Legal Briefing

Arbitration in the Kingdom of Saudi Arabia

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Global Outlook: Disputes | 02 October 2018

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The arbitration landscape has changed significantly in the Kingdom of Saudi Arabia (KSA) in recent years. In this note, we will explain two important developments that have precipitated this change, namely, a new arbitration law and a Saudi centre for arbitration.

New arbitration law

On 24/5/1422H (corresponding to 16 April 2012), a new set of arbitration rules was issued in the KSA by Royal Decree No 34/M (the new arbitration law). The new arbitration law replaced the arbitration law dated 12/7/1403H.

The law contains many changes and improvements over the old regime. Under the new rules, the court retains its supervisory role over the arbitration process but the role it plays is significantly reduced, with many of its former tasks being delegated to the arbitration tribunal and the parties. Furthermore, under the new arbitration law, the parties are granted broad discretion to determine many aspects of the arbitration process, such as the language to be used in the arbitral proceedings and the substantive law and procedures to be applied, as long as such law and procedures do not contravene Sharia law.

Moreover, appeals based on the merits are no longer permitted under the new regime; the new rules only allow appeals based on enumerated procedural or jurisdictional grounds. However, as in the old regime, the court still retains the authority to re-examine the merits of the underlying case to determine if the arbitration decision is contrary to Sharia.

The following are the salient changes in the new rules:

  • Unlike the old regime, the law does not require the parties to submit an arbitration agreement to the court for its approval. This is a significant improvement since it grants arbitration tribunals more independence from the courts and reduces the time and cost of disputes. These advantages will render arbitration a more attractive option for dispute resolution than it had been previously.
  • Under the new law, the panel’s decision is final. The new rules differ from the old regime in that appeals of the panel’s decisions to the competent court are not permitted except in a few limited cases. The enumerated grounds for appeal are procedural and jurisdictional in nature, not merits based.

Although the new law does not allow appeals based on the merits of the case, the new rules require the competent court, before issuing a judgment executing the panel’s decision, to determine if the decision is contrary to Sharia. This implies that the competent court can re-examine the merits of the case. It is not clear how much of an impact this provision will have on the arbitration process and whether it will allow the parties to circumvent the prohibition on merits-based appeals. It remains to be seen how the courts will apply this provision in practice.

  • Under the old regime, arbitration proceedings were required to be conducted in Arabic. This is no longer required under the new rules, which permit the parties to stipulate the use of a language other than Arabic.
  • The arbitration panel has the authority to adjudicate disputes under its jurisdiction, including disputes over the validity of the arbitration agreement. This is a significant change from the old arbitration rules which required that such disputes be resolved by the competent court.
  • In contrast to the old rules, the new law grants the parties broad discretion to choose the substantive law and procedures that govern their dispute. The parties can agree to subject their arbitration to the procedures of any organisation, committee, or arbitration centre, either in KSA or outside it, as long as such procedures do not contravene the dictates of Sharia.
Saudi Centre for Commercial Arbitration

Following a council of ministers decree in 2014 to form an arbitration centre to work under the auspices of the Council of Saudi Chambers, the Saudi Center for Commercial Arbitration (SCCA) has been established for the supervision of domestic and international commercial arbitration in the Kingdom. The SCCA is the first of its kind in KSA and sets forth rules for conducting arbitration in KSA in accordance with international arbitration standards.

Participation in the SCCA is voluntary. Therefore, both parties must consent to submitting their dispute to the SCCA. The SCCA assists in all facets of the arbitration process, including the selection of arbitrators (the SCCA keeps a roster of arbitrators from which the parties can choose, or they may appoint arbitrators who are not registered with the SCCA), provides state-of-the-art facilities, and so forth.

The SCCA has been recently established, so it is still untested in practice. However, it appears to be a sophisticated institution with well-defined rules and procedures for conducting arbitrations.

Conclusion

The changes to the old arbitration rules are important because they significantly reduce the role that Saudi courts have traditionally played in the arbitration process and leave many of the tasks formerly performed by the courts to the arbitration tribunal or the parties. These are welcome developments because they reduce the cost and duration of arbitration by minimising judicial involvement in the process. Limiting judicial review of arbitration decisions to jurisdictional and procedural issues also significantly streamlines the process and renders arbitration a more attractive option. However, the court’s authority under the new rules to review the merits of a case to determine if the arbitral decision complies with Islamic law does raise concerns that this may undermine the goal of the new law to streamline the arbitration process and increase its efficiency.

Moreover, the creation of a sophisticated institution to administer arbitration in the Kingdom is a welcome development to arbitration practitioners. Although it was established two years ago and is still untested, it looks promising and may prove to be an attractive alternative to judicial forums.