Arbitration Services in Saudi Arabia: Arbitration has emerged as an alternative dispute resolution (ADR) pivotal mechanism for resolving disputes globally, offering parties a private, efficient, and often more flexible alternative to traditional litigation. The utilization of arbitration services in Saudi Arabia has gained significant traction, driven by a burgeoning economy and a desire to streamline the dispute resolution process. With recent amendments and developments in arbitration laws, it’s imperative to delve into the landscape of arbitration services in the Kingdom of Saudi Arabia (KSA) to understand its evolution and implications for businesses and individuals alike.
Understanding Arbitration Services in KSA
Arbitration services in Saudi Arabia have emerged as a cornerstone of efficient dispute resolution in the Kingdom’s evolving legal landscape. With recent amendments and institutional developments, including the establishment of key arbitration institutions like the Saudi Center for Commercial Arbitration (SCCA), businesses and individuals alike are increasingly turning to arbitration as an alternative dispute resolution (ADR) preferred method for resolving conflicts of commercial nature. Let’s know the history of arbitration services in KSA:
History of Arbitration Services in Saudi Arabia
The need for fast and effective commercial dispute resolution has long been acknowledged in Saudi Arabia. Legislative action has been taken over the years to enhance arbitration regulations as follows:
- In 1931 (1350H), the Saudi Commercial Court Law was enacted, containing some articles related to arbitration.
- The Saudi Labor Law in 1969 (1389H) included articles related to arbitration for labor-related disputes.
- Responding to the demands of a rapidly developing economy, Saudi Arabia issued its first modern Arbitration Law in 1983 (1403H).
- The Kingdom of Saudi Arabia (KSA) is a party to core international arbitration conventions including:
(i) The Riyadh Convention on Judicial Cooperation between States of the Arab League, adopted in 1985 (1406H). The Riyadh Convention addresses the recognition and enforcement of both court judgments and arbitral awards among Arab states.
(ii) The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (called New York Convention), adopted in Saudi Arabia in 1994 (1414H).
(iii) The GCC Convention for the Execution of Judgments, Delegations and Judicial Notifications, adopted in 1997 (1418H).
- A more recent version of the Arbitration Law was adopted in 2012 (1433H), based on the United Nations Commission on International Trade Law (UNCITRAL).
- Cabinet Ministerial Resolution No. 257, adopted in 2014 (1435H), established the Saudi Center for Commercial Arbitration (SCCA) to further enhance both local and foreign investment.
Saudi Arabia’s New Arbitration Law 2012
On July 9, 2012, the Kingdom of Saudi Arabia implemented a new arbitration law (Royal Decree No. M/34 on 24/5/1433H), referred to as the “New Arbitration Law.” This legislation aimed to address deficiencies in the previous law and align Saudi Arabia’s arbitration framework with international best practices. Based on the UNCITRAL Model Law while incorporating Sharia law principles, the New Arbitration Law applies to both domestic and international arbitrations seated in Saudi Arabia, as agreed upon by the parties involved.
The Executive Regulations for the implementation of the New Arbitration Law in Saudi Arabia took effect in June 2017, offering practical insights into its application.
Notably, the New Arbitration Law reduces judicial intervention in arbitration proceedings, empowering tribunals and parties to manage the process more autonomously. While the court retains its supervisory role, the law emphasizes a more hands-off approach on arbitration services in Saudi Arabia, promoting cost-effective and efficient dispute resolution mechanisms.
Features of New Arbitration Law in Saudi Arabia
Key features of the Saudi New Arbitration Law 2012, contributing to the growing preference for arbitration services in Saudi Arabia, comprises:
- Enhanced Tribunal Authority: Tribunals now possess the jurisdiction to resolve disputes previously reserved for the judiciary, including issues concerning the validity of the arbitration agreement.
- Expanded Party Autonomy: Parties enjoy greater freedom in selecting substantive law, procedural rules, venue, arbitrators, arbitration language (with Arabic no longer obligatory), and the tribunal’s authority to issue interim measures, provided such choices align with Sharia law and public policy.
- Separability of Arbitration Clause: The New Arbitration Law in Saudi Arabia explicitly recognizes the separability of arbitration clauses, safeguarding them from defects affecting the underlying agreement.
- Inclusive Appointment Criteria: Parties are not restricted by gender, nationality, or religion when appointing arbitrators, mediators, lawyers, experts, or other representatives, except for the requirement that a sole arbitrator or chairperson must hold a law or Sharia degree.
- Limited Judicial Review: The Saudi judiciary now only reviews decisions related to jurisdiction and procedural matters, eliminating review on the merits, a feature present in the previous law.
- Sharia Compliance and Execution: In cases where an arbitral award conflicts with Sharia law in KSA, a court may issue an execution order solely for the Sharia-compliant portion of the award, with no avenue for appeal against the issuance of such orders. However, if a court denies an execution order, the decision may be appealed.
- Recognition of Foreign Arbitral Awards: The New Arbitration Law extends beyond domestic issues, providing for the recognition of foreign arbitral awards without requiring re-hearing or re-arbitration under KSA rules before enforcement in the country.
The New Arbitration Law signifies a significant leap forward in modernizing the arbitration services in Saudi Arabia, offering a framework that fosters efficiency, autonomy, and international recognition, thereby enhancing the attractiveness of arbitration as a preferred method for dispute resolution in the Kingdom.
Saudi New Enforcement Law & New Arbitration Law
To support the New Arbitration Law 2012 in Saudi Arabia, a revised enforcement legislation took effect in March 2013 by the Royal Decree No. M/53, known as the “New Enforcement Law 2013.” This legislation aimed to address prior concerns regarding the inconsistent enforcement of awards.
Previously, the Saudi Board of Grievances was obligated to review awards for Sharia law compliance, a process characterized by its lengthiness and rigidity, often resulting in enforcement refusals of the awards. With the introduction of the New Enforcement Law, arbitration awards can now be enforced more efficiently and effectively before an Enforcement Judge. Nonetheless, a State court retains the authority to decline enforcement of an award, or part thereof, if its rationale contradicts KSA Sharia law principles, such as the prohibition of interest or usury.
Saudi Judiciary Support for Arbitration Services in KSA
A notable improvement has been observed in the attitude of the judiciary towards arbitration in Saudi Arabia. Previously, there was inconsistency in the judiciary’s approach to enforcing foreign awards, leading to parties hesitating to engage in foreign arbitration. However, with a recent judicial reshuffle and the implementation of the New Arbitration and Enforcement Laws, there has been a significant shift.
Presently, the Saudi Arabia’s judiciary consistently upholds both domestic and foreign arbitral awards. In 2021, the judiciary in KSA successfully enforced 204 national and foreign awards, with enforcement proceedings typically resolved within two weeks on average.
Saudi Center for Commercial Arbitration (SCCA)
The local Chambers of Commerce and Industry provide arbitration services in Saudi Arabia; however, they lack the required expertise and regulations to effectively handle complicated commercial arbitration cases.
On April 14, 2014, the Saudi Council of Ministers issued a resolution establishing the Saudi Center for Commercial Arbitration (SCCA). The SCCA institution was formed by the Council of Saudi Chambers (CSC) after consulting with the Kingdom’s ministries of justice, commerce and industry, and in coordination with the governor of the SAGIA i.e. Saudi Arabian General Investment Authority. Though the SCCA was formed in 2014, it started working in 2016 when it opened in Riyadh physically by publishing its Arabitration Rules.
The SCCA operates under a board of nine directors serving three-year terms. Empowered to conduct arbitration both domestically and internationally on commercial disputes, the SCCA ensures coordination with the Saudi Ministry of Justice in its endeavors.
SCCA Arbitration Rules 2023
To enhance transparency, the Saudi Center for Commercial Arbitration (SCCA) has released the Internal Rules of the SCCA Court, effective as of July 1, 2023. These rules address various facets of the SCCA Court’s operations, encompassing its composition, member appointments, conferred powers and functions, and procedures for convening and rendering decisions.
Additionally, the 2023 edition of the SCCA Arbitration Rules effective on May 1, 2023 introduces the formation of the SCCA Court in KSA, as previously announced by the SCCA in 2022.
SCCA Courts in Saudi Arabia
The SCCA Court in KSA, composed of 15 esteemed international experts representing 12 countries, is tasked with adjudicating crucial administrative issues pertaining to SCCA-administered arbitrations. Its distinguished members encompass a diverse range of professionals, including international arbitrators, academic scholars, former heads of international arbitral bodies, retired appellate judges, and esteemed partners from renowned international law firms.
The SCCA Court operates autonomously from the SCCA and fulfills specific roles outlined in both the SCCA Rules 2023 and the Internal Rules of the SCCA Court. Unless otherwise specified in the Rules, the decisions rendered by the SCCA Court are conclusive and obligatory for the parties and the Arbitral Tribunal. Parties explicitly wave any entitlement to appeal or scrutinize i.e. review the SCCA Court’s decisions.
Online Dispute Resolution (ODR) Rules in Saudi Arabia
The 2023 SCCA Arbitration Rules incorporate a specific set of regulations known as the Online Dispute Resolution Rules (ODR Procedure Rules), detailed in Appendix IV. Initially the Rules were established in October 2018 and subsequently revised in July 2021. These ODR rules were further updated in 2023 to align with the latest edition of the SCCA Arbitration Rules 2023.
The ODR Procedure Rules are intended for application, subject to the parties’ written agreement, in resolving small-scale disputes not exceeding SAR 200,000.00, inclusive of all claims but exclusive of arbitration costs.
SCCA Efforts to Support Saudi Vision 2030
In line with its Vision 2030 initiative declared in 2016, Saudi Arabia is committed to strengthening economic diversification and actively encouraging foreign investment in the country. Central to these objectives is fostering investor confidence in the Kingdom’s commercial disputes framework, Saudi Arabia established the Saudi Center for Commercial Arbitration (SCCA). It was the country’s first arbitral institution.
Formally instituted via a decision of the Saudi Minister council in 2014, the SCCA commenced operations in late 2016 with the publication of its Arbitration Rules. The SCCA oversees arbitration and mediation proceedings conducted in both Arabic and English, aiming to emerge as the preferred alternative dispute resolution (ADR) provider in the region by 2030.
Conclusion
In summary, arbitration in KSA has evolved significantly in recent years, driven by legislative reforms, institutional developments, and a growing awareness of the benefits of alternative dispute resolution. By embracing arbitration as a preferred method of resolving disputes, stakeholders in KSA can foster greater commercial certainty, efficiency, and trust in the legal system, ultimately contributing to the Kingdom’s economic growth and development.
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FAQs on Arbitration Services in Saudi Arabia
Q. Does Saudi Arabia have arbitration?
Ans. Yes, Saudi Arabia has arbitration. Arbitration is governed by the Saudi Arbitration Law, which provides a framework for resolving disputes outside of the court system.
Q. Which country is best for arbitration?
Ans. The choice of the best country for arbitration depends on various factors such as the nature of the dispute, the preferences of the parties involved, and the specific legal considerations.
Q. Are arbitration awards enforceable in Saudi Arabia?
Ans. Yes, arbitration awards are enforceable in Saudi Arabia. The Saudi Arbitration Law facilitates the recognition and enforcement of arbitral awards, both domestic and foreign. This ensures that parties can rely on arbitration as an effective means of dispute resolution, with awards being upheld and enforced by the Saudi judiciary.
Q. Can foreign parties utilize arbitration services in Saudi Arabia?
Ans. Absolutely. Saudi Arabia welcomes foreign parties to utilize arbitration services within its jurisdiction. The Saudi Center for Commercial Arbitration (SCCA) provides a platform for both domestic and international parties to resolve disputes through arbitration, offering a neutral and efficient forum for resolving commercial conflicts in accordance with the law.