In brief
The dispute resolution clause in an international contract must settle three separate questions: which law governs the contract, which forum will decide the dispute, and in which language. In the European Union, the Rome I Regulation respects the parties' choice of law, and in the absence of a choice the law of the seller or service provider generally applies, while Article 25 of the Brussels I Recast Regulation respects a choice of a Member State court regardless of the parties' domicile. Arbitration, for example at the ICC, VIAC or the Court of Arbitration attached to the Chamber of Commerce of Romania, is chosen mainly because of enforcement under the New York Convention. This guide sets out the decisions to make before the clause is drafted; it does not include ready-made clause wording for the contract.
Key takeaways
- 1Governing law and jurisdiction are two separate decisions; choosing one does not determine the other.
- 2Rome I: the parties may choose a law, including the law of a non-Member State such as Israel (Articles 2-3), subject to mandatory provisions.
- 3Without a choice: a sale of goods is generally governed by the law of the seller's habitual residence, and services by the law of the service provider (Article 4).
- 4Brussels I Recast, Article 25: a choice of a Member State court is valid regardless of the parties' domicile, and is exclusive unless otherwise agreed.
- 5Israel signed the 2005 Hague Convention on Choice of Court Agreements but has not ratified it, so a choice of an Israeli court does not benefit from its protection in Europe.
- 6An arbitration clause should settle at least the institution, the place (seat), the language and the number of arbitrators.
Most international contracts of Israeli companies are signed when relations are good, and the dispute resolution clause is copied from a template. Only when a dispute arises does it become clear whether it leads to a court whose judgment can be enforced in the country where the assets are. This guide explains the rules in the European Union and the main options for arbitration, and ends with a list of decisions for negotiation. It is not a clause wording, because the right wording depends on the transaction, the parties and the location of the assets.
What is the difference between governing law, jurisdiction and arbitration?
The governing law sets the substantive rules: what counts as a breach, what the compensation is and when the claim becomes time-barred. Jurisdiction determines which court will hear the case. Arbitration is an alternative to a court, in which the parties choose an institution, a place and arbitrators. Any law can be combined with any forum, for example Israeli law with arbitration in Vienna.
| Question | What it determines | The main framework in the EU |
|---|---|---|
| Governing law | Interpretation, performance, consequences of breach, limitation | The Rome I Regulation (593/2008) |
| Jurisdiction | Which court will hear the dispute | The Brussels I Recast Regulation (1215/2012) |
| Arbitration | A private forum instead of a court, and enforcement under the New York Convention | The institution's rules and the law of the seat of arbitration; Brussels and Rome I do not apply to the arbitration agreement itself |
| Language | The language of the contract, the prevailing version and the language of the proceedings | The contract, the institution's rules and the law of the court |
Can Israeli law be chosen in a contract with a European company?
Yes. Under Article 3(1) of the Rome I Regulation, a contract is governed by the law chosen by the parties, by an express choice or one clearly demonstrated by the terms of the contract or the circumstances, and a law can be chosen for part of the contract only. Under Article 2, the law specified by the Regulation applies whether or not it is the law of a Member State, so an EU court will apply Israeli law that has been chosen.
There are three main limitations. When all the elements of the transaction are located in one country, the choice does not prejudice the mandatory provisions of that country (Article 3(3)). When all the elements are located in Member States, choosing the law of a non-Member State does not prejudice mandatory provisions of EU law (Article 3(4)). And in any case, the court will apply "overriding mandatory provisions" of its own country, intended to safeguard a public interest (Article 9). In contracts with consumers and employees there are additional protective rules.
A court in Romania applying Israeli law will usually need an expert opinion and translations. Sometimes it is better to match the governing law to the forum, so as not to pay for proving foreign law in every proceeding.
Which law applies if the contract does not specify one?
In an EU court, under Article 4(1) of the Rome I Regulation and subject to exceptions, the law is determined by the type of contract:
| Type of contract | Applicable law in the absence of choice |
|---|---|
| Sale of goods | The law of the seller's habitual residence |
| Provision of services | The law of the service provider's habitual residence |
| Rights in rem in immovable property or tenancy | The law of the place where the property is situated |
| Franchise | The law of the franchisee's habitual residence |
| Distribution | The law of the distributor's habitual residence |
The implication for an Israeli company: when it is the seller or the service provider, Israeli law may apply even without a choice. When it is the buyer, or when it appoints a distributor in Europe, the other party's law is likely to apply. An Israeli court does not apply Rome I but the Israeli conflict-of-laws rules, so the same contract may be interpreted differently in each forum. An express choice prevents this uncertainty.
How do you choose a court in a contract with an EU party?
Under Article 25 of the Brussels I Recast Regulation, if the parties, regardless of their domicile, have agreed that the courts of a Member State are to have jurisdiction over disputes, those courts have jurisdiction. Such jurisdiction is exclusive unless the parties have agreed otherwise. The agreement must be in writing or evidenced in writing, or in a form that accords with practices established between the parties or with a usage in international trade, and electronic communication that provides a durable record counts as "writing".
- Priority for the chosen court: if the chosen court is seised, courts in other Member States stay their proceedings until it decides on its jurisdiction (Article 31(2)).
- Independence of the clause: a jurisdiction clause is treated as a separate agreement, and its validity cannot be contested solely on the ground that the whole contract is invalid (Article 25(5)).
- Exclusive jurisdiction: in disputes over rights in rem in immovable property, the courts of the country where the property is situated have jurisdiction regardless of the clause in the contract (Articles 24(1) and 25(4)).
- Consumers, policyholders and employees: a jurisdiction clause that contradicts their protective rules has no effect (Article 25(4)).
Choosing an Israeli court is possible, but Article 25 deals only with courts of Member States, and Israel has not ratified the 2005 Hague Convention on Choice of Court Agreements, to which the EU is party. So it is worth checking in advance how a European court will treat a claim filed with it despite the clause, and how an Israeli judgment will be enforced in the country where the assets are. See Enforcing an Israeli judgment abroad.
When is arbitration preferable, and which institution?
Arbitration mainly suits cases where you want proceedings in English, a neutral arbitrator and an award enforceable under the New York Convention, to which Israel and all EU Member States are party. It is less suitable for small, simple debts, where a local payment order is cheaper and faster. These are three institutions that Israeli companies encounter in transactions in Europe:
| Institution | Rules in force | Points to note |
|---|---|---|
| ICC (International Chamber of Commerce, Paris) | 2021 Rules, in force from January 1, 2021 | A sole arbitrator or three; if no place is set, the ICC Court sets it; the expedited procedure generally applies up to USD 3 million for agreements from January 1, 2021 |
| VIAC (Vienna International Arbitral Centre) | Vienna Rules 2021, in force from July 1, 2021 | The rules expressly allow an oral hearing also by remote means, such as a video call (Article 30) |
| The Court of International Commercial Arbitration attached to the Chamber of Commerce and Industry of Romania (CICA, Bucharest) | Rules in force from January 1, 2018 | The seat is in Bucharest; according to secondary sources, the language of the proceedings is Romanian unless the parties agreed otherwise |
Beyond choosing the institution, an arbitration clause must be clear: an institution that exists under its exact name, the place (seat) of arbitration, which determines the procedural law and the court that will review the award, the language and the number of arbitrators. A clause that mentions both a court and arbitration without distinguishing between them, or an institution that does not exist, sometimes leads to preliminary litigation over the forum itself. On the conditions for arbitration in Romania see A commercial dispute in Romania.
What should an international contract say about language?
Three decisions: in which language the contract is binding, which version prevails when there is a translation, and in which language the proceedings are conducted. In court, proceedings are conducted in the language of the country, for example Romanian in Romania, and documents in another language are submitted with a certified translation. In arbitration the parties can choose a language; at the ICC, if they have not chosen, the arbitral tribunal determines it, having regard to the language of the contract.
- A bilingual contract without a provision on which version prevails is a constant source of interpretation disputes.
- Notices under the contract, including a demand letter, should be sent in the agreed language and to the agreed address.
- When the other party is a consumer or there is a local language requirement, check whether local law requires a version in the country's language.
A list of decisions before signing
This list is intended for preparing negotiations and for a conversation with the lawyer drafting the contract. It is not a substitute for reviewing the specific transaction.
| Issue | What to decide | Question to check |
|---|---|---|
| Governing law | Which law, for the whole contract or part of it | Are there mandatory provisions in the other party's country that will apply in any case? |
| Forum | Court or arbitration | Where are the assets, and how will the award be enforced there? |
| Court | In which country, and exclusive or not | Is it a Member State to which Article 25 of Brussels applies? |
| Arbitration | Institution, place, rules, number of arbitrators | Is the institution's name exact, and is the place in a state party to the New York Convention? |
| Language | Language of the contract, prevailing version, language of the proceedings | Who will pay for translations in the proceedings? |
| Preliminary step | Negotiation or mediation before proceedings, with a clear deadline | Will the step not delay urgent relief? |
| Interim relief | The option of applying to a court for urgent relief even when there is arbitration | Where would attachment be needed if necessary? |
| Notices | Addresses, email and method of delivery | Can delivery be proven? |
| Limitation | Determined by the governing law | Is the period short, such as 3 years in Romania? |
| Consistency | The same clause in all transaction documents | Do general terms or orders contradict the contract? |
Which common mistakes should be avoided?
- Conflicting clauses: a contract providing for arbitration and general terms providing for a court.
- Choosing a forum without thinking about enforcement: an Israeli judgment when all the assets are in Europe.
- An incomplete arbitration clause: no place, no language or an inaccurate institution name.
- Ignoring exclusive jurisdiction: a dispute over real estate in the EU will end up in the court of the place where the property is.
- Assuming Israeli law solves everything: mandatory provisions of the other country may apply in any case.
- Forgetting limitation: the chosen law also determines how long you have to sue.
For a dispute with a real estate developer see A dispute with a developer abroad: arbitration or court.
What to do now, and how we accompany it
The time to set the law, the forum and the language is before signing, when both parties have an interest in closing the deal. Our office in Ness Ziona helps Israeli companies review the dispute resolution clauses in international contracts, adapt them to the location of the assets and coordinate the review with lawyers licensed in the other party's country when required. Meetings in Bucharest are possible by prior arrangement.
This guide is general information as of November 2026 and is not legal advice or contract wording. A governing law, jurisdiction or arbitration clause is drafted according to the transaction, the parties and the relevant law, and every case is examined on its own merits.
Frequently asked questions
What is the difference between a governing law clause and a jurisdiction clause?
A governing law clause determines the rules by which the dispute will be decided, and a jurisdiction clause determines which court will hear it. These are two separate decisions: you can, for example, choose Israeli law and a court in Romania, or Romanian law and arbitration in Vienna.
Will a court in Europe apply Israeli law chosen in the contract?
Usually yes. Under Articles 2 and 3 of the Rome I Regulation, the parties' choice is respected even when it is the law of a non-Member State. However, mandatory provisions of certain countries and of the EU may apply, and the court will usually need an expert opinion on Israeli law.
Which law applies to an international contract without a governing law clause?
In an EU court, under Article 4 of the Rome I Regulation: a sale of goods is generally governed by the law of the seller's habitual residence, services by the law of the service provider, and distribution by the law of the distributor. An Israeli court applies the Israeli conflict-of-laws rules, so the result may differ.
Is a jurisdiction clause choosing a court in Romania binding even if my company is Israeli?
Yes. Under Article 25 of the Brussels I Recast Regulation, a choice of a Member State court is valid regardless of the parties' domicile, and it is exclusive unless otherwise agreed. The main exceptions are exclusive jurisdiction, for example over real estate, and the protective rules for consumers, policyholders and employees.
ICC arbitration or a court: which is better in a contract with a European company?
It depends on the amount, the language and the location of the assets. Arbitration is chosen mainly because of enforcement under the New York Convention in all EU Member States and in Israel, and the option of proceedings in English. For small, simple debts, court proceedings in the debtor's country are usually cheaper and faster.
What must an international arbitration clause contain?
At least the exact name of the institution and its rules, the place (seat) of arbitration, the language of the proceedings and the number of arbitrators. It is also worth setting the law governing the contract and making sure the clause does not contradict a jurisdiction clause in another transaction document.
In which language is arbitration in Bucharest conducted?
According to secondary sources on the rules of the Court of Arbitration attached to the Chamber of Commerce and Industry of Romania, the proceedings are conducted in Romanian unless the parties have agreed on another language. So anyone choosing this institution who needs English should state so expressly in the contract.
Is Israel party to the Hague Convention on Choice of Court Agreements?
Israel signed the 2005 Hague Convention on March 3, 2021 but has not ratified it, so as of November 2026 the Convention is not in force with respect to Israel. The European Union has been party to the Convention since October 1, 2015.
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- EUR-Lex - Regulation (EC) No 593/2008 (Rome I)
- EUR-Lex - Regulation (EU) No 1215/2012 (Brussels I bis)
- HCCH - Status table, Choice of Court Convention (2005)
- ICC - 2021 Arbitration Rules
- VIAC - New VIAC rules in effect as of 1 July 2021
- CMS Expert Guide - International arbitration law and rules in Romania
- Mondaq - New arbitration rules enter into force in Romania (CICA-CCIR 2018)
- UNCITRAL - Status of the New York Convention (1958)
