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The Importance of Contracts in Israel

The Importance of Contracts in Israel

Law has a major role in Israeli business. Israelis feel their freedom to act is determined by what is allowed under law, and this includes what has been agreed to in a binding agreement. Therefore, legal contracts form the basis of the Israeli business environment. The existence or absence of a binding agreement is the first question Israelis consider. If a legal agreement is in place, Israelis feel obliged to respect it.

 

If, however, the discussions have not yet resulted in an agreement, most Israelis feel they are not obliged to proceed with the other party. This is a strong contributor to the creation of certainty when doing business in Israel.

 

Law has a major role in Israeli business. Israelis feel their freedom to act is determined by what is allowed under law, and this includes what has been agreed to in a binding agreement. Therefore, legal contracts form the basis of the Israeli business environment.

The existence or absence of a binding agreement is the first question Israelis consider. If a legal agreement is in place, Israelis feel obliged to respect it. If, however, discussions have not yet resulted in an agreement, most Israelis feel they are not obliged to proceed with the other party. This is a strong contributor to the creation of certainty when doing business in Israel. 

 

For this reason, legal agreements carry much importance in Israel. Israeli contract laws apply to any commercial engagement carried out in Israel, even from as early as at the negotiation stage. Thus, Israeli contract laws, and their relevant provisions, must be considered prior to initiating or forming any business relationship in Israel or with Israelis. 

 

Generally, there is no formal requirement on the form of agreements in Israel. In most cases, written agreements are not required, and agreements may be formed orally. However, certain engagements between parties must meet special legal requirements. Failing to meet these requirements may void a contract’s binding nature. For example, real estate transactions, the granting of gifts, and certain professional engagements must be made in writing. 

 

Israeli contract law also imposes certain obligations in the pre-contract stage. Borrowing from the German legal system, Israeli contract law imposes a duty of “good faith” in the pre-agreement stage. The good faith requirement ensures that even before parties formally engage they conduct themselves in an honest fashion. 

 

As Israel is a common law country, its laws are determined through a combination of formal laws and their interpretation by the Israeli courts, mainly the Supreme Court. Israeli courts have been very active in interpreting laws and setting new case law. This has been the case in areas such as contract interpretation, taxation, international sales, unjust enrichment, and corporate law. 

 

Since the 1990s, Israel’s judiciary has tended to emphasize personal autonomy, freedom of economic enterprise, freedom of contracts, and the application of the principle of good faith. As a result, Israeli courts tend to give greater weight to the circumstances behind the negotiations and the contract signing, as well as the will of the parties during such period. All these considerations have added another layer of complexity, for parties entering into contracts and for courts deliberating cases and interpreting the same. 

 

Due to these developments, Israeli contract law has become more flexible, while simultaneously potentially creating situations of uncertainty. This gives greater importance not only to having a formal agreement in place but also to ensuring the agreement is accurate and complete. 

 

 

If you would like to discuss the above, or require further information regarding contracts in Israel, please contact a member of our corporate team.

 

Tags: Contracts
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