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Foreclosures and Arbitration Proceeding

Writer: Tziki Woolfson,Attorney

Someone owes someone else money. Sometimes that person, the claimant, knows that even if he sues the debtor, and even if he wins, his chances of collecting his debt are remote. This is because the debtor has nothing left, knows how to “hide” his money, or that he will do his best during the hearing to make his money "disappear”. As a result, he chooses not to sue at all.

Assume at some future point the claimant becomes aware that the debtor, is entitled to receive money from an anonymous source, any third party. Then, the claimant may apply to the Court to file a claim and within its framework, request an attachment on the funds to which the debtor is entitled to and held by that third party.

It should be noted that this matter is significant for the purpose of clarifying that when arbitration is involved and, more so an arbitration under Torah Law, that it is possible to begin the foreclosure process and thereafter, a claim must be filed within 7 days.

It should be stressed that the request to impose an attachment ex parte is often filed. That is, without the debtor being notified in advance, in order to prevent his ability to thwart the purpose of the request – an attachment on the funds to which he is entitled and which are in the hands of a third party - before that third party/holder receives an order.

The third party, which the Foreclosure Order is given against the funds held by him, is obliged to hold the funds and not transfer said to the debtor until another order is given by the Court. If the claimant is successful in their claim, the Court will consent to the transfer of the funds directly from the third party to the claimant. This procedure, as noted, makes the collection process particularly easy and is of critical importance for the claim.

The procedure, as described above, takes place on a daily basis as part of monetary claims in Court (it is emphasized that the attachment process is relevant only for monetary claims). However, what happens when the parties seek to clarify the dispute between them within the arbitration framework[1]?

First, arbitration requires signing an arbitration deed or arbitration agreement that gives the parties the authority to go to arbitration. Therefore, in the vast majority of cases, it is not possible, subject to legal problems regarding the authority of the arbitrator, to issue an Attachment Order, as to be discussed below, to create a situation in which the arbitrator is authorized to grant ex parte relief as a preliminary step to the arbitration process, as opposed to the possibility of receiving an ex-parte Attachment Order in Court. This problem is far-reaching in practice, and can actually make the foreclosure procedure redundant.

Second, the legal rule regarding the provision of temporary remedies by an arbitrator is ambiguous. Section 17 of the Addendum to the Arbitration Law confers upon the arbitrator the authority to grant declaratory relief, a mandatory or no-action order, an Execution Order in kind, and any other relief that the Court would be authorized to grant. Section 16 of Arbitration Law is the problematic clause regarding the arbitrator's option to grant temporary remedies, including temporary relief of attachment[2].
The problem, which may be considered as the main practical problem, is that even if the arbitrator is empowered to issue an Attachment Order, is there the ability to enforce the order?

Certainly the arbitrator has the authority to charge the defendant as if he did not defend himself – to delete the statement of defense - if that party does not comply with the arbitrator's Order, but this remedy is draconian and problematic, and in any event, when it is temporary relief in the form of a foreclosure. It is a provision for a third party that is not part of the arbitration proceedings, and in addition to the question of his obligation to act in accordance with the Order, in any case, if he does not act according to the Order, no sanctions can be imposed.

There is another possibility, which is an application to a Court to approve the temporary relief[3] imposed by the arbitrator. This point is also of limited practicality since there is a question as to whether the Court will "rubber stamp" the case or discuss the merits.

It seems that these issues cast a heavy practical shadow on the effectiveness of imposing a foreclosure under the framework of arbitration. If so, what is the effective way to "seize" the funds held by a third party before they disappear?

It seems that the most convenient and efficient way is to submit an application to impose a foreclosure and a claim with the Court, and upon receipt of the Attachment Order, to refer the dispute to arbitration, leaving the Foreclosure Order given by the Court to the end of the arbitration process and approval of the Attachment Order. Taking this approach allows the claimant to benefit from both worlds[4].

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[1] This column does not discuss circumstances that allow or not allow foreclosures.
[2] Even in the matter of case law regarding the possibility of temporary orders issued by the arbitrator, or not, said will not be discussed within the framework of this column.
[3] It should be noted that there is no legal dispute that with receipt of the arbitrator's award and as part of the process of its approval, an attachment may be requested.
[4] It should be noted that the vast majority of arbitrators who rule according to Torah Law, in one framework or another, make it possible to carry out the aforesaid as a preliminary part of the arbitration process, and this is not a considered a matter of applying to the Courts.

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*This article is not meant to constitute legal advice for a particular client, for which consultation with a qualified attorney is required.