Over the recent few years, the Kingdom of Saudi Arabia has seen sweeping changes within the society and its economy. One particular way in which these changes took place was through the enactment of Royal Decree Number M/34 of 2012 (the Arbitration Law), concerning arbitration within the Kingdom. Until that point, Saudi Arabia’s arbitration was centred around the 1983 Arbitration Law and the 1989 Rules of Civil Procedure, when it came to enforcement of judgements and arbitral awards.
The Arbitration Law, supplemented by Royal Decree Number M/53 of 2012, known as the Enforcement Law, concerning the execution of court judgements and arbitral awards (including foreign judgements and arbitral awards), brought forth a variety of changes in the arbitration framework in the Kingdom. This led to a rise in the number of applications for foreign enforcement, from 69 in 2014 to 257 in 2018, with the collective total value of applications exceeding USD 3 billion, as per the Ministry of Justice.
The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the Convention), enacted by the United Nations, was historic as it required the courts of the contracting nations to recognize and enforce arbitral awards that were issued by other contracting nations. Saudi Arabia became a signatory to this convention in 1994. Apart from this, the Kingdom was already a signatory to the Riyadh Arab Agreement for Judicial Cooperation of 1983, known as the Riyadh Convention, which was signed between several Arab nations for enhancing judicial cooperation between them, which included execution of foreign judgements and arbitral awards between them.
Even though Saudi Arabia had these guidelines to follow, the actual process of enforcement was arduous and tricky. Enforcement of any award or judgement required the Board of Grievances to review the merits of each and every single award, upon an application made by the parties, to ensure that it complied with the Sharia Law. The Board of Grievances was tasked not only with the enforcement of such judgements and awards but various other responsibilities as well, which led to severe delays on a regular basis. Some cases even required re-trials before the board, which would cause even further delays.
An instance where multiple legal personalities questioned the functioning of the Board was in the case of Jadawel International (Saudi Arabia) v. Emaar Property PJSC (UAE). In this case, Jadawel International initiated arbitration proceedings in Saudi Arabia against Emaar Property PJSC in 2006, for breach of contract in relation to a construction project, and claimed damages of USD 1.2 billion. After a lengthy arbitration process, the claim was dismissed and Jadawel International was ordered to pay legal costs. When Emaar Property PJSC tried to enforce this award by submitting it to the Board of Grievances, the board conducted a review of the merits of the award, wherein the board declined to enforce the award, reversed the earlier decision and ordered Emaar to pay damages in excess of USD 250 million towards Jadawel International.
The New Arbitration and Enforcement Law:
The Arbitration Law of 2012 was enacted based on the 1985 UNCITRAL Model Law on International Commercial Arbitration and would apply to arbitration both within the Kingdom and abroad, wherein the parties have submitted to the provisions. It further established the following rules:
- The number of members in an arbitral tribunal must be odd in number at all times. In the event that it is not, the arbitration proceedings will be considered to be void;
- The arbitrators must be legally competent, of good behaviour, and must hold at least a university degree in the principles of Sharia or law;
- The tribunal will have the power to determine its own jurisdiction, on the basis of the merits of the case;
- Any agreement for arbitration must be in writing. Further, the Law provides for the separability of the arbitration clause thereby preventing any termination/nullification/revocation of the underlying agreement affecting the arbitration clause.
- The parties to arbitration can choose the rules for arbitration, between Rules of Arbitration of the International Chamber of Commerce, the London Court of International Arbitration Rules and the UNCITRAL rules.
- The parties can also choose the language for the arbitration proceedings, which will be followed for written arguments, oral arguments and any award made by the tribunal.
- The Law requires that the arbitral award must be rendered within the time period agreed by the parties and in the absence of any such time period, the award must be rendered within 12 months from the date of commencement of proceedings.
Once the proceedings are finished, prior to the issue of the order of enforcement of the award, the court must be satisfied that the award being issued is:
- Not in conflict with any prior judgement or decision of the court;
- Not in violation of any principles of Sharia Law or the public policy of the Kingdom;
- Notified to the party against whom it will be enforced.
One of the highlights of the Law was the fact that any arbitration proceeding, enforcement of any award, or application of any foreign law must be in conformity with the principles of Sharia Law. On the backdrop of this new legislation, the Saudi Centre for Commercial Arbitration was established, the nation’s first formal arbitration institute.
The Arbitration Law of 2012 was supplemented by the Enforcement Law, which was enacted in 2012 and came into force on 27th February 2013. One of the highlights of the Enforcement Law was the establishment of specialised enforcement courts within the Kingdom. These specialised enforcement courts had exclusive jurisdiction in dealing with both domestic and foreign judgements and arbitral awards and the judge responsible for the enforcement was tasked hearing any re-trials if needed. According to Article 6 of the Royal Decree No. M/53 with regards to the Execution Law, it was established that the authority of the enforcement judge would be supreme and final, without the scope or provision of any appeal.
Article 11 of the Enforcement Law further sets out the requirements for enforcing any foreign judgement or arbitral awards. According to the Article, the judge in-charge of enforcement cannot enforce a judgement or award unless a basis of reciprocity has been established and after verifying that:
- The courts of the Kingdom are incompetent to hear the case and that the foreign court or arbitral tribunal that passed the judgement or award is competent in accordance with its conflict of law rules;
- The parties of the case were legally represented properly and were duly summoned;
- The judgement or award is final in accordance with the court or tribunal that issued it;
- The judgement or award is not inconsistent with any previous rulings of the Saudi courts;
- The judgement or award does not violate Saudi public policy and Sharia law.
In the event that the debtor of the award fails to pay the amount that is due or disclose any property in order to fulfil the conditions of the award within 5 days from the notification of the execution order, Article 46 and Article 47 of the Enforcement Law gives the enforcement judge to issue sanctions such as:
- Impose travel bans on the debtor;
- Suspend the debtor’s ability to issue powers of attorney;
- Freeze the debtor’s bank accounts and any other financial activity;
- Order for the disclosure of the debtor’s assets;
- Order for the disclosure of records concerning the commercial and professional activities of the debtor.
The Arbitration Law of 2012 and the Enforcement Law of 2012 paved the way for arbitration proceedings in the Kingdom of Saudi Arabia, ensuring that the process is as expeditious and effective as possible. In fact, in most cases, an execution order will be issued by the enforcement judge within a month of the application, showcasing the Kingdom’s commitment towards swift proceedings. With Saudi Arabia’s increased diversification of the economy and sweeping societal changes, an expeditious and just judicial mechanism is essential in carrying the nation forward towards achieving their goals and the Kingdom has ensured that by virtue of these new laws, cases like Jadawel do not repeat themselves.
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