The unique character of the legal system of Saudi Arabia is not a secret. It has the Sharia law as a basis, with other words Islamic law with the roots in the Quran which is the basis for all Islamic laws. It states the total authority in the life of the Islamic nation, and the Sunnah, the customary law which dominates. In Saudi Arabia, the Islamic law has also two other sources: ijma and the qiyas. The ijma replies the questions about the changing of the social conditions. However, even Quran, Sunnah and ijma cannot give answers to all the problems. In this case, the qiyas helps to find a missing response.
The Article 7 of the Saudi Basic Law, Sharia law is supreme over any other laws and normative instruments or regulations which a human created. The Article 7 is so important that, even in the emergency cases of the turmoil, no one can offend against it because this law presents Sharia as the only regulation of the Kingdom.
The specific an individual character of the Saudi law consists in the fact of its inseparable connection with religion. The King has no right to legislate the issued which the Sharia has already regulated. He shows his respect to this law by following the obedience duty as his other subjects do. This proves the complete dependence of the law on the religion, and this fact influences the entire public life of the Saudi Arabia. The Kings empowering is in the royal decree about possible changes of the Sharia law, for example, when it refers to the new trade or circumstances of the commerce deals.
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The form of government in the kingdom of Saudi Arabia is an absolute monarchy, but the King is not the total power holder. The Sharia law was adopted in a common form because the interpretations and various applications of this law could cause unpredictable results. The inconsistence of the court judgments is the consequence of the absence of judicial precedent in Saudi Arabia. The legal system of the kingdom is unordinary in the Islamic world, as Sharia remains in its entirety the law of the state without interfering it. In other words, the focus of the legal system in Saudi Arabia guarantees the performance of the Islamic values and culture.
The understanding of the principles of Riba and Gharar is obligatory before conducting the business in Saudi Arabia. They define and explain the main differences between the economic systems of Islamic and Capitalist or Socialist countries. In Riba, any action with a consequence in the high interest rate being debited or a baseless and exceeding profit margin realized is proclaimed. The contract partners must obligatory follow the fairness and equity principles in their dealings. Any deception is not allowed. Gharar bans all actions with the speculation, gambling or unsure events in the basis. The court of Saudi Arabia voids any contract and action which do not maintain the principles of Riba and Gharar.
One of the speculation forms is the insurance because its contract basis is the uncertain events. The holders of the policy get profit only in the case of loss, but there is no guarantee that it will happen. The contract considers being speculative and ill-defined. Despite this fact, Saudi Arabia gradually realizes the necessity of insurance in the world of modern economy. This change has led to the decision to permit the insurance in the contract, but on the condition of the partly investment beyond the border of the state. As it does not break the principles of Riba, it is not illegal anymore.
Considering the historical background of the Saudi Arabia, it is interesting to note the lack of consensus as the method of the dispute solving in the international arbitration. The arbitration today does not fit the commercial arbitration. Some of the worldwide spread and accepted arbitrations are inadmissible for Saudi Arabia. The preference of the mutual conciliation rather than conflict is the confident step to the resolution of the domestic disputes. The usage of arbitration with non-domestic disputes are restricted in Saudi Arabia for international dispute. For such arbitrations, in 1963, the government created a law prohibiting agencies. However, even this fact does not allow selecting the arbitration as a resolution method for the dispute.
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Before the acceptation of the New York Convention, the courts of Saudi Arabia totally refused to fulfill the non-Saudi Arabian arbitral awards. The court would investigate the acceptability of the award for their society. That is why, in April 1994, Saudi Arabia signed the New York Convention. The agreement came to the force in July 1994. Despite this event, the domestic law has never enacted accordingly the New York Convention. The foreign award is only the subject to the provision and nothing more.
The Arbitration law promulgated by Royal Decree No. M146 dated 12/07/1403 H is the main one in Saudi Arabia. Prime Minister proclaimed its regulations in the executive sphere by Resolution No. 7/2021 and dated 8/911405 in 1985. The signing of the New York Convention did not change this law, and it acts as previously.
The Saudi Board of Grievances gets a jurisdiction of the law through the implementation of the foreign and domestic arbitral awards. The Saudi Arabian arbitration becomes too old, but the foreign awards still remain a problem. It is because of some requirements of the mandate. It means that the foreign awards are hardly going to be ever implemented.
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Even though, all other signatories of the New York Convection have arbitration institutions in their countries, Saudi Arabia is the one who has not any. In Saudi Arabia, along the arbitration act is executed the only arbitration. In this case, the courts can perform all arbitral procedures. Many obstractions are important for the foreign investors before the procedures with Saudi Arabia are in the commercial arbitration.
The judge from the Board of Grievances acts as a supervisor in the commercial disputes of the private parties. It is important to ensure the safety of the Sharia law, as it still remains the huge part of the life in Saudi Arabia. In some cases, the Arbitration Act 1983 has a loophole. So the supervising judge has enough power for the arbitration determination.
Without the permission of the President of the Council of Minister, the entities of the Saudi Arabian government are prevented from participation on the contracts where the resolution of the dispute depends on arbitration. A Royal Decree of the 1963 reflects this provision. In Saudi Arabia, the regulation of the arbitration proceeding must be in the Arabic way. The arbiters will apply the Arabian law to the dispute solution, not depending on the law choice in the contract.
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The enforcement and recognition of the foreign system of arbitral award meet several hindrances in Saudi Arabia. In Sharia law, the answer on the question about the bindings of the awards is not available. Four leading Sunni schools cannot find a harmony on this issue.
The positive sign is the fact of the Saudi Arabian signature in the New York Convention because it means the indication of the Arabian thoughts about their own arbitrations on the international level which could increase the confidence of the investors from abroad.
In Saudi Arabia, in respect of the award enforcement, no law deals with following of the foreign arbitral awards. The provisions for the following of foreign judgments apply to the foreign arbitral awards. As the Article 13 (G) of the Board of Grievances states, the Board has a right to accept the applications about this enforcement. The main types of the general commercial disputes and related arbitral awards are under the Board’s control which is important for the safety of the Sharia law principles. The Arabic language and other requirement are obligatory for all documents in the frames of this process. That is why this process takes a long time for its completing.
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The Board of Grievances tries to deny the following of the arbitral award and is the exception in the Article V (b) (2) of the New York Convention because the foreign laws do not fit together with the domestic ones of Saudi Arabia.
The following of the arbitral award requires the importance of the public policy in Saudi Arabia, with no difference whether it is a foreign or domestic award.
The Sharia law differs the public policy of Saudi Arabia comparing with the Western world because Sharia is the most complicated and dimensioned law in the entire world. It connects God and people on the basis of humanitarian behavior between the human beings. It is the eternal cult with deep roots in each life aspect of the Islamic nation. Sharia law explains the altruistic relationships in the public policy of Saudi Arabia. It has connection with the “ritual worship acts (ibadat) and among human beings in the commercial and family issues”. As a result of all these factors, the public policy of Saudi Arabia remains inconsistent in the cases of the international arbitration.
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It is also hard to define the public policy in Saudi Arabia because of the absence of the case precedent in the legal system of the country. It is the reason why the motive of the court in the cases of the refusal the award still does not have any explanation. In Sharia , the information contains in the order of importance. The positions of the various scholars and schools differ. The chance to reach consensus still remains almost impossible.
The number of obstacles stays in front of the enforce enforcement of the foreign award. Moreover, Saudi Arabia has no arbitration law, and the courts of the country with the help of the heavy intervention make this enforcement almost impossible. They are going to intervene in the most of the processes. The judge decides the status of the arbitrators and reviews the awards. The registration of the award in the supervising court is obligatory. The clerk of the judge is, at the same time, the secretary of the arbitral tribunal and notifies the parties.
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The obstacle to arbitration in Saudi Arabia can slow down the development of the arbitration. The investor can possibly decide that their investments will not be as beneficial as they expect because of the legal proceedings risk. In Saudi Arabia, the arbitration is not the private process; it is completely the public issue. This will last until the arbitrators or parties will make an opposite decision. The basic arbitration and this concept are far away from each other, as the second one strives to create party autonomy that can customize what they think fits their transaction. Sharia forbids choosing the governing law for the agreement of the parties. Since the late 1970s, the background of the Saudi Arabian economy has started the process of reformation from the oil industry to a more versatile industrial economy. In its intentions was the setting up of a hydrocarbon-based petrochemical industry. As Saudi Arabia needed technological and expertise support from the foreign investors, it waged between the needs of the kingdom’s economy and flexible regulatory protection of the sovereignty. This makes the investors more confident in the fairness and impartiality of the dispute settled in the mechanism of the courts in Saudi Arabia.
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Saudi Arabia considers these issues. Saudi Arabia joined the ICSID Convention in 1979, issued the Arbitration Act in 1983 and ratified the New York Convention in 1994. These decisions are the evidences of the Saudi Arabian intention of the arbitration changes in order to fit better to the international standards. The legal system of the state has still deep roots in the cultural traditions, so it is going to take a while for the foreigners to accept this shift.
In addition to that, Saudi Arabia belongs to those who signed the Convention on judicial Cooperation between States of the Arab League in 1983 (“Riyadh Convention”) and the Protocol on the Enforcement of Judgment Letters Rogatory. In addition to that, in 1995, the states-member courts of the Arabian Gulf Cooperation Council (“GCC Protocol”) issued the Judicial Notices, consisting UAE, Qatar, Bahrain, Oman and Kuwait. Important information is about the enactment of the new law in 2012. It was the legal movement in Saudi Arabia which adopted a new law considering the arbitration with 58 articles in it. The UNCITRAL Model Law became the basis of its structure. This new law took away previous negative factors in the case of arbitration as it opens another view on the arbitration in the frames of Saudi Arabian life. The country entered more modem form and supports party autonomy with the help of stimulation. The tribunal must accept this law and the process between the parties and practice the nature of the transaction
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The arbitration language does not have to be Arabic anymore. However, the principles of the Islamic culture are still among the requirements. In this way, Saudi Arabia hopes to make a huge step into the modern system, without widening the public policy.