Arbitration – A New Horizon
Arbitration Law And Appellate Instance
On Wednesday, November 5, 2008, with the approval of the Arbitration Law Amendment (No. 2), 2008, the Knesset completed its revolution in the area of arbitration. This amendment combines two consensual routes of appeal in the arbitration proceeding. The bill was presented by Knesset members Gideon Saar and Amira Dotan, following an initiative taken by the author of the book, Dr Israel Shimony Attorney , as far back as 2005. Now, their determination to change the law and their resolute action at meetings of the Law and Justice Committee have resulted in the law being amended.
The Arbitration Law, 1968, superseded the 1926 British Mandate Ordinance, which was duplicated with hardly any changes from the 1889 English Arbitration Act. The prevailing practice up until the amendment of the law was that even if the arbitrator inadvertently rendered an erroneous judgment, the court system was unable to assist the litigant seeking its intervention. The Supreme Court case law expressly established that the court does not serve as an appeal instance. The court is authorized to annul the arbitration award only under extreme circumstances, such as deceit or ultra vires, etc., but not to review it as an ordinary appeal instance. This process is further perceived as allowing material errors that cannot be amended.
The difficulty in rectifying an error in an award has deterred parties from applying to arbitration. Data since the enactment of the Arbitration Law show that numerous litigants have concerns about litigating before an arbitrator and that attorneys tend not to recommend to their clients to apply to such a proceeding. This is so, inter alia, because of the related costs, a lack of awareness, a culture of preferring to litigate in court, a mistrust of any entity other than a court to decide the dispute, the non-finality of the award, which may only be annulled in court upon the satisfaction of certain grounds.
With this sad situation in mind, the author of the book, with the assistance of the Knesset members, took the initiative to have the following sections inserted into the Arbitration Law: Section 21.A. – a procedure of appeal against the award before another arbitrator; section O.1. of the First Schedule - the addition of the need to give reasons in a regular arbitration proceeding pursuant to section 24 and section 29.B. - leave to appeal against the award before the court. And on November 5, 2008 the Knesset completed the legislative procedure by approving the Arbitration Law Amendment (No. 2), 2008. The amendment is intended to provide a response to a basic need in the conducting of legal proceedings: a duty to give grounds for the award and a right to appeal, designed to rectify a material error that has occurred in an arbitration award.
Section 21.A. – Appeal before an Arbitrator
The first route of appeal to be added is manifested in section 21.A. of the Arbitration Law, under the heading "Appeal before an Arbitrator". This route allows an appeal procedure to be held before an arbitrator, as opposed to an appeal before a court. There is no doubt that this method may preserve the arbitration process as an efficient and expeditious proceeding, since the date of the hearing before the arbitrator or the team of arbitrators to be appointed by the parties as the appeal instance, will be sooner, relative to the date on which an appeal against a judgment would have been held in court.
The condition prescribed for the implementation of the route of appeal before an arbitrator is simple: the parties` determination in the arbitration agreement that the award is appealable before an arbitrator. In such event, the arbitrator is under a cogent duty to give grounds for the award. The reason for this is clear, since, without reasons being given, the correctness of the award cannot be established. For an efficient organization of the legal processes, a Second Schedule was added to the law, which included the following: the duty to document arbitration meetings, the composition of the arbitrators at the appeal, the dates for lodging the appeal, the manner of lodging the appeal, the responses to the appeal and the counter-appeal, the manner of conducting the proceeding and the decision therein, the date for rendering the award in the appeal and the grounds therefor.
It is important to stress that, in terms of the definition of "award" in the law, the award is deemed to be that which is rendered in the appeal, unless no appeal has been lodged against the award rendered in the first instance, or after the lapse of the date for the lodging thereof as provided in section 21.A. (b) of the law.
With a view to preventing an excess of instances of arbitration proceedings, the right to annul an award of the first arbitrator and the appeal arbitrator has been limited to annulment grounds (9) and (10) of section 24 of the Arbitration Law: Public policy and instances where a court judgment which is no further appealable, would have been annulled. In our view, it is essential to leave these grounds with the courts as a sovereign arm to oversee private, out of court, judicial proceedings.
Section 24 – Annulment of the Arbitrator`s Award and Addition of a Section Concerning the Duty to Give Grounds for the Award
The traditional arbitration route, with the option to annual an award pursuant to section 24, which does not include an appeal instance remains unchanged with respect to all cases relevant to it. At the same time, in view of the significance of reasons being given as a tool to make the right decision on the part of the arbitrator, it has been prescribed in Amendment No. 2, section O of the First Schedule, that even if the parties do not agree that the award is appealable, the arbitrator will be subject to the duty to give grounds, unless the parties have expressly resolved to contract out such provision in the arbitration agreement.
Section 29.B. - Leave to Appeal against the Award Before the Court
In Amendment No. 2, the legislator added another route of appeal, that was entitled "leave to appeal against the award before the court". This section is designed, inter alia, to allow the State to re-participate in arbitration proceedings. This route allows interested litigants to conduct a process of leave to appeal before the court against the award, subject to several conditions: the first, the parties` consent to conduct such a proceeding and providing in the arbitration agreement that the arbitrator should render his award in accordance with the law. The other, their consent in the arbitration agreement that the award be appealable with leave from the court if a fundamental error has occurred therein in the implementation of the law which is likely to result in a miscarriage of justice. The appeal process will be with leave and will be heard by a single judge. In this route too, a cogent duty to give reasons applies to the arbitrator. Furthermore, a duty to document the arbitration meetings by means of minutes applies, as provided in section 29.B.(b) of the law. In the event that leave to appeal before the court is granted, the litigants will be able to make claims for the annulment of the award on the basis of the grounds for annulment in section 24 of the law.
The Arbitration Law opens a new page in our lawbook. The appeal instance, as prescribed in the amendment to the law, will be in accordance with the parties` decision at the outset of the arbitration proceedings, or as early as at the time of preparing the arbitration agreement and they will decide whether or not they are interested in it and what is to be the composition of such instance. This will allow litigants to challenge the award in the event of an error and to have their day in court, by way of a full legal proceeding. It should be emphasized that the traditional arbitration route, which does not include an appeal instance, remains unchanged with the addition of instructions to the arbitrator to give grounds for his award.
AttorneyBar membership: Israel Bar Association
Currently, Dr shimony Adv, is serving in numerous public positions, including the chairman of Arbitration Committee at the International Chamber of Commerce;
Vice President, Israeli Bar, Association (2003-2007). Chairman of the International Relation Committee of The Czech Republic, Romania, hungary and Bulgaria (2003-2007).
Member of the National Council of the Israeli Bar Association.
Member of The Selection Committee for Military Judges.
Initiated a bill to amend the Arbitration Law by adding an appeal option and mandatory reasoning to arbitrator`s judgment, submitted to the Knesset in October 2005.
Member of the Israel Fiscal Association- a branch of the international Fiscal Association. Promoter of the contractual Arbitration Institute in cooperation with the Czech and Romanian Trade Uni