Arbitration as a means of resolving disputes has deep roots in the Islamic legal traditions. The shariah definition of arbitration is identical to that in the West (“two parties choosing a judge to resolve their dispute and their claim”) and the duty under the shariah to reconcile (‘sulh’) underpins an ancient tradition of seeking to resolve disputes by way of consensual mechanisms such as conciliation and arbitration. James Cameron explains more about how arbitration is viewed in the Kingdom of Saudi Arabia.
Notwithstanding its deep roots, arbitration has had a somewhat chequered history in the Kingdom in the modern era, with local courts having significant powers to intervene in the arbitral process and reopen the merits of disputes in the context of enforcement proceedings. However, a suite of new laws and the introduction of a modern, international arbitration centre in recent years have made it clear that the Kingdom intends to be more “arbitration-friendly” and encourage international organisations to feel confident in the process.
Western arbitration practitioners should be mindful though of some unique elements of arbitrating in the Kingdom, and should bear in mind the following tips:
It is therefore important for parties who are arbitrating and/or potentially looking to enforce an award in the Kingdom to engage counsel familiar with the shariah throughout the arbitration process, even if the arbitration is subject to non-shariah rules and governed by non-shariah law.
However, the new arbitration regime does appear to be having the desired effect. In 2016, the Enforcement Court in Riyadh confirmed a US$18.5m ICC award that had been rendered in London against a Saudi entity, the first reported case under the new regime. By May 2018, the Saudi Ministry of Justice reported that over 400 applications had been made for enforcement of foreign awards/judgments under the New Enforcement Law, and that more than SAR 13bn (~US$3.4bn) had been recovered pursuant to such awards/judgments. This is encouraging news for those entering into arbitration agreements with Saudi-domiciled entities, and/or seeking to enforce foreign awards in the Kingdom.
Arbitration in the Kingdom was significantly reformed in 2012 with the enactment of Royal Decree No M/34 (16 April 2012) (the “New Arbitration Law”).
The New Arbitration Law, by contrast to the previous regime, is based on the UNCITRAL Model Law, and is viewed as being more “arbitration-friendly” than the law which it replaces. The New Arbitration Law has many features that will be familiar to those practising in other jurisdictions that have adopted – or adapted – the UNCITRAL Model Law.
In particular, the New Arbitration Law:
There are, however, elements of the New Arbitration Law that are worth bearing in mind, as they differ from the UNCITRAL Model Law, in particular:
As part of the push to make arbitrating in the Kingdom more attractive, the Saudi Centre for Commercial Arbitration (the “SCCA”) was also established by Cabinet Decree number 257 (15 March 2014) and opened in Riyadh in 2016. The SCCA administers commercial arbitration and mediation procedures, and its arbitration rules (which became effective on 15 October 2018) are based on the UNCITRAL Arbitration Rules and would therefore be familiar to international arbitration practitioners.
The New Arbitration Law was complemented by a new enforcement law, enacted by Royal Decree No. M/53 (30 August 2012) (the “New Enforcement Law”), which came into force on 27 February 2013.
The Enforcement Court, established by the New Enforcement Law, replaces the Board of Grievances as the authority charged with enforcing awards. This is of significant assistance to those seeking to enforce awards in the Kingdom, as the Board of Grievances has a very broad role in the Kingdom, which meant that the process of enforcing through the Board of Grievances was often a long and arduous one. By contrast, the Enforcement Court is seen as a more streamlined and efficient avenue to enforcement.
The key features of the new enforcement regime brought about by the New Arbitration Law and the New Enforcement Law are as follows:
You will see that it is important for parties who are arbitrating and/or potentially looking to enforce an award in the Kingdom to engage counsel familiar with the shariah throughout the arbitration process, even if the arbitration is subject to non-shariah rules and governed by non-shariah law. With this in mind we have recently launched an alliance with local lawyers Hammad & Al-Medhar in Saudi Arabia operating out of Riyadh, Jeddah and Khobar. Please contact Toby Randle for more information.
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[1] https://www.fenwickelliott.com/research-insight/annual-review/2019/singapore-mediation-convention
[2] https://www.fenwickelliott.com/research-insight/annual-review/2019/multi-tiered-dispute-resolution-clauses-uae