Adv. Gill Nadel, Moran Shmilovich
As we know, an arbitration proceeding is a quasi-judicial in the framework of which an arbitrator, appointed by the parties, judges a dispute between the parties and decides on the disagreement between them. The deliberations in an arbitration proceeding may be less formal than the deliberations in the court, but the ruling of the arbitrator obligates the sides and they may attack it only by the means set in the law.
Reference to arbitration proceedings can be done on the initiative of the parties, out of an ad hoc mutual decision or as a result of an arbitration clause that the parties included in a contract signed between them before the relationship began. Occasionally, there is an arbitration clause in the agreement, but one of the sides decides to bring the legal dispute before the court. In such a case, the other side can refer to the court and request delay of the proceedings before the court for the purposes of transferring the dispute to arbitration.
The institution of arbitration also exists for international disputes, and there is an international convention (the New York Convention) that regulates the issue.
Recently, two decisions were given relating to international arbitration, which ought to be brought before the community of those who deal in foreign trade.
Refusal of the court to appoint an arbitrator
In one case, the District Court of Petah Tiqwa dismissed the request of the UTI Logistic Israel Company to appoint an arbitrator for a dispute that arose between it and the Trans Terra Investments Ltd. company. The dispute arose in the framework of three different agreements that were signed during different periods by the sides: a forwarding agreement that dealt with the formation of agency relations between the sides; an activity purchase agreement which ended the forwarding agreement and involved the purchase of the properties and activities of Trans Terra by the UTI company; and a trusteeship agreement dealing with the deposit of a sum of $3 million in the hands of a trustee for a period of a year and a half, at the end of which, in the event that no action is filed by the UTI company, the money will be released to the Trans Terra company.
Later, UTI demanded a sum of $4.6 million from Trans Terra for misrepresentation and causing financial damages. At the same time, UTI filed a request for the appointment of an arbitrator in accordance with the arbitration clause appearing in the purchase agreement.
However, the District Court of Haifa dismissed the request of UTI regarding the appointment of an arbitrator. The court ruled that UTI did not act according to the dates set in the agreement and did not activate the four-staged mechanism needed for arbitration to take place. Accordingly, the court ruled that the arbitration agreement was void and disappeared on its own.
The court further found that UTI's action was based primarily on a claim of fraud and that in such a case that rule is that when issues of fraud are involved- it is preferable that such cases be clarified in court: "The party against whom claims of fraud, or other claims that may sully his good name, are made, should not be deprived of the opportunity to clear its name in a public clarification in court and should not be forced to submit to the clarification of such claims by arbitrators who will discuss the matter in private and whose decision on the facts cannot be appealed…"
4941-04-09 UTI Logistics Israel Ltd. v. Trans Terra Investments Ltd, decision given 4.8.09
Delay of proceedings due to the existence of international arbitration agreement
In another case, the District Court of Petah Tiqwa accepted the request of a foreign company manufacturing tires to delay proceedings filed against it in the court by Israeli companies, due to the existence of an arbitration agreement.
Between the foreign tires company and the Israeli company for marketing tires, an exclusive distribution contract was signed, under which the foreign tires company gave exclusive distribution rights to the Israeli company without any time limitation. Over time, a dispute arose between the parties which lead to the cancellation of the exclusive distribution contract. The Israeli company filed an action against the foreign company and other Israeli companies that it claimed had given false information to the foreign tires company about the business activities of the Israeli company, which caused the foreign company to cancel the exclusive distribution contract and transfer it to one of the other Israeli companies.
The foreign company filed a request to delay the proceedings due to the existence of an arbitration clause between it and the Israeli company. The arbitration clause stipulated that the sides must solve any dispute relating to the execution of the exclusive distribution contract via the institution of arbitration, with the arbitration proceeding being conducted in France.
normally, when there is an arbitration agreement between the parties, and nevertheless an action is filed in court, the court will delay, at the request of one of the parties, the proceedings in the case to allow the examination to be made in arbitration. On everything relating to international dispute, paragraph 6 to the Law of Arbitration conditions the delay of proceedings on the existence of an arbitration agreement between the sides, and on the existence of an international convention that "Israel is party to" which instructs that proceedings in court be delayed in such a case. And, in fact, Israel is party to the UN Convention on international arbitration on commercial matters ("The New York Convention") of 1958, which sets stipulations regarding delay of court proceedings and transfer to arbitration. Therefore, the court accepted the claim of the foreign company that the court should honor the arbitration clause and delay the proceedings to allow the deliberations to be transferred to arbitration.
In contrary, the Israeli company claimed, inter alia, that the action was also filed against Israeli companies and not just against the foreign company, and therefore the proceedings should not be split up, transferring the deliberations against the foreign company to arbitration and leaving the action against the Israeli companies before the Israeli court.
The court rejected this stance. The court ruled that regarding international arbitration, the stipulations of the New York Convention do not negate the transfer of proceedings in a case of splitting up the proceedings due to the involvement of third parties, and therefore the action against the foreign company should be transferred to arbitration.
civil case 2878-01-08 Transityre B.V v. Asher Tire Distribution Company Ltd. Decision given 3.8.09
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