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The Adoption of the UNCITRAL Model Law into Israeli Legislation

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The Adoption of the UNCITRAL Model Law into Israeli Legislation

13 February 2024

Dear Clients and Friends,

 

We are pleased to update that on 12 February 2024, the new International Commercial Arbitration Law, 5784-2024 successfully passed its third reading in the Knesset plenum. Consequently, after much anticipation, the central tenets of the UNCITRAL Model Law have been officially incorporated into Israel’s legislative framework and will apply to international commercial arbitrations initiated after the law’s entry into force.

 

To date, arbitration proceedings in Israel have been exclusively governed by the Israeli Arbitration Law of 5728-1968 and its supplementary regulations. While this law is applicable to both domestic and international arbitral proceedings, it was enacted absent due consideration of the specificities and challenges associated with international proceedings. As a result, practitioners and experts alike have opined that this law falls short of adequately addressing the distinctiveness inherent in cross-border arbitration.

 

Meanwhile, around the globe, there has been a significant increase in the utilization of international arbitration as an alternative means of dispute resolution. This trend has led to the development of arbitration rules based on principles and exceptions that enjoy wide international consensus, which were subsequently adopted by numerous states with the view of promoting efficiency, uniformity, and certainty for parties to the proceedings.

 

In line with this trend, in 1985 the United Nations Commission on International Trade Law (UNCITRAL) introduced the “UNCITRAL Model Law on International Commercial Arbitration”. Since then, legislation based on or influenced by the Model Law has been adopted in 90 States in a total of 123 jurisdictions, acknowledging that the implementation of a well-established legal framework, founded on accepted standards and exceptions, not only enhances efficacy in arbitration but also boosts the appeal of these countries as preferred forums for arbitration proceedings.

 

Considering these developments, concern grew among lawyers and parties in Israel that the existing Arbitration Law does not provide a sufficient legal framework for international arbitrations conducted in Israel. Consequently, in 2018, our partner and the head of our firm’s International Arbitration Department, Dr. Roy Schondorf, in his former role as Deputy Attorney General (International Law), set in motion and oversaw the preparation of a new law that would transform the regulation governing the field of international commercial arbitration in Israel – to align the standards governing international commercial arbitration in Israel with the rules established in the UNCITRAL Model Law.

 

The enactment of this law, which brings Israel in line with leading countries in the field, positions Israel as an attractive seat for the conduct of international commercial arbitrations. This, also among companies and individuals who, prior to the Law’s entry into force, may have been hesitant to conduct arbitrations in Israel. With the adoption of the law, parties to an international commercial agreement who specify Israel as the seat of their arbitration, will have their disputes resolved in Israel in accordance with the International Commercial Arbitration Law; or, in other words, pursuant to the basic tenets of the UNCITRAL Model Law.

 

The new International Commercial Arbitration Law reflects the basic principles and exceptions set forth in the UNCITRAL Model Law, with slight modifications to accommodate basic principles and particularities in Israel’s legal system. Given the substantial impact of this reform on your business practices and contractual agreements, we have outlined below the law’s key deviations from the UNCITRAL Model Law:

 

  1. The International Arbitration Law adopted ‘Option I’ of Article 7 of the Model Law, with regard to the definition of an arbitration agreement, which requires an arbitration agreement to be in writing, though this requirement may be met also by electronic communication, and/or an exchange of communications.
  2. Article 11(1) of the Model Law, which prohibits precluding a person from acting as an arbitrator ‘by reason of his nationality’ unless otherwise agreed by the parties was omitted.
  3. Whereas court decisions according to Article 11(5) of the Model Law (the appointment of arbitrators); Article 13(3) of the Model Law (the procedure for challenging arbitrators); Article 14(1) of the Model law (failure or impossibility to act) and Article 16(3) of the Model Law (competence of the arbitral tribunal to rule on its jurisdiction), are “subject to no appeal” in the Model Law, the Israeli law allows parties to request the court for leave to appeal such decisions.
  4. Articles 17B and 17C of the Model Law, which allow arbitrators to issue preliminary orders, were omitted. Under the International Commercial Arbitration Law, arbitrators may issue interim orders (unless agreed otherwise by the parties) but may not issue preliminary ex-parte orders.
  5. Article 34 of the Model Law establishes that the exclusive recourse against arbitral awards is via an application to set aside which is to be based on a closed list of grounds. However, the explanatory notes in the Israeli International Commercial Arbitration Law state that the inclusion of this article is not intended to preclude the parties’ right to agree to an appeals mechanism before a different arbitrator (two-tier arbitration).

 

While the International Commercial Arbitration Law deviates from the UNCITRAL Model Law in several minor aspects, these deviations are not substantial and do not detract from the Law’s alignment with the general principles of the UNCITRAL Model Law. The enactment of the Law will thus promote efficiency, uniformity, and certainty for parties interested in choosing Israel as the seat of their international commercial arbitrations, thereby further establishing Israel as an attractive forum for the conduct of international proceedings.

 

The International Arbitration team at Herzog is, as always, at your disposal. 

 

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