A year has passed since the enactment of Saudi Arabia’s new Arbitration Law, which made significant changes to the practice of arbitration in the Kingdom, with new provisions aimed at implementing a more “arbitration friendly” regime for businesses, both local and foreign.
The new law was issued by Royal Decree No. M/34 dated 24/05/1433 H, corresponding to 16/04/2012 G (the “Arbitration Law”), and reflects terms which are mainly inspired by the international policies of UNCITRAL, with the aim to give more comfort for foreign businesses coming into the Saudi market.
The new law had significantly reshaped the old law and made a lot of amendments regarding the appointment of arbitrators, the arbitration process and procedures, and most importantly – the enforcement of arbitral awards whether local or foreign.
Under the old law, arbitrators of a Saudi arbitral tribunal were required to be Muslim and male, with experience and a good reputation. The new law no longer places a requirement that the arbitrators are male, but they must hold a university degree in either Shariah or law. However, where the arbitrators form part of a panel, this requirement extends only to the head of the panel.
An important change welcomed by foreigners doing business in Saudi, is that the new law no longer requires arbitration proceedings to be in Arabic, and the parties may choose which language for their arbitration, provided that at least one of the parties to the agreement is a foreigner. The parties are also entitled to appoint a foreign law to govern their agreement, and such provisions shall be adhered to by a Saudi arbitral tribunal. Previously, the parties could not freely choose the language or the applicable law for arbitration; it was set to be Arabic and Saudi Law respectively.
Also, if the parties have not agreed to apply a particular set of arbitration rules (such as the ICC); they may refer to the Arbitration Law which sets out a procedure similar to international rules of arbitration.
The amendments introduced by the new law have allowed arbitration in Saudi Arabia to become a more reliable source of dispute resolution. The new law makes it clear that an arbitration agreement or clause is binding if agreed to in writing, which may be satisfied by an exchange of letters or emails, or by incorporation of another agreement which includes arbitration provisions. Further, the invalidity or termination of a contract will not invalidate an arbitration agreement as long as the agreement to arbitrate is independently valid.
One major improvement from the 1983 law, relates to the enforcement of arbitral awards. Prior to the passing of the new law, any arbitral award had to be ratified by a supervising court in order to be enforceable; so the arbitral award only becomes “final” once the Saudi courts have settled any appeal against the award.
The supervising court (the Saudi Board of Grievances, which is the appropriate judicial authority in most commercial disputes) would hear any objection raised by any party including issues regarding merits of the case. In practical effect, an arbitral award that is issued after couple of years of proceedings may still be reversed by the Board of Grievances.
Under the new law, the supervising court shall only have the authority to review the award (and not the merits of the case) to ensure compliance with Sharia law, public policy, and/or the arbitration agreement, and to ascertain that it does not contradict any previous judgments and has been properly served on the opposing party.
Moreover, it is up to the court to identify and raise any issues that would prevent enforcement - the parties have few objection rights at this stage.
With the continued dramatic growth and economic diversification in Saudi Arabia, the influx of foreign investments and the accession of Saudi Arabia to the World Trade Organization, Saudi authorities were committed to develop a more “friendly” regulatory environment.
Although the new Arbitration Law is still largely untested and remains to be assessed over time, we believe that the introduction of the new changes is a step towards achieving a more friendly, regulated environment.