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A pervading challenge for Israeli companies that are active in the international field and which regularly contemplate including an arbitration clause in their international contracts is the question of the number of arbitrators to resolve any future dispute. No specialist in the field of international dispute resolution recommends resolution before a panel comprised of an even number of arbitrators, which means that, as a practical matter, the issue is always one of deciding between resolution by a sole arbitrator or resolution by a panel of three arbitrators.
Israeli Arbitral Institutions:
The rules of the Israeli Institute of Commercial Arbitration provide that the “default rule” as to the number of arbitrators is one. The same goes for the rules of the Center of Arbitration and the Dispute Resolution (known as Mishkan Haborerut).
Back when the Israeli Bar Association had its own arbitral institution, the default rule of that institution was resolution by a sole arbitrator.
The dispute resolution rules of Israel’s diamond institute have traditionally provided for resolution before a sole arbitrator.
Outside of Israel:
In the international field, the “default” rule of one arbitrator cannot be presumed.
The arbitration rules of the International Chamber of Commerce address the issue of the number of arbitrators as follows:
Where the parties have not agreed upon the number of arbitrators, the [ICC Court] shall appoint a sole arbitrator, save where it appears to the [ICC Court] that the dispute is such as to warrant the appointment of three arbitrators.
The international arbitration rules of the World Intellectual Property Organization provide as follows:
Where the parties have not agreed on the number of arbitrators, the Tribunal shall consist of a sole arbitrator, except where the [WIPO Center] in its discretion determines that, in view of all the circumstances of the case, a Tribunal composed of three members is appropriate.
The rules of the ICC and WIPO can loosely be categorized as “default” rules of one – yet the rules of each institution leave the door open to the discretion of the institution to appoint a panel of three arbitrators.
In addition, many global companies insist upon a panel of three arbitrators – especially if the company expects to be involved in a dispute resolution process outside of its home jurisdiction.
The obvious problem with agreeing to a dispute resolution mechanism under which every dispute will be resolved by a panel of three arbitrators is that such a mechanism virtually guaranties that the dispute resolution process will be an expensive one. At the stage of signing the contract between the two companies, rarely can a party anticipate whether any dispute that might arise would be sufficiently large or sufficiently complicated so as to “justify” using a panel of three arbitrators. Put slightly differently, the problem with a three-arbitrator panel is that the fees charged by the arbitrators will often make the case cost-prohibitive.
Some observers assert that a three-arbitrator panel will always make the resolution of the dispute at least three times as expensive as it would be with a sole arbitrator. Whether that contention is accurate is a matter for debate. Yet the issue of increased costs is not the only significant difference between arbitrating before a sole arbitrator and arbitrating before a panel of three.
Beyond the Increased Costs:
Another major difference – indeed, a problem, is that of scheduling.
Several years ago (pre-pandemic), the Israeli Bar Association hosted a program on international dispute resolution, and a senior partner from (the San Francisco office of) a multinational law firm spoke and made the following observations:
- international arbitrators are, almost by definition, busy people;
- when three arbitrators are appointed by an arbitral institution to serve as the arbitral panel, the parties to that case should assume that it will take at least 12 months for those three busy arbitrators to find a date on which they all could meet in person for the first time.
Let’s assume that the estimation of at least 12 months was an exaggeration. Perhaps it would “only” take nine months for the three members of the arbitral tribunal to find available dates on which they could meet in person. But nine months is still a long time – especially for a dispute resolution method that is supposed to result in a more timely resolution of disputes than litigation in court. And, of course, the time estimation quoted above was given several years before the Covid-19 pandemic, which means that it was given before the legal profession (and the rest of the business world) became accustomed to using Zoom and other online videoconferencing tools. The availability of such tools means that, in many cases, a panel of three arbitrators will feel sufficiently comfortable meeting virtually, such that they will not need to meet in person at the beginning of the case.
Yet the “requirement” for the three arbitrators to meet (whether in person or virtually) is not the only item on the list of tasks or projects that the three arbitrators will need to carry out together. A panel of multiple arbitrators routinely confers both before and after each major “event” in the case – whether that event is a pretrial conference (held in person or virtually) with counsel for the parties, a hearing regarding a dispute concerning a discovery (evidence taking) issue, or the hearing of testimony from witnesses.
At each major stage of the arbitration case, the three arbitrators need to confer – it is common for them to do so both before and after such an event.
Each time one of the three arbitrators is unavailable, the process of having the panel “hook up” gets delayed. And that delay leads to other delays in the administration of the case.
We know of no “wonder drug” that could be inserted into an arbitration agreement to make a three-arbitrator case less expensive. (Sometimes the parties agree that the chair of the panel will be the only arbitrator to rule on purely administrative issues, but it is not unheard of for parties to regret including that provision due to the difficulty of defining “administrative.”)
At the same time, we can recommend a clause (which a number of our clients have used over the years) in an arbitration agreement that increases the likelihood that the three arbitrators selected will have the necessary time to devote to the case. We set forth below the text of that clause:
At the time of appointment, each arbitrator shall (a) confirm to the parties that s/he currently is serving as an arbitrator in no more than two (2) other cases, and (b) commit that, for a period of time commencing 12 months after the filing of the statement of claim in the arbitration, s/he will serve as an arbitrator in no more than two (2) other cases.
If the above clause were to refer to a period of time in excess of 12 months, perhaps it would be difficult to find a qualified arbitrator (much less three) who would be agreeable to make such a commitment. But we have experienced zero pushback when the above clause has been used by our clients in international agreements.