Developments in Saudi Arabia as an arbitral seat
The Saudi Center for Commercial Arbitration (SCCA) recently published a progress report in the Global Arbitration Review on Saudi Arabia’s arbitration friendliness and its path towards becoming a globally recognized arbitration seat. Since the current Saudi Arbitration Law (Royal Decree No. M/34) came into force on 7 July 2012, efforts have continued to ensure that arbitration is a catalyst for improving the business environment and enforceability of contracts that Saudi Arabia is promoting as part of its Vision 2030.
There were a number of discussion points identified in the report but of particular interest were (1) the statistics illustrating the low rate at which local and foreign arbitral awards are nullified in Saudi Arabia and (2) the study concerning a party’s autonomy in its choice of representation. These are each addressed below.
Enforcement of local and foreign arbitral awards in Saudi Arabia
In 2021, courts in Saudi Arabia enforced 204 domestic and foreign awards representing an aggregate value of USD2.1 billion, with enforcement proceedings being resolved on average within two weeks. In relation to domestic awards, under the Enforcement Law of 2013, an arbitral award, to which an enforcement order is appended, is considered a writ of enforcement, allowing the award creditor to seek compulsory enforcement proceedings. Furthermore, in relation to foreign awards, Saudi Arabia is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards; Saudi courts are therefore required to give effect to private arbitration agreements and the recognition and enforcement of arbitral awards made in other contracting states.
In its report, the SCCA highlighted the low rate at which arbitral awards are nullified in Saudi Arabia. The SCCA’s survey of Saudi caselaw published between 2017 and 2021 indicated that 540 judgments were issued and 603 applications were registered with the Appeal Courts. Of those applications, nearly a third (192) were for enforcement or nullification of arbitral awards, but only 6% of the applications to nullify an award (partially or in full) were granted. This percentage is consistent with (if not lower than) successful enforcement percentages of other jurisdictions in the world which are regarded as arbitration-friendly. This low nullification percentage should give parties greater confidence in the enforceability of arbitral awards in KSA.
In relation to the 6% of arbitral awards that have been partially or fully annulled:
- 1% were due to the composition of arbitral tribunal, and in particular conflict of interest;
- 1% were due to the award not dealing with all of the issues in dispute;
- 1% were due to the award lacking a majority vote; and
- 3 % were due to a violation of Shari'ah and Public Policy.
Royal Decree No. 44682 of 28 August 2021 limits the (traditionally broad) definition of public policy to general rules of Islamic law based on the Quran and the Sunnah. The nullification actions between them had cited 13 different grounds based on alleged violation of Shari'ah / Public Policy, but only 3 of these 13 grounds cited were successfully deployed before the Appeal Court. The successful grounds were:
- Late Payment Charges were found to amount to usury
- Compensation for holding back money was found to amount to usury
- The award involved the sale of property which the purported seller did not own
There is a welcome predictability to these statistics: in each case where an award was successfully nullified, the nullification action appears to have succeeded on the basis of either (i) a "rogue" award or (ii) a clear violation of Shari'ah law.
Saudi Arbitration Law does not restrict the selection of party representatives by nationality or profession
In its study, there is a recognition by the SCCA that, because arbitration is based on the principle of party autonomy, the parties should be at liberty, among other things, to choose their representatives regardless of their nationality or professional qualification.
The SCCA’s study concluded that, under Saudi law, parties are free to choose any representative to represent them before arbitral tribunals, including foreign legal counsel. There is no requirement for party representatives to be either a lawyer or a Saudi national. This is because a party’s choice of representation by non-lawyers and non-Saudis in arbitration proceedings is not one of the grounds for annulment specified in Article 50 of the Saudi Arbitration Law and therefore does not give rise to issues concerning the validity or enforceability of a subsequent award. It follows that, contrary to some misconceptions and arguments frequently raised (often by KSA law firms), legal representation in arbitral proceedings in KSA is not restricted only to Saudi nationals registered in the schedule of practicing advocates.
This also applies to the choice of a party’s appointed arbitrator. Article 14 of the Saudi Arbitration Act does not include any restrictions in a party’s choice of arbitrator by gender, nationality or profession. However, where a sole arbitrator or the chair on an arbitral tribunal is to be appointed, they must have a university degree in law or Sharia.
There is a growing track record of support for arbitration in Saudi Arabia, which can only give international investors more confidence in resolving disputes in the Kingdom at what is a critical period if it is to achieve its aim of becoming a leading diversified economy in the region in accordance with Saudi Arabia’s Vision for 2030.