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Growing Popularity of Arbitration in Saudi Arabia
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In recent years, arbitration has become increasingly popular in Saudi Arabia as a way to resolve business disputes. Arbitration is a process by which parties to a contract agree to resolve their dispute with a third party who is empowered to issue a legally binding decision determining the disputed issues and awarding monetary damages or other specific remedies. This process is codified in Royal Decree No. M/46 of 12-7-1403 H dated April 25, 1983.
Over the past two decades, the Kingdom’s arbitration law has become increasingly useful to businesses for four basic reasons: |
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Arbitration resolves disputes faster, thus savings time and money. |
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Disputes are resolved privately, rather than in a public courtroom. |
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Experts who are familiar with the technology or practices of a particular trade are employed as arbitrators, and they provide continuity throughout the process by following the case from the beginning to the end. |
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Most courts enforce arbitration agreements without question, except in unusually rare circumstances, and judicial enforcement of arbitration awards is now as easy as enforcing a foreign judgment. |
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Arbitration of commercial disputes arises in two situations. The most common is an agreement to submit future disputes to arbitration, which is incorporated in the principal contract between the parties. The second way is the parties’ agreement to submit an existing dispute to arbitration in the absence of an arbitration clause in the contract.
Saudi Arabia’s arbitration law is remarkably comprehensive in discussing all aspects of the arbitration process. Article V requires that the parties submit the agreement to arbitrate to the judicial authority having original jurisdiction over the dispute and obtain the latter’s approval. The arbitration document must be in Arabic and should be capable of being authenticated. Judicial approval is generally procedural and must be issued within fifteen days.
Unless the parties have otherwise agreed, an arbitration award must be issued within ninety days of the date of judicial approval of the arbitration document. Any award must be in Arabic and in accordance with Islamic law and applicable regulations.
Generally, the parties have the right to confront the opposing party and its witnesses, to present arguments and relevant documents, and to be represented by an attorney. Sessions are public but may be held privately if the arbitrator decides to do so or a party so requests. The arbitrator may question the parties and witnesses on his own or direct that most of the questioning be conducted by the parties’ attorneys. Testimony must be in Arabic, and any person not speaking Arabic must be accompanied by a qualified interpreter.
Unlike most judicial proceedings, the arbitrator may order independent investigations and conduct on-site inspections. He may also appoint other experts and assess expert fees against the parties as he determines appropriate.
Once an award is issued by the arbitrator, the parties have the right to object within fifteen days of being notified of the award. If no objections are filed within the stated period, the award becomes final. A final award is still subject to the process of judicial review to determine if it is fully consistent with Saudi law and public policy. When an order is issued by a court to enforce the award, it has the force and effect of a judicial decision. However, Article XX of the arbitration law provides that the decision of the court issuing the enforcement order is appealable as any other judicial ruling.
Since 1993 when Saudi Arabia ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Saudi Board of Grievances remains involved in deciding whether a foreign arbitration award should be enforced. The Board considers the following circumstances which may prevent enforcement: |
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When the arbitration agreement in invalid according to the law applicable to it or of the country where it was made; |
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When the arbitrator exceeded his authority; |
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When the composition of the arbitration panel was irregular; |
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When the award is not enforceable in the country in which it was made; |
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When the dispute is incapable of being settled by arbitration under Saudi Arabian law; and |
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When the recognition or enforcement of the ward is contrary to the Kingdom’s strict adherence to Shariah. |
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If there is any question whether the foreign arbitration award will be recognized and enforced in Saudi Arabia, it may be best for a foreign firm to secure legal representation from a Saudi law firm to involve the local courts, particularly when the defendant’s assets are located in the Kingdom.
The Kingdom also is a party to certain international arbitration agreements, such as the Agreement on the Reciprocal Enforcement of Judgments among the Members of the League of Arab States and the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States. In the latter agreement, however, it is noteworthy that the Kingdom reserved the right not to permit questions pertaining to oil or discretionary executive actions which are not subject to judicial review to the International Center for Settlement of Commercial Disputes.
Arbitration generally is preferable to mediation for its binding effect upon the parties. Mediation involves submitting a dispute to a mutually acceptable third party in an effort to reach an amicable solution. However, if a party is unwilling to accept the recommendation of the mediator, he may disregard it and commence litigation. In commercial disputes, particularly those involving non-Saudis, the binding effect of arbitration is much more attractive by providing the certainty that the arbitration decision will resolve the matter once and for all.
It remains to be seen if the costs associated with arbitration can be restrained so that arbitration will remain a more cost-effective means of dispute resolution than litigation in Saudi courts. |
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