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Since January 11, 2024, our firm has published a series of analyses regarding specific aspects Israel’s new statute (in Hebrew, חוק הבוררות המסחרית הבין-לאומית, תשפ”ד 2024), which adopted the Model Law of the United Nations International Trade Commission (commonly known as the “UNCITRAL Model Law”) for international arbitrations taking place in Israel. Our blog began publishing such pieces before the new law was enacted.
In our February 13 post, we examined the Model Law’s default rule under which three (3) arbitrators are appointed – unless the parties expressly agree otherwise. We observed that the only empirical data that we know of suggests that changing the default rule from one arbitrator to three arbitrators would be a mistake for the Israeli market. That conclusion rests (in part) on the fact that in-house lawyers at Israeli companies consider arbitration to be expensive.
In this post, we examine further the decision by the Knesset to adopt the three-arbitrator default rule. More specifically, and notwithstanding other concerns that have been expressed in this blog as to Israel’s adoption of the Model Law, we examine whether it might have been preferable for Israel to adopt the Model Law (a) without adopting the default rule of three arbitrators, and (b) while retaining the traditional default rule of one arbitrator.
As described below, there is written evidence indicating that the Knesset was misinformed when it voted to enact the Model Law “as is.”
I. The Three Elephants in the Knesset’s Meeting Room:
On December 12, 2023, a public meeting of the Knesset’s Constitution, Law and Justice Committee took place, for Members of Knesset to hear views of the public regarding the proposed amendment to adopt the UNCITRAL Model Law. That public session was chaired by MK Simcha Rothman. The Protocol (transcript) of the hearing indicates that a number of lawyers in private practice attended, and several of them expressed support for the proposed statute. One of those lawyers (who will be referred to herein as the “Lead Advocate”) was asked directly by Chairman Rothman as to whether the default rule of three arbitrators has been adopted “all over the world.”
Before examining the answer to that question, we note that the topic of how other countries have dealt with the three-arbitrator default rule was not just “another topic” on the agenda of the Chairman. Rather, he raised the question regarding the default rule almost at the outset of the hearing (right after introductory remarks, including from an attorney at the Ministry of Justice). Chairman Rothman initially raised the issue of adopting the Model Law with some textual variances. Seconds thereafter he zeroed in and asked the Lead Advocate specifically about the three-arbitrator default rule (the English translation is ours):
Question: That means all over the world there is a requirement for three arbitrators?
Answer: Not that there is a requirement, but the whole world adopted.
Question: This is the default?
Answer: Exactly, exactly . . . this is the default . . .
(Protocol, pages 5-6)
In summary, Chairman Rothman asked whether the whole world adopted the default rule of three arbitrators (in those countries that adopted the Model Law), and the answer he was given by the Lead Advocate was affirmative.
The only problem with that answer is that it was incorrect – significantly incorrect.
Our firm has identified at least seven (7) countries that adopted the UNCITRAL Model Law but excluded the default rule of three arbitrators.
Those countries are:
1. Ireland
2. Singapore
3. Hong Kong
4. India
5. Chile
6. The Dominican Republic.
7. Serbia
II. A Bunch of Nations “Heard From”:
Below are the specifics regarding UNCITRAL countries that rejected the default rule of three arbitrators.
A. Ireland:
As reported by Aceris Law, “The 2010 Act adopts the 2006 UNCITRAL Model Law, which is attached in its entirety as Schedule 1 to the 2010 Act . . . . The 2006 Model Law . . . is thus given the force of law in Ireland, subject to certain amendments introduced by the 2010 Act, such as that the default number of arbitrators is one (2010 Act, Section 13), instead of three (2006 Model Law, Article 10(2)).” (emphasis added; last visited 18 February 2024); accord: Arbitration Ireland (“Section 13 amends Article 10 of the Model Law by providing that, unless the parties agree otherwise, the arbitral tribunal shall consist of one arbitrator rather than three.”) (emphasis added; last visited 19 February 2024)
B. Singapore:
Singapore adopted the Model Law through its International Arbitration Act (IAA) in 2002. However, Singapore changed Article 10:
Number of arbitrators for purposes of Article 10(2) of Model Law
9. Despite Article 10(2) of the Model Law, if the number of arbitrators is not determined by the parties, there is to be a single arbitrator.
See Singapore Statutes Online (emphasis added; last visited February 13, 2024)
C. Hong Kong:
The statute under which Hong Kong adopted the UNCITRAL Model Law is the the Arbitration Ordinance. Section 23 of the Arbitration Ordinance omits section 2 of Article 10 of the Model Law:
Article 10 of UNCITRAL Model Law (Number of arbitrators)
“Article 10. Number of arbitrators
(1)
The parties are free to determine the number of arbitrators.
(2)
[Not applicable.]”.
Paragraph 2 of Article 10 of the Model Law is the provision setting a default number of three arbitrators. As noted above, section 23 of the Hong Kong statute makes clear that the provision in paragraph 2 of Article 10 of the Model Law is not applicable.
D. India:
The Indian Arbitration and Conciliation Act, 1996 is based on the UNCITRAL Model Law. That statute provides:
10. Number of arbitrators.—(1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number. (2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator.
Source: IBC Laws (last visited Feb. 20, 2024); see also Law of Arbitration in India & Alternative Dispute Resolution (emphasis added; last visited February 18, 2024).
E. Chile:
According to the chapter on Chile in Arbitration Guide IBA Arbitration Committee (last visited February 20, 2024), “International arbitration is governed by the [International Commercial Arbitration law], which is a self-standing law almost identical to the UNCITRAL Model Law” (page 6 of the PDF; emphasis added); “if parties cannot agree on the number of arbitrators, only one arbitrator shall be appointed, unless [the ADR center] determines that a three member tribunal is necessary.” (page 13 of the PDF; emphasis added)
There is no default rule of three arbitrators.
F. The Dominican Republic:
According to LATIN LAWYER REFERENCE ARBITRATION 2021: Dominican Republic (last visited February 18, 2024), Article 14 of Dominican Republic Arbitration Law establishes that, if the parties fail to determine the number of arbitrators, there is to be one arbitrator instead of three arbitrators as provided in article 10 of the UNCITRAL Model Arbitration Law.
G. Serbia:
According to “Commercial Arbitration: Serbia” (last visited February 13, 2024), Serbia adopted the UNCITRAL Model Law but made certain amendments, one of which is as follows: “the number of arbitrators must be odd.”
In other words, the Serbia UNCITRAL arbitration law does not include a “default” rule of three arbitrators. The number of arbitrators may be one.
In summary, our firm found SEVEN countries that adopted the UNCITRAL Model Law but excluded the three-arbitrator default rule. (We believe there are more such countries.)
III The Other Countries – In Context:
Our research on this topic was not extensive. Presumably the Ministry of Justice had the resources to research the issue prior to sending multiple staff attorneys to the December 12 hearing. (Note that all the sources that we consulted are in English. Presumably the MOJ also has Spanish-speaking lawyers.)
At that hearing, when the Lead Advocate provided Chairman Rothman with an incorrect response – which failed to take into account exceptions evidenced by Singapore, India, Ireland, Serbia, The Dominican Republic, Hong Kong, and Chile – not only did such erroneous information find its way into the official record, but that wrong answer was left uncorrected by all of the private lawyers who attended the session to advocate for adoption of the Model Law. It seems that the same cat got the tongues of the Ministry of Justice lawyers in attendance.
The three-arbitrator default rule is the most controversial aspect of Israel’s adoption of the Model Law. Therefore, it strains credulity to believe that none of the lawyers who attended the Knesset session expected that the precise question that was posed by Chairman Rothman — namely, whether there are any countries that have adopted the Model Law without adopting the three-arbitrator default rule – would be asked.
The Chairman’s question was highly foreseeable.
From the perspective of the Knesset members in attendance at the December public session, it was not unreasonable for them to rely upon the answer given by the only non-MK to address the issue of the three-arbitrator default rule. Chairman Rothman asked the right question. He was simply given an erroneous answer – which was not corrected by anyone – even though there was no shortage of lawyers in attendance (including some on a government salary) who should have known of at least some of the information set forth in section II above.
IV Lessons to be Learned From Other Countries:
Should Israel ignore the fact that at least seven countries adopted the Model Law while rejecting the default rule of three arbitrators? Absolutely not.
Let’s start with Singapore, a country the population of which is smaller than Israel by four million, yet its gross domestic product is almost that of Israel. Singapore has a very good reputation as a location for conducting international arbitration.
Like Singapore, Hong Kong has a thriving international arbitration industry. See HKIAC’s Arbitration Caseload Hits Record High In 2022. Like Singapore, the population of Hong Kong is less than that of Israel – yet Hong Kong’s GDP is slightly greater than that of Israel.
The Singaporean legal system and the Hong Kong legal system are based on the Common Law. The same (obviously) goes for Ireland.
By its sheer size – about 1.4 billion people – India cannot be ignored in the field of international arbitration. India is a “mixed” Common Law jurisdiction.
Presumably each and every one of those seven countries (and maybe others) went through a process similar to one that Chairman Rothman attempted to initiate on December 12, 2023. In other words, each of those seven countries knew that, upon adopting the Model Law, it would be conveying to the world that it is “open for business” for international arbitrations to take place in its country, yet each such country was concerned as to the costs of a default rule requiring that every dispute be resolved by three arbitrators (as opposed to one arbitrator). Presumably each of those other countries made the decision that the “marketing upside” of adopting the Model Law “as is” is outweighed by the additional costs of the three-arbitrator default rule.
From the Protocol of the December 12 hearing, it seems that Chairman Rothman wanted to engage the advocates for the Model Law in a debate – presumably an informed one – as to whether the benefits for the Israeli market of adopting the Model Law “as is” are outweighed by the additional costs of the three-arbitrator rule. The erroneous information that the Chairman was given promptly ended that debate.
The Israeli business community deserved that such a debate take place.
The Knesset should promptly amend the recently enacted statute to cancel the three-arbitrator default rule.
In future posts, we will continue to address issues relating to Israel’s adoption of the Model Law.