ADR and Arbitration in the Saudi Legal System: A Critical Assessment

Introduction to Alternative Dispute Resolution

The benefits of using arbitration — and alternative dispute resolution (ADR) more broadly — in lieu of formal adjudication in the courts have attracted a growing amount of interest from the private sector around the world. Davis and Katbeh (2009) point out that this trend is especially evident in the politically unstable Middle East. As they observe, "Increasingly, commercial alternative dispute resolution (ADR) programs are being created throughout the world. These ADR centers provide a model of peaceful dispute resolution for other countries, particularly when they are located in a geographic area known for political conflict" (Davis & Katbeh, 2009, p. 67).

Certainly, Saudi Arabia is no stranger to political conflict, but there are some interesting aspects concerning commercial dispute resolution that are virtually unique to the Saudi legal system. Vogel (2000) reports that in cases where disputes involve parties from countries other than Saudi Arabia, the Saudi courts give full sway to those parties' legal systems, even if the outcomes differ from conventional Saudi laws. As Vogel explains, "Commercial agreements often provide for foreign law to govern the parties' interactions and any disputes between them, and commercial arbitration or alternative dispute resolution may often produce different outcomes than would result were the case brought before regular courts" (p. 8). In most countries, national laws and practices prevail when disputants come before the courts. Vogel notes that, "States are jealous of their monopoly over family laws such as divorce. In such matters, state-legislated and court-enforced rules and requirements are usually considered public policy, which must hold over any contradictory settlements" (2000, p. 8).

The need for restorative justice. In developed as well as developing nations, there is a need for a formal avenue — including alternative dispute resolution — to pursue restorative justice when events deprive disputants of their legal rights (Levad, 2012).

The development of ADR: a comparison between developed and developing countries. Commercial dispute resolution systems differ from country to country on two fundamental aspects of self-determination and control by the disputants involved: (a) control over the overall system design, and (b) control within a given case using a specific process provided by that overall system design (Bingham, 2004). According to Bingham (2004), the design of the commercial dispute resolution approach used in a given country includes: (a) choices regarding which cases are subject to the process, (b) which process or sequential processes are available — mediation, early neutral evaluation, or binding arbitration, for example — (c) which due process rules apply, and (d) other structural aspects of a private justice system.

The nature of commercial disputes. Disputes of a commercial nature that are brought before arbitrators span the complete gamut of contractual provisions, including most especially performance and costs (Vadi, 2010).

ADR and International Institutions

The role of international institutions such as the United Nations Commission on International Trade Law (UNCITRAL) in enhancing ADR is to provide "a fixed, predetermined process to settle disputes" (Choi, 2003, p. 1234). The Model Law provided by UNCITRAL, for example, "provides countries with a template that they can adopt for their national laws in order to 'provide a hospitable legal climate for international commercial arbitration'" (Griffith & Mitchell, 2002, p. 185).

Legal Framework of ADR in Saudi Arabia

Today, Saudi law is based on the Islamic (Shari'a) legal system (Saudi government, 2014), which might lead many observers to conclude that Saudi Arabia would be particularly insistent on applying its own alternative dispute resolution approaches — handled by special committees — in all cases. Indeed, Vogel argues that, "In the setting of Saudi Arabia, with its state religiosity and its system of religious courts, one would expect even more jealousy about the sway of state laws, respect for the courts, and the religious correctness of the outcome, and especially for family law" (p. 8). The strict observance of Saudi laws in most matters, however, does not extend to conflicts involving disputants from other countries when those countries have preferred commercial resolution approaches in place; Saudi courts will respect these other approaches. According to Vogel, "It is the surprising result that the courts of Saudi Arabia enforce as valid the parties' actions based on the fatw-s of respected 'ulam?', even when these fatw-s are in stark contradiction to the courts' own standard rules" (2000, p. 8).

In reality, this flexible approach to commercial dispute resolution is solidly grounded in Saudi law, which assigns full power and authority to other countries' laws when they are congruent with Islamic teachings. As Vogel points out, "Under the law of Saudi Arabia, it is not the case that the courts' result is the law of the land, or Saudi law, while the muft?'s is another law upheld due to state-condoned private ordering, as in the instance of commercial arbitration" (p. 8). This means that even if another country's laws concerning commercial dispute resolution differ from formal Saudi laws, they are treated as Saudi law provided they remain congruent with Islamic teachings. Indeed, Vogel notes, "Instead, both are Saudi law, both the law of the land. Any opinion authoritatively rooted in the Qur'an and sunna is Saudi law, because it is a valid statement of shar?'a, and Saudi law is nothing but shar?'a" (emphasis in original) (p. 8).

Principles and Forms of Arbitration

General principles of arbitration. Taylor (2010) advises that, unlike mediation and conciliation talks — where the results of resolution efforts can be entirely lost after a great investment of time and resources — arbitration offers disputants a number of advantages by providing a finalized outcome. As Taylor reports, "In efforts to avoid litigious headaches, placing alternative dispute provisions in commercial contracts that mandate any conflict be resolved through binding arbitration is a growing trend" (2010, p. 30). This trend has been fueled in large part by the enormous costs involved in formal litigation, including time, lawyers' fees, and a potentially damaged corporate reputation (Taylor, 2010). Moreover, binding arbitration represents a superior alternative to formal litigation because of the unpredictability and inefficiencies of the legal process in some countries. As Taylor points out, "Judges and juries are unpredictable in civil cases. Therefore, the outcome is unpredictable, and it is impossible to gauge who will come out ahead" (2010, p. 31). In sum, Taylor concludes, "When a company places a substantial legal dispute in the hands of a judge or jury, it is taking a huge risk" (2010, p. 31).

Although the outcome of binding arbitration is likewise unpredictable, Taylor argues that the arbitration process is inherently more reliable as well as efficient, making it a viable alternative to formal litigation. According to Taylor, "Binding arbitration serves as an option to litigation or nonbinding mediation. When parties place an arbitration clause in a contract, they forego enforcing their legal rights in court, choosing to rely instead upon the arbitrator's sense of fair play" (p. 31). In some cases, particularly in the West, contractual provisions may require companies to engage in nonbinding mediation before they can resort to binding arbitration or formal adjudication. In this regard, Cairns (2005) advises that, "In common law jurisdictions it is common practice to include in commercial contracts a reference to mediation prior to initiating arbitration. Only after the failure of mediation are the parties able to move on to litigation or arbitration in a designated forum" (p. 63).

The popularity of arbitration in Saudi Arabia. Today, Saudi Arabia is a global leader in the production of oil and natural gas, possessing approximately 17% of the world's proven oil reserves (Saudi Arabia, 2014). In December 2005, Saudi Arabia acceded to membership in the World Trade Organization, fueling additional interest from foreign investors (Saudi Arabia, 2014).

Forms of arbitration.

Ad hoc arbitration. This type of arbitration involves tribunals created to arbitrate a case after the facts have been established. However, some tribunal members may have close ties to one side of the dispute, and transparency represents a potential problem (Baudenbacher, 2008).

Institutional arbitration. Examples of institutional arbitration include the highly standardized services provided by the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), and the American Arbitration Association Center for International Dispute Resolution (AAA). Each of these institutional arbiters has comprehensive procedures in place for administering arbitration proceedings, frequently between transnational disputants (Choi, 2003).

References

Al-Nuwaiser, W. N. (2012, September). Reform of the Saudi Arbitration Law. Insight: International Arbitration, 1–3.

Baudenbacher, C. (2008, Spring). Judicialization: Can the European model be exported to other parts of the world? Texas International Law Journal, 39(3), 381–393.

Bingham, L. B. (2004, Spring). Control over dispute-system design and mandatory commercial arbitration. Law and Contemporary Problems, 67(1–2), 221–229.

Cairns, D. J. (2005, August–October). Mediating international commercial disputes: Differences in U.S. and European approaches. Dispute Resolution Journal, 60(3), 62–65.

Choi, S. J. (2003, October). The problem with arbitration agreements. Vanderbilt Journal of Transnational Law, 36(4), 1233–1239.

Davis, W. E. & Katbeh, L. (2009, May–July). Creating a commercial dispute resolution center in the Palestinian Territories. Dispute Resolution Journal, 60(2), 66–70.

Giansiracusa, Y. (2013, September). The new Enforcement Law of Saudi Arabia: An additional step toward a harmonized arbitration regime. Jones Day Commentary, 1–3.

Griffith, G. & Mitchell, A. D. (2002, May). Contractual dispute resolution in international trade: The UNCITRAL Arbitration Rules (1976) and the UNCITRAL Conciliation Rules (1980). Melbourne Journal of International Law, 3(1), 184–189.

Hawser, A. (2009). Open season. Global Finance, 20(1), 20–29.

Levad, A. (2012). Restorative justice: Theories and practices of moral imagination. El Paso, TX: LFB Scholarly.

Saudi Arabia. (2014). CIA World Factbook. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html

Saudi government. (2014). CIA World Factbook. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html

Siddiqi, M. A. (2009). Saudi Arabia: Financial report. The Middle East, 26.

Taylor, D. K. (2010, March–April). Road to resolution: Understanding alternative dispute provisions can help avoid contractual conflicts. Journal of Property Management, 75(2), 30–35.

Vadi, V. S. (2010, Winter). Critical comparisons: The role of comparative law in investment treaty arbitration. Denver Journal of International Law and Policy, 39(1), 67–73.

Vogel, F. E. (2000). Islamic law and legal system: Studies of Saudi Arabia. Boston: Brill.