Arbitration: arbitrator and party representation

What is arbitration and when does it fit?

In arbitration the parties agree to submit the dispute to an arbitrator, whose decision binds them. The agreement may be an arbitration clause in a contract, signed before any dispute arose, or a separate agreement signed after the dispute broke out. The Arbitration Law defines an arbitration agreement as an agreement in writing (section 1 of the Law), and an arbitration agreement has no effect in a matter that cannot be the subject of an agreement between the parties (section 3).

Arbitration fits mainly when one or more of the following matters to the parties:

• Choosing the decision-maker. The parties choose an arbitrator who knows the field, for example real estate, construction or commercial contracts.
• Discretion. The hearing is not held in a courtroom open to the public.
• Flexibility. The parties set, together with the arbitrator, the procedure, the dates and the scope of the evidence.
• Finality. As a rule there is no appeal against an arbitral award unless the parties agreed otherwise, and the grounds for setting it aside are limited.

Arbitrator or representative: two different roles

As arbitrator. Adv. Amos Ilan is appointed as arbitrator by agreement of the parties, by appointment of the court, or by appointment of the Israel Bar Association and of its Tel Aviv and Central District Committee, and decides civil and commercial disputes, including real estate disputes, disputes between partners, contract disputes and disputes concerning construction and defects. The arbitrator represents neither party, and before the appointment he checks that he has no connection to the parties or to the dispute that prevents him from hearing it.

As representative. The office represents one party in an arbitration held before another arbitrator: drafting the arbitration agreement, the pleadings, preparing witnesses and experts, examinations and summations. The representation also covers the court proceedings around the arbitration: an application for a stay of proceedings, an application to appoint an arbitrator, an application to confirm an arbitral award and an application to set it aside.

A person who serves as arbitrator in a dispute does not represent a party in it, and a person who represents a party cannot be appointed arbitrator in it.

What should the arbitration agreement determine?

The arbitration agreement sets the rules of the game, and they are hard to change once the arbitration has begun. Under section 2 of the Arbitration Law, an arbitration agreement is deemed to include the provisions of the First Schedule to the Law, so far as they are relevant, unless a different intention is implied by the agreement. It is therefore worth deciding these questions in advance:

• Who the arbitrator is, or how the arbitrator is appointed if the parties do not agree on the identity.
• Whether the arbitrator rules according to the law. A party who wants the arbitrator to be bound by substantive law should write this in the agreement.
• Whether the award is reasoned. Without reasons it is hard to understand the decision, and harder still to challenge it.
• Whether there is an appeal. The parties may agree on an appeal before an arbitrator (section 21A of the Law), and if they stipulated that the arbitrator is to rule according to the law, they may agree on an appeal to the court by leave, where the award contains a fundamental error in applying the law that may cause a miscarriage of justice (section 29B).
• The scope of the dispute submitted to the arbitrator, the date for giving the award and the arbitrator's fee.

How does arbitration proceed? Four stages

1. Agreement and appointment. Signing an arbitration agreement, or invoking the arbitration clause in the contract, and appointing the arbitrator.
2. Preliminary session and pleadings. Setting the procedure and the timetable, filing a statement of claim, a statement of defence and documents.
3. Evidence. Affidavits, expert opinions, examination of witnesses and summations.
4. The arbitral award. The award is given in writing and signed by the arbitrator, stating the date of signature (section 20 of the Law). After it, the court may be asked to confirm it.

A claim was filed in court despite an arbitration clause. What do you do?

A party to an arbitration agreement who is sued in court in a dispute that was agreed to be submitted to arbitration may apply for a stay of proceedings. Under section 5 of the Arbitration Law, the court will stay the proceedings between the parties to the agreement, provided that the applicant was prepared to do everything required for the arbitration and is still prepared to do so.

The application is made in the statement of defence or otherwise, but no later than the day on which the applicant first argued the merits of the claim (section 5(b)). A party who files a defence on the merits without applying for a stay may lose the right. The court may decline to stay the proceedings if it sees a special reason why the dispute should not be heard in arbitration (section 5(c)).

On an arbitration clause in a contract for buying an apartment from a developer, see the article Arbitration clause in an apartment purchase contract.

What happens after the award? Confirmation and setting aside

Confirmation. The court may, on the application of a party, confirm the arbitral award. A confirmed award has, for all purposes except appeal, the status of a judgment of the court (section 23 of the Law), and can be enforced through the Enforcement and Collection Authority.

Setting aside. An application to set aside an arbitral award is not an appeal. The court does not re-examine whether the arbitrator was right, only whether one of the ten grounds in section 24 of the Law exists, among them: there was no valid arbitration agreement; the arbitrator exceeded his authority; a party was not given a proper opportunity to argue his case or bring his evidence; the arbitrator did not decide one of the matters submitted to him; the content of the award is contrary to public policy. Even where a ground exists, the court may dismiss the application if it considers that no miscarriage of justice was caused (section 26(a)).

The time limit. An application to set aside is filed within 45 days of the day the award was given, if given in the applicant's presence, or of the day a copy of the award was delivered to him (section 27(a) of the Law). The period is short, so the award should be reviewed as soon as it is received.

Appeal against an arbitral award: when is it possible?

The default is that there is no appeal against an arbitral award. The Arbitration Law allows two appeal routes, and both depend on the agreement of the parties in the arbitration agreement:

• Appeal before an arbitrator (section 21A of the Law). The parties may provide that the arbitral award can be appealed before another arbitrator. In that case the arbitrator must give reasons for the award, and the provisions of the Second Schedule to the Law apply to the process, unless the parties provided otherwise. A party who chose this route gives up some of the ways of challenging the award in court: an application to set aside the award is possible only on the two grounds in section 24(9) and (10), the content of the award is contrary to public policy or a ground on which a court would set aside a final judgment, and an application for leave to appeal to the court cannot be filed (section 21A(c)).
• Appeal to the court by leave (section 29B of the Law). Parties who stipulated that the arbitrator is to rule according to the law may agree that the award can be appealed to the court, by leave, if it contains a fundamental error in applying the law that may cause a miscarriage of justice. On this route the arbitration sessions are recorded in minutes and the arbitrator gives reasons for the award (section 29B(b)). The appeal is heard by a single judge. Once an appeal is filed, the court does not hear an application to set aside, and the setting-aside arguments in section 24 are raised within the appeal (section 29B(c)).

A party who did not provide in advance for one of these routes is left with the application to set aside only, which does not examine whether the arbitrator was right. The question of appeal is therefore decided when the arbitration agreement is drafted, not after the award is given.

In which disputes is arbitration held?

• Contract arbitration. A dispute over breach of a contract, its interpretation or its rescission, where the contract includes an arbitration clause.
• Business arbitration. Disputes between partners, between shareholders and between supplier and customer.
• Real estate and commercial real estate arbitration. Commercial lease disputes, co-ownership agreements, combination deals and construction agreements.
• Arbitration in construction disputes. Disagreements between client and contractor over the quality of the work, the timetable and the price.

A court hearing a civil matter may also, with the consent of the parties, refer the matter to arbitration (section 79B of the Courts Law [Consolidated Version], 5744-1984).

Arbitration, court or mediation?

• Court. A judge decides according to the law and the rules of procedure, the hearing is public, and there is a right of appeal.
• Arbitration. An arbitrator chosen by the parties decides, the process is flexible and discreet, and the decision is final in most cases.
• Mediation. The mediator does not decide, but helps the parties reach agreement. No agreement, no binding outcome. For more, see Mediation.

What to bring to the meeting

• The contract containing the arbitration clause, or the arbitration agreement if already signed.
• The correspondence between the parties about the dispute, including demand letters.
• Pleadings and decisions, if the arbitration or a court proceeding has already begun.
• The arbitral award and the date it was received, if the enquiry concerns confirmation or setting aside.

Timetable and cost

Timetable: the length of the arbitration depends on the scope of the dispute, the number of witnesses and the dates set in the arbitration agreement. In an application to set aside an award, the decisive period is the 45 days in section 27 of the Law.

Cost: the arbitrator's fee is set in advance by agreement of the parties. The fee for representation in arbitration is set in a written fee agreement, after reviewing the documents. Court fees on applications to the court are paid separately.

Want to appoint an arbitrator or consult about arbitration?

You may contact the office to examine an appointment as arbitrator in an existing dispute, to draft an arbitration clause in a contract, or for representation in arbitration and the proceedings around it. An approach to appoint an arbitrator is made with the consent of all parties to the dispute.