Commercial Courts Law and Procedures

Unprecedented Saudi Law Draft of the : Progressive Rules with Common Law Approach

Within the framework of developing the commercial judiciary in the Kingdom of Saudi Arabia (KSA), the Saudi Ministry of Justice has prepared the Draft Law under the title of “Draft Law of the Commercial Courts Law and Procedures" (the Draft Law), and released it to public stakeholders and specialists to make a survey of opinions and remarks thereon.

Before highlighting this Draft Law, it is worthy of mentioning that the commercial judiciary in Saudi Arabia has been through several stages and operated under more than one umbrella in the past, dating back to almost ninety years. The oldest written laws that has been legislated is the Law of Commercial Court (known as the Commercial Code), in 1350 H (corresponding to 1931) in the Kingdom of Hejaz before proclaiming the unification of the Kingdom of Saudi Arabia, and it is still effective today. It is one of the milestones in the history of legislation in Saudi Arabia and the oldest law in existence today.

At first, the Commercial Court was established by virtue of the Law however it was eventually dissolved following which the Commission for Settlement of Commercial Disputes was established. However in 1965 this too was replaced by two commissions: the Commission for Settlement of Commercial Disputes and the Commission for Settlement of Corporate disputes. Said two commissions were merged to become the Commission of Settlement of Commercial Disputes, until its competencies were fully transferred to the Board of Grievances.

The Board of Grievances was the entity considering commercial disputes for over 30 years until the commercial judiciary was transferred over a year ago (1439 H) to fall under the public judiciary, given its status as a branch of the civil judiciary. Hence, Commercial Courts recommenced but now under the umbrella of the Supreme Judicial Council, expanding the competencies to consider commercial disputes. This was followed by activating the option to review appeals to commercial judgments through two degrees of litigation by way of pleadings rather than ombudsmanship as was previously available. Consequently, a commercial panel was formed at the Supreme Court to consider cassation requests against commercial judgments issued by Courts of Appeal.

In line with these historical steps in developing the commercial judiciary, the Draft Law came in time to change the features of commercial judiciary. The Draft Law adds progressive and modern rules, adopting legal concepts from other jurisdictions, including the Anglo-Saxon Common Law (the Common Law) and Arab commercial and civil procedures codes, with the aim of increasing trust in commercial dealings and foreign investment. We will highlight and analyze the most prominent aspects adopted by the Draft Law below.

• New Statute of Limitations in Commercial Cases: Islamic Shari`ah- the substantive law of civil and commercial transactions in general in Saudi Arabia- does not adopt the concept of prescription (or the lapse of time as named by jurists), as it dictates that right does not lapse due to prescription. However, there is a considerable number of exceptions in which the concept of prescription is applied, cases expressly set forth in law, such as certain maritime commercial provisions in the Law of Commercial Courts from which the Maritime Commercial Law was born, stipulating different periods for prescription of certain maritime commercial cases (prescription here means prescription of case and not prescription of right). Therefore, when there is a case of prescription, the court adjudicates the inadmissibility to hear the case instead of rejecting the case. Therefore, up until now, there is no general rule for prescription in commercial cases in general. The Draft Law aims in Article 25 thereof to specify a prescription period for not hearing cases falling under the competency of the Commercial Court, which shall be ten years from the date at which the claimed right arises. A number of laws in force worldwide do not suspend the enforcement of prescription if the parties attempt to solve the dispute through settlement, leading the claimant to file a case in spite of serious settlement attempts in order to preserve the right to revert to the courts when the settlement fails. However the Draft Law has surpassed such comparative laws as it suspends the enforcement of prescription period during the litigants’ attempt to reach a settlement by virtue of the terms and conditions of the Law.
• Determination Of Competencies And Limitation Of Islamic Jurisprudence-Known Companies On a practical level, matters of competency in reviewing commercial disputes caused a lot of obscurity and equivocation between Courts of First Instance and Courts of Appeal in the one court system. Obscurity also existed between jurisdictions with numerous court systems, with the existence of a supreme judicial committee to consider the conflicting jurisdictions by branching commercial laws and the diversity of contracts and commercial businesses new to the world of commerce, as well as other reasons. Therefore, in past years and through the establishment of commercial courts, the judicial reformation and regulation in KSA sought to expand the competencies of such courts whose competency is provided for in Article 35 of The Law for Procedure before Shari`ah Courts. However, the Draft Law is less expanding than the relevant provisions in the Law for Procedure before Shari`ah Courts with respect to determination of competencies of commercial courts. For example, with respect to determining the matters that fall under the jurisdiction of commercial courts, the Draft Law in its Article 15 implicitly cancels the clause stated in Article 35 of the Law for Procedure before Shari`ah Courts which provides that commercial courts are competent to consider (other commercial disputes), which is one of the bases to expand the competencies of commercial courts to include the biggest possible amount of types of commercial disputes. Therefore, the excluding of such clause from the Draft Law may be understood as limiting rather than broadening. An additional example can be seen in Article 15 of the Draft Law which expressly limits reviewing partners’ disputes in Islamic Jurisprudence-Known companies to Mudarabah “speculations” companies, without referring to other Islamic Jurisprudence-Known companies, such as Al-Anan Company. This is still being considered by the commercial courts especially given that the general judiciary has recently stated that consideration of the Islamic Jurisprudence-Known companies’ disputes falls under the commercial judiciary even if the invalidity of the Islamic Jurisprudence-Known company is proven to the commercial court.
• Obligation To Resort To Amicable Settlement Before Filing The Case In recent years, the public judiciary has been promoting litigants to reach settlements and conciliations through establishing mediation offices in General Courts and Personal Status Courts. Referring parties litigating in certain cases are encouraged to refer to such offices prior to filing the case before a competent judge. The labour judiciary in Saudi Arabia still obligates parties in dispute to attend mandatory amicable settlement sessions prior to considering the case in court. This aims to curb the flow of cases in courts and mitigate the effects of disputes. Therefore, following the example of the labour judiciary, this Draft Law aims in Article 8 to set forth a mechanism to obligate parties to the commercial dispute to reach a conciliation prior to filing the case, by virtue of the implementing regulations of the Draft Law. Currently, the commercial judiciary does not mandate resorting to settlement sessions prior to filing the case.
• New Rules of Evidence:
  • Granting The Power Of Law To Freedom Of Contract On The Case Procedures, Determination Of Evidence Rules And Evidence In A Foreign Country: Commercial contracts, especially the ones prepared by a foreign investor, usually include provisions that obligate the parties to the contract to resort to settlement; follow certain procedures prior to filing a lawsuit; or specify time periods in this regard. However, in our experience Saudi courts do not take this into consideration when a party goes to court without meeting such conditions first. Therefore, the Draft Law in its Article 6 promotes the freedom of merchants to determine the procedures to be followed to settle disputes, expressly stating that such freedom has the power of law, in addition to the merchants’ freedom to determine the evidence rules as long as they do not violate public policy and the rules of justice. Article 39 of the Draft Law provides that the court may accept the evidence procedures carried out in a foreign country as long as they do not violate public policy. This Article also provides that it is admissible to agree on transferring the burden of proof between the parties instead of obligating only the claimant with such burden, as the prevailing rule is.
  • Discovery: Request To Disclose Documents: It is known that the basic rule of evidence in the Saudi legal system is “the onus of proof rests on the claimant”. It means that the claimant is the party obliged to evidence his claim and the defendant has no obligations in this regard in general. The civil legal system adopts a similar approach, however, the Common Law provides for the right of Discovery in civil procedures - the process in which the parties to a dispute exchange potential evidences and information prior to trial by virtue of law or through court procedures. Discovery includes the request for cross-examination, request to disclose documents, and other requests through which it is possible to establish or negate the case. If one of the parties does not respond to such request within a specific time period, the applicant may request the court to issue an order to obligate the other party to respond to the request. Following this approach, the Draft Law provides for part of this right; namely the request to disclose documents. Article 20 of the Draft Law allows the parties to a dispute to request to peruse the documents in the possession of each other, and in case of non-response within 15 days, the applicant may submit a request to the court to issue an order thereon. Under Article 49 of the Draft Law, the court may take refrainment from submitting documents as a presumption against the refraining party. The Draft Law’s adoption of this right is a demonstration of the wish of parties involved in the legislation process in Saudi Arabia to develop the commercial judiciary to match the laws applicable in other developed jurisdictions.
  • The Right To Cross-Examine Litigants And Witnesses Under Court Supervision: Unlike the applicable methods in the Saudi judicial systems, Article 59 of the Draft Law adopts the right of litigants to cross-examine each other respectively under the court's supervision. Furthermore, Article 53 of the Draft Law stipulates the possibility that litigants can cross-examine a witness directly under the court's supervision.
  • Admissibility of Electronic Acknowledgments and Sound Recordings: Generally speaking, the degrees of evidence in the Islamic Shari`ah, as applied in Saudi Arabia, fall into the categories of evidence and presumptions. Evidence can be split into several types under the Shari`ah, including writing, acknowledgement, testimony and oath. Whereas unauthenticated electronic proofs, correspondences, letters and sound recordings are considered as presumptions and help towards forming a court conviction and may become evidence once they are acknowledged by the defendant party. On the practical side, courts in civil and commercial cases, look into the evidence and their sources, and resort to oaths where the other evidence is weak. However, in many occasions, courts are hesitant to depend on the available presumptions as a basis for issuing their judgments, though some presumptions (such as the sound recordings filed to the courts) include express and clear acknowledgments by the defendant in a way that is sufficient for them to be seen as evidence on which the court judgment can be grounded. This hesitation on the part of the court is alarming to a number of companies which include in their cases sound recordings of electronic communications and meetings as proof of verbal agreements made (for example as part of supply transactions, verbal purchase orders, debt acknowledgments or other time pressured transactions). In this respect, Article 42 of the Draft Law stipulates admissibility of the acknowledgments issued by a party to the case through sound recordings and makes it possible for the court to seek assistance of technical experts to scrutinize and verify these sound recordings. This can lead to further judicial openness in terms of the electronic means of proof.
• Class Actions: The Saudi judiciary has not adopted the class actions method of litigation. Thus, where a group of claimants have identical claims arise from different obligation sources against the same defendant, they must file several and separate cases. Practically, a lawyer can coordinate the filing of all related cases at the same time and have them referred to one panel. However, this is not considered a class action, or treated as such. There are exceptions to this as the Commission for Resolution of Securities Dispute initiated and made available the class action method. It stated in its regulations a special mechanism for the same. This is considered the first experience of class action in Saudi Arabia. Following the same course, the Draft Law adopts the concept of class action in Article 8 which further stipulates that the implementing regulations shall allow for class action proceedings.
• Acceleration Of Commercial Cases The Draft Law targets acceleration of hearing and settling cases and requests through a number of procedures:
  • Preparing The Case File And Developing An Initial Study: The Draft Law in Article 29 seeks to accelerate the hearing of commercial cases, provided that the judicial panels assign to one of its judges the task of preparing the case for arguments. This is done through questioning the litigants and asking them to complete the memorandums and documents, along with all other procedures of preparing the case and a corresponding study on the case. This would minimize the litigation period, decreasing the number of lengthy cases by way of the judicial chamber allocating time to adequately study and prepare for the case.
  • Setting Maximum Periods for Proceedings: The Draft Law, as stated in Article 28 through its implementing regulations, deems it obligatory to specify the number of court sessions for a hearing; the times and deadlines of these sessions; and the instances in which cases can be adjourned. The Draft Law further stresses that the sessions may not be adjourned unless such adjournment is grounded, and they may not be adjourned for the same reason more than once.
  • The Right To Agree On The Finality Of the Judgment from The Court Of First Instance: The actual reality permits that objection against the judgment of the Court of First Instance may be raised by any of the litigants, even the winning party. Furthermore, litigants who lose their cases seek to raise ungrounded objection in an attempt at gaining extra time. Therefore, the Draft Law in Article 83 seeks to minimize methods of unfruitful challenging of judgments by putting in place some restrictions, for example the inadmissibility of challenging a judgment by a litigant whose requests have all been granted. The Draft Law further makes it possible for litigants to agree, even before the initiation of a case, on the finality of the judgment of the Court of First Instance. This would ensure further freedom in contracting the terms of determining the judicial proceedings. Moreover, the Draft Law, in Section 4 of Article 87, precludes objection against a judgment issued by the Court of First Instance on it competencies and jurisdictions in terms of the subject matter, territory or amount.
  • Allocating A Panel For Summary Proceedings: It is currently applied in actuality that when a claimant wants to file a summary case, he shall file a regular case first, with the filing of a linked summary case to follow immediately after. Following the filing of the summary case, it shall be referred to the head of the relevant judicial panel to decide whether to schedule a session to examine the summary case or decline to respond to it without any specific procedure or judicial decision. Where the head of the panel decides to open a specific session, he shall require that the defendant party be present at the session; though the law permits the hearing of urgent requests and the issuing of a decision thereon (by admission or rejection) enabling the applicant to challenge the decision. This may be conducted without determining a certain period of time for issuing a decision on the urgent request. However, the Draft Law states in Article 34 that a panel of first instance shall be created at the court and shall only look into summary requests and temporary measures, demonstrating the importance given to summary cases. Furthermore, the Draft Law allows three working days for the panel to decide on a summary case without requiring that the other party be present at court. An urgent request shall lapse in several instances including when the winning party of the decision fails to file the original case within seven days of the date of issuance of the respective decision.
• Payment Orders: The Draft Law follows the rules adopted by countries with civil jurisdictions in permitting the submission of a payment order. This is a specific system for the payment of debts established in writing instead of attending court to file a case in order to collect these debts. In the comparative civil system, a judge gives the debtor a period of five days for repayment. In the same way, the Draft Law creates a mechanism for payment orders in its tenth chapter. However, it remains unclear to us whether this mechanism is conformant with the Enforcement Law, which covers the mechanism for payment orders used in other jurisdictions, including the enforceability of the repayment of debts established in writing (even if this writing was on an ordinary document) once the debt is acknowledged by the debtor, who shall then be given five days for payment.
• Further Transparency
  • Making Commercial Cases Data Accessible by the Public: we often receive requests from clients seeking general information regarding certain cases in order to determine the size of company's disputes in the market, their performance in implementing the deals and transactions they conclude or in order to conduct due diligence research ahead of a merger or an acquisition involving the company. However, it is not always possible to extract sufficient judicial data as it is often treated confidentially and disclosed only to the litigants and their representatives. Yet, in the search for further transparency, the Draft Law stipulates, in Section 4 of Article 12, the possibility of allowing public access to the data of commercial cases similarly to commercial registers in the public domain. Applying this principle would contribute to controlling commercial cases for companies that want to avoid entering into disputes before courts.
  • Publishing all Final Commercial Judgments: When the commercial judiciary was under the Board of Grievances, the Board would publish commercial judgments that were unique judgments or of knowledge value demonstrating the establishment of certain commercial judicial rules. The judgments were then classified and published. When the commercial judiciary was transferred to the general judiciary, it began publishing all final commercial judgments, rather than engaging in a selective process involving certain classifications. On scrutinizing the Draft Law, we find that Article 101 adopts the applicable approach of publishing (all) final commercial judgments. This means leaving the process of selection and research to law schools and researchers and ensuring further transparency.

In conclusion, whilst the Draft Law is still in the process of drafting and discussion, it will undoubtedly introduce new concepts and mechanisms to the Saudi judiciary initiating the creation of a more effective commercial environment.