© 2024 Sherby & Co., Advs.
Israel’s Knesset (parliament) is considering adopting, for international arbitrations taking place in Israel, the Model Law of the United Nations international Trade Commission (commonly referred to as the “UNCITRAL Model Law”).
The arguments that have been advanced by those who advocate for adoption of the UNCITRAL Model Law have been general. There has been very little issue-by-issue analysis or comparison suggesting that the adoption of the Model Law is likely to improve (or increase) the administration of international arbitration cases in Israel.
In light of that dearth of analysis, our firm will be publishing, in a series of blog posts, issue-by-issue analyses of the major topics that arise in international commercial arbitration, with a view toward enabling our readers to form their own independent conclusions regarding whether it is worthwhile for Israel to adopt the UNCITRAL Model Law.
We start with an issue that might seem to be a topic that could be addressed near the end of such a series – namely, the circumstances under which an Israeli court may cancel or vacate an arbitral award. Although from a chronological perspective, the issue of cancelling/vacating an award arises only at the end of the process, as a practical matter, such issue is essential to the question of whether it is worthwhile arbitrating to begin with.
Simply put, if it is expected to be difficult to enforce a future award, parties would not bother with the arbitration process at all. More specifically, (a) if a claimant expects that it will be easy for a recalcitrant defendant (respondent) to impose barriers in converting an arbitral award into an enforceable judgment, the claimant would probably not bother commencing the arbitration process in the first place, and (b) the interest of a defendant/respondent is very similar — if a respondent in an arbitration proceeding succeeds in defeating the claim brought against it, such respondent will want to know that the disappointed claimant will not be able to bring essentially the same claim against it in a court.
Therefore, we begin this series with the issue of the grounds for canceling/vacating an arbitral award.
Those grounds are set forth in section 24 of Israel’s Arbitration Law (1958) and in articles 34-36 of the UNCITRAL Model Law.
Under Israel’s Arbitration Law, the grounds for canceling an arbitral award are as follows:
1. The arbitration agreement was not valid.
2. The award was made by an arbitrator not properly appointed.
3. The arbitrator acted without authority or exceeded the authority given to him by the arbitration agreement.
4. A party was not given a suitable opportunity to state his case or to produce his evidence.
5. The arbitrator did not determine one of the matters referred to him for determination.
6. The arbitrator did not assign reasons for the award even though the arbitration agreement required him to do so.
7. The arbitrator did not make the award in accordance with law even though the arbitration agreement required him to do so.
8. The award was made after the period for making it had expired.
9. The content of the award is contrary to public policy.
10. A ground exists on which a court would set aside a final, non-appealable judgment.
Before beginning with the comparison of Israel’s Arbitration Law to the Model Law, it is important to note that item 5 in the above list never results in the Israeli court’s cancelation of an arbitral award – rather, if the court finds that the arbitrator failed to make a full determination, the court returns the case to the arbitrator for him to finish his work. Similarly an Israeli court never cancels an award merely because it was rendered after the period for giving it had expired (item 8).
With that caveat, substantially all of the grounds itemized above (from Israel’s Arbitration Law) exist under articles 34-36 of the UNCITRAL Model Law.
It should come as no surprise that the grounds for canceling an arbitral award under the Israeli statute and under the Model Law are virtually identical. The Israeli Arbitration Law was enacted ten years after the signing of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (known as the “New York Convention”), and the draftsman of the Israeli statute were interested in ensuring that Israeli law would conform to international standards on this very important issue. The Model Law was adopted by UNCITRAL in 1985, at which time the New York Convention was approaching its 30th birthday, and dozens of countries had already signed that convention. So, it is not surprising that the Israeli statute and the Model Law are substantively very similar (if A = B and if B = C, then A = C) on this issue.
On the issue of the authorization to cancel an arbitral award, there are some minor procedural differences, one of which is that, under the Model Law, a party has three (3) months to raise its objections to the arbitral award. Under Israeli law, a party that seeks to have the court cancel an arbitral award must file such a motion within 45 days of the award (the court has the discretion to extend that deadline, for special reasons).
In other words, the time period under the UNCITRAL Model Law for seeking to vacate an arbitral award is generally longer than that under Israeli law.
It strains credulity to believe that those advocating for the adoption of the Model Law are of the view that the 90-day period for vacating an arbitral award is preferable over the 45-day period under Israeli law. (Most Israelis are willing to acknowledge, at least privately, that procrastination is a national habit. But it is rare to find an Israeli lawyer who believes that procrastination should be codified.)
Some have argued that, under the UNCITRAL Model Law, a party that seeks to vacate an arbitral award would have greater difficulty invoking the “public policy” grounds. Perhaps a literal comparison of the “public policy” exception under the Israeli statute with the “public policy” exception under the Model Law would indicate that there is a difference. However, Israeli courts have uniformly held that the public policy exception to enforcement of an arbitral award is to be construed very narrowly.
Decades of Israeli caselaw on this issue indicate that any difference with respect to the “public policy” exception is merely cosmetic — which in turn suggests that any difference between Israeli law and the Model Law with respect to the grounds for vacating an arbitral award is minor at most.
In summary, (a) adopting the Model Rule would not “improve” the grounds upon which (or the manner in which) an Israeli court would be authorized to cancel or vacate an arbitral award, and (b) the issue of the grounds for canceling an award does not constitute a justification for adoption of the UNCITRAL Model Law.
In our next post in this series, we will examine the differences between existing Israeli law and the proposed UNCITRAL law regarding relief that an arbitrator is authorized to grant.