutional norm under Israeli constitutional law), narrowing the scope of judicial review on actions and decisions by the government, its ministers, and the Prime Minister. The amendment, which was a major component of the judicial overhaul advanced by the Israeli government from January 2023, prohibited the Supreme Court, sitting as the High Court of Justice, from relying on a long-established basis for judicial review under Israeli administrative law – the cause of extreme unreasonableness – in scrutinising actions and decisions of said entities. The judicial overhaul in general, and this amendment in particular, provoked fierce civil opposition, heated debate, and unprecedented demonstrations. Petitions seeking the annulment of the amendment were filed with the Supreme Court and were heard by a full bench of the Court (which is very rare in Israel). In January 2024, the Court rendered a precedential judgment, determining (in a 12-3 majority) that the Court has the authority to judicially review Basic Laws (constitutional norms) and may find them, in extreme and rare cases, unconstitutional. The Court further struck down (in an 8-7 majority) the amendment at issue, finding it to be unconstitutional. By maintaining the scope of judicial review on government action and preserving important checks on such action, the judgment has important implications for the business sector, including multinational companies and foreign investors. The government is currently showing intentions to take actions and renew legislative proceedings aimed at weakening the Supreme Court. The clash between the branches of government is therefore likely to continue into 2025. 

Adoption of UNCITRAL Model Law into Israeli Legislation

One of the most significant legislative developments in Israel in 2024 has been the much-anticipated enactment of the new International Commercial Arbitration Law, which incorporates the central tenets of the UNCITRAL Model Law into Israel’s legislative framework. The law, which was passed in February 2024, will apply to international commercial arbitrations initiated after its entry into force. Until the enactment of the new law, arbitration proceedings in Israel were governed by the Arbitration Law of 1968, which applied to both domestic and international arbitration. The previous law failed to give proper consideration to the characteristics and distinctiveness of international arbitration, lagging behind the global developments reflected in the standards of the UNCITRAL Model Law on International Commercial Arbitration, and legislation influenced by the Model Law adopted by numerous jurisdictions. The new International Commercial Arbitration Law, which adopts the principles of the UNCITRAL Model Law with slight modifications, aligns Israel with leading countries in the field, thus promoting efficiency and reliability for parties to international commercial arbitrations who are legally based in Israel, and increases the attractiveness of Israel as a seat for conducting international commercial arbitrations. 2025 will serve as an opportunity to examine the initial impact of the new law.

New Civil Procedure Rules and Their Implementation

In 2021, new civil procedure rules came into effect in Israel, replacing the set of civil procedure rules adopted in 1984. The new rules aim to establish a new procedure for governing civil proceedings in Israel, with an emphasis on streamlining, simplifying and expediting proceedings. While a comprehensive assessment of the new rules, including their effects and success in achieving their declared goal, may require more time, the common opinion among most practitioners is that they have so far been successful in promoting the efficiency and simplification of civil proceedings.

It should also be noted that over the past year, with the ongoing war and the challenges it poses, courts have used the tools the new rules provide to deal with obstacles and adapt to the circumstances, thus minimising delays in proceedings. For example, courts have been willing, when appropriate, to allow court hearings to take place in video conference format (Zoom or similar means), relieving the parties and counsel of the obligation to travel to court during times of emergency. Furthermore, since travel to Israel has been complicated, courts have often even allowed the cross-examination of foreign witnesses through video conference, with witnesses testifying from their countries of residence. Without these accommodations, many proceedings would have had to be stayed for many months or more. With these accommodations, proceedings progressed as usual, almost without any delay. It is anticipated that reliance on such accommodations will continue into 2025.

Corporate Litigation and the Economic Division

Traditionally, Israeli district courts, and district court judges, would hear all types of cases: civil, criminal, administrative, etc, which would often hinder judges from developing expertise in a specific area of law. In 2010, a new Economic Division was formed in the Tel Aviv District Court with the exclusive authority to hear cases relating to corporate law and securities law (assuming that they fall within the geographical jurisdiction of the Tel Aviv Court). The judges appointed to the Economic Division, often compared to the Delaware Court of Chancery, have been able to develop unique expertise in these areas of law. Consequently, the numerous decisions issued by the Tel Aviv Economic Division (later joined by the Haifa Economic Division) have resulted in significant developments and changes. This is especially true in the case of corporate law, which has been modernised and brought closer to corporate law in other jurisdictions.

When a new or complex issue comes before them, the Economic Division judges often refer to foreign law, especially Delaware law on corporate law matters, as a relevant source of guidance. Nevertheless, foreign law is not adopted automatically by the Israeli court but only used as a comparative source, sometimes fully adopted, sometimes adapted, and sometimes rejected. In the last couple of years, two of the Tel Aviv Economic Division’s “first generation” judges were appointed to the Supreme Court (bringing their expertise to the highest instance), and new judges were appointed (some of them lawyers with significant practical experience). The development of Israeli corporate law through case law is an ongoing process, and 2024 has brought with it additional court decisions on numerous aspects of corporate law, including shareholder disputes, the duties of directors and officers, derivative actions and more. We expect this process to continue into 2025, with the new judges on the bench making their contributions to the case law.