May 19, 2020

The new Saudi Commercial Courts Law: a bold step for the administration of commercial disputes

On 09 April 2020, the government of the Kingdom of Saudi Arabia announced the enactment of the Commercial Courts Law (CCL)*, representing a significant move to streamline the Kingdom's court system. In this article, we discuss the scope of the CCL, some of its key features and what it means for foreign investors.

The CCL represents a bold step in the modernisation of the court system in the Kingdom of Saudi Arabia (KSA). It introduces a wide range of new measures to expand and refine the jurisdiction of the Commercial Courts, streamline the service and administration of claims, provide flexibility in relation to the production of evidence and expand the enforcement powers of the Commercial Courts.

In our view, the CCL will have a significant impact on the efficient resolution of commercial disputes in KSA. In particular, the provisions of the CCL should:

  • Encourage early dialogue between the parties and hopefully the settlement of claims before litigation is necessary;
  • Make it easier for claimants to file and serve their claims;
  • Reduce the number of unmeritorious jurisdictional challenges or at the very least, the time it takes to dispose of such challenges;
  • Make litigation more transparent through the use of discovery orders, cross examination and by introducing more flexibility in relation to the rules of evidence; and
  • ​Make it easier for claimants to enforce their contractual rights through the introduction of performance orders and expedited enforcement of court judgments.

These legislative changes should go a long way towards improving the administration of justice in KSA and bringing the KSA legal system more in line with that of its trading partners. This in turn should have a positive effect on the attractiveness of KSA as a market for foreign investment.

Below you will find a summary of the key features of the CCL, if you have any questions about the content of this article please contact Richard Bell or Mohammed Aldowish.

Scope of the CCL

The CCL was officially published on 24/08/1441H (corresponding to 17 April 2020) in the Saudi Official gazette (Um Al-Quraa). The CCL and its Implementing Regulation will officially come into force 60 days from the date of publication (i.e. by mid-June).

The provisions of the CCL will govern:

  • all disputes that fall within the jurisdiction of Commercial Courts; and
  • the procedures of the Commercial Courts.

Key features

Jurisdiction of the Commercial Courts

Chapter 2 of the CCL lists the type of disputes that fall into the competency of the Commercial Courts.

Article 16 states that Commercial Courts are competent to hear:

1- Disputes arising between traders due to their original or ancillary business;

2- Lawsuits brought against a trader under a commercial contract where the value of the claim exceeds one hundred thousand riyals;

3- Disputes been the partners of a Mudarabah arrangement1;

4- Claims and violations arising under the Companies Law;

5- Claims and violations arising under the Bankruptcy Law;

6- Claims and violations under intellectual property laws;

7- Claims and violations arising under other commercial laws;

8- Lawsuits and requests related to the appointment of a judicial receiver, trustee, liquidator or expert; and

9- Claims for damages arising from a lawsuit previously heard by the Commercial Courts.

The involvement of the private sector

The CCL expressly permits Commercial Courts to utilise the services of the private sector in relation to:

  • Alternative dispute resolution such as reconciliation and mediation;
  • Notification and service of claims;
  • Delivery service of judgements;
  • Managing hearing rooms;
  • Exchange of memorandums; and
  • The provision of expert opinions on technical issues.

This measure is no doubt aimed at speeding up the administration of justice, allowing the Courts to sub-contract out administrative and procedural tasks to more efficient private sector companies. In particular, permitting the Commercial Courts to appoint third party service agents to serve claims and judgments should expedite the administration of claims and should result in an improvement in the quality of expert evidence being submitted to the Commercial Courts.

Mandatory reconciliation/ mediation

The CCL encourages parties to resort to alternative dispute resolution ('ADR') and will make ADR mandatory in some cases (which will be identified in accordance with the Implementing Regulations).

While mandatory mediation has a patchy record of success in other jurisdictions, any initiative by the Commercial Courts to encourage ADR is to be welcomed in our view.  For too long, litigation has been the first port of call for the parties to a dispute across the Gulf.  Making mediation mandatory in some cases may serve to raise awareness of ADR in the Kingdom and reduce the amount of unnecessary litigation.

Serving notices

In order to streamline the service of legal notices and proceedings, the CCL provides a list of the types of addresses that are considered valid for service.  These include:

  • Electronic addresses used by the parties in their submissions;
  • Residential addresses of natural or legal persons, unless the same chooses another address; and
  • In the case of foreigners, any address used by that person in the Kingdom.

The CCL further enables parties to authorize their lawyers to accept services of court notices.  This is a significant change in the rules of civil procedure.  Historically, the service of proceedings in litigation in the Kingdom has been notoriously difficult and defendants often took advantage of strict rules to avoid or frustrate the service of proceedings.  The new rules should make service of proceedings considerably more straightforward.

Accelerating court decisions on jurisdiction

The CCL provides that the Commercial Courts must decide any challenge to its jurisdiction within 20 days of the date of the challenge.

This is another welcome change.  Jurisdictional objections are often used as a tactic to delay a proceeding, sometimes for months.  Expediting the determination of jurisdictional challenges should serve to minimise the number of unmeritorious challenges.

Filing

To encourage the early settlement of claims, the CCL provides that in certain cases (which will be determined in the Implementing Regulations), the claimant must send a notice to the defendant requesting him to pay or perform the claimed entitlement at least 15 days prior to filing the case.

Most importantly Article 20 of the CCL reinforces the role of lawyers and provides that the filing of certain type of claims (which will be determined in the Implementing Regulations) is restricted to licensed lawyers.  This should enhance the quality of submissions filed with the Commercial Courts. 

Limitation period

The CLL provides that no claim shall be heard after the lapse of 5 years from the date at which the claimed rights/entitlements arise unless the defendant admits the right or the claimant provides an acceptable excuse for the delay in filing the claim.

Expedited procedures

The CCL introduces mandatory time limits for dealing with urgent requests, which include applications for attachment orders, orders appointing judicial custodians and orders for the preservation of property.  The CCL provides that applications for urgent relief must be decided by the Commercial Courts within 3 businesses days of the application being filed with the Court.  If the application is particularly urgent, the Court has the discretion to decide the matter on an ex parte basis (i.e. without notice to the defendant).

As is the practice in other Gulf jurisdictions, where urgent relief is granted the claimant must file a substantive case within 7 days of the order for urgent relief.  If the substantive claim is not filed within that time the order granting the urgent relief will lapse.

The CCL states that the Commercial Court may request from the claimant to provide a guarantee to compensate the defendant in case the claimant was not truthful in his/her claim

New forms of evidence

The CCL enables parties to agree on specific principles of evidence. For example, the parties may agree to follow the laws of evidence of a foreign country or the rules of evidence published by international bodies as long as they do not contradict with the general rules and regulations.  This would allow parties, for example, to agree that the rules of evidence of the International Bar Association should apply to the determination of their dispute.

The rules of evidence have also been relaxed.  The CCL provides that the Court may accept a copy of a document if the original cannot be produced, if the party denying the existence of that document had discussed its content before making the denial or if the existence of the document is supported by other evidence.

With regard to document discovery, the CCL provides that a party to a dispute may request any other party or parties to provide documents in their possession provided such documents are relevant to the questions at issue in the case. A refusal to provide such documents may lead to an adverse inference being drawn by the Court against the party resisting discovery.

The CCL also authorises the litigating parties to cross-examine each other's witnesses under the supervision of the Commercial Court.

Performance Orders

The CCL introduces a new "Performance Order" procedure to give the Commercial Court more flexibility in granting relief to an aggrieved party.

A Performance Order is a form of summary judgment where the Court passes judgment without the need to go through the normal procedures for hearing a case (which typically involve numerous hearings and exchanges of memoranda).  Performance orders may be granted where:

  • A contractual right/due/entitlement is evidence in writing;
  • The right/due/entitlement is due immediately; and
  • The value of the right/due/entitlement can be readily quantified.

The CCL provides that the Commercial Court should decide on requests for a Performance Order within ten days of the date of the application.  If the Court rejects the request, that decision shall be final. This however does not affect the creditor's right to commence a regular claim against the debtor. If on the other hand, the request is accepted, the debtor may challenge the Performance Order within 15 days by filing a separate case.

Objecting to judgments

The CCL sets out various time limits in relation to judgments and appeals.  Of particular note:

  • All Commercial Courts judgments and decisions can be appealed within 30 days, except small claims which do not exceed SAR 50,000 in value.  However, the parties may agree that a judgment of the First Instance Court is to be final.
  • The period for appealing against a ruling of lack of jurisdiction is 10 days.
  • In the Court of Appeal, if the appellant fails to attend a hearing after an appeal has been filed, the Court may postpone the hearing for a period not exceeding 30 days. If the appellant fails to attend the subsequent hearing, the Appeal Court shall consider the appeal void.

We will provide a further update on the CCL when the Implementing Regulations are published.

*Under Royal Decree No. M/93 dated 15/08/1441H (corresponding to 08 April 2020).

1A form of business contract in which one party brings capital and the other personal effort. The proportionate share in profit is determined by mutual agreement