Appeals Court Overrules Trial Court Judgement and Orders Parties to Stick to Arbitration Clause

It is familiar in Saudi Arabia’s judiciary system that laws are applied even if a law is void of an article to be based on when pronouncing a judgement, with the Sharia rules and provisions are applied.

Since law, in the matter of arbitration, stipulates that arbitration shall be adhered to as a condition agreed upon between the parties to a dispute if one party insisted to observe such a clause in contracts, and a court shall not pronounce a judgment unless this arbitration clause is met.

That is based on the law and the Sharia rule, which states: “Muslims must fulfill the terms they agree to.”

We advise anyone, who wants to file a case, to initially review the contracts and facts of the case before submitting the case with a court because the delay in case proceedings might result in the losing party to cough up the litigation fees that he may not bear for a mistake in which he has no hand.

To make things clear to our readers, we shall give a real example to explain this case.

The attorney of the plaintiff approached the General Court in Madinah and submitted a statement of claim against the defendant in which he stated that the defendant offered him a plot of land, belonging to heirs, to a buyer (…..), and the buyer wanted to get the title of the land and signed a sales contract with his client in his capacity as one of the heirs and for being the attorney-in-fact of the heirs.

Then, his client handed over the defendant as much as SAR 470,000 (Four Hundred Seventy Thousand Saudi Riyals) in return for brokerage in selling the plot of land subject that if the sale was not done, the defendant would give the full amount of money back.

Since the buyer requested to terminate the sales agreement as he was not able to request to issue a title deed for being old, so his client and the remaining heirs agreed on the termination of the sales contract.

The attorney of the plaintiff demanded the court to force the defendant to pay back SAR 470,000 (Four Hundred Seventy Thousand Saudi Riyals) based on the agreement concluded by and between them, in addition to paying the attorney fees, which is amounted to SAR 35,000.

On asking the attorney of the defendant for a reply, he defended that the court has no qualitative jurisdiction to review such case since his client is not a broker and does not engage in brokerage.

Went on to say, the attorney of the defendant told the court that there was an agreement entered into by and between his client and the plaintiff in which agreement it contained: “In case of selling the land, the second party shall receive his agreed upon- share, which is 20%).

Further, the attorney of the defendant said, the contract that by the plaintiff attached was not the final contract, and “My client is entitled to as much as SAR 230,000 (Two Hundred Thousand Saudi Riyals) in an outstanding amount.”

The attorney of the defendant, therefore, demands that the plaintiff pays the said amount and pay compensatory damages for withholding the said amount for four years.

Further, the plaintiff failed to produce the agreement on termination of the sales contract.

Replying to the statements given by the defendant, the attorney of the plaintiff said that the defendant is engaged in brokerage and attached commercial records that pertain to the business of the defendant in real estate.

The plaintiff stuck to the acknowledgment made by the defendant that he would pay back the foregoing amount and that he revoked the agreement referred to by the attorney of the defendant.

The attorney of the defendant added in his second memorandum that he clings to the arbitration clause, and he challenged the contract produced by the attorney of the plaintiff and that his client is a partner in the land, and that the commercial registration of his client had expired and was not renewed.

The defendant attorney said that the meaning of the word subject in the phrase (the subject was not complete) is the effort wat was exerted by his client in a perfect manner, which took him three years.

On showing the matter before the bureau of experts, the Circuit Court ordered (…..…) to pay (….….) a total of SAR 470,000 (Four Hundred Seventy Thousand Saudi Riyals) for the grounds indicated in the court judgement.

Being dissatisfied with the trial Circuit Court ruling, the attorney of the defendant approached the appellate court in Madinah to appeal the verdict, however, the appeals court upheld the lower court’s ruling.

Then, the attorney of the defendant submitted a motion for reconsideration of the judgement to the appeals court, which accepted the motion and referred the case the circuit that issued the judgement to reconsider it.

A hearing was fixed on Wednesday, 26/08/1440 AH to review the case.

At that hearing, the judge asked the attorney of the plaintiff about the value of the amount that his client turned into the defendant, which he replied that asper the declaration he received SAR 470,000.

Commenting on said statement, the defendant said that as much as SAR 466,666.66 (Four Hundred Sixty Six Thousand Six Hundred Sixty Six Riyals and Sixty Six Halalah. He produced a copy of a bank transfer of said amount dated to 21/03/2013 G through Al Rajhi bank. He also produced a number of documents, in which he pleaded that there was an arbitration clause and that the contract was not a brokerage but it was a partnership.

On showing the same to the attorney of the plaintiff, he acknowledged that the bank transfer was authentic, yet as for the arbitration clause, it was pertaining to the partnership contract and not to the amount– the subject matter of the lawsuit.

Both the parties decided that they were satisfied with what they gave earlier.

In today’s hearing, the Circuit Court passed down a judgement for the following grounds.

Since the attorney of the defendant requested the reconsideration of the judgement passed by the trial circuit court, which was upheld by the appeals court in Madinah, and;

Since the appeals court in Madinah has decided to accept the motion for reconsideration pursuant to Paragraph (B) of Article No. (200) of the Law of Civil Procedure, on the grounds that the defendant had got a conclusive paper, which he failed to produce before pronouncing the judgement, which shows that the amount the court ruled is more than the amount delivered to the defendant, and;

Since the Circuit Court reviewed the judgment issued in this case as well as the motion for reconsideration submitted by the attorney of the defendant, and it was established to the court the defendant pleaded there was a clause on arbitration between the two parties when he replied to the statements of the plaintiff, and;

Since the contract signed by and between the two parties to the lawsuit stipulates in article No. (7) thereof: (In the event of any differences, God forbid, that may ensue between the two parties, such differences shall be solved in amicable manners. If they are not solved in that way, the differences shall be settled by a single arbitrator, who is agreed upon by the two parties.)

Since the Arbitration Law promulgated upon a royal decree No. (M/34), dated 25/05/1433 AH, stipulated in the Article No. (11), Paragraph (1) thereof: (A court to which a dispute is filed, and in which dispute there is an agreement on arbitration, shall dismiss the case if the defendant pleaded therewith before proceeding with any petition or pleadings in the case).

Since the contract that governs the relationship between the two parties contained an arbitration clause thereto in case of a dispute arising between the two parties, to which the attorney of the defendant clung at the entire case proceedings,

Therefore, the Circuit Court came up with the rule that it may not review such a dispute based on the grounds hereinabove indicated.

So, the Circuit ruled the following:

First: Turning away from the previous judgement, which ordered (……) to pay (……..) as much as Sar 470,000 for the grounds mentioned here above.

Second: The court may not review such case due to the existence of an arbitration clause for what is indicated in the grounds.

The appeals court then upheld the said ruling for the same grounds.

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