Saudi Arabia continues to move towards arbitration-friendliness, but are we there yet? 

There can be no doubt of the Kingdom’s ambitions. In recent months, it has been reported that Saudi Arabia is set to become the largest construction site in history, with investment in current infrastructure and real estate projects estimated to be over USD 1.1 trillion. Giga-projects like NEOM, King Salman Park, Diriyah Gate and the Red Sea Project, and the launch of a new airline to rival Emirates indicate the scale of the Kingdom’s ambitions on its path to achieving its Vision 2030. 

Inevitably, all this construction has attracted many of the world’s largest contractors. But questions remain as to how “arbitration-friendly” the Kingdom is. James Cameron explains more.

The Saudi Center for Commercial Arbitration (SCCA) recently published an article in the Global Arbitration Review entitled “A progress report on Saudi Arabia’s arbitration-friendliness”1. In that article, the SCCA benchmarks Saudi Arabia as an arbitral seat by reference to the London Centenary Principles of the Chartered Institute of Arbitrators (CIArb London Centenary Principles), and finds that it meets each of those principles and compares favourably to other jurisdictions that are considered “arbitration-friendly”.2

What are the CIArb London Centenary Principles?

The CIArb London Centenary Principles comprise principles that CIArb consider “necessary for an effective, efficient and ‘safe’ Seat for the conduct of International Arbitration” and can be summarised as follows:

1. Law – effective local law that recognises and respects the parties’ choice of arbitration.
2. Judiciary – an independent judiciary that is competent and efficient and respectful of the parties’ choice of arbitration.
3. Legal expertise – an independent legal profession with expertise in international arbitration. 
4. Education – a commitment to education of counsel, arbitrators, the judiciary, experts, users, and students regarding international arbitration. 
5. Right of representation – a clear right for parties to be represented by someone of their choice, whether from inside or outside the jurisdiction of the seat.
6. Accessibility and safety – the seat must be easily assessable and free from unreasonable constraints on entry, exit and work, etc. 
7. Facilities – adequate facilities for the provision of arbitration services (e.g., hearing rooms, transcription services, etc.). 
8. Ethics – professional and other norms which embrace diversity of legal and cultural traditions. 
9. Enforceability – adherence to international treaties and agreements governing the recognition and enforcement of awards made at the seat and in other countries. 
10. Immunity – clear right to immunity from civil liability for arbitrators for anything done in good faith in their capacity as arbitrator. 

How does Saudi Arabia measure up? 

The SCCA article goes through each of the CIArb London Centenary Principles in turn and sets out how the Kingdom meets the requirements imposed by those principles. 

Of particular interest was the SCCA’s position on: (i) the arbitration law in Saudi Arabia; (ii) the efforts being made in relation to the professional legal community and education and the parties’ rights of representation; (iii) the recent appointments of international experts; and (iv) the statistics relating to judicial enforcement of awards.

Arbitration law in Saudi Arabia 

The SCAA notes that the Saudi Arbitration Law3 is modelled on the UNCITRAL Model Law on International Arbitration and has “paved the way for a more arbitration-friendly era”. In broad terms, we agree with this assessment. 

In a previous issue of the Review, we provided a summary of the Saudi Arbitration Law and Sharia principles.4 We noted there that international arbitration practitioners from outside the Kingdom should be mindful of some unique elements of arbitrating in the Kingdom and should consider the following tips:

1. Ensure arbitration process is Sharia compliant, even when seated outside of the Kingdom and subject to international institutions’ rules, if enforcement is to take place within the Kingdom.
2. Ensure any award is Sharia compliant. In particular, beware of issues such as interest, liquidated damages, loss of chance and consequential losses, recovery for which is not Sharia compliant.
3. When dealing with government authorities, ensure proper authority has been obtained to enter into an arbitration agreement.

We concluded that this makes it important for parties who are arbitrating and/or potentially looking to enforce an award in the Kingdom to engage counsel familiar with the Sharia throughout the arbitration process, even if the arbitration is subject to non-Sharia rules and governed by non-Sharia law.

The professional legal community and education and the parties’ rights of representation 

The SCCA notes that the Saudi Bar Association in 2019 launched the Saudi Accreditation Standards for Lawyers, which is described as “a set of processes endeavouring to set national legal progression standards meeting international best practices and maintaining a high level of professionalism”. The SCCA says that these kinds of initiatives are “ensuring that Saudi lawyers will be competitive domestically and internationally”. 

This is consistent with our experience in the Kingdom too, where we often are engaged with or opposed to counsel who operate at a high professional standard. However, as noted by the SCCA, the Saudi Arbitration Law makes it clear that a party may appoint a representative (who does not need to be a lawyer) from inside or outside the Kingdom, regardless of gender, nationality, or religion. 

As a result of this, we do continue to see international contractors operating within the Kingdom preferring to have international lawyers from outside the Kingdom engaged in collaboration with local counsel; we continue to cater for this preference through our alliance with Hammad & Al-Mehdar. 

The recent appointments of international experts 

As noted in the SCCA article, the SCCA has recently “added high-profile ADR experts to its board of directors, rules advisory committee and committee for administrative decisions as part of its objective to provide first-class rules and services.” The third independent board of directors of the SCCA was appointed by Royal Decree that was issued on 23 March 2021 and is chaired by Walid Abuanumay with Toby Landau serving as vice chair. Half of the incoming board members are leading international arbitration experts, and are drawn together from Saudi Arabia, Egypt, France, the United Kingdom, and the United States. 

This move will be welcomed by the international contractor community, and the fruit of such a diverse range of arbitration experts will doubtless be borne out in the years to come. 

The statistics relating to judicial enforcement of awards

Of particular interest were the statistics the SCCA published regarding the enforcement of awards in Saudi Arabia. 

In 2019, the SCCA notes, more applications for enforcement were filed than had been filed between 2013 and 2018. In 2021, the SCCA notes, Saudi courts enforced 204 domestic and foreign awards, with an aggregate value of USD 2.1 billion. Enforcement proceedings were resolved on average within two weeks, which is impressive by any international measure. 

An SCCA study of Saudi court cases published between 2017 and 2021 indicated that, of the 540 judgments which were issued, and 603 motions registered with the appellate courts, nearly a third of these related to enforcement or nullification of arbitral awards. Of the motions to annul an award, only 6% were granted, half of which were granted on Sharia and public policy grounds. 

This does reinforce the need to be mindful of the points we note above, but also should give some comfort to those operating in the Kingdom that the Sharia and public policy arguments are not being unduly relied on to annul arbitral awards, and that, in the main, arbitral awards are being enforced through an efficient court process. 

Conclusion

Saudi Arabia continues to push towards its Vision 2030, and in doing so continues to champion arbitration as a means of resolving disputes. As the SCCA notes, significant strides are being taken in that regard. Saudi Arabia has a modern international arbitration law, a supportive judiciary, and is bringing in specialist international expertise to continue to develop its arbitration environment. 

While the signs are promising, it remains to be seen whether the Kingdom will continue on its path to becoming a regional – and perhaps one day international – hub for arbitration.

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• 1. The full article by James MacPherson, Leading International ADR Specialist, is publicly available here.
• 2. The CIArb London Centenary Principles are available here.
• 3. Royal Decree No. M/34.
• 4. The article entitled “Arbitration in the Kingdom of Saudi Arabia: the ‘New Arbitration Law’, Shariah principles and enforcement of awards in the Kingdom” is available here.