SAUDI ARABIA: An Introduction to Dispute Resolution

Dispute Resolution in Saudi Arabia 

The Saudi economy experienced a sudden bout of growth in 2018, when its GDP increased by 2.43%. However, the COVID-19 global pandemic resulted in a 4.44% contraction in 2020. More positively, Saudi's non-oil sector GDP grew by 6.6% in 2021, and as a result of government initiatives aimed at diversifying the economy and promoting private sector development, the country’s economy as a whole also witnessed growth.

These initiatives include the Vision 2030 programme, which aims to reduce the nation's reliance on oil revenue and seeks to make Saudi Arabia a global player across various industries. In line with diversification goals, Saudi Arabia's legal sector is also expanding, with new legislation and regulations being introduced to facilitate and regulate commercial activity and investments. This rapid transformation of the legal system presents both opportunities and challenges for businesses operating in the Kingdom.

Trends In Dispute Resolution and the Introduction of New Laws

The Saudi legal system is based on Shari'a law, which is interpreted and applied by the Saudi courts. Until recently, commercial disputes were typically resolved through litigation. However, in 2012, the Saudi Government enacted a new Law of Arbitration aimed at clarifying and regulating the arbitration process. The law introduced several key changes, including the following:

• Parties may select the foreign law they wish to apply during the arbitration process.
• The arbitral tribunal must issue an award within 12 months of the commencement of the arbitration process.
• The new law is silent on the gender, religion and nationality of the involved parties.

Since the enactment of the Law of Arbitration, there has been a significant increase in the use of arbitration to resolve commercial disputes in Saudi Arabia. The Saudi courts are also upholding awards at a far higher rate than in previous years.

The Saudi Government has also set a goal of mediating 25% of commercial disputes. To facilitate this process, the Taradhi platform was introduced to allow applicants to file remotely and undergo a virtual mediation process. In its first year, over 300,000 claims were filed.

In 2020, the new Commercial Courts Law was enacted by royal decree. This new law was designed to modernise and streamline Saudi Arabia's commercial court system. The law introduces several key changes, aimed at achieving the following:

• Reducing the amount of unmeritorious commercial litigation claims.
• Encouraging the use of alternative dispute resolution methods, such as arbitration and mediation.
• Improving the efficiency of the commercial court system.

In an effort to encourage greater foreign investment, the government has also recently reformed the nation’s current investment laws, allowing non-Saudis to wholly own and operate businesses within the Kingdom for the first time. However, in 2020, a new Anti-Concealment Law was introduced which aims to prevent foreigners from illegally fronting a Saudi-owned enterprise. This means that it is pertinent for all foreign investors and business owners to ensure they apply for the correct licensing and comply with all relevant regulations.

In cases where the ownership of the commercial enterprise is in dispute, the involved parties can take their claim to the Commercial Court. These courts have the authority to hear cases relating to a number of different commercial disputes, including breach of contract, fraud, shareholder disputes and insolvency.

In more recent developments, the Minister of Commerce, Majed Al-Qasabi, announced in March of 2022 that the government was drafting a new Consumer Protection Law. This law will include consumers' right to compensation and protection from fraud and unfair contracts.

As part of the Capital Market Authority's (CMA) strategic objectives to develop the capital market and promote confidence in the capital market's participants, the CMA Board issued its resolution approving the amendments to the Resolution of Securities Disputes Proceedings Regulation (“Amended Regulation") to be effective as of the date of their publication.

The Amended Regulation aims to further improve the proceedings of securities disputes before the Committee for Resolution of Securities Disputes and the procedures that enhance the speed and efficiency of considering and adjudicating lawsuits.

The Amended Regulation also aims to develop aspects that would promote confidence in the capital market's participants, support its growth and prosperity, and reaffirm investors' protection.

Late 2021 saw the introduction of the Law of Evidence, the aim of which is to codify the various Shari'a principles into one consistent, fair and acceptable provision. The new law aims to develop the country’s legislative system. The law, alongside three others (namely the Personal Status Law, the Civil Transactions Law and the Penal Code for Discretionary Sanctions) are the four main legislative projects announced in late 2021.

Furthermore, and in an effort to align with global best practice, the Kingdom introduced the Judicial Cost Law in late 2021. This law will impose a government fee for initiating litigation cases in the Kingdom, with the exception of three categories, which are: claims commenced by ministries and government entities; claims filed by employees relating to their employment contracts; and claims against imprisoned or detained individuals. This new law will manage unjustified cases, whilst encouraging participants to utilise alternative dispute resolution methods.

Potential Legal Hurdles Faced by Businesses 

The Saudi Government has made clear its intention to diversify the economy and promote private sector growth. The legal sector is playing an important role in this, with new legislation and regulations being introduced to facilitate and regulate commercial activity and investments.

As part of this mission, the Saudi Government has taken significant steps towards modernising and codifying the country's legal system, bringing it in line with global standards. However, individuals still face several potential legal hurdles when doing business in Saudi Arabia.

With new and complex laws being introduced at such a rapid pace, the enforcement process is still catching up. Commercial litigators in Saudi Arabia have reported that there can be significant delays in the commercial court system, which can lead to frustration for businesses seeking a swift resolution to their disputes.

These fast-paced changes to the Saudi legal system can also pose difficulties for businesses with regard to compliance. However, a grace period is typically granted to provide an opportunity for businesses to adjust their operations in line with the new legal framework. Overall, the latest developments in Saudi Arabia's legal system will allow businesses to resolve disputes more efficiently whilst providing greater clarity and certainty.