The 2024 Israeli International Commercial Arbitration Law – Commercial Tailored Solution or Simply Arbitrary ?

The 2024 Israeli International Commercial Arbitration Law – Commercial Tailored Solution or Simply Arbitrary ?

Written by

Gilad Bar-Ami
March 30, 2024

An American manufacturer and a South African importer entered into an agreement to import the manufacturer's products to South Africa. Following long negotiations, the last remaining issue was what to do in the event of a dispute. The parties agreed that a quick and inexpensive solution in a neutral jurisdiction is required and hence opted to use arbitration over filing a lawsuit in Court. But where? How about Israel? Israel?! Yes. It is possible that the international commercial arbitration law that entered into effect beginning of 2024 will turn the above fictional scenario into reality and Israel will take a place of honor among other international commercial arbitration hubs such as Dubai or Singapore.

Until the enactment of the new law, arbitration in Israel was regulated under the Arbitration Law, which although not adapt to international arbitration procedures, applied when the place of business of all parties was in or outside of Israel. In contrast, the new law is based on the Model Law drafted by the United Nations Commission on International Trade Law, (The UNCITRAL Model Law on International Commercial Arbitration) - an accepted standard in international commercial arbitration.

As a rule, arbitration is seen as a more efficient, secret and faster mean than the alternative of conducting legal proceedings in court and this perception is a main consideration for choosing it. However, when it comes to a dispute between parties from different jurisdictions and legal systems, the consideration of certainty trumps. Although absolute certainty of the outcome of any legal procedure is almost nonexistent, when it comes to a procedure conducted in a foreign jurisdiction, in a foreign language, under different laws and within a different legal system - the uncertainty increases tenfold and its annulment becomes the main goal of the parties thereto. As Courts (as are the judges, and the procedures used) cannot be molded to the will of the parties - the sought solution is to create a venue, which can be customized by the parties and the influence of the local legal system on it is as negligible as possible. Increasing the power of the arbitrators and the freedom of the parties to shape the arbitration procedure, while simultaneously neutralizing the Israeli legal system's influence over it, and interleaving the provisions of an international law, contribute to increasing certainty and benefits the parties, and it is clear that these principles, manifest throughout the new law, guided the legislature when drafting it.

While the old law gave the Court the right to decide even in matters that were agreed to be settled by arbitration, despite the agreement and despite ongoing arbitration procedure, the new law takes this power away from the Court, and stipulates that the Court may hold such hearing only when "the arbitration agreement is null and void, deprived of force of action or cannot be performed." The new law clarifies that even if it is found, in arbitration, that the contract, that is the subject of the dispute, is void, this does not negate the validity of the arbitration clause or grants the court cause for intervention. Thus, the new law gives the parties (in the absence of agreement - the arbitral tribunal) the authority to determine the procedures, the language, the manner of conducting the hearings, and more and the arbitrator has the authority to decide on its own jurisdiction. Moreover, the new law stipulates that the Model Law must be taken into account and further uniformity in the application of its rules at the international level, so that the legislator actually clarified that it is necessary to learn from decisions given worldwide for interpretation of the Model Law, and thus further reduced the Court’s ability to intervene.

So, will the new international arbitration law always result in advancing the optimal dispute resolution? It is vital to keep in mind that despite the advantages of arbitration procedure, as detailed above, incorrect wording of arbitration clauses might result in the arbitration procedure turning into a double-edged sword. That is because unlike a Court which is bound, for better or worse, by legal procedures, evidence laws and laws that apply to the parties regardless of their intentions to be bound thereby, arbitration and in particular one held under the new law, is designed, to a greater extent, by the parties intention as evident in the contract, which may result in a party finding itself, if the arbitration clause was not duly worded, in a procedure it had never intended to take part in. Therefore, the importance of an attorney with in depth understanding in the field meticulously drafting the arbitration clause, and the agreement to which it refers, is even greater than with a contract that will be interpreted at Court and it is crucial to determine, in advance, the type of arbitrator and the arbitrator’s experience and verify that it is a lawyer with years long experience in international transactions and hence avoid a scenario where an unsuitable arbitrator is chosen.