International Commercial Arbitration - Sharia, Saudi Arabia and English - Essay Example

? International Commercial Arbitration: A Comparative Study between Sharia, Saudi Arabia and English. Overview Commercial arbitration has become the main and preferred method to resolve nearly all commercial disputes among countries, companies and even individuals.1 This is particularly true in the case of industrial and developing countries and the Middle East because of its numerous advantages.2 34For instance, the employment of arbitration enables states to protect and promote national interests because it works within a fair and balanced framework recognized and institutionalized in the international trading community. It is immune to political influence or pressure and the parties to the arbitration proceedings are duty bound to abide by the judgment regardless of how powerful or weak a state participant is. Secondly, arbitration is effective in settling disputes that cannot be effectively resolved in the judicial system on account of lengthy judicial processes. Local courts cannot offer the option to accelerate procedures and it cannot do away with the unnecessary legal processes that are either substantive or procedural in nature. Commercial arbitration is also attractive because it provides confidentiality and reduces costs.5 It is for these reasons why international commercial arbitration flourished along with the development and evolution of the international trade system.6 In the Kingdom of Saudi Arabia (Kingdom), the legislature has been keen to regulate arbitration since the establishment of the Kingdom government.7 This was expected because the Islamic Sharia (Sharia) encourages arbitration as a means to resolve disputes. The Saudi government also found that encouraging arbitration in commercial dispute resolution tend to attract foreign investors.8 In recent years, however, there is a growing concern both in the domestic and international levels regarding the efficacy of commercial arbitration in the Kingdom. This concern is understandable due to at least three critical factors. Firstly, there is the case of the old Saudi Arbitration Law 1983 (SAL 1983)9, which limited the freedom of arbitration parties. For example, under this Law, parties were obliged to follow the procedures stipulated by the Law without allowing them the freedom to choose other procedures. The case was the same with the applicable law where the Law mandates for the arbitral tribunal to comply with what is stated in both applicable regulations as well as the provisions of Sharia. Secondly, there is the ambiguity of the Sharia, which is the dominant law in the Kingdom. For many businesses, investors, entrepreneurs, legal experts and even international jurors and arbitrators, the law is confusing and unclear. This is evidenced in many international case laws.10 Such ambiguity can be attributed to both the non-codification of Sharia and the unpublished judicial judgements. Third, the SAL 1983 provided a wide power for the judicial authority in the Kingdom to supervise arbitration since the commencing of the arbitration process until rendering the arbitral award. Moreover, although the Kingdom has joined many regional and international conventions that are concerned with the enforcement of foreign arbitral awards such as the New York Convention 1952, the recognition and enforcement of arbitral awards whether domestic or international remain widely criticized. A key objective of the Saudi government is to improve the investment environment and attract more foreign investment in the Kingdom. For this purpose, it is now focusing on improving the judicial system in general and arbitration in particular. The most recent of these improvements is the enactment of the Saudi Arbitration Law 2012 (SAL 2012) which is inspired by the Model Law that is regarded as a developed model of international commercial arbitration. But this law has stirred some degree of controversy due to issues raised regarding its coverage: the extent of the reform and whether the initiatives would, indeed, improve the arbitral environment in Saudi Arabia. For advocates, there is a general expectation that the Law is going to play an important role in improving the arbitral environment in Saudi Arabia in the follow years. This is not surprising especially if one turns to the experience of other countries that adopted international arbitration conventions. The United Kingdom’s experience is an excellent example. In the 1980s, UK was pressured to implement reform in its arbitration laws.11 The Model Law was specifically adopted in the governmental effort to establish and maintain the country’s lead in the field of arbitration.12 In 1996, the English Arbitration Act (EAA 1996) was passed and this was based on the accumulated experiences of previous English Arbitration Acts and the case laws. The British jurisprudence complemented the principles and provisions of the Model Law, which resulted in a framework that is unique to the UK, satisfying both domestic and international parties that chose to participate in arbitration proceedings in the country. The EAA 1996, throughout its practise, has proved itself to be one of the most developed and successful national arbitration laws.13 With this success of the EAA 1996 and the general worries towards the effectiveness of the Saudi Arbitration, this thesis will consider three of the most significant elements that shape the degree of arbitral efficiency. This will be done through an examination and analysis of: 1) the freedom of arbitration parties in the SAL 2012 in relation to the agreement of arbitration; 2) the selection of the arbitration procedures; 3) the applicable law; and, 4) the degree of its compatibility with Sharia. In addition, the goal is expected to be achieved through the analysis of the duties, powers and jurisdictions of the arbitral tribunal. The role of national courts in the new Saudi Arbitration Law will be dealt with analytically to assess whether it is regarded compatible to the arbitral process or whether it negatively affects arbitration. A comparative study with the EAA 1996 and its practice throughout the case law will also be carried out during the thesis, which will help to identify the areas in the SAL 2012 that need clarification or reforms. The Research Questions: The study statement aims to answer the following questions: (1) What is the international commercial arbitration according to Sharia and SAL2012? What are the sources of the international commercial arbitration in the Kingdom and to what extent these sources can be extended without breaching Sharia? To what extent arbitration in Sharia can cover all new updates on the international commercial contracts, and can protect interests for both contracting parties without breaking justice principles? (2) To what extent can the Saudi international commercial arbitration be developed based on the English international commercial arbitration in a way that does not contradict with the Sharia? (3) To what extent there is a full respect for freedom of parties to arbitration according to their contractual will in the SAL 2012 and the EAA 1996? Is there a difference when one of parties to the dispute is religiously neutral under the umbrella of Sharia? (4) What are the duties, powers and jurisdictions of the arbitral tribunal under Sharia, SAL 2012 and EAA 1996? (5) What is the role of national courts in the international commercial arbitration process whether at the commencement of or during the arbitral process or after rendering the award in the SAL 2012, in comparison with the role of English courts? Study Objectives: The dynamics of the global trade, especially with the increase in integration through globalization made it imperative to establish a system that would govern trading behaviours. Here, a core component is the resolution of commercial disputes through arbitration. It is not only a strategic mechanism but also one in which adoption is dictated by necessity. It offers an effective solution that eliminates several points and sources for contention. Many states and non-state actors have adopted arbitration conventions and ratified arbitration treaties. Such adoption has produced several best practices, which the Kingdom could learn from. The United Kingdom is considered one of the most advanced nations of the world in international commercial arbitration and is the first country to establish international commercial arbitration court. Thus, this researcher is of the opinion that the United Kingdom’s model and arbitration cases can be considered as a model and a source of comparison for the Kingdom’s case. Its advancement and solutions in the arbitration field, especially with regards to the manner by which the UK was able to transform and modify international conventions to balance local and international requirements should be a perfect model for an improved arbitration law in Saudi Arabia. The study aims to achieve the following objectives: 1- To define the concept of international commercial arbitration, including its advantages and disadvantages; 2- To determine its sources in Sharia and its presence in SAL 2012 and compare them with those found in the EAA1996. 3- To examine and clarify the role of Saudi courts in the arbitral process; 4- To investigate and clarify the extent of freedom given to arbitration parties and arbitral tribunal in tailoring the arbitral process in the new Saudi Arbitration Law and Sharia in comparison to the EAA 1996. 5- To clarify and analyse the duties, powers and jurisdictions of the arbitral tribunal through the SAL 2012 and Sharia and to compare them to the EAA 1996. 6- To compare arbitration in the Kingdom with the dynamics of the arbitration procedure in English courts for purposes of comparison and improvement. 7- To examine and analyse the recognition and enforcement of foreign arbitral awards in the Kingdom and to provide solutions to overcome the obstacles of enforcing these awards. 8- To investigate the shortcomings limitations of the international commercial arbitration process in Saudi Arabia and to provide solutions to overcome these limitations. 9- To present recommendations to the Saudi government in order to improve the legal environment of arbitration in the Kingdom that deals with international commercial and investment disputes by providing most recent legal solutions that can pre-empt local judiciary without being inconsistent with it; including the consequent contribution to the development of local legislation. The Study Importance: The value of this study stems from the fact that the international commercial arbitration is already an imperative today. It is a popular mechanism due to its capacity to resolve dispute efficiently. It also became an important variable in evaluating the attractiveness of an investment destination. The recognition and presence of arbitration mechanisms benefit a state because it increases international commercial activities. By studying the case of Saudi Arabia and by comparing and modelling it after an effective arbitration model, this research could contribute meaningfully to the body of literature on the subject. Particularly, with how the study should be able to address the following issues and help states, policymakers, organizations, researchers and other stakeholders gain better insights in the process: 1- The differences between the SAL 2012 and the previous Law. The new Law included ambiguous and other improper/inappropriate issues that negatively affect arbitration in the Kingdom that necessitate clarifications and analysis. 2- There is a lack of studies that discussed Sharia international commercial arbitration. 3- There is a shortage of academic professionals in arbitration in the Kingdom in particular and in the gulf area in general. 4- Fill the gap in the knowledge which will improve the investment environment in the country. 5- Generalize the outcomes of this study to the international commercial arbitration in the Islamic countries. Research structure: The study is structured according to the following outline: Chapter 1: Introduction Chapter 2: the agreement to Arbitration. This chapter will focus on the scope and validity of arbitration agreement. In addition to parties to arbitration and the extent of their freedom in choosing the arbitral tribunal. Chapter 3: Applicable Law. This chapter will focus on the extent of freedom of arbitration parties and the arbitral tribunal regarding the selection of procedural rules and substantive law under SAR 2012, Sharia, as it is considered the applicable law in the Saudi Law, and under the EAA 1996. In addition, the chapter will clarify the difference between applying Sharia and complying with (not violating) its provisions. It will analyse some key issues that raise controversy when applying Sharia (i.e. Riba and loss of future profits) along with the extent of difference in the viewpoint of Sharia in case one or both of arbitration parties is/are non-Muslim. Chapter 4: Arbitral Tribunal Under this chapter, three elements will be examined and analysed; duties, powers and jurisdictions of the arbitral tribunal. This will be carried out in the light of Sharia and SAL 2012 along with comparing with the EAA 1996 and the case laws in the UK. Chapter 5: The role of national courts. This chapter will analytically and critically deal with the role of national courts in the arbitral process in the commencement of and during the arbitral process under the two Saudi and English jurisdictions. Chapter 6: Challenging Arbitration Award. The chapter will deal with the concept of arbitral award and the grounds of challenging it under Sharia and SAL 2012 and comparing this to the EAA 1996. Chapter 7: Recognition and Enforcement of Arbitration Award This chapter will examine and analyse the reasons for Saudi courts' rejection to recognize and enforce arbitral awards according to case laws in the Kingdom and comparing with the EAA 1996 and its case laws. Also the chapter will address to what extent international conventions concerning arbitration, that involve/include the Kingdom as a party, can participate in improving the enforcement of arbitration awards in the Kingdom and the obstacles that may prevent this improvement. Chapter 8: Conclusions and recommendations. 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