Cross-Border Enforcement: The Fate of a Hybrid Arbitration-Court Award
As our readers may be aware, in order for a foreign judgment to be enforceable in Israel, the judgment must first undergo enforcement proceedings under Israel’s Enforcement of Foreign Judgments law (the "FJ law"). As we have previously stated, a prerequisite to enforce a foreign judgment is that the judgment is no longer subject to an appeal in the foreign jurisdiction.
However, when it comes to arbitration awards, the appropriate enforcement mechanism is the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, better known as the New York Convention (the “New York Convention”), adopted by the United Nations in June 1958, and effective in Israel since June 1959. Israel has regulated the application of the New York Convention in its Regulations for the Application of the New York Convention (Foreign Arbitrations), 5738-1978.
A party who wishes to enforce an arbitration award in Israel must file an application requesting the court to certify the award. After the award is certified by the Israeli court, the party can commence enforcement proceedings as if the award was issued by a domestic court.
Under the New York Convention, there are only five limited grounds to challenge the certification. See Art. V(1) of the New York Convention.
Notably, the fact that a foreign arbitration award may still be subject to an appeal or other type of review, does not prevent the successful party from certifying the award in Israel. This fact is clear from the New York Convention (Art. VI) and Israel’s Regulations (Rule 4).
However, what is the fate of a hybrid arbitration-court award? A “hybrid arbitration-court award” is how we describe an arbitration award that is also given the status of a court judgment in the foreign jurisdiction.
How should we classify this type of hybrid award? On the one hand, the award has been endorsed by a court, thus making it more akin to a court-rendered decision. On the other hand, however, the substance of the decision is still arbitral and was issued through an arbitration process.
This question is not just theoretical. It has important ramifications: If a hybrid award is considered a court judgment, it will be subject to Israel’s FJ Law. Practically speaking, that means that if the award is still subject to an appeal, it will be unenforceable in Israel. However, if a hybrid award remains an arbitration award, notwithstanding the court endorsement, the appropriate enforcement mechanism is the New York Convention and, as we noted above, the finality of an award is not a prerequisite to certification under the Convention.
This issue was litigated in the Tel-Aviv District Court in Luminati Networks, Ltd. v. B.I. Science (2009), Ltd. (November 29, 2020). The court there found that a hybrid award does not lose its status as an arbitration award for the purposes of the New York Convention simply because it has been endorsed by a foreign court of law. In thus ruling, the Israeli court allowed for the certification of a Texas arbitration award that was subsequently endorsed by a United States District Court, notwithstanding the fact that the award was still subject to appeal. The Israeli court pointed out that the nature of these hybrid awards is a matter of dispute among Israeli courts and legal scholars alike. However, the court adopted the more flexible and pragmatic approach, finding that both the language, purpose and spirit of the New York Convention support its conclusion.
Perhaps because of the lack of consistency among lower courts and the importance of this matter, the issue is now being appealed to the Israeli Supreme Court (Civ. App. 44/21) which will, hopefully, finally settle the issue. Stay tuned.