Earlier this month Israel's Supreme Court attacked the English Court for overreaching itself in relation to orders made by the England's High Court in the ongoing legal saga surrounding the insolvency of Eli Reifman.
In the course of one of Israel’s largest bankruptcy cases, Adv. Eitan Erez, the trustee in the bankruptcy of Reifman’s estate, sued Dr Boris Bannai, Reifman’s former partner, in the District Court in Israel. The claims arose out of a contract between Reifman and Bannai, which contained a clause requiring the parties to resolve any disputes by arbitration in England. This is a common clause. Bannai argued that the District Court should stop Erez’s claim and refer it to arbitration in England. The District Court did not accept Bannai’s application and said the issue of the arbitration clause could be decided later. Bannai was also ordered to serve a defense. As a result, in 2013, Bannai successfully applied to the English Court for an injunction against Erez, restraining him from continuing his claim in the Israeli Court and requiring him to bring his claims against Bannai in an English arbitration.
The latest episode in this multi-jurisdictional struggle was a judgment of the Israeli Supreme Court given on August 10 2016. The Supreme Court supported the previous decisions of the Israeli Court and expressed its disapproval of Bannai’s conduct. It said that Bannai had acted in bad faith by applying to the English Court. It also criticised the English Court for making orders, which interfered with the legal process in Israel. In his judgment, Justice Amit said that, "The first thing to note is that this is an unusual situation. In general there is mutual respect and cooperation between the courts of England and Israel. This was, in fact, recognised by Justice Rubinstein in this case.
On a regular basis the courts of England recognise and enforce judgments from the Israeli courts and vice versa. There are high level visits from senior members of the English judiciary to meet with Israeli judges on an annual basis. A few years ago, the Israeli Court permitted an English Judge to conduct an English High Court hearing here in Tel Aviv for one of our clients. This itself indicates a good working relationship between the two courts.
The “surprise” expressed by Israel's Supreme Court is itself “surprising.” It is well known that England is the world’s top destination for international arbitration cases and that the English court takes a stance which is fiercely supportive of the arbitration process. If the parties to a contract have chosen arbitration as the method of dispute resolution and have chosen England as the formal legal place for the arbitration, the English Courts will view that agreement as sacred and will act vigorously as its guardian.
Under English law an arbitration agreement contains both a positive and a negative promise - a positive promise to resolve disputes through arbitration and a negative promise not to bring any proceedings outside of arbitration. The English Courts enforce these promises in two ways:
1. If a party to an arbitration agreement tries to commence proceedings in court, that court is required immediately to stop the proceedings and to refer the matter to arbitration. This is a requirement under Article II of the New York Convention on Arbitration, a multilateral treaty to which both the UK and Israel are signatories. It may be that where a contractual claim arises in the context of an on-going insolvency proceedings, the court has discretion not to refer the matter to arbitration. This is a decision which should be made immediately and should not be deferred to a later stage of the proceedings, as it was by the District Court here. Where there is a doubt about whether a matter does or does not fall within the scope of the arbitration agreement, that question itself ought to be decided by an arbitrator not a court.
2. The second power available to the English Courts is more controversial. Where contractual parties have agreed to arbitration, the English Court can grant an injunction which prohibits one of the parties from bringing or continuing foreign proceedings. This power is designed to enforce the negative promise of the parties not to bring proceedings elsewhere. Crucially, these injunctions are made against private parties (individuals or companies) who have, by way of their English arbitration agreement, given the English Courts jurisdiction to make orders against them and to impose sanctions on them if those orders are not complied with. These injunctions are not aimed against foreign courts. The British Mandate ended in 1948 and the English Court has no jurisdiction to make orders against the Israeli courts themselves and does not seek to do so.
These extensive powers of the English Court are not designed to try to exert power in foreign jurisdictions or to reinstate the British Empire. These powers are designed to strengthen the arbitration process and to make sure that parties are forced to comply with their agreements to arbitrate. Usually this prevents forum shopping, parallel legal proceedings and ultimately creates a more predictable, efficient and less expensive way of litigating international cases. This should be encouraged not criticised. Of course the system can be used and abused by parties who seek to create some tactical advantage. This, however, does not negate the utility of the system as a whole.
The author is the Head of International Arbitration at ASSERSON & CO law firm.
Published by Globes [online], Israel business news - www.globes-online.com - on September 19, 2016
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