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As the second anniversary of Israel’s adopting the UNCITRAL Model Arbitration Law (the “New Law”) approaches, it is reasonable to ask: to what extent has the New Law had an effect on the decision by business people to resolve disputes in Israel through arbitration?
Of course, Israel has been engaged in a multi-front war for all of the period of time from (before) February 2024 through the present. Among the many effects of the war on the Israeli economy has been that, for significant portions of time, foreign air carriers suspended flights to and from Israel, and the cost of air travel skyrocketed.
Under these circumstances. many would argue that the time from February 2024 through October 2025 is likely insufficient for determining whether the New Law has had an effect on the willingness to arbitrate in Israel.
Whether one supported the enactment of the New Law or opposed it (and readers of this blog know that we opposed it in the form in which it was proposed), all agree that the primary purpose of the New Law was to encourage the use of arbitration in Israel.
A subtheme of “encourage the use of arbitration in Israel” is demonstrating that Israel is a “pro-arbitration” jurisdiction.
In a blog post from approximately nine years ago, we addressed a very specific issue of how a country – perhaps more precisely, its legal system — can demonstrate that the country is pro-arbitration.
In 2017, our law firm decided to examine the extent to which Israel’s largest district 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.)
Why does a court ever have to become involved in appointment of an arbitrator? The answer is that, regardless of how “pro-arbitration” a country might seem to be, when a dispute arises between parties to an arbitration agreement, sometimes one party attempts to avoid its pre-dispute contractual commitment to arbitrate. If the agreement did 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 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.
In our blog post of 3 May 2017, we reviewed the published Israeli decisions from January 2015 through December 2016 regarding arbitrator appointment. We discovered that, in the period January 2015 through December 2016, whenever an Israeli court was required to appoint an arbitrator after foot-dragging by the respondent:
- the sum of NIS 20,000 was the maximum amount that any court ordered the respondent to pay as costs to the applicant. Three times a defendant was ordered to pay such an amount;
- The average amount of costs awarded by the Tel Aviv District Court during the above time period was approximately NIS 11,000.
In 2017, the amount of NIS 20,000 was roughly equivalent to US$5,500. Today that amount is about $6,000.
Fast-forwarding to 2024, has the “maximum penalty” for foot-dragging increased? The answer is no.
Although inflation in Israel, from December 2016 through December 2024, exceeded 12%, that increase seems to have been ignored by those Israeli judges who have been required to order recalcitrant parties to arbitrate. From January 2023 through the end of 2024, there were several cases in which district courts issued orders appointing arbitrators, and in none of those cases was the order to pay costs as high as NIS 20,000; during that period, when Israeli courts issued decisions involving an order for the appointment of arbitrators, the cost orders in those cases were NIS 15,000, NIS 12,000, NIS 7,500, or NIS 6,000.
In some cases, NIS 20,000 could be sufficient to compensate a party that was required to file a motion with a court for the appointment of an arbitrator — but in most cases, that amount would not suffice. The filing of such a motion almost always is done after the parties have exchanged correspondence concerning the issue of arbitrator appointment. Occasionally the respondent will simply ignore a pre-litigation request to appoint, which means that less lawyer time is needed to draft a motion setting forth the relevant facts in support of appointment. But more often the respondent will respond (pre-motion), coming up with a reason (the applicant usually considers it an excuse) to oppose the appointment of an arbitrator, and, therefore, the papers that the applicant files in court need to address the respondent’s position.
It is difficult to imagine that any judge believes that, in most cases in which there is a need to appoint an arbitrator, NIS 20,000 suffices to make whole the party that was forced to litigate for the appointment of an arbitrator.
Obviously a costs order in the amount of only NIS 7,500 or NIS 6,000 almost never compensates the party that sought to initiate arbitration.
The past decade has shown that, when Israeli courts have had to appoint arbitrators due to the recalcitrance of one of the parties to an arbitration agreement, the order to pay costs is not much more than a slap on the wrist. (Although our firm did not examine cases pre-2015, our sense is that the slap-on-the-wrist approach existed well before 2015.)
To the extent that Israel’s arbitration community wishes to broadcast the message that Israel is truly an “arbitration-friendly” jurisdiction, it should start by encouraging judges to issue cost orders that are much more realistic than NIS 20,000. Otherwise the message will be: recalcitrance pays.