KINGDOM OF SAUDI ARABIA
Abdulrahman Al Ajlan and Anton Mikel
A. LEGISLATION AND RULES
International arbitration in the Kingdom of Saudi Arabia (“Kingdom”) continues to be governed by the arbitration law issued by Royal Decree No. 34/M, dated 24/5/1433H (corresponding to 16 April 2012G) (“Arbitration Law”), which replaced the arbitration law issued by Royal Decree No. 46/M, dated 12/7/1403H, to which no notable amendments have been made since. However, in the last 12 months, the Kingdom has witnessed some important legislative changes affecting arbitration.
One such change was the issuance of the new Saudi Procurement Law, promulgated by Royal Decree No. M/128 dated 13/11/1440H (corresponding to 16 July 2019G) and entered into force on 1 December 2019G (“Procurement Law”).
Article 92 of the Procurement Law authorizes, subject to the approval of the Minister of Finance, ministries, governmental agencies and authorities to agree to arbitration as a dispute resolution mechanism (as opposed to submitting such disputes to local courts). This amendment can potentially eliminate the need to seek previously required, often time-consuming, approval of the Council of Ministers and further streamline the process. This development could also broaden the scope of the dispute resolution options available to parties considering entering into contracts with governmental agencies, thereby leading to an increase in arbitrations in the Kingdom.
Article 154 of the Implementation Regulations of the Procurement Law, which came into force on 19 November 2019 (“Implementing Regulations”), sets forth the following requirements for adoption of arbitration in governmental contracts: (i) arbitration is limited to contracts having an estimated value of more than SAR 100,000,000 (approximately USD 26 million), which the Minister of Finance can amend as he deems appropriate; (ii) the governing law of the arbitration must be Saudi law; (iii) it is prohibited to accept foreign arbitration, except for contracts with foreign parties; and (iv) the contract must expressly provide for arbitration and its conditions.
Another legislative change regarding arbitration in the Kingdom was the issuance of a Saudi Royal Order (“Order”). The Order states that if government instrumentalities and government-owned companies desire to resolve their disputes with foreign investors through arbitration, after obtaining the requisite approvals, such entities should endeavor to have the arbitration be in the Kingdom, and administered by the Saudi Center for Commercial Arbitration (SCCA) or one of the other arbitration centers licensed by a committee of the Saudi Council of Ministers.
It appears from the Order that, if the parties opt for arbitration, such arbitration does not strictly need to be conducted in the Kingdom. However, the Order could be interpreted to have changed the legal requirements for government-owned companies to agree to arbitration. Historically, government-owned entities (such as Saudi Aramco, prior to its IPO) did not need to obtain government permission to agree to arbitration and indeed many such companies had in the past agreed to resolve disputes by arbitration without seeking permission. However, now it seems that this Order may require such entities to obtain initial permission to agree to arbitrate disputes. The introduction of this additional step of seeking arbitration approvals may hinder government-owned entities from opting for arbitration and instead, they may find that Saudi courts are a more convenient dispute resolution forum.
A.2 Institutions, Rules and Infrastructure
The SCCA continues to be the leading domestic and international commercial arbitration center in the Kingdom. The SCCA had successfully held its second two-day international conference in Riyadh on 14-15 October 2019, which was attended by several high-level ministers (including the Minister of Finance), 37 speakers and over 1,000 participants.
Since the issuance of the new Arbitration Law, the Kingdom has seen an increase in the number of domestic and international commercial arbitrations conducted via the SCCA as well as ad hoc arbitrations, which is reflective of its success and increased visibility. This increase is reflected in the rise of the number of domestic arbitral awards enforced in the Kingdom. For example, in 2016/2017, nearly 1,193 local arbitration awards were enforced in Saudi Arabia, while in 2017/2018, 2,697 awards were enforced. In addition, in 2016/2017, approximately 41 foreign arbitration awards were enforced in Saudi Arabia, while in 2017/2018, roughly 33 foreign arbitration awards were enforced.
Additionally, on 8 July 2019, Saudi Arabia became a signatory to the United Nations Convention on Mediation, known as the “Singapore Convention on Mediation.” The Singapore Convention on Mediation provides a unified framework to enforce commercial dispute settlements based on mediation, similar to the Convention of the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (the “New York Convention”).
We are not aware of any new notable arbitration cases to report in the Kingdom. Saudi courts and other adjudicatory authorities do not, in general, report their decisions, and previous decisions of the courts and other adjudicatory authorities of Saudi Arabia are not considered to establish a binding precedent for the decision of later cases. Due to the fact that arbitral awards are not made public, it is difficult to obtain information about new arbitrations.