Case Number

LCA 4716/04

Date Decided

9-7-2005

Decision Type

Appellate

Document Type

Full Opinion

Abstract

Facts: The applicant and the first respondent entered into an exclusive marketing agreement in February 2000. This agreement contained an arbitration clause stating that disputes between the parties would be resolved by arbitration which shall take place in Texas. In June 2002, the first respondent filed an action in Israel against the applicant and the second respondent, on the grounds that the second respondent was marketing the services of the applicant contrary to the agreement. The applicant filed a motion for a stay of proceedings on account of the arbitration clause in the agreement. The District Court denied the application, and the applicant applied for leave to appeal the District Court’s decision. The application was heard as an appeal.

The main question before the Supreme Court was whether the joinder of the second respondent, who was not a party to the agreement containing the arbitration clause, justified refusing a stay of proceedings on the ground that otherwise the litigation would be split between two proceedings. Under Israeli law, the court has discretion to refuse a stay of proceedings in such a case with regard to domestic arbitration agreements. The question before the court was whether the court had such discretion in a case of an international arbitration agreement that is subject to an international convention. The parties agreed that the arbitration clause was subject to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958. This convention, known also as the New-York convention, was ratified by Israel in 1959.

Held: The Israeli court does not have the same discretion to stay proceedings under s. 6 of the Arbitration Law regarding an international arbitration agreement as it does under s. 5 of the Arbitration Law regarding a domestic arbitration agreement. Under s. 6 of the Arbitration Law together with art. 2(3) of the New York Convention, the court is required to stay proceedings unless it finds that the arbitration agreement ‘is null and void, inoperative or incapable of being performed.’ It cannot refuse a stay of proceedings on additional discretionary grounds. The existence of a litigant who is not a party to the arbitration agreement does not make the agreement ‘null and void, inoperative or incapable of being performed.’ Consequently, the court is required to order a stay of proceedings in such circumstances.

Application granted. Appeal allowed.

Keywords

Administrative Law -- Discretion, Arbitration, Contracts -- Formation, Contracts -- Terms

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