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 Israel business environment.

The existence or absence of a binding agreement are the first question Israelis would consider. If a legal agreement has been entered into, Israelis would feel obliged to respect it. If however, the discussions have not been concluded in an agreement, most Israelis would feel they are not yet 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 a lot of importance in Israel. Israeli contract laws apply to any commercial engagement carried out in Israel, even 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 as to the form of agreements in Israel. In most cases that agreements are not required to be in writing, and they can be formed orally. However, certain engagements between parties must meet special legal requirement. Failing to meet these requirement may void a contract’s binding nature. For example, real estate transactions, granting of gifts and certain professional engagements have to 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 is intended to ensure that even before parties are formally engaged they will 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 the courts when deliberating cases and interpreting the same.

Due to these developments Israeli contract law has become more flexible, but at the same time may create 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.