Commercial Arbitration Dispute Resolution System in the State of Saudi Arabia - Research Proposal Example

Research Proposal on Commercial Arbitration Dispute Resolution System in the State of Saudi Arabia Introduction Commercial arbitration has been researched and written about extensively with the focus on aspects such as establishment and enactment of arbitration awards in various countries. For the past two decades, arbitration has become immensely beneficial in the state of Saudi Arabia as an effective way of solving commercial disputes. Arbitration regulations were first issued in Saudi Arabia in the year 1983 but were formally enacted on May 27, 1985. However, it is evident that very little has been researched and written about how commercial arbitration dispute resolution system in state of Saudi Arabia fares in comparison to the international arbitration dispute resolution system. This paper aims to identify and analyze the processes and legal requirements involved in commercial arbitration dispute resolution system in Saudi Arabia as compared to that of international arbitration dispute resolution system. Research Aim and Objectives The primary aim of this research paper is to provide relevant information to all business executives and other business stakeholders on how the commercial arbitration dispute resolution system in state of Saudi Arabia compares to the international arbitration dispute resolution system. The objectives of the research are: 1. To analyze the international arbitration dispute resolution system. 2. To identify how the requirements for judicial approval of arbitration documents in Saudi Arabia matches or differs with that of international arbitration dispute resolution system. 3. To identify how time period for issuance of arbitration award in Saudi Arabia matches or differs with that of the international system. 4. To identify the impact of the gap between International commercial arbitration standards and Saudi Arabian commercial standards 5. To identify how conduct of proceedings and notices concerning commercial arbitration in Saudi Arabia are carried out as compared to that of international arbitration dispute resolution system. Originality of the Research Though various studies have been carried concerning commercial arbitration in various countries and states, study of commercial arbitration dispute resolution system in Saudi Arabia as compared to the international arbitration resolution system has been overlooked by researchers. In this regard, the stakeholders of commercial arbitration process have been left in doom since the process has not been critically analyzed for better understanding. This research will try to solve the problem being faced by both international and domestic business executives when engaging in commercial arbitration process in Saudi Arabia. Moreover, to enhance the originality of the study, primary data will be mainly utilized. Literature Review Arbitration in Saudi Arabia is governed by the Arbitration Act issued by the Royal Decree No. M/46 dated April 1983.  The Act was implemented with the intention of providing a legal framework for fair and efficient settlement of commercial disputes by arbitration. The arbitration law in Saudi Arabia is not based on the UNCITRAL Model Law. In the state, the governmental authorities and agencies are not allowed to be party to an arbitration agreement, unless the Council of Ministers grants them permission to do so. (Gary B Born, 2009) The Arbitration Act in Saudi Arabia applies to both domestic and international arbitration proceedings. The Act also allows the concerned parties to appeal an arbitral award on any basis in the originally competent court within 15 days of the date the award was issued. However, the interest is generally not awarded as it violates the fundamental public policy principles of Islamic Law (Shari’a). Commercial contracts that provide for arbitration or adjudication mechanisms outside the Islamic law have not been very popular in Saudi Arabia.   With the increasing global trade and expanding economies, the Arbitration Act in Saudi Arabia has seen some international influences. The 1958 New York Convention was signed and ratified by Saudi Arabia in 1993 subject to the reciprocity reservation. Furthermore, the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States was implemented in Saudi Arabia in 1980. In the current scenario, Saudi Arabia is increasingly becoming a party to a significant number of bilateral investment treaties that allow for recourse to arbitration under the auspices of ICSID. (Gary B Born, 2001)  However, the prevalent arbitration procedures in Saudi Arabia are touted as more time consuming than those in Europe and United States and can cause personal inconvenience to foreigners. Though the government of Saudi Arabia maintains that it has cleared all its backlog of commercial disputes through the Arbitration Act, yet, in practice the courts tend to apply the Islamic Saudi law for deciding commercial disputes litigated in the Kingdom, even when the relevant contract contains a foreign choice of law provision and provides for a foreign forum to have jurisdiction. Business-to-business arbitration assistance, although expensive, is available from local chambers of commerce for some types of disputes. (http://www.infoprod.co.il/article/24) Arbitration is touted as the simplest and quickest means of settling commercial disputes. It is based on the negotiations between the concerned parties or their respective advisors. However, negotiation requires a certain degree of detachment and objectivity, as well as willingness to compromise. Lack of time and urge to get the issues resolved in least time and money is what drives the business entrepreneurs towards arbitration. Most international trade disputes can be easily resolved by arbitration, even if the parties themselves are unable to reach an agreement, because the alternative is to submit the dispute to a court of law. Though the proceedings under arbitration and its modus operandi have been questionable for quite some time, yet arbitration is favoured because of the following reasons: Being a private process, arbitration prevents public disclosure of dispute, thereby maintaining public integrity of the parties involved. Arbitration also offers the parties the opportunities to select their own judges, making it a more flexible and adaptable process that yields quicker results. ( Debattisa, C 2005) In Saudi Arabia, the agreement to arbitrate is the foundation stone of commercial arbitration. This agreement serves as an evidence of the consent of the parties to submit to arbitration. Moreover, this agreement is indispensable to the process of settling disputes. There are two basic types of arbitration agreements used in Saudi Arabia. The first, and more common, is an agreement to submit future disputes to arbitration in the form of a clause in the principle agreement between the parties. The second is an agreement to submit existing disputes to arbitration. The agreement of this kind is commonly referred to as a submission to arbitration agreement. It is only in the last two decades, that arbitration has gained popularity as a significant means of commercial dispute resolution in Saudi Arabia. Article I of the Regulations states that "arbitration may be agreed upon in a specific existing dispute. It may also be agreed in advance to arbitrate any dispute arising as a result of the execution of a specific contract." This article therefore validates arbitration as a means of dispute resolution and does not limit arbitration to commercial matters. Further, the Act specifies the scope of arbitration. It clearly states that arbitration cannot be followed for cases where conciliation is not possible. Analyzing commercial arbitration is a complex process as different countries have different laws and regulations for international business and the respective arbitration. This paper attempts to analyze the Arbitration Act of Saudi Arabia in comparison to the Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985.  Research Methods In order to attain clear understanding of the commercial arbitration dispute resolution system in Saudi Arabia and the international commercial arbitration resolution system, the research will utilize a multi-dimensional and multi-perspective analysis. Both primary data and secondary data will be utilized during the study. In collection of primary data, practitioners in the arbitration process will be interviewed concerning how the commercial arbitration process works in Saudi Arabia and in international setting. Moreover, questionnaires will be sent through e-mails to practitioners in the commercial arbitration process. Moreover, secondary materials such as published journals, books and newspapers will also be used to carry out the study effectively. The research will focus on five chapters which will include, comparison of international commercial arbitration standards with Saudi Arabian arbitration standards and conduct and notices of arbitration proceedings, judicial approval of arbitration documents in Saudi Arabia as compared to the international arbitration dispute resolution system, time period for issuance of arbitration award in Saudi Arabia as compared to international commercial arbitration resolution system, the impact of the gap between International commercial arbitration standards and Saudi Arabian commercial standards and the dispute resolution system and the conduct of proceedings and notices concerning commercial arbitration in Saudi Arabia as compared to that of international arbitration dispute resolution system. Chapter Synopsis: Chapters I- Analysis of the International Commercial Arbitration Resolution System International commercial arbitration is one of popular methods of dispute resolution for international commercial agreements. Significant increase in international trade and commerce has also resulted in an increase in international business disputes. Therefore, arbitration has globally emerged as a preferred method of resolving such disputes due to its flexible procedures. The UNCITRAL Model Law on International Commercial Arbitration is a popular international commercial arbitration resolution system that was adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985. UNCITRAL is a subsidiary body of the General Assembly of the United Nations that works towards improving the legal framework for international trade. The body is responsible for generating the legislative text that can be used by States in modernizing the law of international trade. The body also generates the non-legislative texts for use by commercial parties in negotiating transactions. Wide difference in the national laws aggravates the problems arising due to inadequate arbitration laws or absence of any regulations that govern business disputes. Difference in national law is of grave concern in resolving international business disputes as in such cases at least one of the parties is, and often both parties are, confronted with foreign and unfamiliar provisions and procedures. Due to uncertainty about the local law , the parties may refrain from initiating arbitration all together. To avoid such circumstances, the UNCITRAL model was initiated. The primary aim of the principles and solutions adopted in the Model Law is to reduce the disparities and concerns that arise due to different national laws. Designed while keeping in mind the general requirements for international trade, the Model Law provides basic rules for arbitration. Chapter 2- Conduct And Notices Of Arbitration Proceedings According to the Arbitration Act in Saudi Arabia, all notices specified in the Regulations are required to be effected by the clerk of the judicial authority having original jurisdiction over the dispute. The notices must be written in in Arabic and should contain the specified particulars. The arbitrators finalise the date of the session within five days of receipt of notification of the judicial decision approving the arbitration document. After this, the involved parties are notified. The arbitration sessions are usually public, but can be conducted privately if either of the party requests so. Accodring to this act, the arbitrators are empowered to fix the time periods for the submission of the parties’ oral and written arguments, whereas the parties are entitled to be represented by an attorney. The proceedings are directed by the chairman of the arbitral tribunal, who may question parties and witnesses on his own initiative or pursuant to the request of the other arbitrators or the parties. The proceedings are required to be conducted in Arabic.People or parties who do not understad Arabic must invove a translator. (http://www.infoprod.co.il/article/24) According to the UNCTRAL model, the involved parties are free to decide the place for arbitration. The proceedings normally commence on the date on which the respondent receives a request for that dispute. The model law also permits the parites to chose the language agreeable to both, unlike Saudi Arabia here documents and proceedings are conducted in Arabic . (http://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf) Chapter 3- Judicial Approval Of Arbitration Documents In Saudi Arabia Whether the parties are proceeding to arbitration on the basis of an arbitration clause or a submission agreement, it is mandatory for them to submit an "arbitration document", or term of reference, for approval to the judicial authority having original jurisdiction over the dispute. Article V of the Arbitration Act in Saudi Arabia provides the arbitration document must be signed by the parties or their official authorized representatives and by the arbitrators. The document must state the subject of the dispute, the names of the parties, the names of the arbitrators, and their consent to hear the dispute. Further, the arbitration document must be in Arabic. The document should also specify the time period within which the arbitrators are to issue their award. Once submitted to the judicial authority, the document may be approved within in fifteen days of submission. Once approved, the arbitration may commence in accordance with the regulations specified in the Act. However, there are no specific procedures defined in the act for or obtaining a stay of judicial proceedings. The Act also does not specify the course of action for cases wherein one party commences a judicial action prior to submission of the request for arbitration. Chapter 4 – Issuance of Awards According to article IX of the Arbitration Regulations in Saudi Arabia, the award in the dispute must be made on the date set in the arbitration document. The date may be postponed if the involved parties mutually agree. If there is no fix date specified by the arties, the arbitrators can issue the award within in ninety days of the final decision. Arbitral awards can be enforced only when the executive arm of the judicial authority issues an enforcement order. Once issued, the award, though final, can be appealed upon with respect to the enforcement order of the judicial authority. In contrast to this, the international laws require that arbitral awards should be filed or registered with a court or similar authority. The process for filing of an award may vary depending on the type of award, the time period to deliver the award or on any other specific condition mentioned in he arbitration document. Chapter 5- Rules of procedure and evidence Article XXXIX of the Arbitration Act in Saudi Arabia specifies that the arbitrators are not bound by regulatory procedures while issuing awards. However, the arbitrators must comply with the Islamic litigation principles such as a party’s right to confront the opposing party, to present its arguments, defenses and documents, and to examine documents relating to the ease. According to the UNCITRAL model, the authority of issuing awards and directing arbitration proceedings lies with the arbitration tribunal. Subject to any contrary agreement by the parties, the arbitral tribunal. The tribunal has the authority to decide whether to hold oral hearings for the presentation of evidence or should the proceedings be documentation based. International Adaptions in the Arbitration Act of Saudi Arabia To lessen the gap that exists between the arbitration procedures in Saudi Arabia and International standards, the government of Saudi Arabia has included some international conventions. The most significant convention on arbitration followed in Saudi Arabia is the New York Convention. Under this convention, each contracting state undertakes to recognize and give effect to an arbitration agreement when the following requirements are fulfilled: The arbitration agreement is in writing. The agreement addresses the disputes which have arisen or which may arise between the parties. The dispute is due to an unfulfilled legal condition by either parties. The parties have legal capacity under the law. The arbitration agreement is valid under the law to which the parties have subjected it. The Arab League Arbitral Awards Saudi Arabia is also a party to the Agreement on the Reciprocal Enforcement of Judgments among the Members of the League of Arab States. Article III of the Agreement provides the enforcement of arbitral awards within the territories of member States in the other States parties to the Agreement. If the arbitral award includes anything contrary to public policy or the general principles of morality as specified in the Arbitraration Act, the state can cancel enforcement of respective awards. In Saudi Arabia the authority of jurisdiction to enforce foreign judgments, including judgments on arbitral awards lies with the Board of Grievances. International Center For The Settlement Of Investment Disputes [“Icsid”] Saudi Arabia is also a party to the Washington Convention on the Settlement of Investment Disputes between States and Nationals o~ Other States (ICSID Convention). It therefore, considers conciliation and arbitration as a means of binding resolution of investment disputes between states. (http://www.aloufilawfirm.com/arbitr.htm) Conclusion: On the basis of conparisons stated above, the arbitration procedurs in Saudi Arabia have the follwing advantages and disadvantages: when the subject matter of the dispute is highly technical, arbitrators with an appropriate degree of expertise can be appointed arbitration is often faster than litigation in court arbitration is cheaper and more flexible for businesses arbitral proceedings and an arbitral award are generally non-public, and can be made confidential because of the provisions of the New York arbitration awards are generally easier to enforce in other nations than court judgments in most legal systems, there are very limited avenues for appeal of an arbitral award Disadvanatges: Parties may not be awar fo all the clauses in the arbitration document written in arabic. There are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned. In absence of any tribunal, the arbitrators may be unable to enforce interlocutory measures against a party, making it easier for a party to take steps to avoid enforcement of an award. Comulsion to conduct proceeding and all documents in Arabic makes it difficult for the foreign parttes to deveop trust in arbitratio process. Islamic law overrides the arbitration regulations.  . References 1. Born, G 2001, International commercial arbitration: commentary and materials, 2nd Ed. 2. Kluwer Law International, ISBN 1571051740. 3. Debattisa, C 2005, “Drafting enforceable arbitration clauses,” Arbitration International, 4. Vol. 21, no.2, pp.233-240. 5. (http://www.aloufilawfirm.com/arbitr.htm) 6. Resolution of disputes, n.d, viewed 27 March 2009, < 7. http://www.cgijeddah.com/cgijed/comm/business/bus8.htm>. 8. Saudi Arabia: Political & economic overview, 2009, viewed 27 March 2009, < 9. http://www.infoprod.co.il/article/24 10. Saved, A. 2004, Corruption in international trade and commercial arbitration, Kluwer 11. Law International, ISBN 9041122362. 12. Sindler, M 2008, litigation, dispute resolution and arbitration: privacy matters, viewed 13. 27 March 2009, < http://www.legalweek.com/Articles/1141052/Litigation, 14. +dispute+resolution+and+arbitration+Privacy.html>. Read More