"The Prophet Muhammad (resorted to) arbitration to resolve disputes and (recommended) others to use it. His (involvement in) arbitration between the clans of the Quraysh tribe during the renovation of the Ka'ba is significant in the history of Islam and the development of Shari'ah. A dispute broke out between the tribes on who would reinsert the Black Stone in the Ka'ba after its renovation. No clan head wanted to relinquish this great honor of any other clan. Through his successful arbitration of that dispute, the Prophet prevented 'potential' war among the Quraysh Tribes."
Speaking specifically of Arbitration and the Kingdom of Saudi Arabia, the history and origin are both intriguing and challenging. In Saudi Arabia vs. Arabian American Oil Company, the arbitral tribunal considered and accepted governing laws of Saudi Arabia to apply to certain concession contract but was reluctant to apply Shari'ah principles in totality. The said reluctance resulted in tribunal using general customs applicable to the oil industry. In sum, the award was passed against the Kingdom and in favor of Arabian American Oil Company. Although the verdict was disappointing, the Saudi Government accepted the decision but renegotiated the concession arrangement with Arabian American Oil Company until 1980's and finally in November 1988 incorporated Saudi Aramco according to a Royal Decree, which is today one of the world's largest oil entity.
Following the adverse verdict, Saudi Arabia enacted Resolution Number 58 which aimed at averting local government ministerial departments from engaging in arbitration. Saudi Arabia's ratification of the Riyadh Convention in 1985 resulted in the change of these sentiments.
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