(c) 2024 Sherby & Co., Advs.
As reported in our post of January 11, Israel’s Knesset is considering adopting, for international arbitrations taking place in Israel, the Model Law of the United Nations international Trade Commission (commonly known as the “UNCITRAL Model Law”).
In Part I of this series, we examined the circumstances under which an Israeli court may cancel or vacate an arbitral award (under existing Israeli law), and we concluded that (a) adopting the Model Rule would not “improve” the grounds upon which (or the manner in which) an Israeli court would be authorized to cancel or vacate an arbitral award, and (b) issues regarding the grounds for canceling an award do not constitute a justification for adoption of the UNCITRAL Model Law.
In this post, we compare the types of relief available under Israel’s Arbitration Law (5728-1968) to those available under the UNCITRAL Model Law.
LEST readers of this blog think that this series will cover only those aspects of the Model Law that are not materially different from Israeli law, we assure you that we will, very soon, be addressing aspects of the Model Law that are significantly different from Israeli law and, therefore, very controversial (or should be controversial).
One of the most important factors in deciding on a forum for an arbitration between companies from different countries is knowing that the arbitrator will have the power to grant the kind of relief necessary to resolve fully any controversies that might arise between the parties. For example, if shareholders in a UK company decide to arbitrate a dispute as to ownership of shares outside of the UK (perhaps because one or more of the parties is based outside the UK), they would be wise to ensure that they select a seat of arbitration wherein the arbitrator has the jurisdiction (authorization) to order relief such as specific performance (sometimes referred to as an “affirmative injunction”). To do otherwise would be risky — the parties would not want to spend time and money arbitrating before an arbitrator who lacks the power to order one shareholder to convey shares to the other.
The issue of an arbitrator’s authorization (jurisdiction) to grant the most appropriate relief has come to the fore over the past decade as many arbitral institutions throughout the world have adopted rules for “emergency” arbitrations. The primary purpose of those rules is to ensure that the arbitration process becomes as close as possible to “one stop shopping” for each type of relief that could be needed in the resolution of a commercial dispute.
Both Israeli’s Arbitration Law and the UNCITRAL Model Law allow arbitrators to grant a variety of remedies. Yet the two sources of law are far from identical.
The Appendix to Israel’s Arbitration Law grants arbitrators wide discretion to award any type of relief that could be granted by a court if such dispute were not covered by an arbitration agreement. Such authorization includes granting/ordering:
a. monetary damages;
b. declaratory relief;
c. specific performance (affirmative injunctions);
d. (negative) injunctions.
In addition, Israeli case law confirms that an arbitrator may grant equitable remedies – such as rescission of a contract or restitution. Therefore, the relief that an arbitrator may grant under Israeli law is broad.
On the issue of the type of relief that an arbitrator may grant, the UNCITRAL Model Law is drafted in a manner very different from that of the Israeli statute. There is no provision in the Model Law expressly authorizing arbitrators to award monetary damages, but it is universally recognized that arbitrators appointed under the Model Law are so authorized. (Under Article 17 of the Model Law, arbitrators have the right to grant an order to “[p]rovide a means of preserving assets out of which a subsequent award may be satisfied.” It goes without saying that, if a subsequent award needs to be satisfied via preserved assets, the arbitrator has the jurisdiction to award monetary damages.)
Similarly, the Model Law does not contain any provision that expressly authorizes an arbitrator to award interest.
Perhaps ironically, Article 17 of the Model Law goes into great detail concerning the nature of interim relief that an arbitrator may grant. That level of detail raises the question: Does the Model Law set forth authorizations (powers) for an arbitrator that do not exist under Israeli law? The short answer is no. But the more elaborate answer is that decisions from Israeli courts regarding the grant of interim relief in connection with a non-Israeli arbitration are few and far between.
As far back as the late 1980s, the Israeli Supreme Court held that an Israeli court does have the jurisdiction to grant interim relief in support of arbitral proceedings taking place outside of Israel. Over the past 35 plus years, many lower courts in Israel have been hesitant to grant orders of attachment or injunctions to support arbitral proceedings taking place out of Israel. But the relative dearth of cases in which such orders were granted should not be confused with a “lack” of authorization under Israeli law to provide such relief.
The bottom line is that Israeli courts do have the jurisdiction to grant interim relief with respect to arbitral proceedings taking place outside of Israel – even though many lower courts are hesitant to exercise such jurisdiction.
In summary, even though the Model Law is drafted in a manner very different from the Israeli Arbitration Law, and even though some of the powers to grant relief under Israeli law derive from caselaw, there are no substantive differences between the nature of relief that an arbitrator may grant under Israeli law as opposed to under the Model Law.
As was the case with respect to our comparative discussion of the grounds under which a court may cancel an arbitral award, the above review of the relative powers (authorization) of an arbitrator with respect to the type of relief that he may grant indicates that (a) there is no meaningful advantage for Israel in adopting the UNCITRAL Model Law, and (b) any of the (minor) differences on this topic do not constitute a justification for Israel to adopt the Model Law.
In our next blog post, we will begin examining one of the more controversial aspects of the proposed Israeli statute for adopting the Model Law – namely, the proposal that Israeli law would (a) abandon the rule under which the jurisdiction of an arbitrator is for the court to determine, and (b) adopt a rule known as “competence-competence.”