Saudi Arbitration Law

Overview

A new Arbitration Law in Saudi Arabia came into effect on 9 July 2012, replacing the 1983 Arbitration Law and solving some of the particular difficulties that Law posed to local and international businesses trading in the Kingdom. It is a marked improvement on the 1983 Law with a closer alignment to international principles. It is hoped parties will begin to have greater confidence in Saudi arbitration as a viable means of dispute resolution.

Dispute resolution in Saudi Arabia

For businesses trading in Saudi Arabia, commercial disputes could be referred to:

1. Local courts, including the Board of Grievances (a specialised commercial court);
2. Domestic arbitration, previously under the 1983 Arbitration Law but now subject to the new Arbitration Law; or
3. International arbitration, to which parties may also agree to apply the new Arbitration Law.

The 1983 Law

Domestic arbitration in Saudi Arabia under the 1983 Arbitration Law posed a number of particularities, including:

• Government bodies were not permitted to refer disputes to arbitration without specific permission.
• Arbitrators were required to be ‘experienced’ and ‘of good conduct and reputation’ and ‘full legal capacity’ (which, under the 1983 Law, meant that arbitrators had to be male and of the Islamic faith).
• Arbitration agreements were to be filed with the court or Board of Grievances who would then supervise the conduct of the arbitration, including appointing the Arbitral Tribunal where the parties failed to agree on the identity of the arbitrator(s) and hearing applications to replace an arbitrator.
• Arbitral awards were required to be issued within 90 days or an agreed extended period, and once that period expired, either party could commence separate proceedings in the supervising court, avoiding the effect of the arbitration agreement.
• The award needed to be ratified by the supervising court in order to be enforceable. Before ratifying any award, the court heard objections from either party and also determined whether the award contravened shariah law. If so, it was rendered unenforceable and when considering an objection, the court could reopen the merits of the dispute at this final stage.

Features of the new Arbitration Law

The new Arbitration Law replaces the 1983 Arbitration Law in its entirety. It was approved by the Saudi Arabian Council of Ministers in April 2012, published in the Official Gazette on 8 June 2012 and came into effect as of 9 July 2012.

The key changes are in the following areas:

Arbitration agreements

• Parties will no longer have to file their agreements with courts for supervision and the new Law codifies that an arbitration agreement will not be rendered invalid by the termination or invalidity of the substantive contract between the parties. This brings Saudi Arabia in line with many jurisdictions on this issue.
• Parties may now also be sure that incorporating standard form conditions into their agreements and referring to the rules issued by arbitration institutions will comply with the new Law.

Arbitrators

• In addition to the requirements set out in the 1983 Law, the new Law requires that arbitrators be holders of at least a university degree in shariah science. This is an important practical consideration when appointing an arbitrator given that the award cannot contravene shariah law.
• Arbitrators now have a positive obligation to keep parties informed of circumstances that may give rise to conflicts of interest or apparent bias. This will improve transparency and trust in the process.
• The new Law also provides for two nominated arbitrators to choose the third arbitrator. This procedure is familiar to international practice and reduces the intervention of the supervising court.
• Challenges to the arbitral tribunal for bias or conflict of interest will now have to comply with time limits, which should avoid such issues being raised at the enforcement stage.

Procedure

• Arbitrators will be able to request assistance from a relevant authority for procedural steps such as summoning a witness or expert and ordering the production of documents.
• Where the parties have not agreed on the applicable arbitration rules, the new Law sets out a detailed default procedure that is similar to the UNCITRAL Model Law.
• Arbitrations are no longer required to be conducted in Arabic and the parties may agree to apply a substantive law other than that of Saudi Arabia (although the award must still comply with shariah law to be enforceable).

Awards

• Arbitrators now have 12 months from the commencement of the arbitration to issue their awards, with the power to extend this by a further 6 months and the parties able to agree to longer extensions. This is a more realistic time frame than the 90 days that applied in the 1983 Law.

Enforcement

• Any application seeking to invalidate an award must be made within 60 days and can only be made on the limited grounds identified in the New York Convention.
• Further, it is only the relevant court that can, of its own initiative, raise arguments that the award violates shariah law. In doing so, the court cannot reopen the substantive issues of the dispute, which is a significant improvement on the 1983 Law.
• Awards made under the new Law will be res judicata however; in order to the enforce that award, the successful party will need to obtain an enforcement order from the courts.

Summary

The new Arbitration Law is a refined improvement on the 1983 Law which brings Saudi Arabia closer to international best practice. For an award to be enforceable, it must still comply with shariah law.

However, the new Arbitration Law is a modern approach to this important area for businesses trading in the Kingdom. With greater clarity on the appointment and independence of arbitrators and with a narrowing of the grounds for challenges to awards, it is likely that Saudi Arabia will see an increase in arbitration being used as an option for resolution of commercial disputes.