International Arbitration 2024 Comparisons

In domestic disputes, public court litigation is the preferred method for the resolution of disputes by many commercial players. While domestic arbitration is not very common, international arbitration has gained prominence in the past decade in Israel. In February 2024 Israel adopted the International Commercial Arbitration Law, 2024 (the “ICA Law”), which is based on the UNCITRAL Model Law on International Commercial Arbitration.

There has been no increase in international arbitration activity in Israel in 2023–2024 in a specific industry. However, there is a growing number of complex international arbitrations in the energy and infrastructure sectors. Additionally, as many technology firms and start-ups are more and more involved in the international arena, there are more arbitrations involving technology disputes.

The leading arbitration institutions used in Israel in international arbitration are the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA). As Israeli players are not very well acquainted with all arbitral institutions, they usually opt for the most common choices – the ICC or the LCIA. Israeli parties opt less often for the International Centre for Dispute Resolution (ICDR) or the China International Economic and Trade Arbitration Commission (CIETAC) and feel more at ease with the ICC and the LCIA.

The Israeli court system comprises three levels of courts:

• magistrate courts;
• district courts; and
• the Supreme Court.

The Supreme Court is the highest judicial instance in the country. In domestic arbitrations, the courts with jurisdiction are those with respect to such matters in court litigation. In international arbitration, Article 7 of the ICA Law provides that the court having jurisdiction is the court authorised to adjudicate the matter agreed to be submitted to arbitration, pursuant to any law. However, the article specifies that matters which are in the jurisdiction of the magistrate courts shall be within the jurisdiction of the district courts. This means that any specialised courts, such as the labour court, may have jurisdiction with respect to matters concerning arbitration in cases for which they have jurisdiction, however, the magistrate courts will not have such jurisdiction, and the district courts will have the jurisdiction to hear and decide on matters of international arbitration instead.

The Arbitration Law, 1968 (the Arbitration Law) governs domestic arbitrations, and the ICA law governs international commercial arbitration.

The enactment of the ICA Law is a major change in Israeli arbitration legislation. Until the enactment, arbitration (both domestic and international) was regulated by the Arbitration Law. Now that there are two separate laws, it is expected that the courts will develop a case law on international arbitration.

When a party files a claim before a state court in a dispute that is subject to an international arbitration agreement, the court will at first wait for the defendant’s reply to see if it agrees to its jurisdiction or requests a stay of proceedings due to the arbitration clause. When a party does not object to the jurisdiction of the court, the court will hear the dispute submitted to it.

Article 9 of the ICA Law adopts the wording of the Model Law with respect to the enforcement of international arbitration agreements. The Article incorporates the enforcement provision of Article II(3) of the New York Convention, which, by implication, denies the court any discretionary power and directs it to “refer the parties to arbitration” unless it finds that any of the exceptions enumerated in the Article – that is, that the agreement “is null and void, inoperative or incapable of being performed” – exist.

Article 8 of the ICA Law requires that the arbitration agreement be in writing. The writing requirement may be satisfied when the agreement is entered into by way of an electronic message, as defined in the Electronic Signature Law 2001, and is deemed to have been made in writing if the message can be saved and retrieved. The Article further provides the incorporation by reference clause, according to which when a provision in a contract, by which provisions of a document which contains an arbitration clause shall apply to that contract, then, that contract constitutes a written arbitration agreement. By this way, Israel has adopted a broad definition of a written agreement which is in line with technological developments.

There has not been any critical case law on the approach of courts in the enforcement of arbitration agreement under the ICA Law. It should be noted, however, that before the enactment of the ICA Law, the courts’ approach in the interpretation of Article II(3) did not correspond to the wording of the Article. Despite broad international acceptance of the referral rule in Article II(3) of the New York Convention, Israeli courts have not fully recognised it. Although there are instances where a court’s rhetoric suggests recognition of this principle, a close analysis of the case law reveals that, in fact, Israeli courts have failed to follow a uniform discourse on the issue and in some cases concerning the enforcement of international arbitration agreements, the courts apply rules regarding domestic arbitration, thereby increasing their discretion in not staying proceedings. It is hoped now, as the International Arbitration Law is in force, that the courts will follow the wording of the Article strictly.

According to Article 17(a) of the ICA Law, an arbitration agreement shall be treated as independent of the other clauses of a contract, and the decision that the contract is null and void shall not affect ipso jure the invalidity of the arbitration agreement.

The parties are free to appoint any person they wish to the tribunal. They may agree on the method of selection of the tribunal. According to Article 11 of the ICA Law, the parties are free to determine the number of arbitrators in the tribunal.

According to Article 11(c) of the ICA Law, when the parties have not agreed on the number of arbitrators, there shall be three arbitrators.

According to Article 12(b) of the ICA Law, when the parties do not agree on the procedure of appointing the tribunal, then in a tribunal with three arbitrators, each party shall appoint one arbitrator and the arbitrators appointed by the parties shall appoint the third arbitrator who shall serve as the presiding arbitrator. If a party fails to appoint an arbitrator within 30 days of the receipt of a request to do so, or if the two appointed arbitrators fail to agree on the third arbitrator within 30 days of their appointment, a party may apply to the court and request that it appoint the arbitrator.

Unless requested by a party to appoint an arbitrator, the court cannot intervene in the appointment procedure.

Article 14(a) of the ICA Law provides that the parties are free to agree on a procedure for challenging an arbitrator, subject to the provisions of Article 14(c), according to which if a request for a challenge submitted under the agreed procedure is denied, the challenging party may request the court to decide on the challenge request within 30 days after having received notice of the decision rejecting the challenge.

Article 14(b) provides that when the parties have not agreed on a procedure for challenging an arbitrator, a party who intends to challenge an arbitrator, shall send a written statement of reasons for the challenge within 15 after becoming aware circumstances giving rise to a challenge. The arbitral tribunal then shall decide on the challenge, unless the challenged arbitrator withdraws, or the other party agrees to the challenge. Here again, if a the request for challenge is denied, the challenging party may request the court to decide on the challenge.

When a challenge is pending before the court, the arbitral tribunal may continue the proceedings and make the award.

A decision by the court on a challenge, may be subject to appeal if permission is granted from the court of appeal.

Article 13 of the ICA Law requires an arbitrator to disclose any information on circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence in respect of the arbitral proceedings.

Subject matters that cannot be subject to an agreement may not be referred to arbitration (see 3.2 Arbitrability).

Article 17 of the International Commercial Arbitration Law follows the wordings of the Model Law with regards to the competence of the arbitral tribunal to rule on its jurisdiction. However, unlike in the Model Law, when the tribunal decides the matter as a preliminary question and denies the challenge, any party may apply to the court to rule on the matter. The decision of the court may be appealed with leave from the court of appeal.

See 5.2 Challenges to Jurisdiction.

According to Article 17(b) of the ICA Law, a challenge to the tribunal’s jurisdiction shall be raised not later than the submission of the statement of defence in the arbitration. A challenge based on the tribunal’s exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of the tribunal’s authority is raised during the arbitral proceedings.

According to Article 17(e), the tribunal may rule on its jurisdiction as a preliminary question or in the award on the merit. If the matter has been decided as a preliminary question and the tribunal denies the challenge, a party may request the court to decide the matter. If no such request has been submitted to the court, a challenge to the tribunal’s jurisdiction may be raised only within the framework of an application to set aside the award.

A decision of the court may be subject to appeal if permission is granted from the court of appeal.

Israeli courts enforce arbitration agreements by way of staying the proceedings commenced before them in breach of an arbitration agreement (see 3.3 National Courts’ Approach).

Israeli courts have recognised that an arbitration agreement may extend to third parties in the case that the interpretation of the arbitration agreement leads to the conclusion that these parties expressly or implicitly agreed to be bound by the agreement. Third parties may be bound by an arbitration agreement by way of assignment, or when the circumstances are such that the objection by the third party is formal and artificial.

Chapter E of the ICA Law provides extensive provisions regarding interim measures. The Chapter concerns, the tribunal’s authority to grant interim measures (Section 1), recognition and enforcement of interim measures (Section 2), and the court’s power to order interim measures.

According to Article 26 of the ICA Law, the court has the same power of issuing interim measures in relation to arbitration as it has in relation to court proceedings, whether the place of arbitration is in Israel or outside of Israel.

Unless otherwise agreed by the parties, the tribunal may order security for costs.

The ICA Law provides in Article 28 that unless otherwise provided in the law the parties are free to agree on the rules of procedure and evidence to be followed by the tribunal in conducting the proceedings.

When the parties have not agreed on the rules of procedures and evidence, then the tribunal may conduct the arbitration in a manner as it considers appropriate.

Article 27 of the ICA Law requires the tribunal to treat the parties with equality and give them full opportunity of presenting their case.

Unless otherwise agreed by the parties, the tribunal is empowered to order any procedural steps to be taken in the arbitration. The tribunal enjoys wide discretionary power in defining the conduct of the arbitration proceedings. It can issue procedural orders regarding the proceedings, as well as regarding steps to be taken by each of the parties. In conducting the proceedings, the tribunal is expected to act fairly to all the parties and grant them the right to be heard.

The Israeli Bar Association Law, 1961, provides that representation before courts, tribunals or arbitrators or any person or body having judicial or quasi-judicial authority has to be made by a qualified attorney in Israel. This requirement does not apply in arbitration proceedings in which one of the parties is non-Israeli or is a company registered outside of Israel. In such cases, the foreign party may be represented by a qualified attorney in the foreign party’s country of residence.

See 7.1 Governing Rules.

See 7.1 Governing Rules.

According to Article 36 of the ICA Law, the tribunal or a party, with the approval of the tribunal, may request from the court assistance in taking evidence.

The ICA Law does not provide any provisions regarding the confidentiality of arbitration; however, since arbitration proceedings are not public, they are considered confidential by their nature.

The ICA Law provides that an arbitration award shall be in writing and signed by the arbitrator or arbitrators who are members of the tribunal. In an arbitration with more than one arbitrator, the signatures of the majority of all members, is sufficient. Unless otherwise agreed by the parties, the award must be reasoned.

The tribunal may award a monetary relief and, unless otherwise agreed by the parties, it may grant a declaratory award, a prohibitive award, a specific performance award or any other relief that the court may grant in proceedings before it.

Unless otherwise agreed by the parties, the tribunal is empowered to award costs, including legal fees, in addition to the tribunal’s costs and fees. Generally, the tribunal will allocate legal costs to the prevailing party. While in public-court litigation the courts tend to award nominal costs, in arbitration tribunals, especially in complex international arbitrations, real costs tend to be awarded.

As for awarding interest, if parties agree on the interest to be awarded, the tribunal will be bound by the agreement. If the parties do not agree on the interest, under Israeli law the tribunal has the authority to award interest in accordance with the Ordering of Interest and Linkage Law, 1981.

An award may be set aside only if one of the conditions set in Article 43(b) of the ICA Law applies.

An application for setting aside the award shall be made within 90 days of the date on which the party making the application had received a copy of the award.

The parties cannot exclude the court’s power to set aside the arbitration award and they may not expand it.

The judicial review are limited to the conditions set in Article 43(b) of the ICA Law.

Israel is a signatory to the New York Convention. It ratified the Convention in 1959, and in 1974 it incorporated the provisions of the Convention by way of an amendment to the Arbitration Law. The provisions of the Convention have further been incorporated in the ICA Law, by way of adoption of the UNCITRAL Model Law.

To date no procedural regulations regarding the application of the ICA Law have been enacted. It is expected that they will be enacted soon.

Generally, the Israeli courts are considered to take a pro-enforcement stand on arbitration awards.

The ICA Law does not make any reference to class-action arbitrations and these do not tend to take place in Israel.

Israeli counsel are bound by the ethical rules of the Israel Bar Association. The courts have compared arbitrators to judges with regard to the ethical rules that should be applicable to them. Thus, the ethical rules applicable to judges apply also to arbitrators.

There are no rules or restrictions on third-party funders. There are a number of funders active in Israel that provide funding both to public court litigation and to arbitration.

Consolidation can occur only with the consent of all parties.

The courts have recognised three “extension circles” to the arbitration agreement, which may each bind third parties to the arbitration agreement. The first circle includes parties which, by interpretation of the arbitration agreement and the contractual relationship between the parties, are understood to have agreed to be part of the arbitration. The second extension circle includes successors of the parties to the arbitration agreement, pursuant to Section 4 of the Arbitration Law. The third extension circle relates to those cases where it does not appear from the arbitration agreement that a party agreed to join the arbitration, and where that party is not a successor of the party in the arbitration. This circle includes parties that try to avoid, on formalistic grounds, participating in arbitration proceedings to which they have substantially agreed.