Consensual Arbitration – It Can Be Done Differently
On October 31, 2005 the Arbitration Bill (Amendment – Appeal against an Arbitration Award), 5766-2006 was presented to the Israeli Knesset. The Bill formalizes the method of holding appeal proceedings against an out of court arbitration award. The Bill was presented by MK Ronnie Baron at the initiative of the author of the article Deputy Head of the Israel Bar Association and President of the International Consent Arbitration Institute.
By Dr. Israel Shimony
The status of arbitration in Israel makes change essential. Over 1,200,000 claims are filed in Israeli courts every year. Judges number only 600, most of them highly qualified and capable, but their ability to handle such a deluge of cases is greatly hampered and the results of the situation are far from being simple. Fewer than 100 arbitrators were appointed in the past year from the Bar Association by the Head of the Bar. This represents a failure of arbitration proceedings which lack proper review of arbitration awards.
Since 1968 when the Arbitration Law was passed to the present day, enormous changes have occurred in the legal and business worlds. Attorneys are afraid of arbitration proceedings and avoid them because of the absence of an appeal instance.
The arbitrator is a flesh and blood human being and as such it is only natural that he is liable to make mistakes. The same is true of judges. Yet it is not natural that an arbitrator’s mistake should be irreparable, and will be perpetuated by the courts on the grounds that the court does not sit as an appeal instance, as repeatedly held by the Supreme Court. Recently the Hon. Justice Eliakim Rubinstein ruled and even brought to public attention the significance of the existence of an appeal instance for the arbitration award in the case of Efraim Shuali Construction and Investments Ltd. vs. M.M. Tel Mond, a compromise that was deliberated in two Supreme Court hearings (Leave for Civil Appeal 2237/03 and Further Civil Hearing 821/05).
The explanatory notes from the Bill speak for themselves: “The Bill aims to strike a balance between allowing the parties an opportunity to exercise their autonomy to make a final determination in the dispute within the framework of arbitration, and with minimal intervention from the courts, and the need to ensure that no error or miscarriage of justice will occur in arbitration. The current inability to rectify a material error regarding the subject of the award often results in the party who is dissatisfied with the outcome of the arbitration award making every possible effort to have it annulled.”
In a situation where there is no remedy to redress a miscarriage of justice, the parties’ representatives attempt to annul the arbitration award almost as a desperate measure. Thus, instead of resolving the error on merit, the parties grasp at any possible theoretical link between the arbitrator and any of the litigants, try to undermine his authority and overstate queries about the manner of giving grounds for the arbitration award. This not only fails to resolve the problem, it merely complicates it further.
According to the Bill, in a scenario where a competent appeal instance can rectify the arbitration award and the content thereof, the need to seek annulment becomes redundant. Professional redress of the arbitration award will be the jurisdiction of the appeal instance. Cases in which a tribunal served as the first instance or the appeal instance, and which merit state judicial intervention, will be heard in High Court of Justice proceedings under Section 15 of the Basic Law: The Judiciary. In any event, this step is reserved only for extreme and rare cases and will make it possible to conduct effective arbitration proceedings that leave no room for two review instances.
Accordingly, the parties will have to choose between two arbitration routes: one, the conventional route, i.e. conducting arbitration proceedings with the possibility of annulment and no option for appeal; two – the new method – an arbitration route with an appeal instance and the option of applying to the High Court of Justice in extreme cases with no possibility of annulment.
The Bill further formalizes the legal procedures that are essential for fair appeal proceedings: the duty to give grounds for the arbitration award and the recording of authentic minutes. It also addresses the problem of delays in rendering arbitration awards by giving the arbitrator an effective order, and formalizes the conducting of arbitration proceedings with two arbitrators, whether in the form of a strong professional team or the inclusion of complementary professionals.
The appeal mechanism is gaining widespread support among many opinion leaders from Israel’s legal and business communities. Until such time as the Bill is passed, I believe that consent arbitration should be implemented by drawing up an appropriate arbitration agreement in which the parties decide that the arbitration award will be appealable on the basis agreed criteria. This can also include adopting by consent the principles proposed in the Bill. Meanwhile the option of annulment will of course remain valid.
Not every arbitration proceeding requires the establishment of an appeal instance. There is no such need in a personal dispute in the scope of tens of thousands of shekels, except in rare cases. On the other hand, many commercial disputes amount to much higher sums of money and are settled in court, sometimes after many years. In such cases a consensual appeal instance should be prescribed.
Henry Ford said: “Instead of seeking the culprits, better to find a remedy.” In other words, instead of continuing to complain, it is better to take action. As an arbitrator and mediator, I believe that the new way could represent a turning point in our approach and the need to create an effective adjudication appropriate to the times we live in. I believe that the demand for an appeal instance should come from the parties’ attorneys to the arbitrator. Better still if an arbitrator who assumes the burden of adjudication were to grant the parties this option at the stage of entering into the arbitration agreement.