Improving Saudi Arabia’s Arbitration Climate: Comparative Study and Recommendations

Abstract

The Kingdom of Saudi Arabia is considered one of the largest economies in the world, a member of the G20 and is moving towards diversifying its economy, facilitating the flow of foreign investments, and improving its competitiveness as a hub for foreign investments in the Arab world. However, it has not yet become a centre for resolving international commercial disputes similar to the traditional arbitration centres in the United Kingdom, Switzerland, and Singapore.

In the past, the Kingdom had a reputation (often with no concrete evidence in practice) among some foreign investors and companies as an arbitration-unfriendly jurisdiction. That perception developed largely because of the previous Saudi Arbitration Law issued in 1403 AH, which was not compatible with the economic and social growth and development in the Kingdom, the diversity of commercial relations, the increase in foreign investments and transborder commercial ties. Saudi Arabia took a different path compared to the most prominent international arbitration jurisdictions and did not have competent arbitration centres and arbitration-friendly jurisprudence.

In recent years, the Kingdom has taken many positive and qualitative steps in this field, which led to a gradual and noticeable change and improvement of the arbitration climate, the most important of which is the new Saudi Arbitration Law of 2012 by Royal Decree (No. M / 34), which is based on the provisions of the UNCITRAL Model Law for International Commercial Arbitration. The new law is more comprehensive and clearer than the old arbitration system of 1403 AH and was considered by many arbitration experts as the right move to create a more arbitration-friendly environment in Saudi Arabia.

The adoption of the modern arbitration law in 2012 AD, was accompanied by transferring the competence to implement arbitration decisions and rulings from the Board of Grievances to the Execution Court, which is reflected in the implementation of arbitration rulings faster and more effectively, and finally the establishment of modern and specialized arbitration centres such as the Saudi Centre for Commercial Arbitration, which paved the way for better institutional arbitration in the Kingdom.

Based on these considerations and developments, the Kingdom of Saudi Arabia is increasingly recognized as an arbitration-friendly judiciary that is in line with the goals of Saudi Vision 2030 in reducing the Kingdom's dependence on oil, diversifying its economy, and developing public service sectors such as infrastructure, health, and tourism.

This comparative study examines how to make Saudi Arabia more attractive as a seat of arbitration. Improving the arbitration climate in Saudi Arabia would benefit not only arbitration users in Saudi Arabia but would also strengthen Saudi Arabia as a seat of arbitration. Serving as a popular seat of arbitration could bring various additional benefits to Saudi Arabia by boosting its services sector and increasing the prestige of the country on the world stage. The study involved interviews with stakeholders, analysis of the laws of Saudi Arabia and comparison of its arbitration framework to those of leading arbitration hubs, and an academic literature review.

The Saudi arbitration legislation largely mirrors similar regulations in leading jurisdictions, but it also includes several diversions, which could potentially be addressed. These include the perceived inability of tribunals to order interest and rather formalistic approaches to some aspects of arbitration (e.g., related to powers of parties in arbitration, additional requirements to the content of arbitral awards), requirement to print and register an award at a competent court). Saudi law also includes restrictions on public bodies entering into arbitral agreements and in relation to enforcement of awards against public bodies and contains no specific provisions on the immunity of arbitrators, unlike in other jurisdictions.

Key proposed measures to improve and that are discussed in the study include the following:
• Conduct arbitration-related court proceedings in a time-efficient manner
• Allow unhindered application of foreign law
• Strengthen and widen the pool of arbitrators with the right skills and experience
• Train judges and law practitioners in international arbitration
• Clarify immunity of arbitrators in law
• Ease overly formalistic requirements related to appearance in arbitration-related court proceedings
• Publish more arbitration-related court cases to form and manage expectations
• Allow public bodies to access arbitration without overly formalistic restrictions
• Support institutional arbitration and promote Saudi Arabia as an arbitration hub.

The study also urges to regularly update the 2012 Saudi Arbitration Act following consultations with key stakeholders focusing on the needs of arbitration users. It also suggests doing more to create a more favourable perception of Saudi Arabia as an arbitration hub, including commissioning and publishing arbitration-related studies, conducting training events, and increasing the visibility of Saudi Arabia as an international arbitration hub.

Keywords: arbitration climate, dispute resolution, adr, mediation, reforms, courts

JEL Classification: F21, K33, K40