In November 2008 the Knesset approved the amendment to the Arbitration Law (Amendment No. 2), 5769-2008 (hereinafter: Amendment No. 2). The Amendment adds two consensual routes of appeal in the arbitration proceeding. The bill was presented at the initiative of Dr. Israel Shimony, as far back as 2004, with the resolve, faith and determination that ultimately led to a change in the law.
The idea of the need for change arose from the status of the institution of arbitration in Israel, which was in a state of collapse and was unsuited to the dynamic changes taking place in legal and business circles. The Law as it stood authorized arbitrators to decide the fate and even bring about the downfall of individuals or companies with no recourse to appeal.
Arbitration proceedings, such as those held in 2006 between Eli Aroch and Clal Finance Batucha, reflected the situation that arbitration failed to fulfill the most fundamental right of the business and legal community: the right to review the decision of the arbitrator on its merits.
The New Method of Arbitration Proceedings with an Appeal Instance
The situation called for a change in arbitration proceedings to adapt to litigants’ needs and determine by law the fundamental right to appeal. Further to Amendment No. 2, the new method differs from the established arbitration proceeding in a number of innovative adaptations that are necessary to suit current times, in the right to appeal and the arbitrator’s duty to give grounds for his award. Apart from these new changes, the traditional arbitration proceeding remains unchanged and likewise Section 24, with the new addition of the duty to give grounds for the arbitration award.
Section 21.A – Appeal before an Arbitrator
The first appeal route to be added in Amendment No. 2 appears in Section 21.A of the Arbitration Law under the heading: “Appeal before an Arbitrator”. This route allows an appeal procedure to be held before an arbitrator, as distinct from an appeal before a court. The condition prescribed for implementation of the appeal route is that the parties agree in the arbitration agreement that the award may be appealed before an arbitrator. In such event, the arbitrator is under a cogent duty to give grounds for the award. For efficient organization of the legal procedures, a Second Schedule was added to the Law, including as follows: the duty to document arbitration meetings; the dates for filing the appeal; the manner in which it is filed; responses to the appeal and counter-appeal; the manner of conducting the proceeding and the decision therein; the date for rendering the award in the appeal and the grounds therefor.
With a view to preventing an excess of instances in arbitration proceedings, the right to annul the award of the first arbitrator and the appeal arbitrator was limited to annulment grounds (9) and (10) of Section 24 of the Arbitration Law: Section 24 (9) - The Content of the Award is in conflict with public policy and Section 24 (10) – where there is a ground on whose basis the court would annul a final judgment which is not further appealable.
Section 29.B Leave to Appeal against an Arbitration Award in Court
In Amendment No. 2 the legislator added another route of appeal, known as: "Leave to appeal against an arbitration award in court". The section is designed, inter alia, to allow the State to participate in arbitration proceedings once again. This route allows litigants to conduct a process of leave to appeal against an arbitration award in court, subject to a number of conditions: firstly, the parties` consent to conduct the proceeding as provided in Section 29.B and a stipulation in the arbitration agreement that the arbitrator should render his award in accordance with the Law. Secondly, the parties` consent that the award will be appealable with the court`s leave in the event of a fundamental error in the application of the law which is tantamount to miscarriage of justice. The appeal proceeding will be heard by a single judge and in this route too the arbitrator is subject to a cogent duty to give grounds. Moreover, there is a duty to document the arbitration meetings in minutes, as provided in Section 29.B(b) of the Law. In the event that leave to appeal in court is granted, the litigants may make claims to annul the award on the basis of the grounds for annulment as stipulated in Section 24 of the Law.
Section 24 – Annulment of the Arbitrator`s Award and Addition of a Section Concerning the Duty to Give Grounds for the Award
The traditional arbitration route, with the option to annul an award under Section 24, which does not include an appeal instance, remains unchanged. However, in view of the importance of giving grounds as a tool for the arbitrator in reaching the right decision, Amendment No. 2, Section O of the First Schedule, prescribes that even if the parties do not agree that the award is appealable, the arbitrator will be subject to the duty to give grounds unless the parties expressly resolve to contract out of this provision in the arbitration agreement.
The significance of selecting the route provided in Section 24 is that an arbitration award may not be appealed, but only annulled on grounds pertaining to the manner of conducting the proceeding, and not in order to rectify errors in the arbitration award. At the same time, at present, further to the Amendment to the Law, a judge who dismisses an application pursuant to Section 24 may now do so with a clear conscience, since he can be assured that the applicant had the option to have his day in court, both in the arbitration proceeding and at the appeal stage, when it was possible to examine all aspects of the content of the award.
The Duty to Give Grounds in an Arbitration Award
Amendment No. 2 adds the duty to give grounds for the award in all arbitration routes. This is a cogent duty in Section 21.A and Section 29.B, but in the regular arbitration route it is provided in the First Schedule of the Law and may be contracted out in the event that the parties have expressly agreed thereto.
The transition from an arbitration award without grounds to one in which grounds are given is embedded in both law and business. It results in a different type of outcome. The outcome may be agreed or disputed, but its basis is understood. It is possible to try to appeal it within the framework of the newly proposed method, with all the risks and costs inherent therein, but the court hearing the appeal may form an impression of the manner and quality of the decision. The duty to give grounds, as incorporated into the Amendment to the Law, is vital and essential in the case of the right to appeal an arbitration award.
The Arbitration Law has opened up a new page in our law book. The appeal instances – in both Section 21.A and Section 29.B – as prescribed in the Amendment to the Law, and the duty to give grounds, will enable litigants to review an arbitral award in the event that an error has occurred therein, and be granted the opportunity for full legal proceedings, which right that was denied them prior to this new change in the Law.
The Amendment strikes a balance between the appropriate right to appeal and the proper exercise thereof, thereby creating a new way of conducting arbitration proceedings as an appropriate alternative for parties seeking to settle their disputes out of court.