The new Arbitration Law and its impact on investment in Saudi Arabia

The new Arbitration Law and its impact on investment in Saudi Arabia

Dr KHALID ALNOWAISER

Tuesday 28 August 2012

Before starting on the subject, it should be noted that investment in Saudi Arabia affects investors generally, whether Saudi or non-Saudi, especially now that the new Arbitration Law issued under the Royal Decree No. M/34 on 24/05/1433 AH, corresponding to 16/04/2012, has acquired, for the first time, a local and international nature, which seems to impact the investment environment in the Kingdom regardless of the investor's nationality. Therefore, we can hope that this law will help improve the movement and flow of investments, since investors should prefer arbitration to judicial resolution of contract disputes. There is no question that arbitration is the most appropriate option in most contracts, particularly those of a technical nature, such as those involving engineering, construction, maritime and air transportation. Further, the rise in major building projects, which are expected to keep pace with the rapid development of the Saudi economy, requires certainty and efficiency in dealing with contract issues through arbitration.

The new law has explicitly acknowledged international arbitration by stating in Article 3 thereof: “Arbitration shall be international under this Law if it is related to an international trade dispute, in the following cases...” Thus, it clearly specifies those cases in order to avoid any confusion and ambiguity.

The new Arbitration Law also stipulates, in more than one Article, matters that are expected to promote investment flow due to their simplicity and ease of application.

For example, Article 4 of the law mentions the procedures to be followed in a particular issue, stating: “In the cases where this law allows the arbitration parties to choose the procedures to be followed in a particular issue, this shall ensure their rights to license third parties to choose these procedures. Third parties shall mean any individual, commission, organization or arbitration center inside or outside Saudi Arabia.” The last expression - “outside Saudi Arabia” - invokes the international aspect of arbitration, as the matter is not only limited to any procedure inside Saudi Arabia or any local authority alone, but it goes even further and gives the same right to arbitrators outside the country, whether individuals, arbitration centers, or others.

Article 5 of the Arbitration Law also explicitly indicates the flexibility of this law in adopting any arbitration document, whether a model contract or an international agreement as long as they do not violate the Shariah.

It is worth mentioning that the subject of ensuring that neither this law nor any other arbitration law violates the Shariah is misunderstood by other nations. In my view, we must assume the responsibility to explain and clarify to the world that the Shariah helps, and does not hinder at all, the achievement of justice.

International observers have misunderstood and even demonized Islamic law and view it as mysterious and even repressive when it is not. Islam is not an unknown world with secrets and mysteries. In reality, most Saudi laws, such as the Companies Law, Labor Law, Intellectual Property Law, and e-Commerce Law, are significantly similar to the laws applicable in all developed countries with only some minor differences. Indeed, even this new Arbitration Law is primarily derived from the UNCITRAL Rules, so we must educate the rest of the world as to why contract disputes subject to arbitration must comply with the Shariah.

Most Articles of the new Arbitration Law require simplification of arbitration procedures in terms of declaration and selection of arbitrators, determination of the arbitration period, confidentiality, and recognition and enforcement of foreign arbitral awards. All these matters favor investment and promote growth of the Saudi economy. Likewise, the Kingdom's accession to the New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards in 1994, and its accession to several other international conventions for the settlement of investment disputes (ICSID), including the Convention on the Settlement of Investment Disputes in 1997 and the Washington Convention on the Settlement of Investment Disputes in 1972, make Saudi Arabia a promising investment environment.

Nonetheless, and in order to be completely candid, we cannot judge any law before a period of time passes and several arbitral awards are issued so we can truly evaluate the law's efficacy. In all cases, we hope that the Ministry of Justice, headed by the minister of justice and the president of the Supreme Judicial Council, particularly considers the necessity of expediting and simplifying the recognition and enforcement procedures of the foreign arbitrators' judgments issued outside Saudi Arabia and develops a clear mechanism for this issue that is so important and sensitive to all investors. There is no question that this matter is highly important as it affects not only the investors but also the Kingdom's international reputation and credibility in honoring its international agreements.

— Dr. Khalid Alnowaiser FCIArb is Saudi attorney and chairman of the ICC Saudi Arbitration Committee.