Background
Slutskvodokanal Utility Unitary Enterprise, a municipal water utility in Slutsk, Belarus, contracted with Shtang Construction and Engineering Ltd., an Israeli wastewater-treatment company, on May 4, 2021 for the construction of a sewage-treatment plant in Belarus. As part of the contract, Bank Mizrahi Tefahot issued a bank guarantee of approximately €1.2 million in favour of Slutskvodokanal. The contract also contained an arbitration clause requiring all disputes to be resolved before the International Commercial Arbitration Court in Moscow (MKAC) under Belarusian law.
Following Russia’s invasion of Ukraine in February 2022 and the ensuing international sanctions against Belarus, the project’s financing — which was to be provided by an international financing bank — was suspended. Shtang treated this as a fundamental breach by Slutskvodokanal and terminated the contract on May 22, 2023. Fearing that Slutskvodokanal would call the guarantee, Shtang filed suit in the Tel Aviv District Court and obtained a temporary order blocking enforcement. Slutskvodokanal subsequently applied under Section 6 of Israel’s Arbitration Law 1968 to stay the Israeli proceedings in favour of the Moscow arbitration clause. The District Court stayed the proceedings in June 2025, and the Supreme Court upheld that stay in a prior leave-to-appeal ruling of September 10, 2025 (רע”א 49207-07-25), while simultaneously ruling that a stay of proceedings for arbitration does not automatically extinguish interim relief — the District Court was required to reconsider the injunction on its merits.
On remand, the District Court (Justice M. Amit-Anisman) on October 22, 2025 issued a “bridging” interim order maintaining the freeze on the guarantee for one year, or until the arbitral tribunal rules on an equivalent interim-relief application, whichever is earlier. Slutskvodokanal sought leave to appeal that order to the Supreme Court.
The Court’s Holding
Justice Ronen denied leave to appeal, finding no basis to disturb the District Court’s exercise of discretion. On the balance of convenience — which the court identified as the dominant consideration — she accepted the District Court’s factual finding that Slutskvodokanal’s financial position is precarious, creating a real risk that, if the guarantee were paid out and arbitration later found in Shtang’s favour, Slutskvodokanal would be unable to repay. That risk of irreversible harm to Shtang outweighed Slutskvodokanal’s harm, which was limited to a one-year delay and the erosion of the guarantee’s real value due to the absence of indexation or interest.
On the merits-of-claim threshold, the court held that the standard is deliberately reduced when the interim measure in question is a “bridging” order — one designed only to preserve the status quo for a fixed transitional period until the competent foreign forum (here, the Moscow arbitral tribunal) can itself rule on interim relief. Drawing on the Supreme Court’s earlier HaTachuf ruling (רע”א 4856/10, concerning guarantees pending Peruvian arbitration) and by analogy to brief stays of execution pending an appeal application, Justice Ronen held that in such cases all that is required is a finding that the underlying claim is “not without basis” — a court need not conduct a deep merits analysis. The District Court’s application of the presumption of equivalence of laws (lex fori as a proxy for Belarusian law in the absence of expert evidence) was therefore sufficient and appropriate.
The court expressly declined to rule on the parties’ dispute over whether the correct arbitral body is MKAC Moscow or another institution, and on whether Shtang had moved diligently to initiate arbitration — those questions are for the arbitral process. It did, however, warn Shtang in explicit terms that the one-year window is a meaningful deadline: if Shtang fails to open and advance the arbitration diligently, any future request for an extension will face a “far from easy” burden of persuasion.
Key Takeaways
- A stay of Israeli court proceedings in favour of a foreign arbitration clause does not automatically dissolve existing interim orders; the court retains jurisdiction and must evaluate the injunction on its substantive merits.
- When an Israeli court grants “bridging” interim relief — a time-limited freeze designed solely to preserve the position until the competent arbitral forum can rule — the merits threshold is lower than for ordinary injunctions: it suffices that the claim is not frivolous. The balance of convenience becomes the dominant and near-exclusive factor.
- The presumption of equivalence of laws (lex fori applied in the absence of expert evidence on foreign law) may properly be used to assess a prima facie claim for purposes of bridging relief, especially where both parties dispute which law actually governs.
- Evidence that the party seeking enforcement of a bank guarantee is in a precarious financial position — such that restitution would be impossible if the guarantee is later found wrongly called — can constitute irreversible harm sufficient to tip the balance of convenience against enforcement.
- Interim relief imposed as a condition of bridging to foreign arbitration will not be extended as a matter of course: a party that fails to diligently pursue arbitration within the allotted period will carry a heavy burden to justify any extension.
Why It Matters
This decision clarifies a practical gap in Israeli law at the intersection of international commercial arbitration and emergency bank-guarantee litigation. It confirms that Israeli courts serve a limited but real “bridging” function when a foreign arbitration clause governs the dispute: they can issue time-bounded injunctions to prevent irreversible prejudice until the arbitral tribunal is constituted and in a position to grant its own interim measures. The reduced merits threshold for such bridging orders — essentially a non-frivolousness test — lowers the procedural barrier for parties who need urgent protection but cannot immediately present expert evidence on foreign law.
For practitioners and commercial parties, the ruling also signals that bank guarantees issued by Israeli banks in support of cross-border construction contracts are not immune from court-ordered freezes merely because the underlying dispute is subject to foreign arbitration. Counterparties relying on the autonomous character of bank guarantees must be prepared for Israeli courts to weigh the risk of irreversible financial harm — including the solvency of the guarantee beneficiary — as a primary factor in deciding whether enforcement should wait for the arbitral process to run its course.