DLA Piper recently acted on a successful "reconsideration motion" in the Appeal Court in Dammam on the basis of a default judgment which had been issued against our contractor client in favour of a subcontractor. The case serves as a reminder of the way in which reconsideration motions can be pleaded in the Saudi Appeal Court, and how judges will apply principles of natural justice when reaching their decisions.
We expand on the facts of the case and the court's reasoning in more detail below.
Case No. 411/S for the year 1439H - Subcontractor v Contractor1
The case centered on claims arising from the construction of a polysilicon factory in Jubail, Saudi Arabia. The Subcontractor claimed unpaid amounts from our client, the Contractor, under a subcontract executed between the parties in relation to part of the construction works. The Subcontractor brought these claims in the Saudi courts notwithstanding that the subcontract contained a valid arbitration clause.
The first hearing of the case took place in the Commercial Court in Dammam in October 2016. Prior to the hearing, the Subcontractor had not served the notice of claim on the Contractor and, as a result, the Contractor could not make an appearance at the hearing.
Five more hearings took place between January 2017 and August 2017. At each hearing, the Subcontractor informed the court that it had not effected service of the claim on the Contractor. As a result, the Contractor did not appear at the hearings, and was denied the opportunity to respond to the Subcontractor's claim.
At one of the latter hearings in 2017, the Subcontractor produced a copy of a publication of the claim which it had arranged in a local newspaper. On the strength of this, the Commercial Court was satisfied that the Subcontractor had made reasonable attempts to effect service on the Contractor, and the court issued a default judgment on this basis.
In February 2018, the default judgment was made final by the Appeal Court in Dammam, and the Contractor was ordered to pay the full amount of the claim to the Subcontractor. Since the court of first instance judgment was issued in August 2017, this final judgment handed down by the Appeal Court could not be appealed to a higher court2.
The Contractor first became aware of the claim/judgment against it when its Saudi bank account was frozen in late 2018 pursuant to enforcement orders issued against it by the Enforcement Court on the basis of its outstanding judgment debt to the Subcontractor.
Filing a "reconsideration motion" in the Appeal Court
Pursuant to Article 200 of the Sharia'ah Procedure Law, a party may file for "reconsideration" of a final judgment handed down by the Appeal Court in any of the following circumstances:
a) if the judgment was based on documents that were subsequently found to be forged or based on testimony that was subsequently ruled perjurious by the competent authority;
b) if the petitioner, after the judgment was rendered, obtain conclusive documents for the case that he was unable to produce before the rendering of the judgment;
c) if an act of fraud was committed by the adverse party which would have a bearing on the judgment;
d) if the judgment awards what the litigants did not ask for or more than what they asked for;
e) if the wording of the judgment was contradictory;
f) if the judgment was in absentia3; or
e) if the judgment was rendered against a person not properly represented in the case.
On the strength of Article 200(f) above, we filed a motion in the Appeal Court requesting that the court reconsider its final judgment issued against the Contractor on the basis that it had been issued in default, and that the Contractor had been denied the opportunity to respond to the Subcontractor's claim. We filed the motion within 30 days of the Contractor first becoming aware of the judgment (when its bank account was frozen) in accordance with Article 201.
In December 2018, the Appeal Court ruled in the Contractor's favour and found, on the basis that the judgment issued against the Contractor was a judgment in default, the case should be sent back to the Commercial Court for "reconsideration".
Subsequent to the Appeal Court's ruling in Case No. 411/S, we have taken steps on behalf of the Contractor to:
- successfully challenge the jurisdiction of the Commercial Court to determine the dispute, by referring to an arbitration clause contained in the relevant subcontract between the parties;
- persuaded the Commercial Court to reverse its previous judgment ordering the Contractor to pay the full amount of the claim to the Subcontractor;
- have the enforcement orders issued against the Contractor suspended on the strength of the Commercial Court's "reconsidered" judgment to strike out the case by reference to the arbitration clause; and
- have its jurisdictional challenge upheld on appeal to the Appeal Court, and have final judgment issued in our client's favour on this basis.
As a result, in the space of six months, the Contractor's position has transformed from one in which a final unappealable judgment had been rendered against it (with consequent freezing orders made against its assets) to having had all judgments against it set aside, along with a final judgment that the Subcontractor must honour the arbitration clause in the Subcontract.
DLA Piper comment
The case serves as a reminder that the Appeal Court will order "reconsideration" of a final judgment it has issued if any of the Article 200 conditions set out above are met.
A number of these conditions appear to be based on principles of natural justice, such as that:
- (as in the present case) judgment has been issued in default, and therefore a litigant has been denied the right to be heard;
- a litigant was not properly represented when he/she was given the right to be heard; or
- new evidence has come to light subsequent to the handing down of a final judgment which would have had a "conclusive" bearing on the outcome of the case.
This article was prepared by a joint team from our Riyadh, Al Khobar and Dubai offices.
1 Names withheld to maintain confidentiality.
2 Pursuant to a Supreme Judicial Council decision issued on 26 October 2018, only court of first instance judgments issued after 7 December 2018 can be appealed to the Supreme Court in certain circumstances.
3 Emphasis added.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.