The Supreme Court has discussed for the first time, in depth, the impact of Amendment No. 2 to the Contracts Law (General Part), 5733-1973, on the rules of contract interpretation. Prior to Amendment No. 2, the wording of Section 25 of the Contracts Law created a hierarchy between two stages of interpretation: in the first stage, the parties' intention was deduced from the contract itself, and in the case of a written contract—from the language of the contract; in the second stage, which was to be accessed only if the first stage did not lead to a clear conclusion, the parties' intention was deduced from circumstances external to the contract. This interpretive method, also known as the "Two-Stage Theory," was the practice for many years. However, in 1995, within the framework of the Apropim judgment, the Supreme Court defined the "One-Stage" method of interpretation, according to which the parties' intention must be learned through a parallel examination of the contract's language and the circumstances external to it. The Apropim rule and the One-Stage method aroused much criticism, in light of which an additional hearing was held before an expanded panel, known as the Migdalei HaYirakot judgment, which clarified and shaped the Apropim rule.
The legislature amended the Contracts Law in January 2011 in a manner intended to restore the Two-Stage Theory, clarifying in the explanatory notes of the bill that the goal was to restore legal certainty. The Supreme Court has now determined that the amended Section 25(a) clearly indicates that the correct interpretation of the amended section is as follows: a contract shall be interpreted through a parallel and joint examination of the contract's language and the circumstances of the matter, subject to an interpretive presumption—which is rebuttable—that the interpretation of the contract is that which accords with the simple, ordinary, and natural meaning of the text. This presumption may be rebutted in cases where the circumstances teach that the language is not clear and simple and, as such, may be interpreted in ways other than those that seemed clear at the beginning of the interpretive process. The Honorable Justice Rivlin determines that the fact that the presumption is rebuttable reflects the fact that the weight of the contract's language is not decisive. The Honorable Justice Hendel, in a minority opinion, held that the amended Section 25(a) anchors an interpretive method intended to change the Apropim rule and limit judicial discretion.