International arbitration clauses are now commonplace in cross-border contracts involving Israeli parties. The number of Israeli parties arbitrating in global institutions is growing year on year. Over the next couple of weeks, I plan to set out my top tips for Israeli corporates who are or may become, involved in a dispute subject to international arbitration. I start with some pre-arbitration considerations:
1. Make sure your contracts contain a clear and simple arbitration clause. If you are opting for institutional arbitration, the institutions generally provide boilerplate clauses which can easily be inserted into your contract. I have dealt with several jurisdictional disputes where the arbitration clause is unclear, internally inconsistent or incomprehensible. This is not a good way to start a dispute.
2. Choose a “seat” and “governing law” for your arbitration. In the absence of express wording in the contract, these topics could end up in dispute creating unnecessary costs and uncertainty.
3. Make sure the key substantive/commercial clauses of the contract work under your chosen governing law. Finalising the substantive clauses and then inserting an English law governing law clause at the end of the process can lead to real issues.
Two issues which come up frequently in my practice:
a. English law does not recognise “good faith” as an overarching principle of contractual interpretation; and
b. penalty clauses (even if well-disguised) can be unenforceable. It is always worth sense checking the contract with an English lawyer before signing on the dotted line.
4. Be aware that institutional arbitration requires an up-front payment of a fee for the arbitrator and administration. This fee is sometimes based on the quantum of damages claimed, which can be significant. A claimant who does not pay the fee will not be able to continue the proceedings. In my view, the benefits of institutional arbitration, as opposed to ad hoc arbitration, outweigh these costs. However, this sometimes comes as a shock to clients.https://asserson.co.uk/team/baruch-baigel/
5. Consider whether injunctive relief to freeze assets or otherwise maintain the status quo is required before commencing arbitration. There is no point litigating against a party who has no assets or who is able to dissipate all their assets during the course of a claim. The English Court has a wide discretion to order worldwide freezing orders even where the underlying contract is subject to arbitration.
6. Consider whether the claim may be appropriate for litigation funding or insurance against the risk of paying the other side’s legal costs. The litigation funding and insurance markets are now well developed globally and funders are hungry to invest their investors’ money in good international arbitration cases emanating from Israel.
Baruch Baigel is head of arbitration at Asserson. He is listed as a Leading Individual for international arbitration in Legal500 and sits as Israel’s delegate on the ICC Commission for Arbitration and ADR, having previously been appointed as the LCIA’s representative in Israel.
Article written by: Baruch Baigel