On 12 February 2024, the Israeli Knesset adopted the long-awaited 2024 International Commercial Arbitration Law (the "New Arbitration Law"). Before the reform, arbitration in Israel was governed by the 1968 Arbitration Law.
The main objective of the New Arbitration Law is to adapt Israel's arbitration regime to international standards.
As stated in Section 2(e)(1), in the interpretation of the New Arbitration Law, "its international origin must be taken into account and the need to ensure that the principle of good faith is maintained [in order] to promote uniformity in the application of these at the international level."
The New Arbitration Law is divided into ten chapters:
- Chapter 1 – Interpretation and General Principles
- Chapter 2 – Arbitration Agreement
- Chapter 3 – Appointment of Arbitrators
- Chapter 4 – Authority of Arbitrators
- Chapter 5 – Temporary Relief
- Chapter 6 – Conduct of Arbitration Proceedings
- Chapter 7 – Arbitral Award and Termination of Arbitration Proceedings
- Chapter 8 – Annulment of Arbitral Award
- Chapter 9 – Recognition and Enforcement of Arbitral Award
- Chapter 10 – Various Provisions
The main innovations of the New Arbitration Law, which largely reflects the UNCITRAL Model Law on International Commercial Arbitration,1 are discussed below.
Scope of Application of the New Arbitration Law
According to Section 3(b), the New Arbitration Law applies if the seat of arbitration is located in Israel.2
The New Arbitration Law also introduced a definition of international arbitration. According to Section 3(c), arbitration is deemed international if the parties' businesses are located in different countries or when the parties agree on the international character of their arbitration.
To compare, the 1968 Arbitration Law did not explicitly distinguish between international and domestic arbitration in Israel. The only distinction made in the 1968 Arbitration Law concerned the place where the award was rendered, namely that a foreign arbitration award was to be understood as an award "made outside of Israel".3
When Israel introduced the draft of the New Arbitration Law, the possibility for parties to agree on the international character of their arbitration was first omitted. However, as commented by Daphna Kapeliuk, "[D]uring the deliberations of the Constitution, Law and Justice Committee of the Israeli Parliament for the preparation of the Draft Law for a second and third reading, it was suggested that the autonomy of the parties to agree that their dispute relates to more than one country should be respected and the option was added in Section 3(c)(3) of the ICA Law, by following the wording of the Model Law."4
Number of Arbitrators
Under the 1968 Arbitration Law, absent any agreement between the parties, the default rule was the appointment of a sole arbitrator.5 The New Arbitration Law changed the default rule. Pursuant to Section 11(c), unless the parties agree otherwise, the arbitral tribunal shall consist of three arbitrators. This is not necessarily a positive development, as having three arbitrators increases the costs of arbitration.
Arbitrators' Power to Decide on Their Own Jurisdiction
While there was a debate about whether, under the 1968 Arbitration Law, arbitrators have exclusive powers to decide on their own jurisdiction,6 Section 17 of the New Arbitration Law empowers arbitrators to decide on their own jurisdiction, including "the very existence or validity of the arbitration agreement". Section 17 also encompasses the so-called principle of separability of the arbitration clause, which "shall be considered as a provision separate from other provisions of the contract, and if the panel of arbitrators has determined that the contract is null and void" the arbitration clause shall not be considered as automatically invalid.
Restricted Intervention of State Courts
According to Section 6 of the New Arbitration Law, "In matters to which this law applies, the court will not exercise its powers except according to this law." In fact, pursuant to Section 9 of the New Arbitration Law, if either party submits a claim to a State court in a matter that has been agreed to be referred to arbitration, the court, at the request of a party who is a party to the arbitration agreement, shall refer the parties to arbitration, unless the arbitration agreement is null and void, or not enforceable.
The New Arbitration Law "thereby conveys an important message to foreign companies whereby the law courts in Israel will serve as a supportive instance to the arbitration proceedings, but will avoid intervening on most of the issues that may arise as part of the process – and in which the deciding powers therein are of the arbitrators."7
Lack of Express Provision Regarding Costs of Arbitration
The New Arbitration Law contains no explicit provision regarding arbitration costs and their allocations. Some practitioners explain this by the fact that "international arbitration sometimes takes place within the framework of an arbitration institution that pre-regulates arbitration fees, so it is unnecessary to regulate the issue in legislation."8
Conclusion on Arbitration in Israel
The adoption of the New Arbitration Law and its alignment with international standards underscores the intent to promote international arbitration in Israel. However, it remains to be seen how State courts, which have been acting under the 1968 Arbitration Law for decades, will react to the new changes.
Footnotes
1. 2024 Arbitration Law, Section 1.
2. With the exception of Sections 9, 10, 24-26, and 44-45, which also apply to arbitrations located outside Israel.
3. 1968 Arbitration Law, Section 1.
4. D. Kapeliuk, "Israel Adopts the International Arbitration Law: Will the Courts Play Along?", Kluwer Arbitration Blog (7 March 2024).
5. 1968 Arbitration Law, Addendum A: "The Arbitration will be before a single arbitrator, unless a greater number of arbitrators has been fixed."
6. "New International Commercial Arbitration Law Adopted", blog published on GNY's website (15 February 2024).
7. G. Even-Or, "A New Law That Changes the Rules of Conducting International Arbitration Proceedings in Israel", blog published on AYR website (15 February 2024).
8. "Israel's New International Arbitration Law: A Modern Leap Forward", blog published on Lexology by S Horowitz & Co (13 February 2024).
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