GLOBAL GUIDE 2017
© Thomson Reuters 2017 This article was first published in the Arbitration Global Guide 2017 and is reproduced with the permission of the publisher, Thomson Reuters. The law is stated as at 01 July 2017.
Arbitration procedures and practice in Saudi Arabia: overview Henry Quinlan, Amer Abdulazis Al-Amr, Adam Peters and Abdulrahman Alayoni DLA Piper (Middle East) LLP
USE OF ARBITRATION AND RECENT TRENDS
1. How is commercial arbitration used and what are the recent trends?
Use of commercial arbitration and recent trends
Arbitration has historically not been a popular method of dispute resolution in the Kingdom of Saudi Arabia. The historic distrust of parties in using arbitration to resolve their disputes was not assisted by the courts’ intervention in the arbitral process and the uncertainty surrounding the enforcement of arbitral awards. In the past, many arbitral awards which have sought to be enforced in Saudi Arabia have fallen victim to the courts’ willingness to look into the merits of the case, and their wide interpretation and application of what constitutes public policy. In some instances, the courts have refused to enforce awards on generic public policy grounds and have even conducted a complete hearing de novo of the underlying dispute (the infamous case of Jadawel International v Emaar Property PJSC being a prime example).
However, with the passing of the new Law of Arbitration (new Arbitration Law), along with the new Enforcement Law (new Enforcement Law) in 2012, there is reason to be quietly confident that the arbitration landscape in Saudi Arabia is changing for the better. The opening of the Saudi Centre for Commercial Arbitration (SCCA) in Riyadh in 2016, along with the publication of the SCCA Arbitration Rules (SCCA Rules) (which are largely based on the UNCITRAL Arbitration Rules) is also encouraging. Further, on 9 June 2017, the Implementing Regulations (Implementing Rules) of the new Arbitration Law were published in the Official Gazette, which clarified certain provisions that were previously vague in the new Arbitration Law.
The cause for optimism is supported by the authors’ recent experience of enforcing in Saudi Arabia, under the new enforcement provisions, a US$18.5 million International Chamber of Commerce (ICC) award handed down in London against a Saudi Arabian award debtor (the first of its kind that the authors are aware of), with the enforcement process before the Enforcement Court taking less than three months.
However, there needs to be a note of caution: for the most part, it remains to be seen how the new arbitration and enforcement provisions will be applied in practice and, in particular, whether the judiciary will consistently apply the pro-arbitration laws that have recently been passed by the legislature.
The principal advantages and disadvantages of arbitration in Saudi Arabia can now be analysed in the context of the new arbitration landscape.
The main advantages are:
The new Arbitration Law (which came into force on 9 July 2012) is largely based on the UNCITRAL Model Law which has received global recognition as model legislation and arbitration best practice.
The parties are free (subject to the mandatory provisions of the Arbitration Law) to choose the institutional rules which apply to their arbitration, including rules such as the ICC Rules, London Court of International Arbitration (LCIA) Rules, or the UNCITRAL Rules, which are widely recognised and used in the international arbitration community.
The parties are free (subject to the mandatory provisions of the new Arbitration Law) to choose the arbitrator(s) who will determine their dispute.
Arbitration provides the parties with much greater party autonomy to agree how the arbitral proceedings are to be conducted. For example, the parties can choose to have their arbitration conducted in a language other than Arabic; in contrast, all court proceedings in Saudi Arabia are conducted in Arabic. The parties are also free to choose the governing law which will apply to the dispute and the place (or seat) of the arbitration.
With the recent opening of the SCCA and publication of the SCCA Rules, there is now an effective institutional framework within which arbitration in Saudi Arabia can be administered.
The new Enforcement Law (which came into force on 27 February 2013) paves a much quicker and certain path to enforcement of awards in Saudi Arabia than has historically been the case.
The main disadvantages are:
Some disputes are not capable of being arbitrated in Saudi Arabia and must be litigated in the local courts.
There is, in theory at least, a greater risk that an arbitral award may not comply with Islamic Shari’a law than a local court judgment, which could impact adversely on the enforcement of the award.
LEGISLATIVE FRAMEWORK Applicable legislation
2. What legislation applies to arbitration? To what extent has your jurisdiction adopted the UNCITRAL Model Law on International Commercial Arbitration 1985
(either with or without the amendments adopted in 2006) (UNCITRAL Model Law)?
The new Arbitration Law applies to arbitrations (both domestic and international) conducted in Saudi Arabia. Parties can also agree to the application of the new Arbitration Law to international commercial arbitration proceedings conducted outside of Saudi Arabia (Article 2, new Arbitration Law). The new Arbitration Law is largely based on the UNCITRAL Model Law. However, the drafters have also sought to maintain the essential principles of Shari’a, therefore creating a hybrid set of laws which, in some instances, depart from the UNCITRAL Model Law.
The Implementing Rules of the new Arbitration Law is also an important source as it clarifies certain provisions that were previously vague in the new Arbitration Law. For example, the Implementing Rules clarify that the “competent court” referred to in the new Arbitration Law (other than in Articles 9(1), 12 and 40(3) (end part)) is a reference to the Court of Appeal. This clears up any possible confusion or disagreement between the parties as to which court should supervise their arbitration.
The new Enforcement Law is also an important piece of legislation which applies to the enforcement of arbitral awards in Saudi Arabia.
Mandatory legislative provisions
3. Are there any mandatory legislative provisions? What is their effect?
Any arbitration conducted in Saudi Arabia must be conducted in accordance with the principles of Shari’a (Article 2, new Arbitration Law). While parties are free to agree and adopt a set of procedural rules, including those of the major arbitral institutions, in all cases the application of the rules must not contravene the principles of Shari’a (Article 25(1), new Arbitration Law). For example, the principles of Shari’a might be breached if a tribunal permits a witness to give evidence without taking oath, or if the application of the rules would deprive a party of the opportunity to set out its case in full (this could include the situation where a tribunal grants the relief sought in a summary judgment or strike-out application) (see also Article 27, new Arbitration Law).
Further, while parties are also free to agree and adopt a governing law other than Saudi Arabian law to govern the substance of their dispute, it is important that the arbitral award does not contain any findings or make any determinations which are contrary to Shari’a law and public policy (see Article 38(1), new Arbitration Law). For example, an award which provides for interest will most likely be unenforceable in Saudi Arabia either in part (if the interest element of the award can be severed from the remainder of the award) or in whole (if the interest element is embedded in the award for damages and cannot be separated out). Similarly, awards which provide for punitive or exemplary damages may not be enforceable in Saudi Arabia, in whole or part (see Question 27).
As a practical measure, if the arbitration is seated in Saudi Arabia, or if it is likely that a foreign arbitral award will have to be enforced in Saudi Arabia, it is advisable that the arbitral tribunal has some expertise in Shari’a law, or is alive to the need to render an award which is Shari’a law compliant.
4. Does the law prohibit any types of disputes from being resolved through arbitration?
The new Arbitration Law mandates that disputes relating to personal status and matters in respect of which no settlement is allowed cannot be referred to arbitration (Article 2, new Arbitration Law). This will be taken to include criminal matters, matters involving public policy and administrative law matters. In addition, arbitration is prohibited in disputes involving Saudi Arabian government bodies, unless the approval of the Prime Minister has been obtained or arbitration is provided for under a special provision of law (Article 10(2), new Arbitration Law).
5. Does the law of limitation apply to arbitration proceedings?
Save for any specific legislative provisions relating to certain discrete categories of claims, there is no time limit prescribed in the new Arbitration Law (or elsewhere) for commencing an arbitration. Under Shari’a law, there are no prescribed limitation periods, as one of the applicable maxims of Saudi Arabian law is a just right never dies. That said, in practice, the courts in Saudi Arabia have been known to dismiss disputes if more than ten years have passed from the date of the relevant events which have given rise to the dispute, unless there is good reason why this should not be the case.
The new Arbitration Law provides that, in the absence of agreement between the parties, the final award will be issued within 12 months from the date of the commencement of the arbitration proceeding (Article 40(1), new Arbitration Law). However, the tribunal can extend this period by up to six months on its own initiative. It is open to the parties to agree a longer period (Article 40(2), new Arbitration Law).
6. Which arbitration organisations are commonly used to resolve large commercial disputes?
The use of arbitration in Saudi Arabia is a developing trend (see Question 1). Under the new Arbitration Law, parties are expressly permitted to agree on an institution (such as the ICC, which has traditionally been the preferred institution, or LCIA) to administer their dispute. Further, with the recent opening of the SCCA, it is hoped that parties in the region will begin to nominate the SCCA in their arbitration agreements, although whether, and the extent to which contracting parties will do so, remains to be seen.
7. What remedies are available where one party denies that the tribunal has jurisdiction to determine the dispute(s)? Does your jurisdiction recognise the concept of kompetenz-kompetenz? Does the tribunal or the local court determine issues of jurisdiction?
The new Arbitration Law specifically legislates for the application of the kompetenz-kompetenz principle. It provides that the arbitral tribunal will decide on any pleas relating to its own jurisdiction, including those based on the absence of an arbitration agreement, its expiration or nullification or whether
the issues in dispute fall within the scope of the arbitration agreement (Article 20(1), new Arbitration Law). There are time limits prescribed in the new Arbitration Law within which a jurisdictional challenge must be made, but in all cases the arbitral tribunal may accept a late plea if it deems the delay justified (Article 20(2), new Arbitration Law).
Importantly, if the arbitral tribunal dismisses the jurisdictional challenge, it is not open to the challenging party to appeal the tribunal’s decision to the relevant court. However, the challenging party can rely on the grounds for the jurisdictional challenge in any subsequent enforcement/annulment proceedings, but only after the final award has been rendered (Article 20(3), new Arbitration Law).
ARBITRATION AGREEMENTS Validity requirements
8. What are the requirements for an arbitration agreement to be enforceable?
The new Arbitration Law mandates that an arbitration agreement must be made in writing, otherwise it is null and void (Article 9(2), new Arbitration Law). The arbitration agreement can be concluded before or after the relevant dispute (Article 9(1), new Arbitration Law). That is, the parties can enter into a submission agreement or sign a terms of reference, the effect of which is to cure any defects in the original arbitration clause. In the case of an arbitration clause, the main contract containing such a clause is usually sufficient evidence of the parties having agreed to refer future disputes arising under the contract to arbitration (Article 1(1), new Arbitration Law).
The writing requirement can also be satisfied by an exchange of correspondence, telegrams or any other electronic or written means of communication. The arbitration agreement can also be incorporated by reference to another document (such as a standard form contract such as the International Federation of Consulting Engineers (FIDIC)) provided the reference clearly deems the arbitration clause to be part of the main contract (Article 9(3), new Arbitration Law).
There is no model arbitration clause provided for in the new Arbitration Law (however, the SCCA Rules does contain a “suggested” arbitration clause). However, and in any event, when drafting an arbitration clause, it is recommended that the usual key elements are provided for, including the:
Law governing the contract (which should be a separate clause).
Number of arbitrators.
Place of the arbitration.
Language of the arbitration.
Institutional rules (if any) which apply to the arbitration.
Further, in drafting any arbitration clause, regard should be had to any mandatory laws or restrictions that might apply to arbitration in Saudi Arabia (see Question 3).
Separate arbitration agreement
See above, Substantive/formal requirements. Article 1(1) of the new Arbitration Law expressly provides that an arbitration agreement can be an arbitration clause in a contract, or a separate arbitration agreement.
Unilateral or optional clauses
9. Are unilateral or optional clauses, where one party has the right to choose arbitration, enforceable?
Article 1(1) of the new Arbitration Law prescribes that an agreement to arbitrate is an agreement between two or more parties to refer to arbitration all certain disputes. Unilateral or optional clauses are unlikely to be enforceable in Saudi Arabia.
10. In what circumstances can a party that is not a party to an arbitration agreement be joined to the arbitration proceedings?
The new Arbitration Law itself is silent on the issue of joinder of non-parties to an arbitration. However, because parties are now provided with greater autonomy in tailoring their arbitration procedure, including adopting a set of institutional rules which provides for joinder of non-parties in certain circumstances, it may be possible to join additional parties to an arbitration in accordance with those provisions as agreed. Further, Article 13 of the Implementing Rules provides some additional clarification in that the tribunal can admit the intervention or admission of another party (other than the arbitration parties) subject to the consent of the arbitration parties and the party to be admitted.
11. In what circumstances can a party that is not a party to an arbitration agreement compel a party to the arbitration agreement to arbitrate disputes under the arbitration agreement?
Under Saudi Arabian law, a third party that is not a party to an arbitration agreement cannot ordinarily compel a party to the arbitration agreement to arbitrate disputes under the arbitration agreement. However, in certain circumstances a third party can subsequently become a party to an arbitration agreement (such as through novation of a contract) and can then exercise its right to arbitrate under the arbitration agreement.
12. Does the applicable law recognise the separability of arbitration agreements?
The new Arbitration Law specifically recognises the doctrine of separability. Article 21 provides that an arbitration clause which forms part of a contract is treated as an agreement independent of the other terms of the contract. Further, it provides that the nullification, revocation or termination of the contract which includes the underlying arbitration clause does not affect the nullification of the arbitration clause, if that clause remains valid.
Breach of an arbitration agreement
13. What remedies are available where a party starts court proceedings in breach of an arbitration agreement or initiates arbitration in breach of a valid jurisdiction clause?
The new Arbitration Law provides that the national courts must decline to hear any dispute that is properly the subject of a valid arbitration clause (provided the defendant raises this defence before any other claim or defence in the proceeding) (Article
11(1), new Arbitration Law). Further, if an agreement to arbitrate is concluded while the dispute is before a national court, the court will refer the dispute to arbitration (Article 12, new Arbitration Law).
14. Will the local courts grant an injunction to restrain proceedings started overseas in breach of an arbitration agreement?
The authors are not aware of any instances where the local courts have granted an anti-suit injunction to restrain proceedings commenced overseas in breach of an arbitration agreement. Such interim remedies are not generally available in Saudi Arabia (or in any onshore Middle Eastern courts).
ARBITRATORS Number and qualifications/characteristics
15. Are there any legal requirements relating to the number, qualifications and characteristics of arbitrators? Must an arbitrator be a national of, or licensed to practice in your jurisdiction to serve as an arbitrator there?
Article 13 of the new Arbitration Law provides that the arbitral tribunal is composed of one arbitrator or more, provided that the number of arbitrators is an odd number. Otherwise, the arbitration is void.
Article 14 mandates that the arbitrator must be all of the following:
Of full legal capacity.
Of good conduct and reputation.
A holder of at least a university degree in Shari’a or law (that is, legal sciences).
If the arbitral tribunal is composed of more than one arbitrator, it is sufficient that the chairman meet the last requirement. There are no mandatory requirements in terms of nationality or gender. Indeed, the authors are aware of one instance when, in May 2016, the Saudi Administrative Court of Appeal in Dammam implicitly approved (in that they did not object to) the appointment of the first Saudi female arbitrator in a commercial arbitration.
However in practice, given Saudi Arabia’s strict adherence to Shari’a law, it would be highly advisable for the chairman of the tribunal or the sole arbitrator, as the case may be, to be Muslim and to have knowledge of, and be well versed in, Shari’a law, as well as knowledge of the laws, regulations, customs and traditions applicable in Saudi Arabia.
16. Are there any requirements relating to arbitrators’ independence and/or impartiality?
Article 16(1) of the new Arbitration Law provides that an arbitrator must not have any vested interest in the relevant dispute. Further, from the date of his appointment and throughout the arbitral proceedings, he must disclose to the parties in writing all circumstances that are likely to give rise to a reasonable doubt as to his impartiality or independence, unless he has previously informed the parties of such
circumstances. Failure to do so could ultimately result in dismissal of the arbitrator.
Article 16(2) of the new Arbitration Law provides that an arbitrator is prevented from acting in a case for the same reasons that a judge in Saudi Arabia is barred, even if neither party so requests (see further Article 92, Law of Procedure before the Shari’a Courts). This is an important provision, because it may be possible, in theory at least, for an award to be annulled if it subsequently emerges that the arbitrator was acting in breach of Article 16(2), even though no one was aware of this at the time. However, Article 5(2) of the Implementing Rules provides some further clarification, in that it states that a request for the removal of an arbitrator will not be admitted following the closure of arguments. In any event, caution needs to be taken when appointing arbitrators in proceedings which are subject to the new Arbitration Law, and appropriate advice should be sought at the time of the appointment of the tribunal.
17. Does the law contain default provisions relating to the appointment and/or removal of arbitrators?
The new Arbitration Law contains default provisions relating to the appointment of arbitrators (Article 15) and removal of arbitrators (Article 17).
Appointment of arbitrators
The parties are free to agree the procedure for the appointment of arbitrators (including by the adoption of a set of institutional rules which address this issue). In the absence of such agreement:
If the arbitral tribunal consists of one arbitrator, the competent court will appoint the arbitrator (Article 15(1)(a)).
If the arbitral tribunal consists of three arbitrators, each party will appoint one arbitrator and the party-appointed arbitrators will jointly appoint the third arbitrator (who will act as chairman or president of the tribunal) (Article 15(1)(b)).
If there is no institution appointed for this purpose, the court will be the appointing body in the event of a failure by the parties or the party-appointed arbitrators to appoint the arbitrators in accordance with Article 15 (Article 15(2)).
Any decision of the competent court with respect to the appointment of arbitrators under Article 15 cannot be appealed, except where a party files an application to have an arbitral award nullified under Articles 49 and 50.
The Implementing Rules provides some further guidance. Article 10 states that if the arbitral tribunal is to be comprised of a single arbitrator, and the parties fail to agree on selecting the arbitrator, the competent court will appoint the arbitrator within 15 days of receiving a request from one of the parties. Article 4 states that the party making such a request must provide a copy of the request for arbitration and a copy of the arbitration agreement.
Removal of arbitrators
The parties are free to agree the procedure for the removal of arbitrators (including by the adoption of a set of institutional rules which address this issue). In the absence of such agreement:
A party has five days from the date of knowing of the formation of the arbitral tribunal or of any circumstances justifying the disqualification of an arbitrator to make an application to the arbitral tribunal (Article 17(1)).
If the arbitrator refuses to recuse himself, the tribunal will determine the application within 15 days of receipt (Article 17(1)).
If the tribunal refuses to grant the disqualification application, the applicant can, within 30 days, apply to the competent court. Any decision of the competent court is not subject to appeal (Article 17(1)).
Importantly, Article 17(4) mandates that, if an application to disqualify an arbitrator is successful, whether before the arbitral tribunal or the competent court, all previous procedures in the arbitration, including awards, are deemed null and void.
PROCEDURE Commencement of arbitral proceedings
18. Does the law provide default rules governing the commencement of arbitral proceedings?
Article 26 of the new Arbitration Law provides that the arbitral proceedings are deemed to commence on the day a request for arbitration made by one party is received by the other party, unless otherwise agreed by both parties. In a multi-party arbitration, Article 11 of the Implementing Rules provides that proceedings are deemed to commence from the day the last party receives the request for arbitration. While the new Arbitration Law was silent on what is to be contained in a request for arbitration, Article 9 of the Implementing Rules now sets out the matters which must be included in a request for arbitration.
Applicable rules and powers
19. What procedural rules are arbitrators bound by? Can the parties determine the procedural rules that apply? Does the law provide any default rules governing procedure?
Applicable procedural rules
Article 25(1) of the new Arbitration Law upholds the principle of party autonomy, and provides that the parties can agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings. Specifically, the parties can agree to subject the proceedings to the rules of any organisation, agency or arbitration centre in Saudi Arabia or abroad. To the extent of any inconsistency between the rules agreed by the parties and the procedural rules in the new Arbitration Law, the rules agreed by the parties will prevail (except where the relevant Saudi Arabian law is mandatory).
However, there is an important proviso: any rules agreed by the parties must not be in conflict with Shari’a law. Again, this shows the importance of appointing at least one member to the arbitral tribunal who has relevant Shari’a law expertise and who (in the context of a three member tribunal) will be able to provide guidance to the tribunal on whether the application of a particular rule might be in conflict with Shari’a law.
The new Arbitration Law contains a default set of procedural rules which are to apply to the arbitration in the absence of agreement by the parties. Further, Article 25(2) provides that, in the absence of agreement, the arbitral tribunal can, subject to the provisions of Shari’a and the new Arbitration Law, determine the procedure to be adopted as it deems fit. This is now qualified by Article 8 of the Implementing Rules, which mandates that where the arbitral tribunal determines any procedures under Article 25(2), it must notify the parties of the procedures at least ten days before adopting the same.
The default procedural rules in the new Arbitration Law are largely based on those in the UNCITRAL Model Law, although some differences do remain. For example, the new Arbitration
Law provides for both written statements of case (Article 30) and the holding of hearings and proceedings to be determined on the papers (Article 33). However, the new Arbitration Law mandates that the tribunal must record the summary of each hearing in minutes which are to be signed by those in attendance, including any witnesses, experts, attending parties or their agents, along with members of the tribunal. A copy of the signed minutes must be delivered to each party, unless the parties agree otherwise. This reflects the usual practice in the region. In practice, a signed transcript of any hearing would satisfy these requirements.
The Implementing Rules contain an important development in relation to the arbitration procedure relating to the exchange of documents. Article 3(1) provides for the serving of notices and notifications by electronic means. This is a significant change in Saudi law as, traditionally, such notices had to be served in person. This now means that the electronic communication of a document (such as a request for arbitration) constitutes effective notification under Saudi law.
EVIDENCE AND DISCLOSURE
20. If there is no express agreement, can the arbitrator order disclosure of documents and attendance of witnesses (factual or expert)?
Except for the limited provisions in Articles 30, 31 and 36, there are no express provisions in the new Arbitration Law which govern document disclosure. However, as noted above, there is a general provision that the tribunal can decide on the procedures to be adopted in the arbitration as it deems fit (subject to the overriding requirement to comply with Shari’a law).
Further, parties are free to adopt the rules of any institution to govern arbitral proceedings, including the IBA Rules on the Taking of Evidence in International Arbitration. It is recommended that, if parties specifically want to empower the tribunal to make orders in relation to document disclosure, they should record their agreement to do so in the terms of reference or similar document.
Unsurprisingly, there are no express provisions in the new Arbitration Law that authorise the tribunal to compel a non-party to appear at the hearing to give evidence or to produce documents. In the absence of agreement, there are also no express provisions relating to party witnesses or party- appointed experts, although the tribunal’s ability to make directions in relation to these matters is probably covered by the general provision authorising it to conduct the proceedings as it deems fit. In contrast, there are express provisions in the new Arbitration Law which deal with tribunal-appointed experts (Article 36) which are now supplemented by Article 12 of the Implementing Rules.
Further, Article 22(3) provides that the arbitral tribunal can, as it deems fit, seek the assistance of the competent court to assist with the proper conduct of the arbitral proceedings, including in relation to such matters as summoning a witness or an expert or ordering the production of documents.
21. What documents must the parties disclose to the other parties and/or the arbitrator? How, in practice, does the scope of disclosure in arbitrations compare with
disclosure in domestic court litigation? Can the parties set the rules on disclosure by agreement?
Scope of disclosure
See Question 20. The new Arbitration Law is generally silent on the issue of disclosure, although it does contemplate that parties will submit copies of all supporting documents in support of their case (Article 30).
In practice, the scope of disclosure in Saudi Arabian arbitral proceedings is usually broader than the scope of disclosure in domestic court proceedings. In domestic court proceedings, parties usually only provide documents to the court which support their case (unless otherwise ordered by the court). In any event, the production of documents is usually kept to a minimum. In contrast, the scope of disclosure in arbitrations can be, and often is, much broader especially in circumstances where the parties have agreed to adopt a set of rules such as the IBA Rules on the Taking of Evidence in International Arbitration. The scope of disclosure ordered by the tribunal can be affected by the composition of the tribunal and whether the tribunal members are from a civil law or common law background.
Validity of parties’ agreement as to rules of disclosure
See Question 20.
22. Is arbitration confidential? If so, what is the scope of that confidentiality and who is subject to the obligation (parties, arbitrators, institutions and so on)?
The new Arbitration Law provides that the arbitral award cannot be published in whole or part except with the written consent of the parties to the arbitration (Article 43(2)). Otherwise, it is silent on the issue of confidentiality. Arbitral proceedings in Saudi Arabia are not attended by outside parties, and the documents presented in the proceedings and the arbitral award are not published. Therefore, issues relating to the confidentiality of the proceedings are rare. However, since Saudi Arabia does not have any privacy laws, if parties want to ensure that all of the arbitration proceedings are kept confidential (as opposed to just the award itself), it is recommended that the parties agree to this in the arbitration clause or at the outset of the proceedings.
COURTS AND ARBITRATION
23. Will a local court intervene to assist arbitration proceedings seated in its jurisdiction?
The new Arbitration Law contains express provisions which enable the competent court (in this case the Court of Appeal) to make orders in support of arbitral proceedings. For example:
Article 15 provides that the competent court is the appointing body for the arbitral tribunal in the absence of agreement by the parties.
Article 22(1) provides that the competent court can order provisional or precautionary measures on the request of the parties (pre-arbitration) or the arbitral tribunal (during the arbitration).
Article 22(3) provides that the competent court can make orders in relation to the calling of a witness or expert, or the production of documents if requested by the arbitral tribunal.
24. What is the risk of a local court intervening to frustrate an arbitration seated in its jurisdiction? Can a party delay proceedings by frequent court applications?
Risk of court intervention
See Question 13.
See Question 23.
25. What is the effect on the arbitration of pending insolvency of one or more of the parties to the arbitration?
Insolvency law in Saudi Arabia is a mixture of overlapping and sometimes archaic sources which are difficult to reconcile. Disputes which relate to insolvency are not typically arbitrated in Saudi Arabia and the effect on the arbitration of the pending insolvency on one or more of the parties has not, to the authors’ knowledge, been tested. In fact, insolvency proceedings in the local courts are rare. A new insolvency law is contemplated on the website of the Ministry of Commerce and industry which may introduce a more recognisable Western style insolvency regime, but this is not enacted into Saudi Arabian law at the time of writing. However, the new Enforcement Law does contain specific provisions which deal with execution and enforcement against an insolvent party (Articles 77 to 82).
26. What interim remedies are available from the tribunal?
Article 23(1) provides that the parties can agree that the arbitral tribunal will have the power, at the request of one of the parties, to order any provisional or precautionary measures of protection as the arbitral tribunal deems fit. Article 23(2) contains possible sanctions if a party refuses to comply with the tribunal’s order under Article 23(1).
Further, to the extent that the parties agree a set of arbitration rules which provide for the tribunal to make orders relating to interim measures, these rules will constitute a further source of power for tribunals to grant interim remedies (for example, security for costs).
27. What final remedies are available from the tribunal?
The Arbitration Law does not generally deal with the types of final relief that the tribunal can award (except that Article 42 does briefly deal with arbitrators’ fees and the costs of the arbitration).
In general, the following types of relief are prohibited by Shari’a law:
Damages for consequential loss.
Punitive or exemplary damages.
Further, the nature and scope of remedies available in Saudi Arabia are more limited than in many other jurisdictions. In
general, the remedies recognised under Shari’a law include the right to rescind a contract, restitution, or damages for actual and direct losses, with little or no means of recovering compensation for loss of future profits or loss of business reputation (as these are deemed to be too speculative and uncertain).
It is generally difficult, but not impossible, to obtain some forms of injunctive relief (in the form of attachments or freezing orders but search orders are rarely, if ever, granted). Specific performance is rarely, if ever, granted.
28. Can arbitration proceedings and awards be appealed or challenged in the local courts? What are the grounds and procedure? Can parties waive any rights of appeal or challenge to an award by agreement before the dispute arises (such as in the arbitral clause itself)?
Rights of appeal/challenge
Awards cannot be appealed in the traditional sense. Article 49 of the Arbitration Law specifically mandates that arbitral awards are not subject to appeal, except that a party can make an application to nullify the award in accordance with the Arbitration Law (Articles 50 and 51).
Grounds and procedure
The grounds for challenging the award are set out in Article 50 of the new Arbitration Law and are based largely, but not exclusively, on the grounds for setting aside an award in the UNCITRAL Model Law.
Article 50(1)(g) contains an additional ground for challenge, where the arbitral tribunal has failed to observe the requisite conditions in relation to the award affecting its substance (for example, see Article 42), or if the award is based on serious procedural irregularities. Further, Article 50(2) provides that the competent court (the Court of Appeal) can, on its own motion, nullify the award if it violates, among other things, Shari’a law or public policy. This again highlights the importance of having an arbitration with Shari’a law expertise on the arbitral tribunal.
Importantly, Article 50(4) provides that, in any application to nullify the award, the competent court in rendering its decision will not look into the facts or subject matter of the dispute.
Under Article 51(1), any application to nullify the award must be made within 60 days of the challenging party being notified of the award. Article 18(2) of the Implementing Rules sets out the documents which must be filed as part of the nullification application.
Under Article 51(2), if the competent court upholds the arbitral award, it will grant an order for its enforcement and this decision is non-appealable. Conversely, any decision to nullify the award by the competent court can be appealed within 30 days. Article 17(1) of the Implementing Rules provides that any appeal is to be heard by the Supreme Court.
Waiving rights of appeal
Under Article 51(1) of the new Arbitration Law, a party cannot waive its right to challenge the award before the award is issued to the parties. However, parties should also be aware of Article 7, which contains deemed waiver provisions if a party becomes aware of a violation of the arbitration agreement or arbitration procedure but does not object within 30 days of becoming aware of the violation. Moreover, Article 18(1) of the Implementing Rules provides that if a party waives its right to challenge the award after the award has been issued, then the waiver will be effective and the challenge application will not be admitted.
29. What is the limitation period applicable to actions to vacate or challenge an international arbitration award?
See Question 28. There are no separate provisions in the Arbitration Law which deal with time limits in relation to challenging an international arbitration award rendered in Saudi Arabia.
30. What is the limitation period applicable to actions to enforce international arbitration awards rendered outside your jurisdiction?
There are no express limitation periods under the new Arbitration Law or new Enforcement Law in relation to the enforcement of international arbitral awards rendered outside Saudi Arabia. The Enforcement Law provides that enforcement of a foreign award in Saudi Arabia is on the basis of equal treatment in the originating country. It is not clear whether this principle will be applied in Saudi Arabia to limitation periods that might apply in the originating country for the enforcement of a Saudi Arabian award.
31. What legal fee structures can be used? Are fees fixed by law?
In Saudi Arabia, the parties’ legal fees or costs are not fixed by law and are often based on a fixed fee referable to the amount of the claim. Charging on an hourly rates basis is permitted and certain types of contingency fee arrangements may be permitted, provided they are not speculative (that is, charging a percentage based on the amount of damages ultimately awarded is prohibited). There is no provision or established practice for third-party funding in Saudi Arabia. The tribunal’s fees are dealt with in Article 24 of the new Arbitration Law and Article 7 of the Implementing Rules.
32. Does the unsuccessful party have to pay the successful party’s costs? How does the tribunal usually calculate any costs award and what factors does it consider?
Under Saudi Arabian law, there are no specific rules for recovering legal costs. In litigation matters, it is entirely within the judge’s discretion as to whether to award legal costs and, if so, in what amount. Often the amount that is awarded (if any) is nominal unless the claim is deemed to be vexatious.
In arbitrations, while Article 42(2) of the Arbitration Law provides that the award will determine the arbitrators’ fees (subject to the provisions in Article 24 and now Article 7 of the Implementing Rules), costs of the arbitration and their distribution between the parties, no further guidance is offered. For example, it is not clear whether costs of the arbitration include the parties’ legal fees. To avoid any uncertainty, it is recommended that parties expressly agree in the arbitration clause or at the outset of the proceedings how costs will be dealt with and what power the arbitral tribunal will have to award costs (either in the terms of reference or by agreeing to a set of arbitration rules which provides for the allocation of costs (including the parties’ legal costs) by the tribunal).
See above, Cost allocation.
See above, Cost allocation.
ENFORCEMENT OF AN AWARD Domestic awards
33. To what extent is an arbitration award made in your jurisdiction enforceable in the local courts?
The enforcement of a domestic award is governed by Chapter 7 of the new Arbitration Law (Articles 52 to 55). An application for enforcement of an arbitral award can only be made once the 60- day period within which annulment proceedings can be commenced has expired (Article 55(1), new Arbitration Law). The procedural requirements for making an enforcement application are set out in Article 53, and include providing the original award (or an attested copy), a true copy of the arbitration agreement, an accredited Arabic translation of the award and proof of the deposit of the award with the competent court within 15 days from its issuance.
Article 55(2) mandates that before an order for the enforcement of the award will be issued, the court must be satisfied that the award:
Is not in conflict with a judgment issued by a court, committee or commission which had jurisdiction to decide the dispute.
Does not violate Shari’a law or public policy (but if the award is divisible, an order enforcing the non-offending part of the award can be issued).
Has been properly notified to the party against whom it is sought to be enforced.
Article 55(3) provides that an order to enforce the award cannot be appealed, while an order denying enforcement may be appealed within 30 days of its issuance. Article 17(2) of the Implementing Rules prescribes that any appeal is to be heard by the Supreme Court.
Once an enforcement order is obtained, the award creditor must then seek to execute that order through the Enforcement Court (where special enforcement or execution judges have been appointed). Relevantly, the execution judges in the Enforcement Court are now bound to apply the pro-enforcement and execution provisions contained in the new Enforcement Law.
34. Is your jurisdiction party to international treaties relating to recognition and enforcement of foreign arbitration awards, such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention)?
Saudi Arabia acceded to the New York Convention by way of Royal Decree dated 30 December 1993. Accession was notified to the United Nations on 19 April 1994. Saudi Arabia has adopted the reciprocity reservation, which restricts the application of the New York Convention to awards rendered in the territory of another contracting State which in turn accepts the recognition and enforcement of Saudi Arabian awards. This also reflects Article 11 of the new Enforcement Law which makes reciprocity a condition precedent to the enforcement of foreign arbitral awards.
Saudi Arabia is also a party to the following multilateral conventions:
Arab League Convention 1952.
Riyadh Convention 1983.
International Centre for Settlement of Investment Disputes (ICSID) Convention.
At the time of writing, Saudi Arabia has signed 24 bilateral investment treaties (19 in force) and 13 other treaties with investment protection provisions (eight in force).
35. To what extent is a foreign arbitration award enforceable?
While foreign arbitral awards have been recognised and enforced in Saudi Arabia sporadically in the past, the process has generally been very difficult, and Saudi Arabia has long been regarded as one of the most problematic New York Convention signatory countries. However, given the recent changes to the legislative regime which governs the enforcement of foreign arbitral awards, it is hoped that foreign awards will be enforced on a more consistent basis in accordance with Saudi Arabia’s international treaty obligations.
The authors were recently involved in what is thought to be the first example of enforcing a foreign arbitral award under the new enforcement law provisions. The matter involved successfully enforcing a US$18.5 million ICC award handed down in London against an award debtor domiciled in Saudi Arabia.
During the enforcement proceedings, Saudi Arabia passed the new Arbitration Law and the new Enforcement Law. One effect of the new Enforcement Law is to require parties seeking recognition and enforcement of foreign arbitral awards to commence proceedings directly before the specially constituted Enforcement Courts, rather than through the Board of Grievances. This legislative change is very advantageous to award creditors, as the decision of the execution judge is deemed to be final.
As a result of this change, the award creditor transferred its proceedings from the Board of Grievances to the Enforcement Courts. Within three months, the enforcement judge stamped the award (thereby confirming that the award is recognised and will be enforced in Saudi Arabia, and also effectively converting the award into an executable Saudi Arabian court judgment).
In confirming the enforceability of the award, the enforcement judge had to satisfy himself (by reference to Article 11 of the new Enforcement Law) that:
The country in which the award was rendered would reciprocate in enforcing awards rendered in Saudi Arabia (in the case of England, this was simple to establish by reference to the UK’s accession to the New York Convention).
The Saudi Arabian courts did not have jurisdiction to hear the underlying dispute (which they did not, due to the arbitration clause in the contract).
The award was rendered following proceedings which complied with due process.
The award was in final form according to the law of the seat of the arbitration.
The award was not inconsistent with a judgment or order issued in relation to the same subject by a judicial authority of competent jurisdiction in Saudi Arabia.
The award did not contain anything which contradicted Saudi Arabian public policy (in particular Shari’a law). In relation to this last requirement, the award did not include any award of interest, which might otherwise have been problematic.
With this first practical example of recognition and enforcement of a foreign award since the promulgation of Saudi Arabia’s new arbitration and enforcement laws, there are clear signs that the enforcement landscape for foreign arbitral awards is changing for the better in Saudi Arabia.
There are a number of potential reliefs and remedies which may not be Shari’a compliant which tribunals ought to be aware of, if it is likely that the award will ultimately be sought to be enforced in Saudi Arabia (see Question 27). On this point, Article 55(2) of the new Arbitration Law provides that if the award is divisible, an order enforcing the non-offending part of the award may be issued. While this provision is strictly applicable to domestic awards, it is equally applicable in principle to foreign awards. However, this is a discretionary provision and the safest option would be for a tribunal to deliver an award which is Shari’a compliant in all respects if the award is likely to be enforced in Saudi Arabia. Provided the relevant procedural laws or rules permit, one option is for separate awards to be issued (for example, a separate award of interest, to be enforced in a jurisdiction outside Saudi Arabia).
Length of enforcement proceedings
36. How long do enforcement proceedings in the local court take, from the date of filing the application to the
date when the first instance court makes its final order? Is there an expedited procedure?
In the case of foreign awards, enforcement proceedings in Saudi Arabia must now be brought directly before the Enforcement Court and are dealt with under the new Enforcement Law provisions (see Question 35). While there is no expedited procedure as such, the authors recently transferred an enforcement action from the Board of Grievances to the Enforcement Court where the enforcement process was duly completed within three months. However, there is not yet an established track record of enforcement actions in the Enforcement Court, and it is possible that an enforcement action commenced afresh before the Enforcement Court might take longer than the three months experienced by the authors. In the case of domestic awards, there is a two-step process involving an application to the Court of Appeal for an enforcement order, and once an enforcement order has been obtained, an application to the Enforcement Court to execute the enforcement order (see Question 33).
37. Are any changes to the law currently under consideration or being proposed?
There are no new changes envisaged in the immediate future.
MAIN ARBITRATION ORGANISATIONS
Saudi Centre for Commercial Arbitration
Main activities. In 2016 the Saudi Centre for Commercial Arbitration (SCCA) opened in Riyadh. The SCCA is responsible for administering the arbitration proceedings where the parties have agreed to refer their disputes to SCCA arbitration.
Council of Saudi Chambers
Main activities. The key role of the Council is to serve the common interests of the Saudi Chambers of Commerce, support the development of the private sector and enhance its role in the national development. The Chambers of Commerce represents the business sector and its interests in each region where such chambers exist, and they work on the development of the economic environment, promote investment, services provided to the region and the business people whom the chamber represents.
Bureau of Experts, Council of Ministers, Saudi Arabia
Description. This is the website for the Bureau of Experts at the Council of Ministers. The website contains a Saudi Laws Compendium, which contains almost all of the main Saudi laws and regulations. The website contains the official New Arbitration Law and the Enforcement Law in the original language text (Arabic) and an English translation of the Arbitration Law. The English translation is for guidance only. The Arabic language version is binding. The Arbitration Law is available at https://boe.gov.sa/ViewSystemDetails.aspx?lang=en&SystemID=123&VersionID=270&languageid=2
An unofficial English translation of the Enforcement Law is published on the Saudi Ministry of Justice magazine’s website, at http://adlm.moj.gov.sa/ENG/attach/257.pdf. The English translation is for guidance only. The Arabic language version is binding.
Practical Law Contributor profiles
Henry Quinlan, Partner
DLA Piper (Middle East) LLP T +971 4 438 6350 F +971 4 438 6101 E firstname.lastname@example.org W www.dlapiper.com
Professional qualifications. England and Wales, Solicitor of the Senior Courts
Areas of practice. International arbitration and litigation (including real estate, technology, private equity/funds, energy, construction, telecoms, media, insurance and banking).
Non-professional qualifications. Queen Mary College, University of London, Diploma in International Arbitration; Oxford University, BA (Hons), MA; City University, Common Professional Examination in Law; The Inns of Court School of Law, Bar Vocational Course
DIFC-LCIA (sole arbitrator): dispute concerning alleged breaches of DFSA Rules, fiduciary duties and DIFC law arising from the US$200 million financing of a hotel project in the UAE.
ICC (co-arbitrator): about US$25 million dispute concerning the design and construction of a mixed-use development in the UAE.
Sitting as sole/co-arbitrator in about ten other arbitrations (ICC, DIFC-LCIA, DIAC, ad hoc and so on).
Representing a prominent Indian businessman in a US$600 million financial services/real estate dispute involving numerous parallel proceedings across the world, including an LCIA arbitration seated in Singapore.
Representing two prominent Indian businessmen in a LCIA (India) Rules arbitration in relation to claims totalling US$1 billion, relating to several large-scale real estate projects in India (seat: New Delhi; rules: LCIA (India)).
Professional associations/memberships. Fellow, Chartered Institute of Arbitrators; Member of ICC UAE Taskforce addressing Techniques for Arbitrators in Managing Fees and Expenses; Arbitrator, DIAC, CRCICA, DIFC-LCIA, ICC; Society of Construction Law (Gulf).
Amer Abdulazis Al-Amr, Partner
DLA Piper (Middle East) LLP T +966 11 201 8977 F +966 11 201 8901 E email@example.com W www.dlapiper.com
Professional qualifications. Kingdom of Saudi Arabia, Licensed Advocate.
Areas of practice. International arbitration; litigation; insurance and reinsurance; commercial matters (including initial public offerings, joint ventures, acquisitions and foreign investment).
Non-professional qualifications. Kingdom of Saudi University, Bachelor of Science of Law; Sheffield Hallam University, LLM corporate law and strategy, corporate governance, risk management and contract, dispute resolution and intellectual property law.
Litigation cases in Saudi Arabia for companies in many sectors such as IP litigation, construction companies, retail companies, pharmaceutical companies, labour cases litigation, insurance litigation and enforcement of forgone arbitration awards in Saudi Arabia.
Providing dispute resolution advice, including strategies to avoid traditional paths of litigation and arbitration, and conducting all forms of dispute resolution over a real estate distribution throughout the Middle East for a major family in the region.
As a legal adviser for Lucent Technologies Inc. Saudi Arabia branch, responsible for legal affairs and co-ordinated with government offices relating to official and judicial matters, and represented all court cases of the company.
Representing insurance and reinsurance companies in Saudi Arabia as litigator to recover from third parties involved in major claims.
Languages. Arabic and English
Publications. Landmark enforcement decision in the Kingdom of Saudi Arabia, 31 May 2016.
Landmark enforcement decision in the Kingdom of Saudi Arabia, 31 May 2016.
Enforcement in the UAE and wider Middle East, 25 Apr 2016.
Enforcement of foreign judgments in the UAE – A new dawn?, 8 Mar 2016.
ADGM becomes major new offshore arbitral seat, 22 Feb 2016.
Dispute Resolution in the Middle East: A year in perspective, 24 Feb 2015.
Shareholder disputes in the UAE: Corporate disputes, Sept 2015.
Mediation and ADR in the Middle East: Corporate disputes, June 2015.
Adam Peters, Legal Director
DLA Piper (Middle East) LLP T +971 4 438 6323 F +971 4 438 6101 E firstname.lastname@example.org W www.dlapiper.com
Professional qualifications. Australia, Lawyer
Areas of practice. International arbitration and commercial litigation (including construction, real estate, energy, joint venture and shareholder disputes).
Non-professional qualifications. Monash University, Melbourne, Bachelor of Laws (Hons).
Representing a prominent Indian real estate entrepreneur in a US$600 million complex dispute concerning failed investments in Indian real estate projects made by a London AIM-listed company. Proceedings in a number of jurisdictions, including Singapore, the Isle of Man, the US, BVI, India and England.
Representing a joint venture party in a US$25 million joint venture investor dispute concerning a major infrastructure project in Abu Dhabi.
Representing a significant Middle East cinema operator in a US$40 million dispute with the landlord of a major shopping centre in Qatar.
Acted for an employer in arbitration proceedings in relation to claims by a contractor for AED1.5 billion, arising under a contract for the construction of a shopping mall, hotel and apartments.
Advised the subsidiary of a major UAE corporation in relation to a multi-billion US$ oil supply dispute with a joint venture partner in Libya.
Appointed as sole arbitrator in a property dispute in Dubai.
Professional associations/memberships. Law Institute of Victoria; Society of Construction Law (Gulf).
Publications. Co-author of International Arbitration Amendment Act 2010 (Cth) -Towards A New Brand of Australian International Arbitration, The Arbitrator & Mediator, April 2011.
Abdulrahman Alayoni, Senior Legal Consultant
DLA Piper (Middle East) LLP T +966 11 201 8980 F +966 11 201 8901 E email@example.com W www.dlapiper.com
Professional qualifications. Kingdom of Saudi Arabia, Licensed Advocate
Areas of practice. International arbitration; litigation; commercial; employment; corporate; intellectual property and joint venture related matters.
Non-professional qualifications. King Saudi University, LLB; Anglo Skills College, Diploma, Nottingham Trent University, LLM.
Advising in relation to an outsourcing project of a leading regional telecommunication company.
Advising on establishment of a specialist committee of a national company.
Advising on a BOT contract of a prominent listed national company.
Enforcing a foreign arbitral award on behalf of a leading international corporate.
Member of the legal team which represented a wealthy businesswoman before the general courts in Saudi Arabia in relation to a contribution of wealth (US$500 million).
Advising a well-known international construction company on a patent case in Saudi Arabia.
Professional associations/memberships. Licensed Advocate Certified by the Ministry of Justice. (85/26); member of the Saudi Judiciary Society; Certified Arbitrator at GCC Commercial Arbitration Center