Saudi Arabia: Government Paves Way For New Centre

Cyrille Naffah, senior associate at the Saudi office of BSA Ahmad Bin Hezeem & Associates LLP, reports on a Saudi Arabian resolution to establish a new commercial arbitration centre in Riyadh that will oversee the activities of all arbitration providers in the kingdom and their compliance with its new arbitration law.

In line with its efforts to modernise and align commercial arbitration with international best practice, and following the enactment of a new arbitration law in July 2012, the Saudi Arabian cabinet has adopted a resolution providing for the establishment of a commercial arbitration centre in the country’s capital, Riyadh.

The adoption of the resolution, on 18 April, is an attempt to equip Saudi Arabia with a central arbitration institution that will monitor the establishment and activities of arbitration centres throughout the kingdom and set their procedural rules. It will also ensure their compliance with the provisions of the 2012 arbitration law with regard to the selection of arbitrators, the conduct of the arbitration proceeding and the issuance of awards, among other things.

It is hoped that the establishment of the centre will help transform Saudi Arabia into an attractive arbitration destination in the Gulf Cooperation Council region, similar to the Bahrain Chamber for Dispute Resolution, the GCC Commercial Arbitration Centre in Bahrain, the Dubai International Arbitration Centre and the DIFC/LCIA Arbitration Centre (a joint venture between the Dubai International Financial Centre and the London Court of International Arbitration).

Foreign investors, who currently regard Saudi arbitration providers as lacking in competence and expertise, are likely to welcome a development which will make arbitrating disputes with Saudi companies in the kingdom a real possibility.

Dedicated arbitration committee

The resolution provides, firstly, for the establishment of a permanent committee dedicated to overseeing arbitration within the Ministry of Justice. The roles and responsibilities of the committee are as follows:

• To issue licenses for the establishment of new Saudi arbitration centres or branches of existing ones and to lay down rules with which they must comply. (It is worth noting that the resolution remains silent as to whether the committee is also competent to issue licenses for the establishment of foreign arbitration centres in the kingdom and whether existing arbitration centres sponsored by the Saudi Chambers of Commerce and Industry will need to apply or re-apply for licenses to be able to continue their operations. The rules to be adopted by the committee will most likely address those issues.)

• To lay down criteria for the registration of arbitrators with licensed centres. The new arbitration law requires that arbitrators be of full legal capacity, of good conduct and reputation, and have a university degree in either shariah science or law. It also requires that arbitrators be independent, neutral and impartial and declare that they are so in writing. It is unclear whether the committee will be able, drawing upon international best practice, to add other requirements for arbitrators to seeking to register with licensed centres.

• To establish guidelines for determining the arbitrators' fees and expenses.

New commercial arbitration centre

The resolution provides for the establishment of the Saudi Centre for Commercial Arbitration in Riyadh, which will operate under the auspices of the Saudi Chambers of Commerce and Industry. The centre will oversee arbitration proceedings in commercial and related civil disputes which the parties have agreed to settle through arbitration, in accordance with the applicable laws and established judicial, commercial and civil principles.

In accordance with article 2 of the new arbitration law, the resolution states that arbitration will not be used to decide administrative matters, “personal status” matters and matters where compromise is not allowed. The centre and other centres to which it has awarded licensees will also have no jurisdiction over disputes involving agreements to which government agencies are a party unless the agencies have been authorised to resort to arbitration by Saudi Arabia’s Council of Ministers.

The centre will be managed by a board of directors appointed by the board of the Saudi Chambers of Commerce and Industry, with the approval of the Minister of Justice and the Minister of Commerce and Industry and in coordination with the governor of the Saudi Arabian General Investment Authority.

The board of directors

The board of directors will manage the centre and approve its rules, procedures, regulations, resolutions and financial resources as well as the activities of its licensees. In doing so, the centre will draw upon the many procedural rules introduced in the new arbitration law including the following:

• The rule that the parties may refer the dispute to the centre or any of its licensees without first having to petition the competent court for its permission. This rule is embedded in Article 26 of the new arbitration law, which states that “…arbitration procedures shall begin from the day on which either arbitration party receives the arbitration request from the other party, unless the arbitration parties agree otherwise”. This procedural rule follows standard international practice, where any party can initiate arbitration by serving notice on the other party without involvement of the courts;

• The freedom of the parties to choose the procedural rules that will govern the arbitration proceeding, whether institutional rules or ad hoc, as long as they do not contravene shariah law.

• The freedom for Saudi parties to select their own arbitration rules for domestic commercial arbitrations. Article 2 of the arbitration law states that “the provisions of this law apply to every arbitration regardless of the nature of the dispute if the arbitration is done in Saudi Arabia…”

• The right for the centre and any of its licensees to adopt interim measures and issue preliminary orders. Article 23 of the arbitration law provides that the “…arbitral tribunal can, based on the request of either party, order any of them to take temporary or precautionary measures it deems necessary and required in relation to the nature of the dispute”.

The board of directors will sit for a renewable three years term. Its chairman must have worked at least 10 years in a relevant private sector, while other board members must have five years of such experience. While the resolution does not specify what is meant by a relevant private sector, it seems to refer to private business or trade. Neither the chairman nor the board members can have held private office.

Arbitration awards

As far as arbitration awards are concerned, the centre and its licensees would have to comply with the relevant provisions of the arbitration law.This creates a right to issue interim or partial awards, which must be in writing, reasoned and signed by the arbitrators unless the parties have given their written consent otherwise.

The law also creates an obligation for arbitral tribunals to issue awards within 12 months of the date on which the arbitration was commenced, subject to the tribunal’s authority to extend that deadline for six months.

First tasks

Once established, one of the first tasks of the centre will be to prepare a list of arbitrators, from which parties may select tribunal members, based on its expertise. According to the resolution, the parties may also select from “other lists” – issued by other arbitration centres inside and outside the kingdom.

The centre must also establish guidelines for determining the fees and expenses payable to registered arbitrators and consider whether to set up any branches of the centre in or outside Saudi Arabia.

It will then be able to fulfill its core task to adopt whatever measures are necessary to assist the resolution of disputes between natural and legal persons falling within its jurisdiction.

Looked at overall, the resolution is a positive response to the perceived lack of experience and competence of existing arbitration centres in Saudi Arabia. But it remains to be seen whether the arbitrator list and procedural and administrative rules adopted by the centre will position it to become a major player in the domestic and international arbitration arena.

Alsopublished by Thomson Reuters, Mena Week in Review, July 2014