Saudi Arabia: Saudi Arabia’s New Arbitration Law (2012)

Last Updated: 20 September 2012
Article by John G. Zadkovich

The Council of Ministers of the Kingdom of Saudi Arabia recently approved a new arbitration law (the "2012 Law"). The law, which is generally based on the UNCITRAL Model Law, came into effect on 8 August 2012 and replaces Saudi Arabia's previous arbitration law (the "1983 Law"). The new law is forward thinking it embraces national and international arbitration proceedings, provides for rules governing arbitration proceedings in Saudi Arabia, and deals with the enforcement of foreign arbitral awards.

1. The Arbitration Agreement

The 2012 Law provides guidelines on how notification of the parties should be carried out (i.e. by mail or as provided in the agreement). The arbitration agreement itself must be in writing, but this requirement can be satisfied by an exchange of correspondence or by reference to another agreement which includes an arbitration clause. Government departments cannot agree to an arbitration clause in a contract unless prior approval is given by the Cabinet of Ministers, or inclusion of such clause is authorized by existing law.

2. Arbitrators Qualifications and Appointments

Under the 1983 Law, arbitrators were required to be experienced, of good conduct, and reputation and have full legal capacity (i.e. be male adults and of the Islamic faith). The 2012 Law is silent as to gender, nationality, and religion. However, arbitrators must be adults, of good conduct, and hold a degree in Shari'a science or law. Unsurprisingly, they must inform the parties of any conflicts of interest (this is an ongoing requirement) and remain impartial throughout the proceedings.

The selection process for cases involving multiple arbitrators is similar to most institutional rules: each party nominates an arbitrator and the two then appoint a chairperson. If the two cannot agree, the Court will appoint the chairperson. Challenges against arbitrators can only be made in narrow circumstances and within five days to the tribunal.

Interestingly, the 2012 Law requires the parties to enter into a contract with the arbitrator(s) regarding his/her fees and terms. If no agreement is reached, the Court will decide those points.

3. Jurisdiction and Law

The 1983 Law required the Court to act as a supervisory authority in all arbitrations conducted under the Saudi rules. This had the potential to undermine the privacy of arbitration proceedings, and usurp the arbitrators' powers. Under the 2012 Law, the Court's supervisory role is removed (as is the case with most modern systems), and the Courts have no jurisdiction to hear a matter that the parties have agreed to refer to arbitration. However, the Courts will (unless the parties agree otherwise) have the power to grant urgent provisional measures, before, during or after the arbitration.

The 2012 Law embraces the doctrine of competence-competence it allows the arbitrators to decide on their own jurisdiction and on whether there is a valid arbitration agreement or if it is wide enough to include the scope of the dispute. The 2012 Law also gives regard to the doctrine of separability in that the arbitration agreement is considered independent of the principal agreement and that the invalidity of that agreement will not invalidate the arbitration agreement.

The 2012 Law allows the parties to choose the substantive law and provides that the arbitrators are bound to apply that law, even if it is not Saudi law. However, parties should ensure that the chosen law does not affront the Islamic principles of Shari'a, as this may adversely affect the enforceability of the award in Saudi Arabia.

4. Procedural Rules

Under the 2012 Law, the parties are free to agree which particular rules to apply, including (for example) rules of international organizations such as the ICC, LICA, and IBA. However, the rules must not be contrary to Shari'a law. In the event the parties cannot agree on the applicable rules, the 2012 Law prescribes guidelines for the conduct of the proceedings, or the arbitrators may decide the applicable procedures. Note also that the 2012 Law allows a case to proceed in the absence of one of the parties.

The 2012 Law enables the arbitrators to ask a relevant authority for help in the arbitration process (e.g. summoning a witness or ordering the production of documents). Again, this accords with most modern arbitration laws where arbitrators lack coercive powers and local Courts can assist but not undermine the independence of the arbitral process.

Unlike the 1983 Law, the 2012 Law allows the parties to choose the language of the proceedings it no longer needs to be conducted in Arabic. However, if the award is to be enforced in Saudi Arabia, it must be in Arabic.

5. The Award

In reaching their decision, the 2012 Law requires that the arbitrators must take into consideration the Islamic principles of public policy of Saudi Arabia, the law and procedure chosen by the parties, and the best principles of custom and usage and the common practice applicable to the nature of the transaction at issue. The Court will assist the arbitrators in making a decision if they cannot agree on a final award.

Awards must now be issued within 12 months from when the arbitration commenced. However, this can be extended by six months. This is more pragmatic than the 90-day period under the 1983 Law. The award itself must be in writing, state the date of the award, place of issue, summary of arguments, and other relevant information.

A party seeking to challenge an award must do so within 60 days of it being served; it cannot challenge the award when the successful party seeks enforcement. The grounds for challenging an award are limited, but are similar to those contained in the New York Convention and the UNCITRAL Model Law. However, as noted elsewhere, an award that affronts the fundamental principles of Shari'a or is contrary to Saudi public policy is open to challenge.

Unlike the 1983 Law, the 2012 Law provides that the Court, where enforcement is sought (i.e. The Board of Grievances in Riyadh), may not examine the merits of the case. However, the Court will consider the award to ensure it does not contradict a previous judgment, that it does not violate Shari'a law and public order, and that it has been served on the other party.

As for recognizing and enforcing foreign awards, the 2012 Law requires, among other things, an original copy of the award, an Arabic translation (duly notarized), copies of the arbitration agreement, and proof the award was filed.

Conclusion

The 2012 Law is an improvement on the 1983 Law and brings arbitration in the Kingdom into line with modern international commercial practices. The clarity of the new law should afford users with greater confidence and understanding when commencing or participating in arbitration proceedings in Saudi Arabia. However, parties considering arbitration in Saudi Arabia should also be cognizant of the need for compliance with local laws and Shari'a law. That said, the 2012 Law represents an admirable step forward for commercial law in Saudi Arabia and should be applauded.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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