The Israeli Supreme Court ("Supreme Court") held by a majority opinion that extraterritorial service of an application for the approval of an Israeli arbitration award based upon an arbitration clause in a contract is invalid.
The ruling involves an appeal submitted by nonresidents of Israel to the Supreme Court to cancel a permit issued by an Israeli Court to serve them an application for approval of an Israeli arbitration award. The Supreme Court ruled that in these circumstances, the person seeking to enforce an arbitration award must obtain the approval (or recognition) of the arbitration award in the country of residence of the party against which the arbitration award is to be enforced. The party seeking enforcement must file an application with a court in the country of residency of the party against whom such arbitration award is to be enforced in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).
The Supreme Court noted that the grounds for extraterritorial service stated in the Civil Procedure Regulations are an exhaustive list. The commonality between the grounds is the existence of a connection to Israel. The grounds for extraterritorial service should be narrowly interpreted, and any doubt regarding whether the facts fall within the definition of a given cause will be determined in favor of the foreign party.
The Supreme Court stated while the Civil Procedure Regulation allows extraterritorial service in connection with contractual claims having an affinity to Israel, one may not argue that an application for the approval of an arbitration award is equivalent to a contractual claim. Such a claim is derived from arbitration law, even if the arbitration requirement was set by contract. At the same time, the Supreme Court stated that it cannot be ruled out that under certain circumstances it will be possible to permit extraterritorial service of an application for approval or cancellation of an arbitration award given in Israel. The Supreme Court did not provide an example to such circumstances.
The Supreme Court agreed that this conclusion leads to an undesirable result. A person may be a party to a contract in Israel that includes an arbitration clause, but if an arbitration award is received against such person in Israel while not being physically present in Israel, it will not be possible to serve a request to approve the arbitration award. However, the Court noted that until such time as the Civil Procedure Regulation are amended, this is the legal situation. The courts must not expand the grounds of extraterritorial service through case law, in light of the sensitivity involved in acquiring jurisdiction over a foreign defendant.
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