Legal Updates

A dispute will be heard in Israel even if Australian law prohibits this in an Australian franchise agreement

June 7, 2020

An Australian company, whose managers are Israeli entered a franchise agreement with a European food manufacturer to distribute its products in Australia. The agreement states that the law applicable to the agreement is Israeli law and that any dispute between the parties will be settled in arbitration in Israel. When the European company sought to open arbitration in Israel, the Australian replied that Australian law, applicable to any Australian franchise agreement, prohibits the inclusion in franchise agreements for the territory of Australia a foreign dispute resolution provision.
The Supreme Court held that the arbitration clause in Israel is valid even if the arbitration award may not be enforceable in Australia. The validity of the arbitration clause under Australian law has no effect on Israeli law, which is the law agreed between the parties to be applied and a heavy weight must be given to the parties' consent. Furthermore, the raising of a non-enforceability by a party to an agreement is deemed bad faith behavior. In addition, the question of the enforceability of the arbitrator's award later in a foreign State is only a theoretical question at this stage and should not be considered within the entirety of the considerations pertaining to an arbitrator's appointment, as the point of departure is that the parties to the arbitration proceeding will comply with the arbitration award even without taking judicial measures.