It is common knowledge that the Kingdom of Saudi Arabia is the largest economy in the Arabian Gulf and has the second largest proven oil reserves in the world. It is less well-known that, in recent years, the Kingdom has developed an advanced arbitration system – starting with the 2012 Arbitration Law based on the UNCITRAL Model Law and now the publication of world-standard arbitration rules by the Saudi Centre for Commercial Arbitration (SCCA). Such developments put the Kingdom on a direct path to becoming a regional and global arbitration hub – including the seat of choice for the many Saudi disputes that, historically, have been determined by other local and international dispute resolution fora.
Historically, disputes concerning commercial dealings in Saudi Arabia have been referred to international arbitration centres (such as the International Chamber of Commerce (ICC), Dubai International Arbitration Centre (DIAC), the DIFC-LCIA Arbitration Centre and the Singapore International Arbitration Centre (SIAC)) or to the local courts (particularly in relation to government contracts). As such, significant barriers to the efficient resolution of Saudi commercial disputes exist – including, in the case of offshore arbitration, additional cost, inconvenience and obstacles to the enforcement of awards.
In 2012, a new Saudi Arbitration Law was enacted by Royal Decree M/34. The Arbitration Law is based on the UNCITRAL Model Law and intended to be consistent with the principles enshrined in the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which the Kingdom acceded to in 1994. Saudi Arabia was the first of the Gulf States to adopt a form of the UNCITRAL Model Law into its domestic law, thereby leading the region in bringing its arbitration law into line with international standards.
Established by a Cabinet decision in 2014, the SCCA is an independent body governed by a Board of Directors from the private sector (who are prohibited from also holding government positions). It is the SCCA's aim to be the preferred alternative dispute resolution choice in the Gulf region by 2030.
The SCCA Rules
In 2016, the SCCA released its Arbitration Rules (effective 31 July 2016) (SCCA Rules)1.The SCCA Rules are the first rules of arbitration for general application to commercial dealings to be released in the Kingdom.
The SCCA has stated that its starting point for the development of the SCCA Rules was the UNCITRAL Arbitration Rules, although the SCCA has not been afraid to make significant amendments to the template, as exemplified below:
Administration – While the SCCA Rules are based on UNCITRAL, they provide for institutional, and not ad hoc, arbitration with the SCCA acting as the "appointing authority".
Emergency procedures and interim measures – Consistent with the trend across all sets of major institutional rules, the SCCA Rules contain a provision for the appointment of an emergency arbitrator with power to grant relief prior to the appointment of the arbitral tribunal.
Joinder – The SCCA Rules provide for the joinder of third parties beyond the claimant and respondent stated in the original notice of arbitration. Again, this is reflective of multi-party changes introduced to many sets of arbitral rules, most recently the SIAC Arbitration Rules.
Seat and language of arbitration – Under the SCCA Rules, parties are free to specify the seat of the arbitration, as well as the language of the arbitration, as they see fit.
Governing law – Consistent with UNCITRAL, the SCCA Rules state that the arbitral tribunal is bound to decide in accordance with the terms of the contract, taking account of any usage of trade applicable to the transaction. That said, these provisions of the SCCA Rules are expressly stated to be subject to the rules of Sharia and any international conventions to which the Kingdom is a party.
Appointment of arbitral tribunal – In a significant departure from UNCITRAL, arbitral tribunals consisting of three members (unless the parties have agreed otherwise) are not constituted by each party nominating one member and those two members selecting a chairperson. Instead, the SCCA provides a common list of candidates from which the parties are to try to agree the members of the arbitral tribunal, failing which the SCCA will select the members based on those "approved" by both parties from the list and ranked in order of preference.
Pleadings and procedure – Unlike UNCITRAL, the SCCA Rules do not require pleadings and the arbitral tribunal has a wide discretion to determine its own procedure – including deciding preliminary issues and bifurcating proceedings.
Privilege – The SCCA Rules state that the arbitral tribunal shall take into account the applicable principles of privilege, including those involving the confidentiality of communications between lawyer and client. In particular (and uniquely in the region), the SCCA Rules state that when the parties, their counsel or the documents would be subject under applicable law to different rules, the arbitral tribunal should, to the extent possible, apply the same rules to all parties, giving preference to the rule that provides the highest level of protection.
Awards – In addition to the usual procedures for the making of awards under UNCITRAL, the SCCA Rules state that the final award is to be made no later than 60 days from the date of the closing of the hearing unless otherwise agreed by the parties, specified by law or determined by the Administrator.
Fees – Finally, consistent with an ICC approach, the SCCA Rules fix administrative and arbitrators' fees as a percentage of the value of the amount in dispute.
A bright future
The establishment of the SCCA and the release of its impressive Arbitration Rules is an extremely positive development and should promote further foreign investment and business confidence in the Kingdom's economy. We have already seen parties adopting the SCCA Rules and believe that they recognise a further shift towards a recognition by Saudi parties that arbitration is a commercial, robust and reliable method for dispute resolution that should be considered and embraced.