Israel's Path to Legal Modernisation: 2023's Trend of Redefining International Dispute Resolution

The past year has seen a series of law proposals to transform Israel into a better, more modern and open hub for international commercial dispute resolution. The legislature has expressed its intention to promote and finalise these legislative actions, which aim to bridge the gaps in Israel's archaic legal framework concerning international arbitration, international mediation and the recognition and enforcement of foreign judgments.

These efforts come when international arbitration and mediation are on the rise globally, and reflect Israel's commitment to facilitating efficient and fair dispute resolution while adhering to international standards. In addition, these legal developments are expected to enhance Israel's economic growth and bolster its reputation on the global stage.

General background – the need for modernisation to enhance Israel's international appeal

Israel's legal framework concerning international arbitration, international mediation and the recognition and enforcement of foreign judgments has long been regarded as archaic. The Arbitration Law of 1968 (the “Arbitration Law”) had been in place for decades, and failed to keep pace with the evolving demands of the global legal landscape. In addition, the issue of the recognition and enforcement of foreign judgments had been regulated by the Foreign Judgments Enforcement Law (the “Enforcement Law”), which dates back to 1958 and enforces parties to navigate old and often unclear procedures and provisions, creating significant challenges for foreign and local parties seeking legal redress in Israel. Similarly, international mediation – which has gained prominence as an effective method for dispute resolution in recent years – faced ambiguity and a lack of precise regulation.

The repercussions of this outdated legal framework were particularly pronounced in international arbitration. While international arbitration was booming globally, Israel seemed to be on the sidelines, as its legal framework remained old and largely irrelevant. Many Israeli companies and individuals, faced with a lack of trust in the local system, began looking abroad and opting for foreign tribunals to resolve their disputes. This exodus reflected a pressing need for modernisation and alignment with international standards. In addition, arbitrators in international arbitrations found themselves with a need to complete the legal landscape by adopting procedures from international practice in this regard.

Fortunately, with the proposed expected legislation, Israel is taking a significant step toward adopting international norms. These expected legislative changes aim to modernise the legal landscape, streamline procedures and make Israel a more attractive destination for international dispute resolution. This shift addresses the shortcomings of the archaic legal framework and positions Israel as a jurisdiction in line with global practices in arbitration, mediation and the recognition and enforcement of foreign judgments.

It is worth mentioning that, while the judicial framework was outdated, the private legal sector took significant incremental steps to prepare for this shift. The industry and many legal firms have eagerly anticipated the transformation and positioned themselves as experienced and knowledgeable players in these fields.

Key expected legislative changes

2023 has been a transformative year for Israeli litigation, with the Knesset (the Israeli Parliament) promoting critical legislative acts that set the stage for a profound shift. While this legislation is still in progress, it is apparent that the legislature is committed to seeing these transformative changes through to completion, given the substantial volume of legislative activity in this domain.

The proposed International Commercial Arbitration Law, 2023

In recent decades, arbitration has increased as a tool for settling international commercial disputes. In the current legal situation, the Arbitration Law applies to any arbitration proceeding based in Israel, including arbitration with international characteristics. However, this law does not adequately cater to the unique requirements of international arbitration proceedings. For instance, it lacks explicit provisions acknowledging the preferences of advocates involved in international cases, who often seek to grant arbitrators greater authority and flexibility in managing the arbitration process. Due to this situation, practitioners in the field had to adopt certain practices from standard and customary international arbitration law.

To bridge this gap, the Knesset took a significant step on 16 August 2023 by passing the initial vote for the proposed International Commercial Arbitration Law of 2023. This legislation aims to rectify these deficiencies by incorporating into Israeli law a framework based on the Model Law on International Commercial Arbitration, as established by the United Nations Commission on International Trade Law (UNCITRAL Model Law).

The proposed law's structure and contents are similar to the Arbitration Law. However, the proposed law includes several provisions that differ from those enshrined in the Arbitration Law, including the following:

• Section 6 of the proposed law imposes an explicit restriction on the intervention of the courts in arbitration proceedings;
• Section 17 of the proposed law deals with the authority of the arbitrator to decide on its authority (competence-competence); and
• Sections 18 to 25 of the proposed law create a unique and detailed regime concerning the provision of reliefs by the arbitrator, and the enforcement thereof.

Furthermore, the proposed law includes provisions that define various issues, such as determining the default number of arbitrators, without the need for additional regulations.

Moreover, the proposed law is silent on some issues that the Arbitration Law regulates extensively. The differences stem from the nature of international commercial arbitration and the existing practice in the field. Thus, for example, the proposed law does not provide provisions similar to Sections 30 and 31 of The Arbitration Law, in connection with the arbitrator's responsibility and fees. This is because international arbitration sometimes takes place within the framework of an arbitration institution that pre-regulates arbitration fees, so it is unnecessary to regulate the issue in legislation.

The proposed law also does not make defaults regarding the procedures. This ambiguity is because, in many cases, the arbitration clause refers to existing arbitration rules, such as UNCITRAL arbitration rules or arbitration institutions of various kinds, which establish a framework of legal rules.

Finally, the proposed law does not establish a mechanism of appeal against arbitration rulings before an arbitrator, as stipulated in Section 21A of the Arbitration Law, since appeal against arbitration rulings is not common in international arbitration. When it does exist, it is usually regulated by the arbitration rules that the parties have already agreed upon.

Memorandum of Law on the Implementation of the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Affairs, 2023

As previously mentioned, the recognising and enforcing of foreign judgments in Israel is currently governed mainly by a law dating back to 1958, which provides the framework and mechanisms for such recognition and enforcement. For instance, Section 11(a) of the law pertains to the recognition of foreign judgments from countries with which Israel has entered into a treaty. However, it is worth noting that Israel has only entered into such treaties with four countries. Furthermore, the existing law raises several unresolved concerns and issues.

In September 2023, the Ministry of Justice submitted a Memorandum to incorporate into Israeli law the provisions of the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Affairs, adopted in The Hague on 2 July 2019. Said Convention provides an international legal framework for the recognition and enforcement of foreign judgments based on agreed principles and subject to permanent protections and exceptions.

The Convention is intended to streamline proceedings to recognise and enforce foreign judgments in the participating countries, with the understanding that preserving the rights of legal entities engaged in global activities is crucial for fostering international trade in the present era. It sets forth universal standards for the recognition and enforcement of foreign judgments among the signatories, including delineating criteria for dismissing recognition applications.

Israel signed the treaty in March 2021, and this law will enable the country to ratify the treaty and become a member state. The Convention became effective on 1 September 2023, and currently boasts 27 member countries, which notably includes 26 EU member states. Israel's accession to the Convention will establish a formal treaty relationship with the other member states, bound by the Convention's terms.

The provisions of the Convention include:

• a definition of the areas to which the Convention applies;
• a list of exceptions;
• a list of legal bases for recognition and enforcement;
• protection against enforcement; and
• a series of additional provisions related to the provision of remedies, procedures, guarantees and statements that states can declare regarding the application of the Convention on certain judgments, and more.

The Enforcement Law will remain in effect for judgments from countries with which Israel does not establish treaty relations under this Convention and for judgments in areas to which the Convention's jurisdiction does not extend. Nevertheless, enacting this legislation will signify a significant step forward in enhancing the recognition and enforcement of foreign judgments in Israel.

Law of the Courts (Amendment No 107) (International Settlement), 2023

The government's proposed amendment to the Law of the Courts aims to enable the ratification of the Singapore Convention on International Mediation Agreements, which was signed by Israel on 7 August 2019 and entered into effect on 12 September 2020.

The Singapore Convention is intended to set a unique and fast track for enforcing international mediation arrangements in the courts of member states. In this way, the Convention compares the legal status of international mediation arrangements with that of international arbitration rulings and foreign judgments as by the New York Convention. By doing so, the Singapore Convention encourages mediation to resolve cross-border disputes regarding international commercial transactions, along with other mechanisms used for conflict resolution. The necessary assurance for enforcing a mediated settlement lies in its finalisation through the Israeli courts at the end of the mediation process.

The proposed amendment is drafted generally and does not explicitly name the Singapore Convention, in order to enable the implementation of additional treaties that may be formulated in this field and that Israel will join in the future.

In general, Section 79C of the Law of the Courts regulates the courts' authority in all matters relating to mediation proceedings. It establishes, inter alia, the authority of the court, with the parties' consent, to transfer a claim for mediation and its authority to give the force of a judgment to a settlement that has been reached (whether a claim had been filed or not).

As part of the expected amendment, there is a proposal to include a definition of the term “international mediation arrangement” in subsection (a) of Section 79C, which aligns with the one provided in Article 1 of the Singapore Convention. In addition, the proposed language in subsection (i) seeks to establish a mechanism that will enable the enforcement of international mediation arrangements in accordance with the provisions outlined in the Singapore Convention.

The proposed definition of the term “international mediation arrangement” is intended to clarify that only a mediation arrangement with evident international characteristics will be enforced under the mechanism of the Singapore Convention. Following the guidelines outlined in the Singapore Convention, two distinct scenarios formally recognise an international mediation arrangement.

• Firstly, it qualifies as international mediation if it involves parties situated in different countries. In such instances, the Convention offers specific provisions for determining the place of business, which is particularly relevant for legal entities with multiple business locations or those without a designated place of business.
• Secondly, the mediation arrangement attains international status when the state where the parties' business places are located does not coincide with the state where a substantial portion of the mediation's obligations are fulfilled, or when it lacks the closest affiliation to the underlying conflict addressed through the mediation agreement.

Furthermore, in subsection (i) of the proposed amendment, it is recommended to establish that the submission of a request for the recognition or enforcement of an international mediation arrangement, governed by an international treaty to which Israel is a signatory, shall be conducted in accordance with and subject to the provisions of the Convention. Moreover, based on the proposed provision in Section 2 of the amendment,which grants the Minister of Justice the authority to define the necessary procedures for implementing the Convention, these hearings will also adhere to the regulations specified in the forthcoming regulations.