The Cost(s) Of Noncompliance with an Arbitration Agreement (Part One)

© 2017 Sherby & Co., Advs.

Israel is a pro-arbitration jurisdiction.  But even in a pro-arbitration jurisdiction, when a dispute arises between parties to an arbitration agreement, sometimes one party attempts to avoid its contractual commitment to arbitrate.  If the agreement does not include a mechanism for the appointment of the arbitrator by a third party (such as an arbitral institution), then when one contracting party wishes to commence arbitration but the other contracting party refuses to cooperate in the appointment/selection of the arbitrator, the first party will usually have no choice but to file a motion (application) with a court for the appointment of an arbitrator.

Israel’s Arbitration Law (1968) provides expressly (section 8) that a court may order the appointment of an arbitrator under such circumstances.

Because the general rule under Israeli law is for the court to award some level of “legal costs” against the losing party (see Encyclopedia of International Commercial Litigation (Israel Chapter) § A10.7), our firm decided to examine the extent to which Israeli courts use cost orders to incentivize parties to arbitration agreements to cooperate in the selection of an arbitrator when and if a dispute arises.  (Another way of couching the issue is the extent to which courts attempt to use cost awards to “punish” foot-dragging parties.)

For purposes of this examination, our firm reviewed all of the published decisions from January 2015 through December 2016 (the “Time Period”) rendered by the three busiest Israeli districts courts – the Tel Aviv District Court, the Jerusalem District Court, and the Haifa District Court.

In this post, we summarize noteworthy conclusions gleaned from decisions rendered by the Tel Aviv District Court, which is the district wherein most of the country’s international commercial disputes are litigated.

In subsequent posts, we will report on similar findings concerning Jerusalem and Haifa, and we will also report on points of interest regarding the profile(s) of arbitrators appointed by those three district courts.

Cost Orders Issued by the Tel Aviv District Court – The Numbers:

During the Time Period, there were eleven (11) cases in which (a) a party to an arbitration agreement filed a motion (application) with the Tel Aviv District Court for the appointment of an arbitrator, and (b) the court granted such motion.  All eleven of those decisions were rendered by the Honorable Yehudit Shevah.

Because all eleven decisions from Tel Aviv during the Time Period were rendered by the same judge (which was not the case in Haifa), any similarities in the analysis are likely not mere coincidences.

Of those eleven cases, three (3) times the court ordered the respondent to pay NIS 20,000 of costs to the applicant (movant).  (The amount of NIS 20,000 is roughly equivalent to US$5,500.)

The sum of NIS 20,000 was the maximum amount that the Tel Aviv District Court ordered in any of the eleven cases during the Time Period.  The average amount of costs awarded by the Tel Aviv District Court during the Time Period was approximately NIS 11,000.

In none of the eleven decisions did the Tel Aviv District Court explain its reasoning for the amount of costs awarded.  Yet in the three cases in which the award of costs was NIS 20,000, the court seemed to have formed the view that the applicant had a strong case on the merits.

A Subset – Conditional Orders:

There were three (3) cases in which the Tel Aviv District Court issued an order stating that it would appoint an arbitrator but that first the parties would be given several days (anywhere from seven to twenty) to attempt to come to an agreement on their own as to the specific arbitrator.  (These three cases are referred to as the “Conditional Cases.”)  In none of the Conditional Cases was the award of costs near the “maximum” level of NIS 20,000.  Rather, in each such case, the award was between NIS 7,500 to 10,000.

The three Conditional Cases share a common factor – one that distinguishes them from the other eight cases.  Whereas in the other eight cases, there was at least some clear indication that the failure to arrive at an agreement as to the appointment of an arbitrator (prior to the court filing by the applicant) was the result of foot-dragging by the defendant, in the three Conditional Cases, it does not appear that the lack of agreement (pre-filing) on the issue of selection of the arbitrator was caused primarily by foot-dragging on the part of the defendant.

Rather, in the three Conditional Cases, there was some indication as to a good faith disagreement between the parties as to either (a) the identity of the arbitrator or (b) the propriety of the timing of the applicant’s filing with the court.  It appears that the existence of a good faith disagreement as to one or both of these issues renders it less likely that the Tel Aviv court would impose the “maximum” costs of NIS 20,000.  Put slightly differently, absent a showing by the respondent of a good faith reason for disagreement on these (or similar) issues, the greater the risk to that respondent that the court will impose costs of up to NIS 20,000.

As indicated above, one or more of our future posts will address these issues regarding the Jerusalem District Court and the Haifa District Court.  (Here is a short sneak preview – the “maximum” awards in those two districts are remarkably similar to those of Tel Aviv.)


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