An effective dispute resolution system is essential for companies to have confidence that if they need to take steps to protect the value of their assets, those steps are accessible and effective. The Saudi legal system is unique and very different to any other country. Nonetheless, properly informed, companies can rely on the local court and arbitration processes, which have undergone significant reform and improvement over recent years. Find out what are the best options to resolve disputes in Saudi Arabia and how best to mitigate risks.
Fundamentals of contract
In the absence of a civil code, Saudi law is based on Islamic Law (Sharia). Importantly, it is a fundamental principle of Sharia that parties should be held to the contracts that they agree, unless such contracts offend specific Sharia principles. As such, the starting point for any commercial dispute that is subject to Saudi law is to examine what the contract says.
Options to resolve disputes
Unless the parties have agreed to refer disputes to arbitration, the local courts will have jurisdiction. Historically, the Board of Grievances heard disputes concerning both government and commercial contracts. This has now changed with the establishment of the Commercial Court in 2017, being the implementation of legislation first passed in 2007. Since then, the Commercial Court has implemented various measures to make it a much more efficient and reliable forum for the resolution of commercial disputes.
Arbitration is enshrined in Saudi law as an enforceable alternative to court litigation and there is now an established practice in the Saudi courts to decline jurisdiction when faced with a valid arbitration clause. Although Saudi-seated arbitration is not particularly common, the jurisdiction is equipped with robust procedural laws and it is making noticeable strides towards becoming a more arbitration friendly jurisdiction. Notably, Saudi Arabia is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and Saudi Arabia's Arbitration Law is inspired by the UNICTRAL Model Law, giving way to the application of international practices. The impressive Saudi Centre for Commercial Arbitration also opened in 2016. It adopted rules based on international practices as influenced by other arbitration rules and centres, and were also drafted to be consistent with the Saudi Arbitration Law.
Mitigate your risks
Like any jurisdiction, dispute avoidance and mitigation are the best approach for Saudi disputes. In particular, significant care should be taken when drafting dispute resolution clauses in contracts. This entails using mandatory language in the dispute resolution clause as opposed to permissive language. It is also good practice to evidence the contract by the signature of two Muslim male witnesses. It is customary for Saudi courts to accept such attestation as evidence of a party’s agreement to a contract.
Parties to a dispute should also account for the pre-court phase of amicable settlement. While the jurisdiction does not recognise "without prejudice privilege", “confidentiality” is rigorously enforced and parties can set up their negotiations in this manner to provide some degree of protection from unaccepted offers of settlement being interpreted as admissions of liability.