## Facts

- Zuz Tourism Ltd. (Zuz), an Israeli company, entered into an exclusive distributorship/marketing agreement with Hotels.com, a U.S. company offering hotel and tourism services online, dated Feb. 29, 2000.
- The agreement contained an arbitration clause requiring disputes “under this agreement” to be resolved by binding arbitration under the American Arbitration Association (AAA) Commercial Rules in Dallas County, Texas, before neutral arbitrators.
- The agreement also contained an exclusivity term stating that Zuz’s site would be the only Hebrew-language internet site in Israel through which Hotels.com would market its services during the contract term.
- In 2002, Zuz learned that Hotels.com’s services were being marketed through the website of Hotels Online Ltd., an Israeli company that was not a party to the Hotels.com–Zuz agreement and had not signed the arbitration clause.
- Zuz sued both Hotels.com and Hotels Online in the Jerusalem District Court, seeking (among other relief) a declaration that Hotels.com breached the agreement, specific performance, and an injunction restricting marketing to Zuz’s site.
- Hotels.com moved to stay the court proceedings based on the arbitration clause; Zuz also sought interim relief.
- The District Court denied the stay, reasoning that because Hotels Online was not bound by the arbitration clause, a stay as to Hotels.com would split the dispute and force Zuz to pursue remedies in separate fora, creating a risk of inconsistent outcomes.
- Hotels.com sought leave to appeal. The Supreme Court granted leave and heard the matter as an appeal.

## Issues

1. Under Section 6 of Israel’s Arbitration Law (implementing the New York Convention) and Article II(3) of the Convention, may a court refuse to stay litigation between signatories based on discretionary case-management concerns (such as avoiding split proceedings)?
2. Does the presence of a non-signatory co-defendant in the same lawsuit make the arbitration agreement “null and void, inoperative or incapable of being performed,” allowing the court to deny a stay?

## Decision

- The Supreme Court granted leave to appeal, accepted the appeal, and reversed the District Court’s refusal to stay proceedings as between Zuz and Hotels.com.
- The court held that where the arbitration agreement is governed by the New York Convention, the court must refer the parties to arbitration (and stay the court case between them) unless one of the Convention’s limited exceptions applies.
- The court rejected the District Court’s reliance on concerns about split proceedings and parallel litigation, holding those concerns do not fit the Convention’s grounds for refusing referral.
- The court ruled that joining a non-signatory defendant (Hotels Online) and the resulting continuation of litigation against that party in Israel do not, by themselves, render the arbitration clause “null and void, inoperative or incapable of being performed.”
- The court ordered a stay of the proceedings between Zuz and Hotels.com in favor of arbitration in Texas under the AAA clause.

## Legal Principles

- For arbitration agreements covered by the New York Convention, Israeli courts apply the Convention-based standard (via Section 6 of the Arbitration Law), not the broader discretionary standard applicable to domestic arbitration under Section 5.
- Article II(3) of the New York Convention requires a court, upon request, to refer parties to arbitration unless the agreement is “null and void, inoperative or incapable of being performed.”
- Practical disadvantages of parallel proceedings—such as fragmented litigation or possible inconsistent findings—are not independent grounds to deny a stay in a Convention case.
- The existence of a non-signatory party in related court proceedings does not, without more, defeat enforcement of a valid arbitration agreement between the signatories.

## Conclusion

Hotels.com v. Zuz Tourism holds that, in Israel, a Convention-governed arbitration clause requires a stay of court proceedings between the contracting parties when arbitration is requested, and a court may not refuse a stay simply to avoid parallel proceedings with a non-signatory defendant.


Hotels.com v. Zuz Tourism, XXXI Y.B. Comm. Arb. 791 (2006) (Israeli S.Ct.)