The dilemma of whether to turn to arbitration or to the courts to resolve a legal dispute usually arises long before the dispute does. In effect, the question already arises at the time of formulating a contract between the parties to a transaction, who mull over the question of whether to include an arbitration clause in the contract.
Under the Israeli Arbitration Law, if the contract contains a provision whereby all disputes between the parties are to be submitted for arbitration, the doors of the courts will be closed to them when the dispute arises and they will be sent to arbitration for deliberation of the conflict between them. The arbitrator will conduct a quasi-judicial proceeding, will hear the parties, examine their claims and evidence, and, ultimately, will render a decision.
If the dispute arises in the absence of an arbitration clause in the contract, the conflict can still be submitted for arbitration, but only with the consent of all the parties involved in the dispute.
In recent years, arbitration has lost some of its lusters. It could be said that the legal debate surrounding the arbitration award by the late arbitrator Jacob Malz in the dispute between Eli Aroch and Call greatly strengthened the opinion of opponents of the arbitration process. As attorneys, we find ourselves being requested more and more, by the parties that we represent in contract negotiations, not to include an arbitration clause. This is based on past unsuccessful arbitration experiences, undergone by one or more of the parties involved in the transaction.
Arbitration proceedings have several unique characteristics, which we will review below and compare to judicial proceedings conducted in the courts.
Shortening the duration of the litigation
A great deal has already been said and writing about the protracted nature of court proceedings. Whether this is caused by the court system, by the litigants, or by their counsel, in Israel, court proceedings of even non-complex claims may go on for years. Sometimes appeal proceedings are also conducted afterward. On the other hand, in arbitration, a time frame is generally set for the duration of the proceeding. According to the Addendum to the Arbitration Law, if the parties have not agreed otherwise, the arbitration must conclude within three months, but the arbitrator has the authority to extend that period by an additional three months, i.e., the process is supposed to conclude within six months.
In actuality, since, in most cases, the arbitrator is not swamped with cases as is his colleague, the courtroom judge, even if the parties agree on a longer period of time for conducting the arbitration, it is reasonable to assume that the arbitrator's decision will be given sooner than a judgment would have been rendered had the dispute been brought to court.
However, we must remember that according to the law, in order for an arbitration decision to be effective and enforceable, the competent court must certify it. This proceeding takes time, particularly when a party that was dissatisfied with the arbitrator's results files a motion to cancel the decision. In such a case, there is a risk of
a prolonged proceeding, but in most cases, that does not involve the average period of time required by
a regular civil claim proceeding in court.
Costs
When a proceeding is conducted in court, the plaintiff must pay a court fee, the amount of which is dictated by the amount of the claim and the requested relief. In arbitration, however, the plaintiff is exempt from paying any court fee (and may thus sometimes benefit by saving the cost of the fee by conducting the proceeding in an arbitration framework and not in court). On the other hand, in arbitration, both parties must bear the cost of the arbitrator's fee. The more complex the dispute and the more hearings required, the higher the arbitrator's fee.
Determining the identity of the deciding factor
When a claim is filed in court, the office of the president of the court determines the identity of the judge who will hear the case. The parties themselves have no say whatsoever regarding the identity of the judge who will decide the dispute between them, his areas of expertise, experience, and temperament. In contrast, in an arbitration proceeding, the parties can reach an agreement between themselves regarding the identity of the arbitrator who will rule on the dispute. The parties can choose as arbitrators a person who seems most suitable to both parties, which includes that person's expertise and experience in the specific field in which the arbitration will turn.
Effectiveness of the proceeding
There are those who view the rules of civil procedure in the courts as a bureaucratic process, which only hinders the progress of the lawsuits and sometimes diverts the hearings in the proceeding away from the main point into insignificant details. The laws of evidence, which were formulated decades ago, are also unsuitable in many cases for the genuine clarification of legal disputes and attaining true justice.
The Arbitration Law enables the parties to determine that the arbitrator will not be fettered by the laws of evidence in practice in the courts, thus saving a great deal of time and many proceedings which are devoted in court hearings to procedural matters and the admissibility of evidence. When a professional arbitrator is involved, the parties can assume that even if the arbitration admits evidence that conflicts with the standard laws of evidence, the arbitrator will know how to consider it and give each piece of evidence the proper weight when rendering his decision.
Temporary remedies and their effectiveness
In many cases, a claim is accompanied by a motion to grant preliminary orders, such as attachments and injunctions which are designed to maintain the status quo during the course of the proceeding or, alternatively, to compel one of the parties to provide information and documents in its possession to the opposing party.
In such cases, when arbitration is involved, there is some legal ambiguity with regard to the arbitrator's authority to grant temporary remedies and, even in a case in which a temporary remedy is granted by the arbitrator, the preliminary orders of an arbitrator are not necessarily effective and a party wishing to enforce them is compelled to apply to the court and to conduct a parallel process in the court in order to enforce the arbitrator's orders.
In a legal proceeding conducted before a judge in court, a preliminary order that is not fulfilled is equivalent to contempt of court, with all the ramifications thereof, so it is easier and more efficient to request temporary remedies.
Confidentiality of the proceeding
Except for special cases in which an immunity order is granted, legal proceedings in a court are open to the public. Journalists and the media may provide, in real-time, details from hearings conducted in the courts, particularly Complaints and evidence from the file. Arbitration proceedings, in contrast, are usually confidential and conducted far from the public eye. That is a significant advantage to litigants who do not want to expose the details of their dispute, including the testimony and documents presented in the arbitration.
Finality of the decision
While court judgments can always be appealed, there is no vested right of appeal from an arbitration decision. While, according to the Arbitration Law, there is no impediment to the parties agreeing in advance to the possibility of appealing the decision before another arbitrator, the possibility is not mentioned in the Arbitration Law and, in effect, it is nearly nonexistent in standard arbitration clauses. In the absence of such a prior agreement, the only way to "appeal" the arbitrator's decision is to apply to the competent court to reverse the arbitration decision. The court will only reverse the arbitration decision on the basis of one of the limited causes enumerated in Article 24 of the Arbitration Law. The legislator's goal in limiting the causes for reversing an arbitration judgment was to prevent, as far as possible, delaying stratagems on the way to implementing the arbitrator's decision. On the other hand, in the current situation, even appealing an error that occurred in the arbitration decision is problematic and, therefore, this matter must be taken into account when consenting to arbitration.
April 5, 2007
* Moshe Kahn is an Israeli lawyer specializing in Business Law. He is licensed to practice law both in Israel and in the U.S. and serves as the vice-chairman of the High-Tech Committee and as a member of the Corporations and Capital Market Committee of the Israel Bar Association.
