Arbitration and its impact on the Saudi economy

Written by the Adviser Hassan Al-Fayoumi

In light of the economic developments in Saudi Arabia, the Kingdom issued the new Saudi Arbitration Law for 1433 AH (2012); to become an effective means in settling the commercial disputes; as the new law replaced the abolished arbitration law issued in 1403 AH (1982), and it came in line with the economic and growth developments witnessed by the Kingdom. On the other hand, the new law was in line with the applicable regulations in Saudi Arabia, so as to achieve the desired purpose for its issuance and avoid the faults of the abolished arbitration law; as the new arbitration law addressed all the arbitration stages and proceedings in a regulatory framework, where the general principles of the international commercial arbitration were taken into account; while taking into consideration the regulations and provisions of Islamic Sharia.

Arbitration is defined as «The agreement between two or more parties to refer the disputes arising from a specific statutory relationship to arbitration», and so arbitration is a consensual contract that requires the presence of the contract’s general elements from consent, subject and reason. On the other hand, arbitration can be conducted internationally or internally in accordance with the new law.

Furthermore, the new arbitration law came to ensure the respect of the will of the dispute parties in resorting to arbitration; and on the other hand, the arbitration has the force of res judicata in accordance with the new law, and it is permissible to directly appeal against its invalidity before the Court of appeal, which eases the burden on the ordinary courts, particularly in the important commercial matters.

The arbitration proceedings initially start from agreeing to refer the disputes related to a contractual or non-contractual relationship to the arbitration; as the agreement is one of the arbitration’s elements, and the arbitration cannot be envisaged without the presence of a written agreement; since the new law stated the need to achieve the writing clause for the arbitration agreement as a formality, which includes the presence of a written document or one of the electronic means of communications, such as cables or others; otherwise the agreement will be null and void, and will not entail any effect.

The new law allows the arbitration agreement to be concluded prior or subsequent to the occurrence of the dispute, even if there was a pending case before the competent court (ordinary court). In this case, the arbitration agreement must determine the matters covered by the arbitration agreement; otherwise the agreement will be null and void; meaning that the court originally competent to review the dispute may refer the matter to arbitration in response to the will of the dispute parties.

It should be noted regarding the matter at hand that the new law had recognized the principle of independence as one of the arbitration clauses, and this principle states the independence of the arbitration clause for all the other clauses stated in the contract; therefore, the contract’s invalidity, dissolution, or termination will not entail any effect on the arbitration clause contained in the contract; as long as the clause is true in itself.

The litigants can freely choose the arbitrators, and in the absence of their agreement, the court which is originally competent to review the dispute will form an arbitral tribunal according to what is provided for in the law. As for the number of the Arbitral Tribunal members, the tribunal will consist of one or more arbitrators; provided that the number of arbitrators is uneven; otherwise the arbitration will be considered null and void. According to the new law, the arbitrator must have full capacity, and good conduct and behavior; in addition to obtaining a university degree in Sharia or regulatory science, and it is sufficient to have this condition in the Chairman of the Tribunal, if it is composed of more than one arbitrator. As for the arbitration proceedings, it starts from the day on which one of the arbitration parties received the arbitration request for from the other party. Furthermore, the law also stipulated that the arbitration parties must be treated equally, and each of them must have the full and equal opportunity to present their claim or defense. Additionally, in order to prevent the delays that may occur before the courts, the Arbitral Tribunal is committed to issue the ruling, which will end the dispute, within the period agreed upon by the arbitration parties. If there was no agreement, the ruling must be issued within a period not exceeding twelve months from the commencement date of the arbitration proceedings.

The most highlighted benefits of this law.

The speed of the dispute settlement, where time has an important effect on the disputed right between the parties, especially in the commercial lawsuits, as the factor of time is crucial.

Reduce the administrative burden on the courts, to allow sufficient time.

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