Saudi Arabia Publishes the new Arbitration Law in the Official Gazette

                                                                  

Saudi Arabia Publishes the New Arbitration Law in the Official Gazette

By Amgad T Husein and John Balouziyeh

On June 8, 2012, Saudi Arabia published in the Official Gazette the text of its new Arbitration Law, which took effect as of last week. The new law has been welcomed by many analysts as a reflection of Saudi Arabia’s embracement of international standards, as the law is larged modeled on the United Nationals Commission on International Trade Law (UNCITRAL) Model Law. However, there remain certain local considerations that parties to any Saudi arbitration, as well as parties seeking to enforce arbitral awards in Saudi Arabia, must be aware.

As stated in the April 13, 2012 edition of the Official Gazette of Saudi Arabia, Um Al-Qura, the provisions of the new Arbitration Law would apply to arbitrations held under the Saudi Arbitration Law “without prejudice to the provisions of the Islamic Shari’a.” The Islamic Shari’a reservation is one that is reiterated throughout the Law, nearly a dozen times. A few examples include:

  • Without prejudice to the provisions of Islamic Shari’a, the provisions of the Law apply to any arbitration conducted in the Kingdom (Art. 2);
  • If the two parties agree to submit to any legal instrument (contract, international agreement, etc.), the provisions of such instrument, including the arbitration provisions thereof, will be applied, without violation of the provisions of Islamic Shari’a (Art. 5);
  • Parties may agree to the procedures to be followed by the arbitration panel, including their right to subject such procedures to the rules in force at any organisation, authority or arbitration centre in the Kingdom or abroad, without violation of the provisions of Islamic Shari’a (Art. 25.1);
  • If the parties have not agreed to the procedures to govern an arbitral proceeding, these procedures may be determined by the arbitration panel, subject to the provisions of Islamic Shari’a (Art. 25.2).

Perhaps the most important of the Shari’a reservations is in Part 6 of the Law, which deals with the annulment of arbitration awards (including foreign awards). Under Article 50.2, an award can be annulled if it contains any violation to the provisions of Islamic Shari’a and Saudi Arabian public policy or any violation to the agreement of the arbitration parties. Such an award can also be annulled in the following cases (Art. 50.1):

  • If the party to an arbitration agreement lacked capacity at the time of concluding the agreement;
  • If a party failed to submit his defence due to insufficient notice;
  • If the arbitration award excluded any of the regular rules agreed to be applied by the parties;
  • If the arbitration panel was formed in violation of the Law or of the agreement of the parties;
  • If the arbitration award settled issues not included in the Arbitration Agreement; nevertheless, if it shall be possible to isolate parts of the award related to arbitration from such parts related to issues not subject to the arbitration, annulment shall only be applied to the parts that are not subject to arbitration.
  • If the Arbitration Panel failed to take the conditions that should be available in the award into consideration in a way that shall effect the content thereof or if the award depended on void arbitration procedures that have affected it.

Although the new Arbitration Law demonstrates the Saudi government’s endorsement of and embracing of a legal framework that brings certainty to the legal marketplace and to foreign investment, the continuous, repeated reservations on the basis of Islamic law and Saudi public policy do, to a certain extent, undermine this certainty. Interpreting and predicting how a Saudi judge or arbitrator will apply the Shari’a remains difficult and somewhat evasive. Whereas some Shari’a principles are well-established principles rooted in tradition, others are subject to a judge’s individual view or considerations as to fair application under equity.

One thing that remains clear is that a Saudi judge could still refuse to apply a contract or a foreign arbitral award on the basis of Saudi Arabian public policy and Shari’a considerations, as under the old Arbitration Law.

 

Amgad Husein and John Balouziyeh are corporate attorneys in Saudi Arabia and co-authors of the Legal Guide to Doing Business in Saudi Arabia (forthcoming).


 

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