Is It Possible To Cancel Arbitration Proceedings, In A Project Costing 2 Billion ILS?

Published: 15 Sep 2020

Kyung Dong Civil Engineering & Construction Co., or "KD", is a Korean company engaged in mining, tunnels, infrastructure and engineering.

The Electra-Solel Boneh (“Electra”) Partnership hired KD’s services for mining tunnels in the project of the construction of the Gilboa area power station.

The power station was established with pumped hydroelectric energy storage technology and was designed to produce 300 megawatts of electricity, with the cost of the entire project estimated at 2,000,000,000 ILS.

An agreement was signed between KD and Electra, regulating their relations. The agreement also included an arbitration clause according to which any dispute between the parties would be given to the arbitrator, who would be appointed with the agreement of the parties, and if there is no agreement between the parties on the identity of the arbitrator, the arbitrator shall be appointed by the International Chamber of Commerce (ICC).

Later on, disputes arose between the parties, and Electra approached KD with the request to appoint an arbitrator to deal with the disputes between the parties. Electra offered KD a number of arbitrators, but in the absence of agreement, Electra asked the ICC to appoint an arbitrator.

Electra's claims towards KD were, that KD was significantly late in fulfilling its obligations, was not prepared for the execution of its tasks at the construction site, which caused significant delays in the execution of the works, and more. KD told Electra that it has cash flow difficulties and difficulties in funding the works.

The parties' attempts to continue the works were unsuccessful, and as a result, Electra announced the termination of the agreement between the parties due to a fundamental breach by KD. In addition, Electra acted in accordance with the agreement between the parties and requested to appoint an arbitrator to discuss the disputes between the parties.

On 12/1/16, KD responded to Electra that it would like the ICC to appoint an arbitrator in accordance with the provisions of the agreement.

On 13/1/16, KD notified Electra that insolvency proceedings were taken against it in Korea, and that under the Korean bankruptcy law, all legal proceedings against KD were suspended. On 25/1/16, an order was issued by the Korean court, which ordered the rehabilitation of KD - according to the plan presented.

As stated, Electra contacted the ICC and requested to appoint an arbitrator to discuss the disputes between the parties, and even paid a fee of USD82,000 for this purpose.

KD initiated legal proceedings against Electra in the Tel Aviv District Court, in which it sought to delay the arbitration proceedings, since according to KD, it is not possible to hold any legal proceedings against it, including arbitration before the ICC, except for liquidation by the Korean Court. In the framework of these proceedings, KD requested a temporary injunction, which will order the cancellation of the arbitration proceedings between the parties.

On the date KD began the legal proceedings against Electra, in order to delay the arbitration proceedings, the arbitration proceedings had already begun, the arbitrator was appointed, and the fees were paid. The arbitrator refused to delay the arbitration proceedings due to the insolvency proceedings in Korea, and therefore KD addressed the court in this proceeding.

Among others, KD argued that the arbitration agreement has no validity when a party to the agreement is in insolvency proceedings, since the significance of the insolvency proceedings is equality between the various creditors, and that if the arbitration proceedings are not cancelled, it will be a "bypass route" to the insolvency proceedings and the granting of priority to Electra over the other creditors.

Electra argued that KD adopts the provisions of the agreement between the parties that determine that the Israeli law is applicable to the parties, due to the fact that it appealed to the Israeli court in the proceeding before us, but on the other hand, KD refuses to act according to the agreement by opposing the holding of the arbitration proceeding.

The court determined that KD's claim was in fact intended to nullify the arbitration proceedings between the parties and, more importantly, to cancel the ICC’s decisions, which were allegedly lawfully given.

The court ruled that delaying arbitration proceedings is unusual. In order to delay the arbitration proceedings on the basis of foreign judicial decisions, it is necessary to recognize these decisions according to the law, and these decisions cannot be recognized casually as part of this proceeding.

In addition, the court ruled that it was not convinced that the existence of the arbitration will affect the insolvency proceedings and that as much as Electra will win the arbitration proceedings and the insolvency proceedings will take place, Electra will still be forced to realize the arbitration judgement in Korea.

In addition, the court determined that according to Section 18 of the Arbitration Law (Israeli), applications filed with the court do not delay the arbitration process.

Therefore, the court rejected KD's request and even obliged it to pay Electra’s legal expenses in the amount of 20,000 ILS.

  • Case 662-10-16 Kyung Dong Civil Engineering & Construction Co. vs. Electra-Solel Boneh - Agira Sheuva Gilboa, the decision was given on 9/1/17 at the Tel Aviv District Court.


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Eyal Soref

Firm: Soref & Co. Law Office
Country: Israel

Practice Area: Litigation

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