Israel Adopts the UNCITRAL Model Law, Solidifying its Reputation as an Efficient Seat of Arbitration
Introduction
On February 12, 2024, the Knesset (Israeli parliament) enacted the International Commercial Arbitration Law – 2024 (the “ICAL”). This law closely conforms to the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on International Commercial Arbitration, initially adopted in 1985 and subsequently amended by UNCITRAL in 2006 (the “Model Law”). The ICAL’s primary purpose, as outlined in its introductory provision, is to establish a comprehensive legal framework for conducting international commercial arbitration proceedings in Israel, guided by the principles contained in the Model Law.
Before the ICAL came into effect, all arbitrations conducted in Israel, whether domestic or international, were governed by the Israeli Arbitration Law – 1968 (the “Arbitration Law”), which also referred to certain terms of international conventions on arbitrations, where applicable. However, the explanatory notes accompanying the ICAL bill (“Explanatory Notes”) contended that the Arbitration Law inadequately addressed the distinct features of international commercial arbitration. As a result, the ICAL was introduced to bridge this gap by adopting a framework based on the provisions of the Model Law, which reflect a globally recognized standard for international arbitration practice.
While the ICAL largely incorporates the provisions of the Model Law, there are specific instances in which it deviates from it to align with Israel’s guiding legislative principles. Nonetheless, with the enactment of the ICAL, Israel has firmly established itself as a Model Law jurisdiction, further solidifying its reputation as an attractive and efficient seat of arbitration.
Provisions Unique to Israel
Rules of Interpretation – Article 2(e)(1) of the ICAL stipulates that, when interpreting its provisions, due consideration should be given to its international origin, the principle of good faith, and the need to promote uniformity in its application. Article 2(e)(2) of the ICAL further states that questions concerning matters governed by the ICAL, which are not expressly settled therein, should be resolved in conformity with the general principles on which the ICAL is based. Although an earlier draft of the ICAL deviated from the wording of the Model Law, the Israeli legislature ultimately opted to adhere precisely to the provisions outlined in Article 2 A of the Model Law.
Scope of Application – Article 3(a) of the ICAL provides that the law applies to international commercial arbitrations, and that the Israeli Arbitration Law and its regulations shall not apply to such arbitrations. Additionally, Article 3(a) stipulates that issues covered by the ICAL, which are also regulated by an international treaty to which Israel is a party – such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (“New York Convention“) – shall be governed by and adjudicated in accordance with the treaty’s provisions.
While the ICAL does not define the term “commercial”, the Explanatory Notes reference Article 1(1) of the Model Law and its accompanying footnote 2, which clarify that this term should be interpreted broadly to encompass matters arising from relationships of a commercial nature. Additionally, it offers a non-exhaustive list of examples illustrating such commercial relationships.
Article 3(c) of the ICAL sets out the criteria for classifying an arbitration as “international”, mirroring Article 1(3) of the Model Law.
Article 3(e) of the ICAL incorporates the provision set forth in Article 1(5) of the Model Law, which encompasses the principle that the ICAL shall not affect any other laws of the State of Israel that might limit the submission of certain disputes to arbitration. For instance, the Explanatory Notes refer to the Israeli Standard Contract Law of 1982, which could potentially render an arbitration clause within a standard form contract unenforceable.
Judicial Intervention – Article 6 of the ICAL adopts the non-intervention principle found in Article 5 of the Model Law. It stipulates that, in matters falling within the scope of the ICAL, the court shall not exercise its authority except as prescribed by the law. The Explanatory Notes clarify that this provision aims to convey to the parties engaged in international commercial arbitration that the court will typically refrain from intervening in the arbitral proceedings.
Court for Certain Functions of Arbitration Assistance and Supervision – Article 7 of the ICAL specifies that the competent judicial authority to perform the functions outlined in the ICAL is the district court or other specialized tribunal (such as a family or labor court), even in cases where a magistrate court would have had original jurisdiction if the case was brought before the court system. As clarified in the committee debates preceding the enactment of the ICAL, the legislature aimed to ensure that issues arising from the ICAL requiring judicial assistance and supervision on an arbitration proceeding, would be adjudicated by the district court, which is a more superior instance and is considered generally to be staffed by more experienced judges than the magistrate courts.
The Arbitration Agreement – The definition of an arbitration agreement in Article 8 of the ICAL mirrors that of option 1 in Article 7 of the Model Law. Accordingly, and as clarified in the Explanatory Notes, the arbitration agreement must either be in writing or deemed to be in writing, if recorded in writing; made through email or similar method; or if neither party denies it is in writing.
Challenging Arbitrators – Several articles of the Model Law prohibit appeal on specific court decisions related to the appointment of or challenges to arbitrators. In contrast, the ICAL allows for the appeal of these decisions, provided that the appellate court grants leave to appeal.
Competence-Competence – Article 17 of the ICAL embraces the fundamental competence-competence principle found in Article 16 of the Model Law, which grants arbitrators the authority to rule on their own jurisdiction. In line with the Model Law, the ICAL further allows the arbitral tribunal to proceed with the arbitration and issue an award even when a party requests a court ruling on jurisdiction, while such request is pending. Unlike the Model Law, the ICAL allows for appeal on a court’s decision on jurisdiction, subject to leave being granted by the appellate court.
Interim Measures and Preliminary Orders – The ICAL incorporates the provisions found in Articles 17 and 17 A of the Model Law which specify the interim measures the arbitral tribunal is authorized to grant and the conditions for granting them. Notably, in contrast to the Model Law, the ICAL does not authorize the arbitral tribunal to issue ex partepreliminary orders.
The ICAL further empowers the court to recognize as binding and enforce an interim measure issued by the arbitral tribunal, irrespective of whether Israel serves as the seat of arbitration. Additionally, the grounds for refusing to recognize or enforce an interim measure under the ICAL align with the conditions set forth in Article 17 I of the Model Law.
Article 26 of the ICAL mirrors the provisions outlined in Article 17 J of the Model Law, granting the court the authority to issue interim measures concerning arbitration proceedings, regardless of whether Israel serves as the seat of arbitration. As clarified in the Explanatory Notes, this authority encompasses the issuance of ex parte preliminary orders. Furthermore, the court shall exercise its authority in accordance with its established procedures, while also taking into account the distinctive characteristics of international arbitration.
Rules Applicable to the Substance of the Dispute – Article 37 of the ICAL incorporates the provisions set out in Article 28 of the Model Law regarding the rules that guide the arbitral tribunal in resolving the dispute. Article 28(a) of the ICAL states that the arbitral tribunal shall decide the dispute in accordance with the “law” chosen by the parties. Article 37(e) of the ICAL, along with the Explanatory Notes, clarifies that “law” may also refer to foreign law, and not necessarily to Israeli law.
Setting Aside an Arbitral Award – Article 43 of the ICAL adopts the principle outlined in Article 34 of the Model Law, under which a party’s sole recourse against an arbitral award is to file an application with the court for setting it aside. As clarified in the Explanatory Notes, such an application automatically suspends the award.
Recognition and Enforcement of Awards – Finally, Article 44 of the ICAL stipulates that an arbitral award shall be recognized as binding and enforced by the court, regardless of the country in which it was made, thereby incorporating the principle outlined in Article 35 of the Model Law. Furthermore, Article 45 of the ICAL specifies that a court may refuse to recognize or enforce an arbitral award only on the same grounds and conditions set forth in Article 36 of the Model Law.
Conclusion
The ICAL closely aligns with globally recognized standards for international arbitration practice as embodied in the Model Law, though it includes some specific provisions unique to Israel. By enacting the ICAL, Israel has joined the ranks of the Model Law jurisdictions, further solidifying its reputation as an efficient seat of arbitration. We will keep you informed of any further developments regarding international commercial arbitration in Israel. Feel free to contact us for specific consultation regarding matters arising from the adoption of the ICAL.
Arnon, Tadmor-levy
Israel/ February 18 2024
