Saudi Arabia: An Overview Of The New Implementing Regulations To The Saudi Arbitration Law

Last Updated: 13 June 2017
Article by Mohamed Mahayni and Zaid Mahayni
Most Read Contributor in Saudi Arabia, November 2018

Five years have passed since Saudi Arabia overhauled its arbitration law in 2012. The law which was enacted in that year (the "Arbitration Law") replaced the previous law which had been in place since 1983.1 The Arbitration Law removed the heavy constraints that existed on party autonomy. It also increased arbitrators' powers and reduced the role of the courts in the procedure. In this manner, the Arbitration Law reformed the Saudi arbitration regime and sought to align it with international best practices.

The meaning and scope of the Arbitration Law however remained subject to its implementing regulations. The Arbitration Law envisaged that the Council of Ministers would issue these regulations but did not say when that would happen. This was expected to take no more than two years based on previous experience with the two-year gap between the 1983 arbitration law and its 1985 implementing regulations.2 On 22 May 2017, nearly five years after the entry into force of the Arbitration Law, the Council of Ministers issued the long-awaited implementing regulations to the Arbitration Law (the "Implementing Regulations").

The Implementing Regulations came into force when they were published in the Saudi Official Gazette on 9 June 2017. This note assesses their import. Section I summarises their key provisions and Section II highlights some of the uncertainties that they fail to resolve conclusively in the Arbitration Law.

  1. Key provisions of the Implementing Regulations

For the most part, the Implementing Regulations set out straightforward rules that complete the provisions of the Arbitration Law. For example:

  • The Arbitration Law requires the claimant to submit a request for arbitration to commence proceedings.3 The Implementing Regulations set out the minimum information that should go into that request.4
  • The Arbitration Law provides that the competent Court of Appeal will appoint the sole arbitrator or chairperson in the absence of agreement between the parties or their nominees, respectively.5 It will also appoint a wing arbitrator on behalf of a party that fails to participate in the proceedings or select its arbitrator.6 The Implementing Regulations add that an application to appoint an arbitrator in these circumstances must include a copy of the request for arbitration and a copy of the arbitration agreement.7
  • The Arbitration Law sets out the procedure for challenges to arbitrators.8 The Implementing Regulations add that – where a challenge is made – the arbitrator who is challenged may resign without giving reasons, and his or her resignation does not amount to an admission of the grounds of challenge.9
  • The Arbitration Law provides that a replacement arbitrator will be appointed in the event that an arbitrator passes away, resigns or is otherwise unable to carry out his functions for any other reason.10 The Implementing Regulations add that – in those circumstances – the proceedings will be suspended until a substitute arbitrator is appointed.11 By way of exception, the proceedings will not be suspended if the replacement is required to fill the position of an arbitrator that has been recused.
  • The Arbitration Law provides that the tribunal may conduct the proceedings in the manner it considers appropriate if the parties fail to agree on the procedure.12 The Implementing Regulations add that – in those circumstances – the tribunal must give the parties at least 10 days' notice of the procedure it will follow.13
  • The Arbitration Law provides that the tribunal may appoint one or more experts to report on particular issues.14 The Implementing Regulations now set out additional rules for this. For example, the tribunal must instruct the expert and specify his or her mission. The tribunal must also determine his or her fees.15
  • The Arbitration Law was silent about the possibility of joining a third person as a party to the arbitration, but it was understood that nothing prevents parties from agreeing this. The Implementing Regulations now clarify that the tribunal can permit such joinder if the existing parties and third person agree.16
  • The Arbitration Law envisages that a tribunal may end an arbitration because the claimant withdrew its claims or failed to particularise them.17 The Implementing Regulations add that – in those circumstances – the arbitration agreement remains valid and the parties remain bound by it.18
  • The Arbitration Law sets out limited grounds on which awards may be annulled and the time limits within which annulment requests must be made.19 The Implementing Regulations list the documents that must be included with annulment requests.20 They also clarify that the right to submit an annulment request is not open to parties that have waived this right.21

In addition, the Implementing Regulations also clarify the role of the Courts of Appeal and the Supreme Court pursuant to the Arbitration Law. The Arbitration Law was somewhat opaque about which court had curial jurisdiction over matters arising from the Arbitration Law – it seemed to ascribe competence to both first instance courts and courts of appeal except in international commercial arbitrations where default jurisdiction is given to the Riyadh Court of Appeal.22 The Implementing Regulations now clarify the uncertainty by stating that competence rests with "the Court of Appeal which has jurisdiction over the dispute".23 Read plainly, this formulation means that competence rests with the Court of Appeal that would ordinarily have jurisdiction over the dispute were it not submitted to arbitration.

The Implementing Regulations also name the Supreme Court as the competent authority for appeals against judgments of the competent court in the two situations where such appeals are permitted under the Arbitration Law.24 These situations are when a competent court either sets aside an award on application of one of the parties,25 or refuses a party's application to enforce the award.26 In either situation, the Arbitration Law implicitly considers that the possible denial of justice resulting from a competent court's decision warrants review by a superior court. Now that the Implementing Regulations have clarified that the competent court is the Court of Appeal, it follows that appeals against the Court of Appeal's judgements must go to a superior court – the Supreme Court.

  1. Uncertainties left unresolved in the Implementing Regulations

While the Implementing Regulations shed light on certain issues in the Arbitration Law, they are silent on others where clarification was warranted. In some instances, the Implementing Regulations even introduce uncertainty where there previously was none.

There are two particular issues on which the Implementing Regulations were expected to bring clarification but did not. The first issue is the Arbitration Law's definition of 'international arbitration' which serves no objectively identifiable purpose.27 Under arbitration laws of other jurisdictions, 'international arbitration' is usually defined in order to distinguish it from domestic arbitration and impose slightly different sets of rules for each regime. In contrast, the Arbitration Law does not set out any significant rules or principles that apply differently depending on whether the arbitration is domestic or international. The only provision in the Arbitration Law that operates a distinction is Article 8(2), which provides that the Riyadh Court of Appeal is competent over matters arising from "international commercial arbitrations" unless the parties agree to give competence to another Court of Appeal in Saudi Arabia.28 The Implementing Regulations do not distinguish between domestic or international arbitration either, which suggests that the Saudi legislator never intended to create two regimes in the first place.

The arbitrator's gender and religion are the second issue on which closure was hoped for in the Implementation Regulations. Before the Arbitration Law, there was an explicit requirement that arbitrators be either Saudi or Muslim, and there was an expectation that they also be male.29 Against this background, one of the most notable features of the Arbitration Law is that it does not require arbitrators to be Saudi or Muslim. Instead, the Arbitration Law simply states that sole arbitrators and chairpersons must hold a university degree in law or Shari'a,30 indicating that the faith-based requirement was officially dropped. However, there was always an apprehension that the Implementing Regulations would introduce the requirement in the Arbitration Law in the same way the 1985 implementing regulations had done with the 1983 arbitration law. That risk has not materialised in the current Implementing Regulations, but the absence of a non-equivocal provision about the admissibility of non-Muslim arbitrators – and more generally of female arbitrators – leaves the issue susceptible to attempts to interpolate gender and faith requirements from public policy. That said, Saudi courts have already demonstrated an inclination to remain true to the spirit of the Arbitration Law, which was illustrated recently by the Dammam Court of Appeal's decision not to object to the appointment of a female wing arbitrator in an ad-hoc Saudi-seated arbitration.31

Meanwhile, the Implementing Regulations also add some uncertainty into the Arbitration Law in areas when there previously was none. For example, the Implementing Regulations provide a long-stop date for challenges to an arbitrator's appointment.32 The Arbitration Law already sets out a default procedure according to which a party must submit its challenge application within five days of becoming aware of the grounds giving rise to the challenge.33 The Implementing Regulations now add that "challenge applications shall not be accepted after the end of the pleadings".34 This long-stop date was likely intended to allow leniency for parties that have valid grounds for challenge but fail to present them within the five day deadline. However, the meaning of "the end of the pleadings" is ambiguous. It probably refers to the last opportunity to present submissions pursuant to the procedural timetable agreed by the parties or set by the tribunal. It could equally mean any time before the award is rendered. Either way, a disruptive party that is apprehensive about losing the arbitration could try to exploit this ambiguity and submit a late challenge in the hope of replacing the arbitrator and achieving a better outcome.

Another example of uncertainty introduced by the Implementing Regulations relates to the new provision on notices. That provision allows notices through electronic means "[s]ubject to what is stated in the [Arbitration] Law concerning notices".35 However, the Arbitration Law provides as a default rule for notices to be made either in person or by mail,36 which renders the provision in the Implementing Regulations redundant. As a result, parties wishing to allow notices to be made electronically should include a sentence to that effect in their arbitration agreement.

Conclusion

The Implementing Regulations do not introduce any unexpected rules into Saudi Arabia's nascent arbitration regime. In this sense, the Implementing Regulations reinforce the momentum created by the Arbitration Law to modernise Saudi Arabia's arbitration regime. It is now for the Courts of Appeal and the Supreme Court to ensure that the Arbitration Law and Implementing Regulations are applied in a manner that is consistent with the purpose of the reforms. It is also the role of arbitrators and legal representatives to exercise their respective functions with professionalism and vigilance to allow arbitration practice to flourish.

Footnotes

1 Arbitration Law issued by the Council of Ministers pursuant to Royal Decree M/34 dated 24.5.1433 Hijri 16/4/2012 Gregorian) and published in the Official Gazette on 8 June 2012, replacing Arbitration Law issued pursuant to Royal Decree No. M/46 dated 12.7.1403 Hijri (24 April 1983 Gregorian). An English translation of the Arbitration Law is available at < http://www.wipo.int/edocs/lexdocs/laws/en/sa/sa057en.pdf >.

2 Rules for the Implementation of the Saudi Arbitration Regulation issued by the Council of Ministers pursuant to Resolution 7/2021/M dated 8.9.1404 Hijri (27 May 1985 Gregorian) and published in the Official Gazette on 10.10.1405 Hijri (28 June 1985 Gregorian). An English translation of these rules is available in Paulson (J.) (ed.) International Handbook on Commercial Arbitration (Kluwer Law International 1984, Last updated in December 1987 Supplement No. 8), pp. 1-8.

3 Article 26 of the Arbitration Law.

4 Article 9 of the Implementing Regulations.

5 Article 15(1) of the Arbitration Law.

6 Ibid.

7 Article 4 of the Implementing Regulations.

8 Article 17(1) of the Arbitration Law.

9 Article 5(1) of the Implementing Regulations.

10 Article 15 of the Arbitration Law.

11 Article 6 of the Implementing Regulations.

12 Article 25(2) of the Arbitration Law.

13 Article 8 of the Implementing Regulations.

14 Article 36 of the Arbitration Law.

15 Article 12(1) of the Implementing Regulation.

16 Article 13 of the Implementing Regulations.

17 Articles 41(1) and 34(1) of the Arbitration Law.

18 Article 15 of the Implementing Regulations.

19 Article 50 of the Arbitration Law.

20 Article 18(2) of the Implementing Regulations.

21 Article 18 of the Implementing Regulations.

22 Article 1(3) and Article 8(1) of the Arbitration Law.

23 Article 2 of the Implementing Regulations. Article 2 explicitly refer to three provisions in the Law as "exceptions" to the Courts of Appeal's competence. However, a closer look at those provisions reveals that they do not per se constitute exceptions to the Courts of Appeal's curial competence over Saudi-seated arbitrations. Rather, they simply refer to instances where the term "competent court" is used in the Law to refer to competence over the substance of the dispute. For example, one of the so-called "exceptions" is Article 9(1), which provides that parties to litigation proceedings before a "competent court" can agree to end the court proceedings and submit their dispute to arbitration instead. Article 12 of the Arbitration Law then provides that in these circumstances the "competent court will refer the matter to arbitration". The "competent court" in Article 9(1) and Article 12 of the Arbitration Law refers to the court with jurisdiction over the substance of the dispute and not to the competent Court of Appeal's role as the supervisory court under the Arbitration Law.

24 Article 17 of the Implementing Regulations.

25 Article 51(2) of the Arbitration Law.

26 Article 55(3) of the Arbitration Law.

27 Article 3 of the Arbitration Law.

28 Article 8(2) of the Arbitration Law ("If the arbitration is an international commercial arbitration conducted in Saudi Arabia or elsewhere, the competent court with jurisdiction over the matter will be the Court of Appeal with original jurisdiction to hear the dispute in the city of Riyadh, unless the parties agree to designate another court of appeal in Saudi Arabia as the venue.")

29 Article 2 of the Implementing Regulations 1985.

30 Article 14(3) of the Arbitration Law.

31 Almulhim (M. H.), "The First Female Arbitrator in Saudi Arabia", 29 August 2016, Kluwer Arbitration Blog, available at < http://kluwerarbitrationblog.com/2016/08/29/the-first-female-arbitrator-in-saudi-arabia/ >

32 5(2) of the Implementing Regulations.

33 Article 17 of the Arbitration Law.

34 Article 5(2) of the Implementing Regulations. Emphasis added.

35 Article 3(1) of the Implementing Regulations.

36 Article 6(1) of the Arbitration Law.

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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Zaid Mahayni
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