On May 22, 2017, the Saudi Council of Ministers passed the Implementing Regulations of the 2012 Arbitration Law. The Implementing Regulations came into force on June 9, 2017, when they were published in the Saudi Official Gazette.
The new Implementing Regulations serve as a further step towards achieving Saudi Arabia’s goal of enhancing its business environment to make it more attractive to foreign investment. In 2012, Saudi Arabia took its first transformative step toward international norms and a more business-friendly environment when it replaced the old 1983 arbitration law with the 2012 Arbitration Law.
Background – The 2012 Arbitration Law and the 2013 Enforcement Law
The 2012 Arbitration Law, which applies to Saudi-based arbitration, meaningfully improved the Saudi arbitration regime, making the Kingdom a more “arbitration friendly” jurisdiction for businesses and aligning it with international best practices. The 2012 Arbitration Law is based on the UNCITRAL Model Law on International Commercial Arbitration. The Model Law was adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985, amended in 2006 and adopted in 75 countries in 106 jurisdictions. Saudi Arabia made changes to the Model Law, however, including that the arbitration process and award shall not violate Sharia.
In addition, in 2013, Saudi Arabia adopted the Enforcement Law, which established specialized Enforcement Courts to enforce, among other things, domestic and foreign judgments and arbitration awards.
Article 11 of the Enforcement Law provides that the enforcement judge may not enforce any foreign judgment or arbitration award except on the basis of reciprocity and after verifying that: (a) local courts have no jurisdiction over the dispute, and the foreign court or tribunal issuing the judgment has jurisdiction according to its conflict of law rules; (b) litigants were duly summoned, properly represented and defended themselves; (c) the judgment/award is final as to the law of the issuer; (d) the judgment/award contradicts no judgment or order issued on the same subject from a judicial authority with a competent jurisdiction in the Kingdom; and (e) the judgment/award does not contradict the Kingdom’s public policy (Sharia).
Saudi Arabia ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1994. The Enforcement Court in Riyadh has found that the reciprocity requirement is satisfied if the foreign country, where an arbitration award is rendered, is a signatory to the New York Convention. It was reported in 2016 that the Enforcement Court enforced an $18.5 million ICC award rendered in London against a Saudi-domiciled party. The 2013 Enforcement Law arguably follows the New York Convention in material respects to the extent the reference to Sharia can be considered a public policy exception to enforcement under the New York Convention.
The 2012 Arbitration Law recognizes the autonomy of contracting parties, increases arbitrators’ powers and reduces the role of the courts. Key provisions of the 2012 Arbitration Law include:
- The Arbitration Law applies to (a) any arbitration seated in the Kingdom; or (b) any international commercial arbitration seated elsewhere if the parties have agreed to subject that arbitration to the Arbitration Law. (Article 2)
- The arbitration agreement shall be in writing and the parties may choose the law, procedures and language for their arbitration. (Articles 3, 5, 9, 25(1) & 29)
- Saudi government agencies may not agree to enter into arbitration agreements except upon approval by the Prime Minister or if allowed by a specific provision of law. (Article 10(2))
- An arbitration clause in a contract is an independent agreement that can be separable and enforceable even if the contract is nullified, revoked or terminated. (Article 21)
- A sole arbitrator or a chairman of a panel of arbitrators shall hold a degree in Sharia or law, in addition to being of full legal capacity, and of good conduct and reputation. (Article 14)
- The arbitration tribunal shall file the arbitration award (with a certified Arabic translation if not in Arabic) with the competent court; and upon filing, the arbitration award shall have the authority of a judicial ruling and is enforceable. (Articles 44 & 52)
(The Implementing Regulations clarify which court is the competent court. (See below))
- The request to enforce the arbitration award shall include: (a) the original award or a certified copy of it (with a certified Arabic translation if not in Arabic); (b) a true copy of the arbitration agreement; and (c) a proof of the deposit of the award with the competent court under Article 44. (Article 53)
- An action for nullification of the arbitration award shall be filed within 60 days from notification of the award. The competent court’s decision will be final and non-appealable if it recognizes the arbitration award. If it sets aside the award, however, its decision can be appealed within 30 days from notification of the decision. (Articles 51 & 55(3))
(The Implementing Regulations clarify which court is the competent court. (See below))
- Grounds for nullification of an arbitration award are (Article 50 (1)):
The absence of an arbitration agreement or if the agreement is void, voidable or expired.
Either party lacks legal capacity at the time of the arbitration agreement.
Either party fails to present its defense because of lack of notice or for any reason beyond its control.
The arbitration tribunal fails to apply the appropriate rules agreed to by the parties to the subject of the dispute.
The tribunal is formed or the arbitrators are appointed in a manner that violates the Arbitration Law or the parties’ agreement.
The award arbitrates matters not covered by the arbitration agreement. (Parts of the award can be separated, however).
The tribunal fails to observe conditions required for the award in a manner that affects its substance, or the award is based on void arbitration procedures that affect it.
- On its own initiative, the court considering the nullification action shall nullify the award if (Article 50 (2)):
The award violates Sharia, public policy or the agreement of the arbitration parties.
The dispute’s subject is not capable of arbitration under this Arbitration Law.
- Nullifying an arbitration award does not result in the termination of the arbitration agreement unless agreed upon by parties or by a decision nullifying the arbitration agreement. (Article 50(3))
- The competent court can only consider the action for nullification as discussed above but not the facts and subject of the case. (Article 50(4))
The New Implementing Regulations
The new Implementing Regulations provide important clarifications to the 2012 Arbitration Law. The Implementing Regulations explain that:
- The Court of Appeals with the original jurisdiction over the dispute is the competent court referred to in most articles of the 2012 Arbitration Law, with the authority to hear challenges to arbitration disputes, including regarding arbitration awards. (Article 2)
- The Supreme Court is the competent authority referred to in Article 55(3), with the authority under Article 51(2) to hear appeals following a Court of Appeals’ decision to set aside an award. (Article 17)
- The party requesting annulment must attach to its request: (a) the original award or a certified copy of it (with a certified Arabic translation if not in Arabic); and (b) a true copy of the arbitration agreement. (Article 18(2))
- If, after the issuance of the arbitration award, a party waived its right to submit an annulment request, the Court of Appeals shall not accept such a request. (Article 18(1))
- Electronic service of notices (i.e. by emails, text messages etc.) is now permissible. (Article 3)
- A copy of the parties’ contract with the arbitrator must be submitted to the Saudi Center for Commercial Arbitration, established in 2014, or to any other arbitral institution. (Article 7)
- When arbitral parties fail to agree on the procedural rules to be followed by the arbitration tribunal administering the arbitration and the tribunal chooses to follow specific procedures, the tribunal must notify the parties of these procedures at least ten days before implementing them. (Article 8)
- If the parties fail to agree on the appointment of a sole arbitrator, the Court of Appeals shall appoint an arbitrator within 15 days from the date the request is submitted to the Court. (Article 10)
- The arbitration tribunal is provided discretion to approve the intervention or joinder of a consenting third party to the arbitration proceedings, after the arbitration parties’ agreement to such intervention or joinder. (Article 13)
- Unless the parties agree otherwise, the arbitration agreement shall not terminate with the issuance of a decision by the arbitration tribunal to end the arbitration proceedings. (Article 15)
The new regulations help clarify the Kingdom of Saudi Arabia’s 2012 Arbitration Law. The regulations clarify that the competent court which supervises arbitrations and hears challenges to awards is the Court of Appeals, while the Supreme Court is the competent court with the authority to hear appeals against the Court of Appeals’ decision to set aside an arbitration award. The regulations also reveal that electronic service of summons to arbitration is now permissible. They further clarify that the arbitration tribunal is provided discretion in permitting the intervention or joinder of a third party in the arbitration proceedings.