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Enforcement of an Arbitration Award against a company not named in the Award
by Adv. Peggy Sharon Adv. Irit Shapira Webber and Adv. Deror Lin
Introduction:
In R.C.A. Harel Insurance Company v. Equitas Limited, the Supreme Court dealt with the enforcement of an arbitration award against a party which was not named therein.
According to the ruling of the Tel Aviv District Court (C.C. 2137/07 Harel v. Equitas), an award may be enforced against an entity that undertook the obligations of another (through merger).
Background:
Following an arbitration which was handled between Sahar-Zion Insurance Co. Ltd. and Equitas, an award was given against Sahar-Zion.
The arbitration proceedings in the UK were conducted over a long period of time, during which Sahar-Zion Insurance Co. Ltd., a party to the arbitration proceedings, merged with Shiloah Insurance Co. Ltd, and its name was changed to Harel Insurance Co. Ltd.
As part of the merger procedure, the Tel Aviv District Court declared that Harel would take upon itself all the obligations and duties of Sahar Zion.
When Equitas requested enforcement of the award in Israel, Harel objected thereto on the grounds that its name is not mentioned in the award (which was given against Sahar Zion).
Harel's Arguments:
Harel based its arguments on an Israeli Supreme Court precedent - R.C.A. 2037/06 Danish Road Contractors v. PECDAR - the Palestinian Economic Council for Development & Reconstruction of the Palestinian National Authority, in which the Court decided that a motion for approval of an arbitration award is not the framework in which the arguments regarding the identity of the parties to the arbitration can be raised.
The PECDAR Precedent:
In the PECDAR matter, the Appellant (Danish Road Contractors) filed an application for affirmation of a foreign arbitration award which was handed down against the Respondent (PECDAR) and alleged that this award directly obliges the Palestinian Authority. The Palestinian Authority objected to affirmation of the award alleging that it is not obliged by it and this was done by way of a motion for cancellation of the award. The District Court ruled that the Palestinian Authority as such was not a party to the arbitration and that within the framework of the application for affirmation of the award, it is impossible to add and include a request that it also obliges the Palestinian Authority. The Hon. Justice B. Okon ruled (paragraph 7):
The affirmation is a "reaction" to the arbitration award itself, and normally nothing can be added to or subtracted from ... a demand on this question cannot be made within the affirmation proceedings, thus the question of the identity between the Respondent and the Palestinian Authority requires evidential clarifications outside the arbitration. This conclusion is reinforced in view of the fact that it does not relate to alternative relations according to the interpretation of the Arbitration Law...."
(Opening Motion (Jerusalem) 3063/04, 3173/04 [published in Nevo])
A motion for leave to appeal on Justice Okon's ruling was submitted to the Supreme Court. The Hon. Justice A. Procacchia confirmed the decision of the District Court and ruled:
"The procedure for affirmation of an arbitration award due to its nature, does not allow for any opening to decide in other disputes which are beyond the arbitration award itself, which is subject to the judicial test for affirmation or cancellation. Generally, within the framework of the proceeding for affirmation and cancellation of an arbitration award it is not possible to open a discussion on other disputes between the litigants who have not been charged and subject to a direct decision of the arbitrator. Such possible discussion would have materially frustrated the special purpose of the arbitration proceedings - to efficiently and quickly settle the dispute between the litigants in legal proceedings based on their willingness, their choice and their agreement. The instigation of proceedings for affirmation and cancellation of an arbitration award to ascertain other disputes between the litigants in this instance which is intended to discuss the arbitration award, could have been the cause of a delay and constitute a burden on the completion of the arbitration proceedings, and it is remarkable that the hearing mechanism according to the Arbitration Law does not allow for this. According to the District Court, if the need should arise for a decision concerning the Applicant's allegations, these can be clarified along a route outside arbitration, without such discussion breaching and frustrating the purpose of the arbitration procedure and the mechanism which exists for its affirmation".
Equitas' Arguments:
Equitas, represented by our firm, argued that the PECDAR ruling is irrelevant as Harel was actually a party to the arbitration proceedings.
According to Section 4 of the Arbitration Law:
"An arbitration agreement and the authority of the arbitrator according to which he is empowered in respect of the inter-change between the parties to the agreement..."
When Sahar Zion merged into Shiloah and changed its name to Harel, a Court order was given stating that Shiloah took upon itself all the obligation of Sahar Zion. Therefore, Harel took upon itself all the obligations of Sahar Zion, and although not named as a party to the arbitration proceedings, was in fact a party thereto. According to Section 4 of the Law, the arbitrator has authority against Harel.
The District Court Ruling:
The Tel Aviv District Court accepted Equitas' arguments, ruling that:
"Indeed it could not be ascertained within the framework of the motion to affirm the arbitration award as to the complex question of the position of the Palestinian Authority and its relations with the Respondent... However, in the case under discussion, ... we are dealing with a simple matter which arises from judicial orders which were filed within the framework of this proceeding, according to which Harel raised for discussion the question of whether the award is binding from its perspective ... Harel is the "replacement" of Sahar-Zion, as can be understood from paragraph 4 of the Arbitration Law, and its allegation that the award is not binding on it, is a false allegation which is intended to prolong the proceeding. Precisely the arbitration procedure, which requires an efficient and quick decision in the dispute, leads to the conclusion that a discussion be held on the fact that Harel is a party to the arbitration within the framework of the objection procedure to affirmation of the award."
The District Court distinguished the PECDAR case and stated that there is no hindrance in discussing the question of the replacement or the question whether a party which objects to affirmation of the award is obliged according thereto, while this question does not require complex evidential clarifications.
The Court further ruled that a change in the name of the company does not nullify obligations and rights arising from activities conducted under the previous name, and an arbitration award can be enforced against the party under its new name.
Harel filed a motion for leave to appeal on this decision of the District Court. The Supreme Court did not allow Harel to present its arguments with regards to this motion, and the District Court's decision remained unchallenged.
Conclusion:
When filing a motion for affirmation of an arbitration award, while a motion requesting enforcement against a party that was not a party to the arbitration is not allowed (according to the PECDAR ruling), a motion for enforcement against a party which changed its name may be accepted by the Court.
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