\u00a9 2024 Sherby & Co., Advs.<\/p>\n
As reported in our post of January 11, Israel\u2019s Knesset is considering adopting, for international arbitrations taking place in Israel, the Model Law of the United Nations International Trade Commission (commonly known as the \u201cUNCITRAL Model Law<\/strong>\u201d).<\/p>\n In the first two parts of this series, we examined the circumstances under which an Israeli court may cancel or vacate<\/em> an arbitral award<\/a> (under existing Israeli law) and the types of relief available from an arbitrator<\/a>. We concluded that (a) adopting the Model Rule would not<\/em> \u201cimprove\u201d Israeli law as to these two issues, and (b) the neither<\/em> of these two issues constitutes a justification for amending Israeli law to adopt the UNCITRAL Model Law.<\/p>\n In our third<\/a> post, (i) we began discussing the \u201ccompetence-competence\u201d rule — which provides generally that an arbitrator has the jurisdiction to determine the scope of his own jurisdiction; (ii) we examined a statement made by one of the leaders of the Israeli UNCITRAL Camp to the effect that there is a “trend” under American law to adopt the competence-competence rule, and (iii) we demonstrated that, in fact, no<\/em><\/span> such “trend” exists under American law.<\/p>\n We will continue (in this series) to address issues relating to the competence-competence rule. However, in this post, we begin addressing a second aspect of the Model Law that is very different from Israeli law \u2013 namely, the \u201cdefault rule\u201d under which three (3) arbitrators<\/span><\/em> are appointed (unless the parties expressly agree otherwise).<\/p>\n Under current Israeli law (section A of the First Appendix to the Arbitration Law, 1968), when a court is asked to appoint the arbitrator(s), and when the arbitration agreement is silent as to the number of arbitrators, the court is required to appoint a sole arbitrator<\/em><\/span>.<\/p>\n The sole arbitrator rule<\/em> has been part of Israeli law for at least six decades.<\/p>\n Not only has the sole arbitrator rule long been codified under Israeli law, but that rule has also been the default rule of every Israeli arbitral institution that we have been able to identify.<\/p>\n A. Under Rule 3.1.2 of the arbitration rules of the Israeli Institute for Commercial Arbitration, the president of the institute is to appoint a sole arbitrator, unless<\/em> the parties have agreed otherwise;<\/p>\n B. Two Israeli arbitral institutions have web sites that describe their services but do not display their rules \u2013 (i) the Israeli Center for Mediation and Arbitration, and (ii) the Center for Arbitration & Dispute Resolution. Based on the descriptions in their respective web sites, each institution has a default rule of a sole arbitrator;<\/p>\n C. Under rule 14 of the Institute for Arbitration and Dispute Resolution (Yitro<\/em>), a sole arbitrator is to be appointed;<\/p>\n D. From 2011 through 2015, the Israeli Bar Association maintained its own arbitral institution, and under its rules, a sole<\/em> arbitrator was to be appointed;<\/p>\n E. The Israeli Diamond Institution has its own arbitral forum, and access to the updated rules of that entity is restricted to its members. Therefore, our firm’s familiarity with those arbitral rules is limited to having seen the relevant version of the rules as it existed a few years ago. Having seen those rules (then), the default rule of the diamond exchange’s arbitral institution has (also) been for one<\/em> arbitrator to be appointed.<\/p>\n In summary, there is a longstanding and clear tradition under Israeli law and practice that, absent an agreement<\/em> by the parties for the appointment of a number greater than one arbitrator, in every case, a sole arbitrator will resolve the dispute.<\/p>\n Under these circumstances, changing the default rule from one arbitrator to three arbitrators should — by any objective standard \u2013 be an attention-grabbing change. However, as has been the case with respect to the Model Law\u2019s competence-competence rule concerning the authority of an arbitrator to determine his own jurisdiction, the proposed statutory amendment regarding the number of arbitrators has received surprisingly little attention.<\/p>\n The proposed legislative amendment is to adopt Article 10 of the UNCITRAL Model Law as is. Article 10 of the Model Law is short. Here is its text:<\/p>\n Article 10. Number of arbitrators<\/em><\/p>\n (1) The parties are free to determine the number of arbitrators.<\/p>\n (2) Failing such determination, the number of arbitrators shall be three.<\/p>\n The legislative history regarding the proposed amendment says very little about this change.<\/p>\n The Pro-UNCITRAL Camp argues that parties are always free, at the contracting stage, to change the number of arbitrators from three. That is true, but, as a general rule, from a public policy perspective, it is unusual to legislate a new rule that contradicts decades of custom and practice in the field \u2013 absent<\/em> a good explanation for the change.<\/p>\n More specifically, proposed civil legislation is usually preceded by some type of empirical data (or reasonable extrapolation) describing the anticipated consequences<\/em> of the proposed legislation upon that segment<\/em> of the public the activity (or conduct) of which is addressed by the legislation. In this case, that segment is Israeli companies involved in international business.<\/p>\n Therefore, an objective observer who sees proposed legislation that contradicts decades of arbitration practice would expect that, prior to proposing the statutory amendment, its proponents would be able to point to some empirical data indicating either (possibly both) that (a) Israeli companies involved in international business actually desire such a legislative change or (b) any downside to the default rule of three arbitrators is significantly outweighed by other aspects of the Model Law.<\/p>\n But no<\/em><\/span> such empirical data has been identified.\u00a0 Based on our experience, we believe that no such data exists.<\/p>\n