Arbitration Award – Is it the End or just the Beginning?

Arbitration Award – Is it the End or just the Beginning?

Yair Aloni, Adv.
April 24, 2022

One of the great advantages of an arbitration proceeding is the ability to resolve complex disputes through a quick and efficient proceeding where the decision of a professional and skilled objective professional can end the dispute between the parties, without the need for lengthy and expensive legal proceedings in Court before a judge who does not necessarily understand the business aspects or the relevant language. Thus, for example, business partners may stipulate in the founders agreement that in the event of a dispute between them, they will raise it before an arbitrator who will exclusively and definitively decide it. However, once the arbitrator has granted the arbitration award, one of the parties may refuse to accept the arbitrator's decision and raise various contentions. Can a Court intervene in the award or overturn it?

Israeli law stipulates that an arbitration agreement is a written agreement in which the parties agree to solve any dispute between them, or that may arise between them in the future, through arbitration. While the starting point is that an arbitral award cannot be appealed against, Israeli law allows the parties to set that the arbitral award may be appealed before another arbitrator (and thereafter it can no longer be appealed again).

In any case, it is possible in some cases to apply to the Court for the revocation of the arbitrator's award specific set cases, such as: The arbitrator acted without authority or exceeded the power vested with him under the arbitration agreement; The arbitrator failed to decide on one of the matters submitted for his decision; and more. Courts usually tend not to interfere with the arbitrator's discretion, but as long as there are compelling reasons to justify the revocaton of an arbitrator's award, such as of concern of bias or conflict of interest, the Court will not hesitate to do so.

Such a case was heard in April, 2022, before the Tel Aviv-Yafo District Court, where an arbitrator undertook to resolve a dispute based on a mediation agreement reached two months earlier in his office in a mediation proceeding conducted by the arbitrator’s partner. The arbitrator's award was revoked by the Court because the expectation that the arbitrator will go against the agreements made by his office partner during mediation procedure held by him was hopeless to begin with. In another case heard in September, 2021, before the Jerusalem District Court, an arbitral award was revoked after the arbitrator’s decision on financial settlements between the parties was based on a document, whose editor was unknown, without exercising independent discretion and without giving the parties the opportunity to cross examine the document editor. The Court held that an arbitrator cannot consult a third party without notifying the parties whom he consulted with or what advice was given and it is his duty to exercise independent discretion in making his decision.

However, not every error in an arbitral award will result in the revocation of the award and this will happen only in exceptional cases. A case heard in September, 2003, before the Supreme Court, dealt with a motion to revoke an arbitral award in a dispute between a member of a cooperative society and the society and dealt with his rights therein. The Supreme Court held then that a Court may not intervene in the arbitrator's award even if it believes that there is a material error, either factual or legal, and even if in the Court believes that the arbitrator exercised discretion in an ill-considered manner. Note, that in 2008 Israeli law was amended to allow the parties to appeal to the Court in certain exceptional cases where they agreed that the arbitrator will decide pursuant to the substantive law and only if the arbitrator has made a fundamental error in the application of the law which caused a miscarriage of justice.

Not every claim raised by an arbitration party will justify an automatic intervention by the Court or the revocation of the arbitration award. The intervention of the Court after an arbitral award was released will usually be limited to the grounds provided by law. In any case, as the manner in which the arbitration agreement is worded is important and because the parties are the ones outlining the arbitrator's powers, it is important to exercise discretion in advance and consult a lawyer specializing in transactions and dispute resolution so that such will review the arbitration clause and advise. In any case, an arbitration proceeding is a legal proceeding as any other and therefore, it is vital to be accompanied by an attorney who will ensure the client's rights and that legal actions are taken at the appropriate time and without any undue delay.