Written by Alon Paster, Partner, Head of High-Tech and Startups Department at ABADI & CO.
In recent months, many Israeli tech companies have found themselves managing two realities at the same time.
On one hand, international customers and partners expect business to continue as usual. On the other hand, the operational reality inside Israel can be very different.
Developers are called to reserve duty, flights are disrupted, supply chains slow down, and management teams suddenly need to operate with reduced resources.
In this environment, the key question many founders and executives are asking is simple:
What happens to our contractual obligations if we cannot perform as originally planned?
This is where careful legal and commercial planning becomes critical. Waiting until a dispute arises is rarely the right strategy. Instead, companies should proactively review their contractual framework and understand where their real risks lie.
The Legal Landscape: Force Majeure and Frustration
Under Israeli law, the ability to excuse non-performance during wartime is not automatic.
Section 18 of the Contracts (Remedies for Breach of Contract) Law, 1970 addresses the doctrine commonly referred to as "frustration". In theory, it allows a party to avoid liability where performance becomes impossible due to circumstances beyond its control.
In practice, however, Israeli courts have historically interpreted this defense very narrowly. Case law repeatedly emphasizes that commercial difficulty, increased cost, or operational inconvenience are usually not enough to qualify as legal impossibility.
In a region such as ours, courts have often taken the view that security tensions and even military escalation may be considered foreseeable risks, particularly when hostilities have existed for many years.
For this reason, the stronger legal argument in many cases is not simply that "there is a war", but that a specific event directly prevented performance. Examples might include:
• exceptional reserve mobilization orders
• emergency government regulations
• airport or port disruptions
• restrictions affecting critical infrastructure or logistics
Even then, the burden of proof remains high.
As a result, relying solely on the statutory doctrine of frustration is risky. In most situations, the real protection lies in the Force Majeure clause contained in the contract itself.
Well-drafted clauses typically include language covering events such as:
- War
- Hostilities
- Mobilization
- Acts of government
- Emergency regulations
- Labor shortages caused by national emergencies
If the clause is drafted narrowly, an international counterparty may argue that the current situation does not excuse performance.
Where Risks Typically Surface in Tech Agreements
Operational disruption rarely affects an agreement in the abstract. In practice, problems tend to appear in very specific parts of technology contracts.
Service Level Agreements (SLAs)
For SaaS companies and infrastructure providers, uptime commitments and response times are often strict and measurable.
If DevOps or support teams are reduced due to reserve duty, the company may unintentionally trigger service credits or other contractual penalties.
Milestone and Delivery Deadlines
In R&D agreements or professional services contracts, clauses stating that "time is of the essence" can transform even a modest delay into a material breach. This may allow a customer to suspend payments or terminate the agreement.
Force Majeure Notice Requirements
Force Majeure clauses almost always require timely written notice.
Many agreements require notification within 48 to 72 hours after the relevant event occurs.
If the notice requirement is missed, the party may lose the ability to rely on the clause later.
Dependence on Third Party Providers
Many technology companies rely heavily on external service providers such as cloud platforms, payment processors, infrastructure vendors, or specialized subcontractors.
If a critical supplier is unable to perform because of wartime disruptions, the impact can cascade through multiple contractual relationships. Companies should verify whether their agreements address third party failures within the Force Majeure framework.
Export and Regulatory Restrictions
Emergency regulations or logistical disruptions may affect hardware deliveries or the transfer of certain dual use technologies.
Currency and Cost Volatility
Periods of conflict often trigger significant exchange rate and inflation volatility.
If revenues are denominated in USD or EUR while operational costs are primarily in NIS, exchange rate movements can quickly erode margins. Oil price fluctuations may also increase shipping, energy, and manufacturing costs across supply chains.
These pressures often create friction in:
- fixed price statements of work (SOW)
- long term subscription agreements with locked pricing
- contracts with extended payment cycles
Critical Review Points for Management
When reviewing an existing portfolio of contracts, management should focus on several key questions:
- Scope of the Force Majeure clause
- Does the definition actually cover the current situation?
- Does it include mobilization, labor shortages, or acts of government?
Causal connection
Can the company demonstrate that the wartime situation directly prevented performance?
Under Israeli law, if performance remained technically possible even at higher cost, the defense may fail.
Payment obligations
Many Force Majeure clauses excuse operational performance but explicitly exclude payment obligations.
This distinction is important for managing cash flow expectations.
Cure periods
If a breach occurs, how long does the company have to remedy the situation before termination rights arise?
Governing law and jurisdiction
Many Israeli tech companies sign agreements governed by foreign law such as Delaware or English law.
Force Majeure doctrines may be interpreted differently under those legal systems.
Currency and pricing allocation
Which currency governs pricing and payment?
Who bears foreign exchange risk?
Are there mechanisms allowing price adjustments when costs increase significantly?
Four Practical Steps Companies Should Take Now
1. Map and Prioritize Contracts
Not every document requires immediate attention.
Focus first on revenue critical and operationally critical agreements.
These typically include customer contracts, infrastructure agreements, and strategic supplier arrangements.
Identify contracts that contain strict termination rights, liquidated damages, or aggressive delivery obligations.
2. Communicate Early and in Good Faith
Israeli contract law places strong emphasis on the duty of good faith, reflected in Sections 12 and 39 of the Contracts Law (General Part), 1973.
If delays are expected, early communication with partners is often the most effective strategy. In many situations, a constructive discussion framed around business continuity planning can lead to deadline extensions or mutually agreed amendments.
These commercial solutions are almost always preferable to legal disputes.
3. Create a Contemporaneous Evidence Record
If disagreements later arise, the burden will typically fall on the company claiming Force Majeure.
Management should therefore maintain a clear internal record documenting:
- employees called to reserve duty
- specific government directives affecting operations
- logistical disruptions
- efforts made to mitigate the impact
This documentation can become critical evidence if disputes escalate.
4. Consider Targeted Contract Amendments
In some cases, the most practical solution may be a short amendment or side letter adjusting timelines, service levels, or delivery milestones.
Such adjustments can preserve long term relationships and reduce legal uncertainty during periods of instability.
Final Thought
Periods of conflict inevitably create uncertainty. But in many cases, the real risk does not arise from the disruption itself. It arises from contracts that were drafted for stable conditions and never revisited when circumstances changed.
For Israeli tech companies operating in global markets, proactive legal review and transparent communication can often make the difference between a manageable delay and a costly dispute.
Legal Disclaimer:
The content of this article is provided for informational purposes only and does not constitute legal advice. Each situation requires analysis of its specific contractual terms and factual circumstances, and readers should seek professional legal advice before taking action.
