Saudi Arabia has been a party to the Convention on the Recognition and Enforcement of Arbitral Awards of 1958 (the New York Convention) since 1994. The 1983 Saudi Arbitration Law (issued by Royal Decree No. M/43) struggled to recognise the latest practices in international arbitration and appeared to be inconsistent with the provisions of the New York Convention. The result has been that the recognition and enforcement of foreign arbitral awards in Saudi Arabia has usually been uncertain.

This has primarily been the result of the intense judicial review by the Saudi courts of both domestic and foreign awards to ensure compliance with sharia or Islamic law. As a result, parties who are contracting with Saudi counterparties that have no identifiable assets outside Saudi Arabia have had to understand, and accept, the inherent risks of such business.

However, recent reforms in the past few years to the kingdom’’s arbitration system have sought to bring it in line with international standards and encourage parties to resort to arbitration as a forum for dispute resolution.

Greater clarity

The enactment of the Arbitration Laws in July 2012, issued by Royal Decree No. M/34, repealed the 1983 Saudi Arbitration Law. These Arbitration Laws were inspired by the 1985 UN Commission on International Trade Law’s (UNCITRAL’s) Model Law on International Commercial Arbitration (as amended in 2006) and more closely aligned Saudi law with international arbitration standards. It provided greater clarity on the enforceability of awards and prohibited the re-examination of the merits of an arbitral award by the court by recognising the parties’ autonomy to tailor their arbitration procedure, although it does not change the sharia-compliance requirement.

The Arbitration Laws were also complemented by enforcement laws that came into force in Saudi Arabia in March 2013 by Royal Decree No. M/53 (the Enforcement Law). This Enforcement Law introduced further enhancements by creating specialised enforcement courts, in place of the Board of Grievances, for the purpose of enforcing judgments and arbitral awards in a more expedient and streamlined manner.

While the aforementioned reforms have been a welcome addition to the arbitration landscape in Saudi Arabia, it is only recently that the new laws have been implemented in practice. In a landmark enforcement decision handed down in 2016, the Enforcement Court in Riyadh confirmed that an $18.5m International Criminal Court (ICC) award rendered in London would be enforced in Saudi Arabia against a Saudi-domiciled debtor.

Judge ruling

In examining the enforceability of the award, the enforcement judge had to satisfy himself on several issues. Firstly, the Saudi courts did not have jurisdiction to hear the underlying dispute, which they did not as a result of the arbitration clause in the agreement. Secondly, the country in which the award was rendered had a reciprocal agreement for enforcing awards rendered in Saudi Arabia, as England is also a party to the New York Convention. Thirdly, the award was handed down following a procedure that complied with due process and was in final form according to the law of the seat of arbitration. Fourthly, the award did not contain anything that conflicted with sharia or Saudi public policy, and finally, the award was not inconsistent with a judgment or order rendered by a competent authority in the kingdom.

This case is promising and is an example of what may potentially be many more pro-arbitration decisions emanating from Saudi Arabia. Such greater legal certainty would assist the kingdom in reaching its increased foreign direct investment targets under its Vision 2030.

Compliance with sharia will still remain a fundamental obstacle in any enforcement proceedings and notably this case did not contain any award of interest that could have made the process more problematic. In addition, the Arbitration Law affirmed that the courts will have “due regard” to international agreements, but it missed an opportunity to set out a specific and clear method of enforcing foreign awards. Bearing this in mind and with very little track record since the promulgation of the Arbitration Laws, it is not yet clear how consistent and expedient the enforcement of foreign arbitral awards in Saudi Arabia will be in the future.

Tarek el-Assra is a banking and finance partner with Morgan Lewis & Bockius, and has been based in the Middle East for more than a decade.