An extract from The Projects and Construction Review, 12th Edition

Dispute resolution

i Special jurisdiction

Construction and contractual disputes are considered commercial disputes within the general jurisdictions of the commercial courts of Saudi Arabia (currently under the Board of Grievances).42 The foregoing notwithstanding, the competent body to hear any dispute relating to banking activities by or against banks in the country is the Committee for Banking Disputes, which operates under the Saudi Arabian Monetary Agency.43 The Committee holds special jurisdiction to hear disputes relating to bank guarantees or bank collateral enforcement in project financing; however, it does not have jurisdiction to review underlying contracts.44

Parties to large construction projects in Saudi Arabia often prefer to resort to arbitration as the exclusive method of dispute resolution. Such a choice would be binding pursuant to Article 11 of the Arbitration Law.45

ii Arbitration and ADR

Arbitration and alternative dispute resolution procedures are commonly used, especially in large construction and project undertakings for which specialised knowledge and expertise is desired in the adjudicating tribunal. Arbitration clauses in contracts are generally enforceable pursuant to the Arbitration Law.46 However, parties should note that government bodies are restricted from using arbitration as a means to resolve disputes in the absence of approval from the Prime Minister (a position held by the King).47 This restriction can affect any construction and financing projects to which the government is a party.

Saudi Arabia recognises and enforces arbitral awards issued in a country that is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention)48 or other countries based on reciprocity principles, including through the GCC Convention on the Enforcement of Judgments and Judicial Representation and Notices49 or the Arab League Convention for the Enforcement of Judgments of 1952. Saudi Arabia is also a contracting state of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). However, the enforcement of arbitration awards, both foreign and domestic, by Saudi courts is limited to the extent that the awards do not violate shariah principles or public policy.50 In relation to these provisions, parties are commonly advised that an arbitral award of interest, or amounts corresponding to interest, are not likely to be enforceable in Saudi Arabia because the payment of interest violates the shariah principle prohibiting usury.