When You Go Hiking, You Don’t Expect Rain – But You Pack an Umbrella: what you should know about arbitration clause

By Adv. Andrey Nazaretsky

No one enters a real estate transaction expecting conflict. Like two hikers starting their journey on a sunny day, no one anticipates a storm. But the experienced know to pack an umbrella in their bag – just in case. In the legal world, that “umbrella” can be an arbitration clause.

A foreign investor entering the Israeli real estate market typically doesn’t understand the intricacies of the local legal system. It’s not just about a different language, but also a different legal structure, procedures that can drag on for years, procedural uncertainty – and sometimes even concerns about unexpected costs. This is where the arbitration clause comes into play, often receiving only passing attention – but which can become a critical tool when put to the test.

Arbitration as a Solution Tailored to Foreign Investors

Unlike court proceedings, arbitration allows for almost complete customization to the parties’ needs:

• Language – Arbitration can be conducted in English, French, or any other language agreed upon in advance.
• Professional Arbitrator – It’s possible to appoint an arbitrator from the real estate field, or even an international attorney.
• Management Rules – The parties can agree on management rules they are familiar with.
• Speed and Efficiency – Arbitration timelines are controllable, and typically the process is short, focused, and lasts only a few months.
• Complete Discretion – Discussions take place away from public view, unlike court proceedings.

How Does It Work in Practice?

The arbitration process begins with filing claims and continues with presenting evidence and witnesses – similar to a legal proceeding, but without the formality and bureaucracy typical of court proceedings. Each side presents its position to the arbitrator, who is chosen in advance by both parties or through a clear mechanism established by the parties, and at the end, an arbitration award is issued – a final decision (unless an appeal right was agreed upon in advance) that is binding.

If one party is unwilling to comply with the arbitration award, it must be submitted to court for confirmation, but this is a technical and relatively short procedure, as the court doesn’t examine the content of the decision – only confirms it procedurally for enforcement purposes.

Additionally, if the parties establish this in advance in the agreement, it’s possible to include a preliminary mediation stage, which allows an attempt to reach agreements before beginning the arbitration proceedings themselves – a real saving in time, resources, and sometimes unnecessary tension.

To illustrate, here’s an arbitration dispute we handled at our firm: A foreign investor and Israeli developer reached a deadlock when the investor couldn’t transfer funds on time due to difficulties with strict banking compliance. The Israeli developer claimed breach of contract, while the investor claimed the circumstances causing the delay were beyond his control.

Instead of lengthy litigation, the parties turned to mediation and arbitration. The result: within a few months, the parties reached a settlement and even continued to cooperate, while our firm simultaneously helped solve the compliance issue and the funds were transferred. What could have become a years-long dispute was resolved through an efficient, fast, and discreet process.

Planning for the Unexpected

Indeed, in transactions worth tens of millions of shekels, the arbitration clause is not a marginal technical item – but an integral part of the transaction mechanism. It must be properly drafted, precise, adapted to the nature of the transaction, the parties’ language, location, and appropriate legal system.

A successful arbitration agreement includes:

✔ Selection of a recognized and reliable arbitration institution (in Israel or abroad)
✔ Clear definition of the arbitrator’s qualifications
✔ Advance agreement on the language, law, and management rules that will apply
✔ Authority to grant interim relief when necessary
✔ Mediation mechanism (if desired)
✔ Explicit mention of the possibility to enforce the award through the New York Convention

Why Is This Especially Important for Foreign Investors?

The legal system in Israel operates in Hebrew, according to rules that can seem foreign and confusing to an overseas investor. Arbitration changes the rules of the game:

• No need to translate every document and appear physically in Israel
• No getting caught up in years of appeals and delays
• No “forum shopping” or races between different courts
• And most importantly – you can plan, control, and anticipate the dispute resolution process in advance

In Conclusion: Small Clause, Great Peace of Mind

Arbitration is not a sign of concern about conflict – but a sign that you’re planning ahead. The difference between a successful investment and one that gets complicated sometimes depends precisely on this clause, quietly waiting at the end of the agreement. When you write it correctly, you not only have an umbrella – but it also opens exactly when you need it.

If you’re considering a real estate investment (with a foreign investor or in general) – make sure the agreement includes a well-drafted arbitration clause that suits you. It’s the small step that makes the big difference.