Drafting arbitration clauses for Saudi Arabia

By: Tim Martin & Dr. Saud Al-Ammari

There are some unique aspects about Saudi arbitration law and practice that parties need to consider when drafting dispute resolution clauses for their Saudi contracts to ensure their enforceability in Saudi Arabia.

Governing Law

The new Saudi Arbitration Law, enacted in 2012, allows the parties to choose the governing law of their contract. However, any provisions of the governing law, which are contrary to Shari’ah, will be unenforceable. Therefore, parties and arbitrators need to apply the chosen governing law in a way not to violate the principles of Shari’ah. Parties can address that risk in the drafting of their governing law clause by providing that Shari’ah will prevail if there is a conflict with the governing law.

Arbitration Clause

A broad form clause such as: “Any dispute arising out of or relating to….” or the recommended arbitration clauses of most arbitration institutions will work under Saudi arbitration law and in Saudi courts. The new law simply requires that the arbitration clause be in writing.

Arbitration Rules

The new law allows parties to use procedural rules of their choosing, including institutional or ad hoc rules, as long as they do not contravene Shari’ah and the public policy of the Kingdom.

The rules of well-known international institutions, such as the ICC, the LCIA, and the ICDR, along with regional institutions, such as the G.C.C Commercial Arbitration Center, the Dubai International Arbitration Centre (DIAC), and the DIFC/LCIA Arbitration Centre will work under Saudi arbitration law since none of them contravene Shari’ah or the public policy of the Kingdom.

Arbitrators

The old law required arbitrators to be either Saudi citizens or non-Saudi Muslims and the chairman had to be familiar with the laws of Saudi Arabia. These restrictions have disappeared under the new law, which simply requires that arbitrators be of full legal capacity, of good conduct and reputation, and have at least a university degree in either Shari’ah or law. Where the tribunal has more than one arbitrator, only the tribunal chair has to meet this last requirement. A sole arbitrator would need to meet all of these qualifications.

Parties need to keep these considerations in mind when drafting the arbitrator selection process in their arbitration clause.

Seat of Arbitration

Unlike the old law, the new law allows the parties to select the seat of their international arbitration

anywhere in the world. Saudi courts are now required to recognize and enforce awards from international venues outside of the Kingdom. However, Saudi courts have traditionally been known for meticulously scrutinizing arbitral awards issued outside of the country, because of their concern that some of Shari’ah principles may have been violated.

One strategy that parties can therefore use is to select an arbitration venue in either Saudi Arabia, in a GCC country or somewhere else in the Islamic world. International companies now have some viable options to implement such a strategy. The three regional institutions mentioned above and some others in the GCC region are arbitration friendly, employ modern international arbitration practices and function within the Islamic world. Choosing one of them as a venue could ensure both an interference-free and effective arbitration and an award that is more likely to be enforced in Saudi courts.

Language of Arbitration

The choice of language has been a problem in Saudi arbitrations in the past, especially when the contract was drafted in another language. The old law required that only Arabic could be used in the arbitration. The new law now allows the parties to decide.

The result is that parties can choose to have their contracts in a non-Arabic language, conduct their arbitration in that language and have the arbitral tribunal issue its award in that language and still be recognized and enforced in Saudi courts. Article 53.3 of the new Arbitration Law simply requires that when Saudi courts are requested to enforce an award that there is an “….Arabic translation of the arbitration award attested by an accredited authority, if the award is not issued in Arabic.”

It is important, however, to clearly state the selected language in the dispute resolution clause. Otherwise, Article 29 of the new Arbitration Law provides that the “arbitration shall be conducted in Arabic.”