The Kingdom of Saudi Arabia is embarking on what could become the most significant national programme of development in history. The Saudi Government announced in 2021 that it is planning investment of over US$7 trillion by 2030 [1], an amount that dwarfs the annual GDP of all but the US and China, and the NEOM project alone will be larger in area than Israel[2]. Unsurprisingly, with this scale of investment, construction contractors are turning their attention to, and seeking to understand operations in, the Saudi context.

Many international contractors will have experience of Sharia law from operating in the Gulf construction markets. Although Sharia is unique to the Muslim world and will always present challenges to the unfamiliar, the Gulf states have globally-aligned commercial frameworks that are well-understood and provide comfort for foreign contractors operating there. The Saudi market, in contrast, has not yet reached the same level of international engagement as its smaller neighbours. However, the Kingdom has been slowly codifying its Sharia legal system in order to become more accessible and, consequently, comfortable for foreign business.

An example of this is one of the greatest concerns for any contractor: the effective enforcement of arbitration awards.

Legal framework

Saudi Arabia’s arbitration regime is set by the Arbitration Law and Enforcement Law[3]. The Arbitration Law[4] is based on the UNCITRAL Model Law with some amendments, including amendments ensuring compliance with Sharia law. This has significantly improved accessibility and comfort for foreign entities, as the UNCITRAL standards are globally well-understood by practitioners and even Sharia law is increasingly well understood after decades of commercial development in Sharia countries, including in the field of construction.

Because of stringent public procurement rules in Saudi Arabia, there are some specific considerations that relate to arbitrations involving Saudi public entities. These are beyond the scope of this article but are relevant to mention insofar as contractors working for public entities may be required to use both Saudi law as the law of the contract and Saudi statutory dispute resolution processes.

In relation to enforcement, there are some minor differences between the enforcement of domestic and foreign awards, though both are enforced in the Enforcement Courts, which were created under the Enforcement Law. The most significant differences are reciprocity and Sharia compliance.

Considerations for foreign awards

Saudi Arabia has been a signatory to the New York Convention for some time. The New York Convention provides for enforcement of foreign arbitral awards in the courts of signatory states. When signing the New York Convention, Saudi Arabia made the following declaration:
“On the Basis of reciprocity, the Kingdom declares that it shall restrict the application of the Convention to the recognition and enforcement of arbitral awards made in the territory of a Contracting State.”

The Enforcement Law also requires reciprocity at Article 11 and, under the Implementing Regulations of the Enforcement Law (the Enforcement Regulations)[5], the onus of satisfying this test lies with the enforcing party. As a signatory to the New York Convention, Riyadh Convention, GCC Convention and the ICSID Convention, as well has having ratified 21 bilateral investment treaties[6], reference to relevant international treaties should suffice to prove reciprocity in most cases. However, if the award emanates from one of the few jurisdictions not within these treaties, it is unclear how this criterion could be satisfactorily proved by a party.

Sharia compliance, on the other hand, is not strictly unique to foreign awards; Sharia is the foundation of the Saudi justice system itself. However, it will be rare (if ever) that a domestic Saudi award encounters Sharia compliance issues during enforcement, for obvious reasons. The most likely Sharia issues that may arise in the enforcement of foreign awards are awards of interest, or any economic losses considered ‘speculative’ under Sharia. The Enforcement Regulations state at Article 9.1 that a Sharia non-compliant award “may not be enforced to the extent of such conflict”, i.e. it can be enforced but excluding those elements that conflict with Sharia. Consequently, an awareness of what is enforceable in Saudi Arabia has relevance not just from the very beginning of a claim but in allocating risk during contract negotiations and the administration of the contract.

The enforcement process

Aside from the issues of reciprocity and Sharia compliance, the enforcement of foreign and domestic awards through the Enforcement Court is fundamentally similar, though with some differences in documentary requirements. For example, for domestic awards, a declaration of enforceability from the relevant appeal court is required before an application to the Enforcement Court can be made. For foreign awards, this declaration is not needed but a certified translation of the award is required, assuming that the award is not in Arabic already, as well as attestations from relevant authorities.

One aspect that should be considered well in advance is that the Enforcement Court will review whether the parties to the arbitration were served, represented and given a fair opportunity to defend themselves. If an award is issued in absentia, proof of notification of the award on the respondent party is also required. Although these criteria should generally be fulfilled as a matter of due process for issuing an award under the common international rules for commercial arbitrations, any non-Saudi arbitration in which enforcement in Saudi Arabia is foreseeable should give due consideration to these requirements, and have evidence on hand, in order to avoid unnecessary delays to enforcement.

Conclusion

Saudi Arabia has been an economic powerhouse in the Middle East for a long time but, with an economy primarily focused on oil, this has not translated to a broader global profile comparable to other regional markets like the UAE. As the Kingdom aggressively diversifies its economy under its 2030 Vision programme, construction and infrastructure companies will be leading a new phase of global interconnectedness for Saudi Arabia. With this wave of inflowing business, the Saudi legal frameworks will provide the commercial conditions for the Kingdom’s reputation as a place to do business. In relation to arbitration, this will be reflected in the extent to which foreign companies arbitrating outside of Saudi Arabia against state-owned companies are consistently successful in enforcing awards in the Saudi courts. The indications in this regard, so far, are positive.

The work that has already been done over the last decade to codify Saudi Sharia was a vital step in making large-scale international participation in the 2030 Vision possible, and was done despite conservative opposition. As ground is broken and contracts are tested over the next few years, the Saudi legal system must demonstrate consistency and fairness to support its ambitions as a global centre of business. In this context, the Arbitration Law and Enforcement Law both contain certainties as well as risks for those operating in Saudi Arabia but, with the right approach, can be navigated successfully.

References

[1] Saeed Azhar and Ghaida Ghantous, ‘Saudi Arabia announces US$1.3 trln private sector investment push led by Aramco, SABIC’, (Reuters, 30 March 2021) <https://www.reuters.com/world/middle-east/saudi-private-sector-invest-13tn-diversification-by-2030-crown-prince-2021-03-30/> accessed 13 April 2022. It should be noted that the ratio of private and public investment in this figure is unclear, but Government spending is expected to be nearly half of this amount and some spending via state-owned entities may be classified as private.

[2] Early suggestions are that NEOM will have a legal system that is separate from the Saudi justice system, but this has not been further developed.

[3] Royal Decree No M/34 dated 16/4/2012. Please note that Saudi Arabia uses the Umm al-Qura variant of the Islamic Hijri calendar and this is the primary dating method of laws in the Kingdom. For this article, Gregorian calendar dates are used.

[4] Royal Decree No M/53 dated 7/3/2012. Please note that ‘Enforcement’ is occasionally translated as ‘Execution’ in other sources.

[5] The Implementing Regulations of the Enforcement Law, available at <https://www.moj.gov.sa/Documents/Regulations/pdf/En/pdf/
The%20Implementing%20Regulations%20of%20the%20Enforcement%20Law.pdf> accessed 13 April 2022.

[6] See UNCTAD Investment Policy Hub <https://investmentpolicy.unctad.org/international-investment-agreements/countries/185/saudi-arabia> accessed 13 April 2022.

Image source: neom.com