Arbitration is the resolution of disputes by way of adjudication by an arbitrator instead of judicial proceedings in courts. In order for an issue to be discussed before an arbitrator, both parties must agree to this in writing. The agreement can be even before the conflict arises between the parties, in the form of an arbitration clause in a contract or according to a later agreement – when the conflict arises.
The arbitration proceedings ends with an award that can be filed in the court for approval. An arbitral award that has been confirmed has the authority of a court decision, for all intents and purposes, and it can also be enforced through the execution office.
In the Arbitration Law, an “arbitrator” is defined as any person appointed to serve as an arbitrator pursuant to an agreement between the parties. As a general rule, any person in Israel may serve as an arbitrator, even if he is not a lawyer by profession.
However, there is a distinct advantage to choosing a professional who has been trained in conducting arbitration proceedings, and who is familiar with the provisions of the law as well as the accepted norms in the field in which the dispute arose.
Arbitration proceedings begin with the signing of an arbitration agreement between the parties to the dispute. The signing of the agreement constitutes a preliminary requirement for holding arbitration proceedings. The arbitration agreement can be a dedicated arbitration agreement, which is sometimes called an “arbitration deed”. However, it is usually a single clause in a more comprehensive agreement that regulates all the issues on which the parties disagree.
In the event that the parties do not sign an arbitration clause before the dispute breaks out, but when the dispute arises the parties prefer to litigate outside the court, they can still agree on referring the dispute to be resolved through arbitration.
Even when a case comes to court, and the judge recommends that the parties conduct their dispute through arbitration, after receiving the consent of the parties to this, the judge is authorized to refer the case to arbitration.
Arbitration proceedings can end in two main ways:
|Reaching an agreed solution||The desired situation in commercial arbitration proceedings is to reach an agreed settlement. In such a situation, the arbitrator puts an offer to the conflicting parties that he has formulated after understanding the essence of the conflict and the interests of the parties. The parties accept the arbitrator’s proposal and their agreement acquires the validity of an arbitral award. As this is an agreed solution, there is a high probability that both parties will cooperate to implement the solution in the arbitrator’s ruling.|
|The arbitrator’s ruling||Where parties to the conflict fail to reach an agreed solution, there is no escaping the arbitrator’s ruling, where – according to the agreement between the parties – this decision is binding on them. It should be noted that the parties can agree in advance that it will be possible to appeal the arbitral award, in which case it will be possible to appeal either before an arbitrator or before a court.|
An arbitral award is a term that refers to the final decision of the arbitrator in the arbitration proceedings. It should be noted that not every decision of the arbitrator is an arbitral award.
During the arbitration proceedings, the arbitrator can give an interim ruling. The arbitrator’s decisive ruling in the dispute, which concludes the arbitration proceedings, is the one referred to as the “arbitral award”.
The arbitration award can be filed in court for confirmation. An arbitral award that has been confirmed is equivalent to a judgment given by a court. An arbitral award that has been confirmed by a court can be submitted for execution in the Execution Office like a court ruling.
The default in arbitration proceedings is that there is no appeal against the arbitral award.
However, the Arbitration Law allows the parties to agree in advance that it will be possible to appeal the arbitral award. The parties can choose between an appeal before another arbitrator and an appeal with the leave of the court.
The Israeli Institute of Commercial Arbitration allows the parties to choose whether they prefer the arbitral award to be final and not subject to appeal or whether they prefer the arbitral award to be subject to appeal. This agreement must be in writing and in advance, prior to the commencement of the arbitration proceedings.
Arbitration makes it possible to resolve disputes in a way that saves all the parties involved both a lot of time and significant expenses. All of this is conducted in discreet proceedings, in a calm environment, and in a way that allows the conflict to be brought to a swift conclusion.
In addition, the parties have full discretion regarding the design of the arbitration proceedings, starting with the selection of the arbitrator (one can choose a specific arbitrator or apply to the Arbitration Institute to appoint an arbitrator) and regarding the scope of the arbitrator’s authority; through the way the arbitration proceedings are conducted (legal procedures, laws of evidence) and the law that applies in the arbitration proceedings (Israeli law, foreign law, Torah law, discretion of the arbitrator, etc.,) and ending with the decision as to whether it is possible to appeal the arbitrator’s decision; and – if so – how (to another arbitrator or to court).
Mediation is a procedure in which the parties appoint a third party who is supposed to guide them to an agreement to end the conflict, without the mediator having the authority to decide between them. Hence, if the parties fail to reach an agreement, the dispute remains unchanged and a decision is required either in court or in arbitration.
On the other hand, arbitration is a procedure in which the parties appoint a third party who is meant to decide the dispute between them. The parties determine the scope of the arbitrator’s authority in an agreement; the arbitrator hears the parties and makes a ruling on the dispute on the basis of the claims and evidence presented to him by the parties.
Arbitration proceedings are better than legal proceedings conducted in court, in the following aspects:
|The litigation process is short||In normal legal proceedings, the litigation is not limited in time. In practice, legal proceedings in a court can last for years and end in heartache for one or both parties, which may result in an appeal, with all that this entails. By their very nature, arbitration proceedings are short proceedings that last several months. The arbitral award is given (according to the rules of the Arbitration Institute) within a month of the last session or of filing the summations.|
|Low cost||Legal proceedings may involve huge costs, both in payments to the court (the court fee at the rate of 2.5% of the amount of the claim plus expenses that are ruled during the proceedings) and in payments of attorney’s fees and expenses. In arbitration proceedings, which by their very nature are short, the expenses are relatively limited.|
|The ability to choose the person who will decide the conflict||In court proceedings, the parties do not have the option to choose the judge who will hear the case. The case can be directed to a judge who is very familiar with the subject matter of the conflict or to a judge who is not familiar with the basic concepts of the area of the conflict. On the other hand, in arbitration proceedings, the parties are entitled to select the arbitrator who will assist them in resolving the dispute. Recommendations for appointing an arbitrator|
|Discreetness||Court proceedings are conducted with open doors so that the entire hearing is open to the public. The court rulings in the case are published and accessible in the search engines on the Internet. On the other hand, the arbitration meetings are held behind closed doors, there is no media exposure and the arbitration files are not open to the public.|
|The design of the arbitration proceedings and how decisions are reached||In court proceedings, neither the parties nor the court have any discretion with regard to how the proceedings are conducted, because this is predetermined in the rules of procedure. In arbitration proceedings, if the parties so desire, they are afforded the opportunity of designing the arbitration proceedings as they wish, including with regard to the question of whether the rules of procedure, the laws of evidence, the substantive law, etc. will apply.|
|Finality of the proceedings and appeal||Court proceedings go on for several years, at the end of which judgment is given, with each of the parties having the right to appeal the judgment. This means that the legal process does not end and will continue to be conducted before the court of appeal for a further period of time. In arbitration proceedings, the principle of the finality of the hearing is important, and therefore the default is that the arbitral award is binding on the parties and is not subject to appeal. Nonetheless, the parties have the option to choose, in advance, whether they wish to appeal the arbitral award and which method of appeal they prefer. Appeal against an arbitral award|
The selection of the arbitrator is based upon the professional authority and personal assessment of the arbitrator as well as the agreement and understanding of the parties that he is indeed the most suitable person to resolve the dispute between them.
It is highly recommended to select an experienced arbitrator who is knowledgeable in the field of the conflict, and who is an honest, respectable and impartial person.
It is not recommended to indicate the name of only one arbitrator in an arbitration agreement, for the simple reason that that arbitrator may later on be tainted by a conflict of interests, he may retire from the field, may refuse to accept and hear the case or his health may deteriorate. In each of these situations, it may be necessary to approach the court in a motion for the appointment of an alternate arbitrator. With proper planning of the arbitration clause, this can be avoided.
With regard to the considerations for choosing an arbitrator, click on: How does one choose an arbitrator?
Arbitration is limited only to disputes that can be agreed upon. The source of the arbitrator’s authority derives from the agreement of the parties, which confers the power on him to resolve the dispute between them. Hence, the arbitrator’s decision is limited only to the parties who appointed him and he is not able to give an arbitrary judgment which is directed towards the entire world.
Moreover, the arbitrator’s authority is limited in accordance with the arbitration agreement agreed upon by the parties. Thus, if the parties choose to limit the authority of the arbitrator to rule only on a certain matter and only under certain conditions, the arbitrator may not exceed the limits of the authority conferred on him.
By virtue of the above, the arbitrator may not order a witness, who is not a party to the arbitration proceedings, to appear before him, since the arbitrator has no authority over the witness.
In addition, the arbitrator is not authorized to issue seizure orders or orders prohibiting departure from Israel against third parties who are not parties to the arbitration proceedings (banks, the licensing office, the Land Registration Bureau, etc.).
In such cases, the arbitrator may be assisted by the court (see Section 16 of the Arbitration Law – Auxiliary Powers of the Court) and, at the request of the arbitrator or one of the parties, the court may issue a subpoena to a witness or a seizure order on behalf of the arbitrator.
Arbitration proceedings conducted within the framework of the Commercial Arbitration Institute have clear advantages over legal proceedings in a court of law or private arbitration proceedings:
As far as arbitration proceedings are concerned, and especially when it comes