The New and the Old Enforcement Arbitration Law of Saudi Arabia - Research Paper Example

Compare Between the New and the Old Enforcement Arbitration Law of Saudi Arabia and the Legal Effects on the International Agreements Introduction Saudi Arabia passed, in April 2012, Royal Decree (34/M), which consented to a new arbitration law also referred to as the new law (Rawlings et al. 15). This law was printed on the Official Gazette of the country in the summer of 2012 and was enforced 30 days following its publication (Rawlings et al. 15). Saudi Arabia’s Council of Ministers then issued subordinate implementing principles. This new law abolished the old Saudi Arabia’s arbitration law that was passed in 1982 (Rawlings et al. 15). After this law, the previous law was referred to as the old law, which pledged to modernize the nation’s arbitration regime in a number of ways. Most significantly, this new law restrains the nation’s court intervening power with regards to arbitration through acknowledging the parties’ autonomy to deal with the arbitration process (Rawlings et al. 16). The new Saudi Arabian law addresses a vital concern under the old law, which is the power to the nation’s courts to reopen, as well as effectively re-litigate awards on their principles (Jones Day 1). Even though, the new law is an acknowledged enhancement, which promises considerable changes in Saudi Arabia, the event of change in practice remains unclear to date. Much will rely on the text of the executing principles and where the country’s courts stand with regards to the new law (Rawlings et al. 16). Many critics consider that this law slightly killed the independence of the Saudi Arabian court system while others argue that the law works to develop the nation, unlike the old law. This paper will take into consideration these arguments and bring out which law is better. It will also discuss the international effects of the legislation of either of the laws in order to note the significance of each. Provision of the Two Laws The New Law Encouraged by the UN Commission of International Trade Law (UNCITRAL) Model Law on International/Foreign Commercial Arbitration, which has been endorsed by a number of regimes, Saudi Arabia’s new law acknowledges parties’ independence to concur on significant aspects of their arbitration process (Rawlings et al. 44). Most importantly, the law respects the right of groups to arbitrate under a governed set of arbitration principles. This is a significant development, which tackles a region of uncertainty, which was present during the old law days. This new law acknowledges parties’ option of governing language, law and arbitrators provided that the sole arbitrator is a qualified lawyer (Rawlings et al. 44). This law also bestows with the entry under the old law for groups to file their agreements with courts for validation prior to commencing arbitration (Jones Day 1). The new law further respects that an agreement between parties can be published in a correspondence among them. The law dictates that arbitrators should have an encouraging obligation to keep groups updated with circumstances, which might lead to a conflict of interest (Rawlings et al. 45). This new law dictates straight procedure for resolving disputes by the arbitral tribunal, such as time restrictions for complaining groups to lodge doubts in the applicable court (Jones Day 1). This eliminates the capacity of groups to oppose to the execution of arbitral awards on such grounds when they did not raise it earlier within the time limit (Rawlings et al. 45). When the groups have not concurred on specific arbitration regulations such as the ICC, the law dictates a detailed arbitration course, which applies by default to all (Jones Day 1). The arbitral award should be granted within a year from the date, which arbitration started depending on the arbitral tribunal's authority to prolong this by an extra 6 months and the groups’ ability to concur with longer extensions. This grants the arbitral board a much more practical timeframe to resolve key commercial disputes, which were brought about by the old 1983 law. After the arbitral award has been granted, any group wanting to cancel the award should provide such an application within two months. As such, the obligation is on the aggrieved group to bring up any doubt in a defined period instead of waiting till the winning groups seeks to execute the award (Jones Day 1). This is a key enhancement from the old law, which granted courts a wide discretion to re-examine the advantages of the disagreement during the enforcement process and destabilize the arbitration process (Rawlings et al. 46). The Old Law Arbitration in Saudi Arabia used to be managed by the Arbitrations Regulations of 1983 issued by the Royal Decree (Bajaj and Delkousis 1). The laws corresponding principles were implemented in 1985. The initial article of the act provided the vital validation for arbitration, which stated that it is vital to make use of arbitration in reference to particular existing disagreements (Otto 79). It might also be concurred earlier to make use of arbitration in any dispute, which might arise due to the execution of a particular contract. These principles, nevertheless, handed over powers to the authority formerly competent to hear any lawful disputes – Saudi Arabian courts, which made the procedure seem more litigious (Bajaj and Delkousis 1). Essentially, the provisions of the old arbitration law were to oblige arbitrary groups to provide their arbitration instrument to the liable judicial authority for its consent. The law agitated that the arbitral award to be filed with liable judicial authority and also gave the liable judicial body the power to listen to an applied filed by the party that opposes the award (Bajaj and Delkousis 1). The award only becomes executable by means of an order of the appropriate judicial authority. After the order has been issued, the award is perceived to have the force of a judicial settlement, and; therefore, the arbitral award only becomes final after the Saudi Arabian courts have resolved any appeal made against the award (Bajaj and Delkousis 2). According to the old law, arbitration was not accepted in issues where conciliation was not tolerable (Otto 80). Agreement to make use of arbitration was not considered valid except by the parties, which had the legal capacity to act. Governing bodies were not supposed to use arbitration to resolve any dispute with third parties except after sanction of the leader of the Council of Ministers. This entry was only revised by the Council of Ministers through a Resolution. An arbitrator was needed to be of good conduct, experienced, have a good reputation, as well as full legal capacity. In case of many arbitrators, there was an odd in number. Parties to a dispute were expected to file the arbitration instrument with a judicial authority initially competent to listen to the dispute (Bajaj and Delkousis 2). The instrument was signed by the arbitration parties, the arbitrators or their legitimately assigned attorneys-in-fact, and it mentioned the subject of the disagreement, names of the arbitrators, the names of the parties, as well as their consent to have the disagreement filed for arbitration. Replicas of the documents applicable to the disagreement were also attached (Bajaj and Delkousis 2). Legal Effects of the New Law on International Agreements Before beginning this subject, it is vital to know that investment in Saudi Arabia impacts Saudi or non-Saudi investors, in general, particularly now that the new Law has acquired, for the initial time, both a local and international nature, which appears to impact the investment environment in the country irrespective of the investor's nationality (Cullen et al. 1). This law has helped enhance the movement, as well as flow of investments, since international investors prefer arbitration to judicial mechanisms of contract disagreements. Before the enforcement of the new law, parties were forced to forward applications for the implementation of arbitration awards and foreign judgments to the Board of Grievances. This procedure was lengthy and rigid since the Board was not only formed to listen to enforcement requests, but also to resolve a couple of the more significant, commercial matters before Saudi courts. Therefore, the Board would embark on a complete review on the virtues of each award to ensure that the reward was compliant with Shari'a (Cullen et al. 1). Arbitrary groups were met with the likelihood that their reward would be declined implementation owing to an arbitrator's foreignness with Shari'a obligations. Furthermore, all applicable documents from the arbitration required to be granted to the Board in Arabic to permit such a review. Groups seeking the implementation of foreign awards or judgments, thus experienced considerable delays and were exposed to a retrial of the matter on the virtues by the Board (Cullen et al. 1). The Emaar Property v. Jadawel Intl. case is a famous example, which left a sour taste for one of the groups. Jadawel began arbitration, in 2006, before a three-member committee in Saudi Arabia (Cullen et al. 1). The arbitrator claimed damages in the sum of US$1.2 billion derived from the violation of a mutual venture agreement pertaining to a construction project by Emaar. Jadawel Intl. contended that Emaar Property had created a partnership with another group in violation of their joint venture agreement. The arbitration lasted for two years after which Jadawel's claim was dismissed, and the firm was ordered to settle legal costs. Nevertheless, the award was offered to the Board for implementation (Cullen et al. 1). The Board revisited the merits to guarantee compliance with Shari'a (Cullen et al. 1). The Board of Grievances, in its ruling, re-examined the award. The reimbursement rewarded to Emaar was voided, and Emaar was asked to pay over US$250 million of reimbursement to Jadawel. This is what occurred during the days of the old la, but such a scenario is not likely to arise under the new law. This means that foreign investors will be more inclined to investing in Saudi Arabia now than in the past. Reports were published in late 2012, which claimed that the Saudi regime, so as to further encourage foreign investment in their land, is planning to form, together with the British regime, an arbitration court in the U.K. to settle disagreements arising out of Saudi Arabia (Balouziyeh 1). The reason for existence of such an institution would be to settle investor worries on the Saudi legal system, as well as the time and complexity concerned in obtaining and implementing judgments in Saudi Arabia. If a fresh arbitral procedure will permit parties easily and professionally to implement foreign rewards in the kingdom, then this would be its main benefit and strength, provided the recent obscurity inherent to implementation and the burdensome needs published in the Grievances Board Law (Balouziyeh 1). Nevertheless, nothing in the procedure to establish the United Kingdom-based arbitration court would rectify the main concern of international investors in Saudi Arabia: the complexity inherent to implementation of international arbitral rewards in the country (Balouziyeh 1). Hence, even though arbitration in the U.K. might theoretically be attractive to non-Saudi investors, it stays more significant for any projected dispute resolution technique to allow international arbitration rewards to be implemented in a more regular, as well as standardized manner. This would help a lot in supporting future extensive foreign investment in the land (Balouziyeh 1). Provided the current legal structure and alternatives open to international investors, the most prominent plan of action for risk mitigation is still approving to apply Saudi Arabia’s new law in arbitration actions and then making sure that an arbitration committee is made exclusively of authorized experts with extra training in both the Saudi and Shari‘a law (Weiler 352). Such personnel should bring great experience in recognizing any problems that might potentially hinder the certification of a reward rooted in Saudi public policy concerns (Weiler 352). Unless an international investor can implement an arbitral reward against property detained outside the Kingdom, such a duly-formed panel remains the best measure, which international investors have in making sure than no elements, which might hinder implementation, in Saudi Arabia, find their way into the ultimate arbitral award (Weiler 352). Even though, the new Arbitration Law showcases the Saudi government’s support of and approval of a legal framework, which brings sureness to the legal market and international investment, the nonstop, repeated worries on the grounds of Islamic law, as well s Saudi Arabia’s public policy, do, to a certain level, challenge this certainty (Weiler 353). Predicting and interpreting how a Saudi Arabian arbitrator or judge will execute the Islam law remains hard and fairly evasive. While some Shari‘a regulations are fixed principles derived from the nation’s traditions, others are dependent on a judge’s personal considerations or view as to fair claim under equity (Weiler 353). One issue that remains vivid is that a Saudi Arabian judge could still decline to apply a contract on the grounds of Shari‘a or Saudi Arabian public policy considerations, which was stated in the old Arbitration Law. Legal Effects of the Old Arbitration Law on International Agreements The 80s saw the oil producing nation of the Arabian Peninsula under contradictory political and economic pressures. Dropping oil revenues, on the other hand, ended an unprecedented financial boom and persuaded a tough adjustment to a more sustainable level of development. Business ventures are more attractive now compared to how they were a couple of years ago, and; therefore, the oil producing regions such as Saudi Arabia must work harder to attract foreign expertise and investment (Sayen 211). However, at the same time, Islamic reaction and, in general, political unrest exerts pressure on Saudi Arabia to adhere more strongly to customary values as articulated in their earliest religious law, the Shar'a law. This law is designed to control not just the personal and religious life of the staunch Muslim, but political and commercial activities, as well. The law is, however, not well comprehended in Western circles, who are the major international investors. The appliance of these ancient official rules to multifaceted business transactions presented numerous risk factors and uncertainty, which were weighed against the possible benefits of conducting business in that area. The potential benefits of dropping the Shar'a act when it comes to international proceedings surpassed the possible negative effects. Nowhere were these conflicting pressures more evident than in Saudi Arabia. This was brought about by international concerns of the Shar'a law, which would not consider anything apart from the local inventors concerns. Saudi Arabia was considered the most significant trader by major western states, but the harsh commercial rules are what made these states shy away from investing in Saudi Arabia. Major western states such as the United States, the United Kingdom, Canada, Germany, China and Japan among others, sought to venture into the petroleum business in Saudi Arabia (Qurashi 261). Petroleum can be argued to be the major trading asset of the world, and; Saudi’s were, during the old arbitration law days, the major people who regulated the prices of petroleum. However, now that the new arbitration is in practice, the nation no longer has the power to dictate this since prices can be negotiated by both parties (Qurashi 261). During the old Arbitration Law days, it was a matter of stability vs. flexibility whereby Saudi Arabia stood for the latter and global investors stood for the former (Qurashi 262). The urge for stability in global petroleum agreements is significant. Global petroleum firms want a guarantee that a number of factors of their investment are stabilized for instance the fiscal regime, alia, the regulatory regime and import, as well as export regulations. Such assurances are not just required for the international investor to make sure that they will identify the expected merits of the venture, but also to convince their significant sponsors of the project, such as export financing institutions, banks, local and international financing bodies, long-term buyers of the project, that the venture will produce adequate revenue to settle their loans, as well as meet their demand and supply needs (Qurashi 262). Global firms discern that there are a couple ways through which host regimes can persuade international firms through implementing harsh local laws and making use of their judicial system. Hence, stabilization clauses, which the old Arbitration Law advocated against, are normally inserted in venture treaties to manage the legislative power of the host nation unilaterally to abrogate or amend the agreement. These clauses were not in the previous Arbitration Law of Saudi Arabia but stand in this new law. In Arab Am Oil Co (ARAMCO) v. Saudi Arabia, the panel ruled against the latter and argued that Saudi’s regulation had to be understood or supplemented by the practice and custom in the oil industry, the main principles of law, as well as by theories of absolute jurisprudence as ARAMCO’s rights were not secured in an indisputable way by the Saudi Arabian law (Fadhlaoui 1). In reaction, the host nation passed a resolution, which restricted government agencies from taking part in arbitration proceedings (Fadhlaoui 1). The following period was typified by legal wrangles between growing nations utilizing oil as an ‘economic weapon’ along with the western world. If a case of the atmosphere was required, it would surely be the three awards offered in the Libyan nationalization cases, in Saudi Arabia, through which Libya declined to participate (Fadhlaoui 1). Recommendations of the Better Law The new Arbitration Law incorporates both international and domestic arbitration even though it applies to global arbitration simply by the agreement of the groups (Balouziyeh 1). Article 3 applies a blend of criteria to differentiate between international and domestic arbitration. They include the global commercial nature of the disagreement and the parties’ accord to elect a global arbitration forum, for instance the ICC, as the tribunal of arbitration (Balouziyeh 1). By comparison, the former law was restricted to local arbitration, which was a major reason why global firms and entities opted to evade arbitration in Saudi Arabia. The old law was inadequately drafted and did not give sufficient definitions. This brought about confusion in understanding and application by courts and tribunals. This matter was clearly conquered by the new Arbitration Law, which was proficiently drafted text that provided accurate meaning of legal terminology (Balouziyeh 2). The new law has an entire chapter on arbitration agreements. It states that the accord should be in writing and explains what does the phrase “in writing” means in proportion to global standards. The new law also assumes a difference between integrating arbitration in an arbitration clause offered in a primary contract, on one hand, and integrating arbitration in a separate treaty, at times, referred to as the “submission agreement” (Balouziyeh 2). This is a significant entry since legal importance unites with the type of arbitration contract under Saudi Law, mainly in deciding when an arbitration contract is null and void (Balouziyeh 2). Conclusion This paper has compared between the new (2009) and the old (1983) enforcement arbitration law of Saudi Arabia and the legal effects on the international agreements. It has offered the historical differences between the two laws, as well as how they affected international agreements in Saudi Arabia. It should be noted that the old law worked to chase international investors away from Saudi Arabia, but the new law attracts more foreign investors due to the easiness of venturing in business, in that nation. Therefore, people willing to invest in Saudi Arabia should make use of this new arbitration law. Works Cited Bajaj, Gitanjali and Delkousis, Jim. Arbitration in the Kingdom of Saudi Arabia. N.p, 2010. Web. Balouziyeh, John. Saudi Arabia’s New Arbitration Law Sees More Investors Opting for Arbitration in Saudi Arabia. N.p, 2013. Web. Cullen, Thomas F et al. United States: The New Enforcement Law of Saudi Arabia: An Additional Step toward A Harmonized Arbitration Regime. N.p, 2013. Web. Fadhlaoui, Nizar. A Historical Approach to the GCC Countries’ Perception of Arbitration. N.p, 2013. Web. Jones Day. The New Enforcement Law of Saudi Arabia: An Additional Step Toward a Harmonized Arbitration Regime. N.p, 2013. Web. Otto, Jan. Sharia Incorporated: A Comparative Overview of the Legal Systems of Twelve Muslim Countries in Past and Present. New York: Oxford University Press, 2010. Print. Qurashi, Zeyad. “Renegotiation of International Petroleum Agreements”. Journal of International Arbitration 22.4 (2005): 261-300. Print. Rawlings, Jonathan et al. New Arbitration Law in Saudi Arabia. New York: Freshfields Bruckhaus Dreinger, 2012. Print. Sayen, George. “Arbitration, Conciliation, and the Islamic Legal Tradition in Saudi Arabia”. Islamic Legal Tradition 9.2 (2007): 211-256. Print. Weiler, ToJJ. Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law. International Investment Law and Arbitration 45.6 (2013): 351-399. Print. Read More