Alternative Dispute Resolution: Arbitration and Mediation

Alternative Dispute Resolution: Arbitration and Mediation*

“Too many men, too little time” is equally applicable to the Israeli judicial system. The courts are simply overwhelmed with crowded dockets. Studies have documented that each Israeli judge hears thousands of cases a year.  Why society is so litigious is not the subject of this article, but rather how to deal with this phenomenon.  Assuming we will not be adding dozens of more judges or suggesting that the litigants engage in a duel, alternatives to judicial dispute resolution such as arbitration and mediation are an efficient and practical solution in Israel.

Anyone who has been a participant to an adversarial court proceeding understands the significant advantage of resolving disputes outside of the court room through compromise and peace. There is an adage: the worst compromise is better than the best court victory.  The Israeli experience presents two alternatives to the standard legal proceedings: arbitration and mediation.

Every legal system has some kind of alternative methodology for dispute resolution. The following seeks to highlight how arbitration works specifically in Israel.

ARBITRATION

Arbitration Agreements

An arbitration agreement which by statutory definition refers a dispute which has arisen or may arise in the future to arbitration must be in writing. However, it may be amended orally; and an arbitrator needs not be identified in the agreement in order for it to be valid. The parties can stipulate in the arbitration agreement the procedures or law to be applicable, but when they fail to do so then there is a standard set of rules that govern the proceedings which are outlined in a schedule to the Israeli Arbitration Act. For example, unless specified by the parties to the contrary, there will be only one arbitrator.  The parties cannot invoke arbitration in certain instances which as a matter of law because of public policy reasons are not subject to arbitration. For example: (a) disputes relating to crimes such as how to divide proceeds from robbery; (b) disputes involving parental responsibility such as child support and custody; (c) disputes pertaining to statutorily protected rights such as employee benefits.

Power of Arbitrator

Although the arbitrator only has jurisdiction over the parties to the arbitration agreement, the arbitrator can demand the appearance of witnesses and the production of documents of third parties. Their failure to comply can only be dealt with by redress to the courts which can then decide to issue a subpoena.

An arbitrator is not normally restricted by evidentiary rules, civil procedures, or substantive law (unless the arbitration agreement so specifies) but the seven year statute of limitations for civil claims (not involving real estate) does apply to an arbitration; as would any other shorter periods dictated by statute.

A challenge to the arbitrator’s jurisdiction may be decided by the arbitrator himself, but such ruling would not preclude a court from deciding otherwise.

An arbitrator is empowered to grant any civil remedy that a court could impose. To assure the payment of his fees, the arbitrator can suspend the proceedings or the actual award until satisfied.

In theory, by statute, an arbitrator has immunity from litigation for any of his actions as an arbitrator, including negligence (just like others who fill judicial functions).  But the Supreme Court has ruled that if an arbitrator breaches his duty of loyalty then such immunity would not exist.

Arbitration Proceedings

Absent a specific agreement by the parties in this regard, the procedures of arbitration are per the Standard Arbitration Rules. Specifically, the witnesses are sworn subject to perjury, and then there is direct testimony, cross examination, and even re-direct examination.

Absolute privilege (e.g. attorney/client communications) will be respected in an arbitration as well and thus not disclosed in the same manner as in a judicial proceeding. Similarly, relative privilege (e.g. doctor/patient communications) will be subject to disclosure based upon the arbitrator’s discretion, as a judge would do.

Ex Parte Proceedings

The arbitrator may proceed even if one of the parties summoned has not appeared; and even issue a decision without hearing arguments of the absent party (or a party who failed to timely submit their arguments). However, the statute provides Standard Arbitration Rules requires that the above only happen if the absent party is warned in advance of the consequences.

If the absent party is able to justify their failure to submit or appear within 30 days of receipt of the Arbitrator’s decision, then the Arbitrator may annul his decision and reopen proceedings.

Arbitration Decision

It must be in writing and signed by the arbitrator; or a majority of the arbitrators (when there is more than one) provided there is a representation that the others refused or were unable to sign. Moreover, absent an agreement to the contrary by the parties, the arbitration award must include the reasons for the decision.

A court confirmation of the award would be required for the enforcement of the arbitration award. Such confirmation has the full force and effect of a court judgment. Decisions contained in an arbitration award cannot be re-litigated since the decision is res judicata.

Role of the courts

When the parties’ methodology for selecting an arbitrator has failed, then the courts, if requested, will appoint one. Similarly if an arbitrator becomes unavailable (death, resignation etc) then the court may appoint a replacement unless they determine that this is contrary to the intent of the language of the arbitration agreement.

Courts may also remove arbitrators who are found after the appointment not to be impartial or neutral; or to prevent a grave injustice. Indeed arbitrators by statute must disclose all their conflicts of interest; and have a duty of trust towards all the parties.

Since an arbitrator cannot compel testimony or hold parties in contempt or even enforce his award, the courts need to be petitioned in such instances.  A court has broad discretionary power to grant interim relief in proceedings being arbitrated without necessarily vitiating the jurisdiction of the arbitrator.

Appealing an Arbitration Award

An arbitration award cannot be judicially appealed on the merits (unless the parties specifically agreed to same). However, an appeal for cancelation of the award can be made on the following grounds within 45 days:

1. a) the arbitration agreement was invalid; b) the arbitrator was illegally appointed; c) the arbitrator exceeded his authority or jurisdiction; d) due process was denied a party; e) the arbitrator didn’t comply with the terms of the arbitration agreement; f) the award violates public policy.

International Aspects

Foreign lawyers are barred from practicing law in Israel without proper licensure. Although there is no exemption for appearances in arbitration, query whether such an appearance is necessarily the practice of law. Admittedly the role is one of advocate in an adversarial context, but that doesn’t necessarily define the practice of law.

When Israel is a party to an international treaty or convention, then the confirmation or non-confirmation of an arbitration award will be subject to such treaty or convention.

The Israel Arbitration Act referred to throughout this article applies equally to all arbitrations conducted in Israel even when one or both of the parties are foreign.

Although the arbitrator is not bound by substantive law, when the parties have stipulated otherwise, then Israeli law will be the substantive law applied unless the parties have specified some other choice of law. This intent of the parties would also be discerned when e.g. the contract in dispute referenced a choice of law other than Israel.

 MEDIATION

 The following seeks to highlight how mediation works specifically in Israel:

 Mediation is a procedure which at heart is a legal dispute between opposing parties directed to a mediator who meets with them in order for the process to end in an agreement acceptable to both parties and make a trial in front of a court redundant.  Put another way:  This is actually a negotiations procedure navigated by the mediator, who is not authorized to decide (unlike an arbitrator) and whose goal is for the parties to reach a contractual compromise based on their interests and needs.  The mediation procedure is not based necessarily on legal norms and is conducted in a spirit of cooperation between the parties to bridge their differences and find a solution appropriate to them and end their dispute, with the mediator’s assistance.

In Israel, the mediation procedure received legal anchoring in 1992 and regulations  were then legislated in 1993 which resolve the manner in which cases are transferred from a court to mediation, the ethical rules that apply to the mediator, criteria for nominating a mediator including his experience, qualifications, etc.

In this context it is important to mention that recently a petition was submitted by the mediators association (which is currently a voluntary organization) to recognize it as a statutory association and to oblige the courts to refer disputes only to mediators who are members of the association, as well as to apply clear ethical rules to the mediators, a topic which has yet to be governed in Israeli legislation.

Requirements of the Mediator

By statute the mediator must act with decency, in good faith, and without favoritism. The mediator must be sure to avoid any conflict of interest.  The mediator cannot use the information received during the mediation for any purpose other than the mediation.  The mediator must guard the privilege of the information extended before him.  The mediator may not advise the parties in any field which is not by virtue of his specialty as a mediator (for example, a mediator who is an attorney may not advise the parties as a lawyer).  Simply, the mediator must act according to his specialty as a mediator during the mediation procedure which he is facing and may not give the parties advice in any other field.

Mediation Procedure

According to Israeli law, the court may transfer a case to mediation after receiving the parties’ agreement to such.  In the event the case was in fact transferred to mediation, the proceedings in court shall be put on hold for an amount of time decided by the court and may be extended according to the court’s discretion, all with the parties’ agreement.  Once the parties have agreed to mediation, the court will appoint a mediator from a list in its possession.  If the parties have not reached a mediation agreement by the time the hold on proceedings has ended, the case will be returned to the court and therefore it is important to pay attention to the time frame or alternatively to request an extension of the hold placed in the event the mediation procedure is effective but requires more time.  However, if one of the parties decides that he is not interested in mediation already during the hold period, he must approach the court and the mediator and request renewal of the proceedings in court.

In the event the parties were referred to mediation and then changed their minds, they must inform the court in advance that they choose to cancel the mediation for a justified reason.  The rationale behind this is for the dispute to be managed in an effective manner without wasting the time of the parties as well as the mediator’s.  Courts have ruled that a party who does not attend a mediation meeting without informing in advance and without being able to show good reason, may be subject to the court charging him with expenses.

Privilege of mediation procedure

The laws of confidentiality and privilege have also been applied to mediation by the courts.  Privilege of the mediation procedure is one of its essential foundations, as part of separating the mediation procedure from the judicial procedure.

The objective is to encourage the parties to expose their interests without fearing that their words may be revealed to others, since as the mediator has more information, the procedure will be more effective. Additionally, there is a reason to insure fairness towards the parties by instilling confidence in them that what they say during the mediation procedure will not be used against them later in a court.  The privilege also maintains the mediator’s neutrality and assists him in fulfilling his duty to act in fairness and without favoritism.  Additionally, the knowledge that the procedure remains on a private and confidential level, constitutes a motivation to turn to mediation as opposed to judicial proceedings.

The mediation agreement

Once the parties have reached a mediation agreement, the mediator must inform the court who, upon the parties’ agreement, may validate the mediation agreement as a court ruling.

The preliminary meeting

A pilot has been initiated in nine courts nation wide according to which a judge must refer the parties to a preliminary meeting in cases which exceed 75,000 NIS (except for certain expedited type of cases).  The purpose of the meeting is to examine the possibility to solve disputes which are not legally complicated by means of mediation.  In cases which the court refers to such meetings, the court will not sit in judgment prior to the preliminary meeting, unless there are special circumstances which require immediate hearing. Within 10 days after the preliminary pre-mediation meeting, the parties must inform the court if they are willing to enter into a full process of mediation, or prefer to continue to litigate in court.

Challenging mediation agreements

A Supreme Court case has ruled that the way to challenge a mediation agreement is by submitting a separate demand to the court which granted the validation as a court ruling, however a court will not cancel said agreement so easily.  A mediation agreement which has been validated as a court ruling is like a court ruling given with the parties’ agreement.  The way of action is therefore the same as one would cancel a contract based on contract law. There is of course a difference between challenging confirmation of a mediation agreement and challenging the actual mediation agreement, and one must point out an essential and significant defect such as: mistake, deception, deceit or coercion.

Conclusion

The advantages of arbitration or mediation include:

1. a) The language of the proceedings can be in English or any other mutually agreed language rather than the Hebrew required in judicial proceedings.
2. b) Rather than have a judge imposed and chosen by the system, the parties can assure that their arbitrator or mediator is sufficiently versed in the subject matter. This can be very important when the issues are highly technical or scientific.
3. c) Although there are no statutory time limits for the duration of the proceeding or the issuance of an award in Israel (unlike e.g. in the European Court of Arbitration CEA which has a 12 month time frame), arbitrations and mediations would ordinarily be quicker than a court case
4. d) Arbitration and mediation proceedings need not be public and can be kept fully confidential.
5. e) To the extent the grounds for appeal are limited, there is more finality in an arbitration or mediation decision.

In Israel “Make love, not war” may be good advice; but so would “Arbitrate or mediate, don’t litigate”

*Written by Adv. Amir Altshuler & Adv. Adina Skoczylas;

Altshuler,, Law Firm & Notary.