Saudi Arabia: New Saudi Shipping Regulations: Regulating Shipping And Marine Insurance Policy Wording

On 4 January 2013, the Decision No. 01/12 dated 1 January 2013 ratifying the Executive Regulations on the Activity of Contractors of Sea Goods Transport (the Shipping Regulations) was published in the Saudi official gazette, Umm Al-Qura.

Application and limitation

These Shipping Regulations shall come into force after 90 days from the date of publication and shall apply to activities of transport of goods by sea through a transport contractor, between the ports of the Kingdom or between the Kingdom and any other country/countries.
The Shipping Regulations' provisions that conflict with any multilateral or bilateral treaty to which Saudi Arabia is a party shall not apply.

Licensing requirements

Article 3 of the Shipping Regulations requires that a person who wishes to carry on contracting activities of transporting goods by sea (the Contractor) should apply to the Ministry of Transport (MOT) for a license to do so in accordance with the provisions of the Shipping Regulations, provided that such contractors shall necessarily be Saudi fully owned establishments. Foreign investors may apply for such license in accordance with the Shipping Regulations provided that they comply with any other relevant law or bilateral, regional or international treaty to which the Kingdom is a party.

The license is issued for a period of 3 years and is strictly to be used by the licensee. The licensee should obtain the MOT's prior approval for the opening of any branch or change of headquarters. Licensees should submit their applications for license renewals at least 90 days prior to the expiry date or within one year from expiry provided that activities are halted until the license is renewed.

Article 13 of the Shipping Regulations also allows a licensee to transfer its license to a third party subject to fulfilling certain requirements. Pursuant to such transfer, the initial licensee and its personnel remain liable for all obligations that arose during the term of the license, unless otherwise agreed.

Insured parties' rights and obligations in the transport contract

Article 15 of the Shipping Regulations provides that the Contractor shall link the Transport Contract to a valid insurance policy which covers the Contractor's financial liabilities provided for in these Regulations. Article 17 also requires that the name of the insurer, the policy number and its date shall all be mentioned in the Bill of Lading.

It should be noted that insurance activity and insurance policies wordings are regulated by the Saudi Arabian Monetary Agency (SAMA) and are principally governed by the Law on Supervision of Cooperative Insurance Companies (the Insurance Law) and its Implementing Regulations (the Insurance Regulations) and the Insurance Market Code of Conduct. These legislations do not provide for specific provisions governing marine insurance. However, they do require that policy wordings should be approved by SAMA prior to them being offered to clients in the Saudi market. As such, the new Shipping Regulations have introduced new requirements for marine insurance which Saudi licensed insurers should accommodate in their policy wordings. These insurers, nonetheless, may not amend their marine insurance policies prior to complying with the regulatory requirements for their insurance products' approvals.

As per Article 16 of these Regulations, the Bill of Lading should not include anything which limits or affects the Contractor's financial rights against the sender, or which limits the liabilities of the sender or recipient. On the other hand, the Contractor benefits from several limitations relating to delays, deliverables and other obligations. For example, Article 36 of the Shipping Regulations provides that in case the Contractor is responsible for any delay in delivery, his liability shall not exceed two and a half times the transport fee of the delayed goods and shall never exceed the transport fee of all the goods agreed in the transport contract. Moreover, if the goods are affected by any indirect damages, the amount of compensation shall not exceed the transport fee agreed in the transport contract for such damaged, lost or delayed goods. However, Article 38 allows the parties to the transport contract to agree an amount of compensation different from that provided for in the Shipping Regulations, without specifying whether such indemnification could be reduced or increased.

Furthermore, these Regulations necessitate that a recipient of goods should notify the Contractor in writing of any loss within one business day from receiving the goods. In the event that the loss is not apparent, the one-day period shall be 14 days. Moreover, a Contractor shall notify the sender in writing of any loss within 14 days from the actual receipt of goods if such loss was a result of the sender's fault or negligence.

Principles such as "reservation of rights" previously have been controversial before Saudi courts. The new Shipping Regulations, however, explicitly provide for the reservation of rights with regard to deliveries. Whilst the Commercial Law (which used to govern shipping in Saudi Arabia) recognised payment of freight and receipt of goods as evidence of acceptance, several articles of the Shipping Regulations give the parties to a transport contract the right to write down their reservations with on the delivery documents.

Jurisdiction and governing law on violations and disputes

Finally, Article 58 of the Shipping Regulations provides that the Minister's Decision No. 01/19 dated 7/4/1429H (corresponding to 13 April 2008G) relating to the procedures of detecting breaches, enforcement of penalties, payment of fines and examining grievances shall apply to any breach of the provisions of these Regulations. With respect to shipping, this clearly fills the gap left by Article 20 of the Insurance Law whereby subrogated claims filed by an insurer against a non-insurer used to be referred to the Committees for Resolution of Insurance Disputes and Violations (the Insurance Committees) due to there being no clear regulation governing such situations. It should be noted that SAMA requires all insurers to mention in their policies that any dispute arising thereunder shall be referred to the Insurance Committees. In light of the foregoing, it would seem that there is potential conflict of jurisdiction and applicable law, especially when it concerns a dispute arising out of a breach of the insurance related provisions of the Shipping Regulations. Such matters as well as other aspects arising from the Shipping Regulations have yet to be revealed, which will only happen when the Shipping Regulations are applied in practice. This flags out a regulatory risk to all concerned parties, including and not limited to insurers and Contractors.

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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