Legal Updates

A shareholder who is not personally a party to an arbitration agreement will not be added to the arbitration proceeding to which the company is a party

July 2, 2025
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A controlling shareholder in a company was added as a party to an arbitration proceeding, even though he is not personally a party to the arbitration agreement, but rather the company.

The Supreme Court held that there was no reason to add the controlling shareholder to the arbitration proceeding by virtue of piercing the corporate veil. An arbitration proceeding derives its power from the agreement of the parties. Piercing the corporate veil will be done sparingly and only in exceptional cases enshrined in the law, which includes several forms of piercing the corporate veil, including, inter alia: "full" piercing (section 6(a) of the Israeli Companies Law) which deals with the attribution of a 'debt' of the company to its shareholder; and a "reversed" or "imaginary" piercing of the corporate veil (section 6(b) of the Israeli Companies Law) that allows attributing a "trait, right or obligation" of a shareholder to the company in cases where it is "just and right" to do so and for a specific need and also allows to attribute a right from the company to its shareholder. Here, piercing the corporate veil was not possible for the purpose of adding the controlling shareholder to the arbitration proceeding, both because the addition of a party to the arbitration proceeding does not constitute "attribution of debt" and because it is not a matter of attribution of a " trait" and it is not possible to classify an arbitration mechanism as a "right" or as an "obligation", because it is a neutral provision. Therefore, a shareholder who is not a party to the arbitration agreement and has not express his consent to take a party in such arbitration proceeding, explicitly or implicitly, will not be added to an arbitration proceeding to which the company is a party.

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