\u00a9 2024 Sherby & Co., Advs.<\/p>\n
Since January 11, 2024, our firm has published a series of analyses regarding specific aspects Israel\u2019s new statute (in Hebrew, \u05d7\u05d5\u05e7 \u05d4\u05d1\u05d5\u05e8\u05e8\u05d5\u05ea \u05d4\u05de\u05e1\u05d7\u05e8\u05d9\u05ea \u05d4\u05d1\u05d9\u05df-\u05dc\u05d0\u05d5\u05de\u05d9\u05ea, \u05ea\u05e9\u05e4”\u05d3 2024), which adopted the Model Law of the United Nations International Trade Commission (commonly known as the \u201cUNCITRAL Model Law\u201d) for international arbitrations taking place in Israel. Our blog began publishing such pieces before<\/em> the new law was enacted.<\/p>\n In our February 13 post<\/a>, we examined the Model Law\u2019s default rule<\/em> under which three (3) arbitrators<\/em> are appointed \u2013 unless<\/em> the parties expressly<\/em> agree otherwise.\u00a0 We observed that the only<\/em> empirical data that we know of suggests that changing the default rule from one arbitrator to three arbitrators would be a mistake<\/strong> <\/em>for the Israeli market.\u00a0 That conclusion rests (in part) on the fact that in-house lawyers at Israeli companies consider arbitration to be expensive.<\/p>\n In this post, we examine further the decision by the Knesset to adopt the three-arbitrator default rule. More specifically, and notwithstanding other concerns that have been expressed in this blog as to Israel\u2019s adoption of the Model Law, we examine whether it might have been preferable for Israel to adopt the Model Law (a) without<\/em> adopting the default rule of three arbitrators, and (b) while retaining<\/em> the traditional default rule of one<\/em> arbitrator.<\/p>\n As described below, there is written evidence indicating that the Knesset was mis<\/strong><\/span>informed when it voted to enact the Model Law \u201cas is.\u201d<\/p>\n I. The Three Elephants in the Knesset\u2019s Meeting Room:<\/em><\/p>\n On December 12, 2023, a public meeting of the Knesset\u2019s Constitution, Law and Justice Committee took place, for Members of Knesset to hear views of the public regarding the proposed amendment to adopt the UNCITRAL Model Law. That public session was chaired by MK Simcha Rothman.\u00a0 The Protocol<\/em> (transcript) of the hearing indicates that a number of lawyers in private practice attended, and several of them expressed support for the proposed statute. One of those lawyers (who will be referred to herein as the \u201cLead Advocate<\/strong>\u201d) was asked directly by Chairman Rothman as to whether the default rule of three arbitrators has been adopted \u201call over the world.\u201d<\/p>\n Before examining the answer to that question, we note that the topic of how other countries have dealt with the three-arbitrator default rule was not just \u201canother topic\u201d on the agenda of the Chairman. Rather, he raised the question regarding the default rule almost at the outset<\/em> of the hearing (right after introductory remarks, including from an attorney at the Ministry of Justice). Chairman Rothman initially raised the issue of adopting the Model Law with some textual variances<\/em>. Seconds thereafter he zeroed in and asked the Lead Advocate specifically<\/em> about the three-arbitrator default rule (the English translation is ours):<\/p>\n Question:\u00a0 That means all over the world there is a requirement for three arbitrators?<\/p>\n Answer:\u00a0 Not that there is a requirement, but the whole world adopted.<\/p>\n Question:\u00a0 This is the default?<\/p>\n Answer:\u00a0 Exactly, exactly . . . this is the default . . . In summary, Chairman Rothman asked whether the whole world adopted the default rule of three arbitrators<\/em> (in those countries that adopted the Model Law), and the answer he was given by the Lead Advocate was affirmative<\/em>.<\/p>\n The only problem with that answer is that it was incorrect<\/em><\/span> \u2013 significantly incorrect.<\/p>\n Our firm has identified at least seven<\/em> (7) countries that adopted the UNCITRAL Model Law but excluded<\/em> the default rule of three arbitrators.<\/p>\n Those countries are:<\/p>\n 1. Ireland II.\u00a0 A Bunch of Nations \u201cHeard From\u201d:<\/em><\/p>\n Below are the specifics regarding UNCITRAL countries that rejected<\/em> the default rule of three arbitrators.<\/p>\n A. Ireland:<\/strong><\/p>\n As reported by Aceris Law<\/a>, \u201cThe 2010 Act adopts the 2006 UNCITRAL Model Law, which is attached in its entirety as Schedule 1 to the 2010 Act . . . . The 2006 Model Law . . . is thus given the force of law in Ireland, subject to certain amendments introduced by the 2010 Act, such as that the default number of arbitrators is<\/em> one<\/em> (2010 Act, Section 13), instead of three (2006 Model Law, Article 10(2)).\u201d (emphasis added; last visited 18 February 2024); accord<\/em>: Arbitration Ireland<\/a> (\u201cSection 13 amends Article 10 of the Model Law by providing that, unless the parties agree otherwise, the arbitral tribunal shall consist of one<\/em> arbitrator rather than three<\/em>.\u201d) (emphasis added; last visited 19 February 2024)<\/p>\n B. Singapore:<\/strong><\/p>\n Singapore adopted the Model Law through its International Arbitration Act (IAA) in 2002. However, Singapore changed Article 10:<\/p>\n Number of arbitrators for purposes of Article 10(2) of Model Law<\/strong><\/p>\n 9. Despite Article 10(2) of the Model Law, if the number of arbitrators is not determined by the parties, there is to be a single<\/em> arbitrator.<\/p>\n See Singapore Statutes Online<\/a> (emphasis added; last visited February 13, 2024)<\/p>\n C. Hong Kong:<\/strong><\/p>\n The statute under which Hong Kong adopted the UNCITRAL Model Law is the the Arbitration Ordinance<\/a>.\u00a0 Section 23 of the Arbitration Ordinance omits<\/em> section 2 of Article 10 of the Model Law:<\/p>\n Article 10 of UNCITRAL Model Law (Number of arbitrators)<\/strong><\/p>\n \u201cArticle 10. Number of arbitrators<\/em> Paragraph 2 of Article 10 of the Model Law is the provision setting a default number of three arbitrators. As noted above, section 23 of the Hong Kong statute makes clear that the provision in paragraph 2 of Article 10 of the Model Law is not<\/em><\/span> applicable.<\/p>\n D.\u00a0 India:<\/strong><\/p>\n The Indian Arbitration and Conciliation Act, 1996 is based on the UNCITRAL Model Law. That statute provides:<\/p>\n 10. Number of arbitrators.\u2014(1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number. (2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole<\/em> arbitrator.<\/p>\n Source: IBC Laws<\/a> (last visited Feb. 20, 2024); see also<\/em> Law of Arbitration in India & Alternative Dispute Resolution<\/a> (emphasis added; last visited February 18, 2024).<\/p>\n E.\u00a0 Chile:<\/strong><\/p>\n According to the chapter on Chile in Arbitration Guide IBA Arbitration Committee<\/a> (last visited February 20, 2024), \u201cInternational arbitration is governed by the [International Commercial Arbitration law], which is a self-standing law almost identical to the UNCITRAL Model Law\u201d (page 6 of the PDF; emphasis added); \u201cif parties cannot agree on the number of arbitrators, only one<\/em> arbitrator shall be appointed, unless [the ADR center] determines that a three member tribunal is necessary.\u201d (page 13 of the PDF; emphasis added)<\/p>\n There is no<\/em><\/span> default rule of three arbitrators.<\/p>\n F.\u00a0 The Dominican Republic:<\/strong><\/p>\n According to LATIN LAWYER REFERENCE ARBITRATION 2021: Dominican Republic<\/a> (last visited February 18, 2024), Article 14 of Dominican Republic Arbitration Law establishes that, if the parties fail to determine the number of arbitrators, there is to be one<\/em> arbitrator instead<\/em> of three arbitrators as provided in article 10 of the UNCITRAL Model Arbitration Law.<\/p>\n G.\u00a0 Serbia:<\/strong><\/p>\n According to \u201cCommercial Arbitration: Serbia<\/a>\u201d (last visited February 13, 2024), Serbia adopted the UNCITRAL Model Law but made certain amendments, one of which is as follows: \u201cthe number of arbitrators must be odd.\u201d<\/p>\n In other words, the Serbia UNCITRAL arbitration law does not include<\/em><\/span> a \u201cdefault\u201d rule of three arbitrators.\u00a0 The number of arbitrators may be one<\/em>.<\/p>\n In summary, our firm found SEVEN countries that adopted the UNCITRAL Model Law but excluded<\/em><\/strong> the three-arbitrator default rule.\u00a0 (We believe there are more such countries.)<\/p>\n III\u00a0 The Other Countries \u2013 In Context:<\/em><\/p>\n Our research on this topic was not<\/em> extensive.\u00a0 Presumably the Ministry of Justice had the resources to research the issue prior to sending multiple staff attorneys to the December 12 hearing. (Note that all the sources that we consulted are in English<\/em>.\u00a0 Presumably the MOJ also has Spanish<\/em>-speaking lawyers.)<\/p>\n At that hearing, when the Lead Advocate provided Chairman Rothman with an in<\/span>correct response \u2013 which failed to take into account exceptions evidenced by Singapore, India, Ireland, Serbia, The Dominican Republic, Hong Kong, and Chile \u2013 not only did such erroneous information find its way into the official record, but that wrong answer was left uncorrected by all<\/em> of the private lawyers who attended the session to advocate for adoption of the Model Law.\u00a0 It seems that the same cat got the tongues of the Ministry of Justice lawyers in attendance.<\/p>\n The three-arbitrator default rule is the most controversial<\/em><\/span> aspect of Israel\u2019s adoption of the Model Law.\u00a0 Therefore, it strains credulity<\/em> to believe that none of the lawyers who attended the Knesset session expected that the precise<\/em><\/span> question that was posed by Chairman Rothman — namely, whether there are any countries that have adopted the Model Law without<\/em> adopting the three-arbitrator default rule \u2013 would be asked.<\/p>\n The Chairman\u2019s question was highly foreseeable.<\/p>\n From the perspective of the Knesset members in attendance at the December public session, it was not unreasonable for them to rely upon the answer given by the only<\/em> non-MK to address the issue of the three-arbitrator default rule. Chairman Rothman asked the right question. He was simply given an erroneous answer \u2013 which was not corrected by anyone \u2013 even though there was no shortage of lawyers in attendance (including some on a government salary) who should have known of at least some<\/em> of the information set forth in section II above.<\/p>\n IV\u00a0 Lessons to be Learned From Other Countries:<\/em><\/p>\n Should Israel ignore the fact that at least seven countries adopted the Model Law while rejecting the default rule of three arbitrators?\u00a0 Absolutely not.<\/p>\n Let\u2019s start with Singapore, a country the population of which is smaller than Israel by four million, yet its gross domestic product is almost that of Israel. Singapore has a very good reputation as a location for conducting international arbitration.<\/p>\n
\n(Protocol, pages 5-6)<\/p>\n
\n2. Singapore
\n3. Hong Kong
\n4. India
\n5. Chile
\n6. The Dominican Republic.
\n7. Serbia<\/p>\n
\n(1)
\nThe parties are free to determine the number of arbitrators.
\n(2)
\n[Not applicable<\/em>.]\u201d.<\/p>\n