Litigation 2024

Last Updated December 05, 2023

Saudi Arabia

Law and Practice

Author



Derayah LLPC is an independent Saudi Arabian law firm with offices in Jeddah and Riyadh. The firm regularly acts for international clients in disputes before Saudi Arabian courts. As an independent firm, it is often instructed by other law firms, including firms with Saudi Arabian affiliates when their local offices are conflicted. It remains the first-choice Saudi counsel for many foreign companies and international law firms seeking advice on Saudi Arabian law. Recent clients include Saudi National Bank, Citicorp Trustee Company Limited and Golden Belt 1 Sukuk Company. The firm is currently involved in nine bankruptcy proceedings, including the Maan Al Sanea/Saad Trading liquidation involving claims in excess of USD8 billion

The Nature of the Native Legal System

Since the creation of the Kingdom of Saudi Arabia on 23 September 1932, it has been the government’s express policy that the country is governed by Islamic law (Sharia). This was confirmed in 1992 by the Basic Law of Rule, Royal Order No A/90 of 27 Sha’ban 1412 Hejra corresponding to 1 March 1992, which is, in effect, the country’s constitution. Historically, the Hanbali school of Islamic law has been dominant in the territory that is now Saudi Arabia. The Islamic law texts that Saudi jurists regard as authoritative were compiled during the 13th to 17th centuries CE; as such, they reflect the concerns of a pre-industrial society and do not address many commercial, business or economic issues.

There are numerous areas of law where Islamic law offers few or no guidelines, and where government-made legislation is, therefore, the only law. For example, company law, capital markets law, foreign investment and employment law are governed by largely self-contained codes. However, until recently the Saudi Arabian government was reluctant to legislate in areas where a given subject matter is covered in some detail in the authoritative Islamic law texts. This has changed with an ambitious reform programme under the supervision of the Main Committee for the Preparation of Judicial Legislation, which has been working on a modern model of legislation consistent with Islamic law principles and international norms. The Evidence Regulation was enacted under Royal Decree No M/43 of 26 Jumada Awwal 1443 Hejra corresponding to 30 December 2021, the Personal Status Regulation under Royal Decree No M/73 of 6 Shaban 1443 Hejra corresponding to 9 March 2022, and the Civil Transactions Regulation under Royal Decree No M/191 of 29 Shawwal 1444 Hejra corresponding to 18 June 2023. Taking their cue from the codes of other Arab states as well as European and North American laws, these new Regulations are primarily a codification of Islamic law rules with guidance from internationally accepted principles on which Islamic law is silent or unclear. Therefore, they are not a radical departure from Saudi law, but rather have consolidated and clarified existing rules, with some changes where this is possible without conflicting with Islamic law. For example, Article 385 of the Civil Transactions Regulation confirms the clear Islamic law rule that agreements to charge or pay interest are void, while Article 137 permits awarding damages for loss of anticipated income, which was traditionally opposed by the Saudi judiciary without being based on a clear Islamic law prohibition.

An obvious advantage of the new Regulations is that one no longer has to ascertain legal principles with reference to four- to eight-hundred-year-old texts, the language of which requires a specialist education to understand - the equivalent of reading Blackstone’s commentaries in their original language. Furthermore, the authoritative Islamic law texts do not always offer clear solutions to a given issue, for example by stating that there are differing views. This uncertainty has been eliminated by the Civil Transactions Regulation, which sets out clear rules.

Saudi Arabia has courts that are administered by the Ministry of Justice and specialised tribunals. The General Courts (also known as the Sharia Courts), the Commercial Courts and the Labour Courts are under the administration of the Ministry of Justice.

Among the other specialised tribunals (whose names mostly explain their scope of jurisdiction) are:

  • the Administrative Court, also known as the Board of Grievances, which has exclusive jurisdiction over disputes to which the government or government agencies are party;
  • the Committee for the Resolution of Securities Disputes, which deals with disputes falling within the ambit of the Capital Markets Regulation and its Implementing Rules;
  • the Committee for Banking Disputes; and
  • the Committee for the Settlement of Insurance Disputes.

Recent Amendments to the Law

The past ten years have seen considerable change to the administration of justice in Saudi Arabia, which was initiated under the Judiciary Regulation, Royal Decree No M/78 of 19 Ramadan 1428 Hejra, corresponding to 1 October 2007. The Board of Grievances used to have jurisdiction in commercial disputes, which was transferred to the newly formed Commercial Courts in October 2017, at the same time widening the definition of commercial disputes to include intellectual property disputes. Labour disputes used to be administered by the Ministry of Labour’s Commission for the Settlement of Labour Disputes, whose jurisdiction was transferred to new Labour Courts in October 2018.

The enforcement of judgments has been reformed, as was arbitration. The procedures of the Commercial Courts were overhauled by the Commercial Courts Regulation, Royal Decree No M/93 of 15 Sha’ban 1441 Hejra, corresponding to 8 April 2020, which entered into force on 16 June 2020. Rules of evidence were consolidated with the Evidence Regulation, Royal Decree No M/43 of 26 Jumada Awwal 1443 Hejra, corresponding to 30 December 2021, which entered into force on 6 July 2022.

A major recent change of law is the creation of the Administrative Enforcement Court under the Board of Grievances Enforcement Regulation, Royal Decree No. M/15 of 27 Muharram 1443 Hejra, corresponding to 4 September 2021. The court became operational on 20 August 2023 and has the power to enforce judgments and arbitration awards against or in favour of government agencies. If a government agency confirms that it has taken all necessary steps to satisfy an execution order issued by the court and that non-payment is attributable to the Ministry of Finance, an execution order must be issued against the Ministry of Finance. The Regulation gives the Administrative Enforcement Court the power to imprison for up to seven years and/or fine public servants who frustrate or delay enforcement of judgments.

Since early 2020, most filings and proceedings before Saudi Arabian courts and tribunals take place online. Physical hearings before the courts are open to the public, while proceedings before statutory tribunals tend to be on camera. Under the Commercial Courts Regulation 2020, public access to the particulars of a commercial case and the documents filed in it is possible upon payment of a fee, but a party with an interest may apply for an order that proceedings, or parts thereof, are kept confidential.

Non-Saudis do not have rights of audience before Saudi Arabian courts unless they appear as litigants in person. Until recently, there was no formal requirement that litigants must be represented by licensed lawyers. Under the Commercial Courts Regulation, litigants before the court must be represented by lawyers, other than in small claims, and applications for the appointment of custodians, trustees, liquidators, experts and suchlike persons, but a non-lawyer may not represent more than three parties at any given time.

It is open to lawyers and their clients to agree to the type of remuneration that suits both parties. Lump-sum fees, retainers, contingency fees and hourly charges are common. There are no restrictions on a third-party funding of lawyers’ fees and other costs in legal proceedings.

There are no restrictions on the types of lawsuits in which a third party may fund a party’s costs.

Third-party funding is available to the plaintiff and the defendant.

There is no minimum or maximum limit for third-party funding.

The costs considered are a commercial issue.

Contingency fees are permitted. There is no legislation that addresses this issue.

There are no time limits by when a party to the litigation should obtain third-party funding.

In commercial cases, the claimant must ordinarily give 15 days’ notice before action to the defendant, without proof of which the claim cannot be filed online.

Civil Suits Under an Islamic Jurisdiction

The concept of the time barring of substantive rights is alien to Islamic law. In practical terms, however, a similar result is reached by a doctrine broadly equivalent to estoppel by conduct. Thus, where a claimant has delayed bringing action for such length of time and in such circumstances as to indicate an implied waiver of the claim, the law will hold them to their implied waiver and bar their remedy. No precise set of rules exists as to when this doctrine may be invoked.

Each case will turn on its own facts and the court’s assessment of whether, in the circumstances, the lack of action - or of any positive act or indication - amounts to a waiver. Generally speaking, where the defendant relies on no more than pure inaction, the number of years would have to be in double digits.

Time bars are recognised under Saudi Arabian statute law, but only as procedural devices and not as substantive time bars. Moreover, these time bars are specific rather than general. Time is calculated with reference to the Hejra calendar. Examples include the following:

  • under the Commercial Courts Regulation 2020, claims in commercial cases under the court’s jurisdiction are time barred after five years from when the cause of action accrued;
  • under the Labour Regulation, Royal Decree No M/51 of 23 Sha’ban 1426 Hejra, corresponding to 27 September 2005, employment disputes must be initiated within not more than 12 months from the date on which the employment relationship ended;
  • under the Negotiable Instruments Regulation, Royal Decree No 37 of 11 Shawwal 1383 Hejra, corresponding to 22 February 1964, claims under dishonoured cheques must be initiated within six months from the expiry of the period for presentation;
  • under the Civil Procedure Rules of the Board of Grievances, claims for judicial review of administrative action must be initiated before the Board of Grievances within 60 days from the concerned governmental department’s ruling;
  • under the Procedure Rules of the Committees for Adjudication of Insurance-related Disputes and Violations, Council of Ministers Resolution No 190 of 9 Jumada Awwal 1435 Hejra, corresponding to 10 March 2014, actions on insurance disputes may not be heard after the expiration of five Hejra years from the date of entitlement to the amounts the subject matter of the claim;
  • the Capital Market Regulation, Royal Decree No M/30 of 2 Jumada Thani 1424 Hejra, corresponding to 31 July 2003, imposes a five-year time bar on certain claims before the Committee for the Resolution of Securities Disputes;
  • most claims under the Commercial Maritime Regulation, Royal Decree No M/33 of 5 Rabi Thani 1440 Hejra, corresponding to 12 December 2018, become time barred after two years, including claims arising out of carriage of goods by sea, charterparties, salvage, collisions, personal injury and marine insurance.

The Civil Transactions Regulation has introduced the following new time bars.

  • Voidable contracts due to lack of capacity or duress: one year from attaining capacity or end of duress.
  • Voidable contracts due to mistake, fraud or undue influence: one year from knowledge of reason for invalidity, or ten years from date of contract.
  • Void contracts, such as due to illegality: ten years from date of contract.
  • Tort claims: three years from date of knowledge of event, or ten years from date of event.
  • Unjust enrichment or mistaken payment: three years from knowledge of right, or ten years from event.
  • Unenforceability of disposition: one year from knowledge of right, or ten years from date of disposition. 
  • Periodically renewing rights, such as rent on land, wages and regular salaries and the like, with the exception of cases where the right is a yield owed by the person in possession acting in bad faith, or a yield that the overseer of a waqf is obliged to pay over to the beneficiary: ten years.
  • Claims by members of liberal professions such as doctors, lawyers or engineers: five years from provision of service, or ten years from date of document setting out the right.
  • Merchants’ rights in connection with goods and services to people who do not trade therein: one year from provision of goods or service, or ten years from date of document setting out the rights.
  • Rights of hospitality providers such as hotels or restaurants: one year from provision of service, or ten years from date of document setting out the rights.
  • Rights of service providers for services or goods: one year from provision of service, or ten years from date of document setting out the rights.
  • Usufruct rights and easements: ten years from last use.

The Saudi Arabian courts have jurisdiction over Saudi Arabian citizens even if they are not resident in Saudi Arabia. The Saudi Arabian courts have jurisdiction over non-Saudis who are resident in Saudi Arabia.

The Saudi Arabian courts have jurisdiction over non-resident foreigners in the following circumstances:

  • if the dispute concerns assets in Saudi Arabia or obligations that were initiated or executed in Saudi Arabia;
  • if the dispute involves a bankruptcy declared in Saudi Arabia; and
  • if the dispute is filed against several co-defendants and one of them is subject to the court’s jurisdiction.

In addition to the above, the Saudi Arabian courts have jurisdiction over non-resident Muslim foreigners in certain family law and inheritance contexts.

From 2020, all actions must be initiated by filing, online, a brief statement of claim, together with the key documents on which the claimant relies. More detailed submissions can be filed in due course, and in the course of proceedings both parties can change their arguments to a certain extent.

Service of process on resident individuals and corporations is carried out electronically by the court. Service outside the jurisdiction must be effected through diplomatic channels.

If a defendant fails to appear after having been duly summoned, the claimant can make an application to have the defendant brought before the court by the police. If it is not possible to bring the defendant before the court, a default judgment will be entered.

Class actions were first introduced in 2017 before the Committee for the Resolution of Securities Disputes. The Commercial Courts Regulation 2020 has introduced class actions in commercial disputes. A class action before the Commercial Court requires not less than ten claimants with the same claim and cause, and against the same defendant. The claimants must be represented by the same advocate and the claims must be consolidated into a single statement of claim.

It is possible to consolidate claims with an ongoing class action. Before a class action proceeds to trial, a settlement offer must be made to, and considered by, the claimants.

There are no requirements to provide clients with a cost estimate prior to litigation. It is common to conduct litigation on a contingency fee or fixed fee basis.

Saudi Arabian legal actions proceed in a series of short hearings and one can make applications at any stage of the proceedings.

Applications to dismiss a case on the basis of an agreement to arbitrate or to submit disputes to the courts of another jurisdiction must be lodged before a substantive defence is lodged. Once a substantive defence is lodged, the defendant is deemed to have acquiesced to the court’s jurisdiction, although it is still open to the court to dismiss the case on jurisdictional grounds on its own motion. There are no mechanisms for summary judgment.

It is common for defendants to contest proceedings on the basis that the Saudi Arabian courts do not have geographic jurisdiction over a given dispute, or that the dispute should come before a different Saudi Arabian court or judicial tribunal.

A party with an interest in the subject matter of a dispute may file a petition or make an oral request to the court to join as claimant or defendant. Judges also have the discretion to join an interested party to proceedings without the party having made an application to join.

There is no security for costs in Saudi Arabian legal proceedings.

To the extent that costs are awarded, this takes place upon final judgment.

There are no fixed time limits for rulings on ordinary motions. Expedited applications may be made for:

  • a survey for proof of status;
  • prohibition on travel;
  • a stay of new works;
  • judicial custodianship;
  • preservatory attachment;
  • obtaining a product sample;
  • preservation of specific documents;
  • prohibition on disposal or permitting the same; and
  • applications having the status of urgency in commercial regulations.

Before the Commercial Courts, rulings on expedited applications must be made within three days from the date of referral.

There is no general discovery of documents in Saudi Arabian legal proceedings. As a general rule, the claimant must substantiate their case on the basis of the documents that are in their possession and the defendant must defend the case on the basis of the documents that are in their possession.

Under the Evidence Regulation 2021, a party may request disclosure documents of a document if the other party has relied on it in the proceedings, or if it is a “joint document”, such as documents that are in favour of both parties or are evidence of their mutual rights and obligations. In commercial cases, a party has a wider right to request their opponent to disclose a document that has a connection with the action. Such documents must be particularised by specific identity or by type; they must have a connection with the commercial transaction, or result in a fact therein being brought to light; and they must not be of a confidential character. A plea of confidentiality must be supported by reasons why the documents are confidential. Failure to disclose documents as ordered by the court may be treated as circumstantial evidence by the court.

Under the Evidence Regulation 2021, a party can apply for an order to:

  • join another party in order to compel them to present a document in their possession that is related to the action; or
  • order any governmental authority to present any information or documents in its possession relating to the action, without prejudice to the relevant regulations.

Mandatory disclosure of documents is a new development. To get an order for disclosure:

  • the documents must be particularised by specific identity or by type;
  • the documents must have a connection with the commercial transaction, or result in a fact therein being brought to light; and
  • they must not be of a confidential character.

A claimant must prove their claim on the basis of the documents in their possession and a defendant must defend the claim on the basis of the documents in their possession. A litigant or the court may ask a party to affirm or deny the claim on oath, which is a solemn procedure and used to be rarely invoked but has become more common in recent years. If a claim is denied on oath, or the claimant fails to confirm their case on oath, the case is dismissed, with only limited grounds for appeal.

The Legal Profession Regulation, Royal Decree No M/38 dated 28 Rajab 1422 Hejra, corresponding to 14 October 2001, provides that lawyers must treat information received from clients as confidential. Other than before the Commercial Courts, there are no rules that grant legal privilege to attorney-client communications. Under the Evidence Regulation 2021, a party in a commercial action may oppose an application for disclosure on the basis of confidentiality. In principle, it is possible that this may be extended to lawyer-client communications if these are appropriately marked.

The Evidence Regulation 2021 provides that an order for disclosure may not be made if the document is confidential under general rules of law or by an agreement between the parties. The Evidence Regulation 2021 further provides that access to the document in question must not violate any right of commercial secrecy or any other rights connected therewith. Since these provisions are new, no judgments giving guidance on their interpretation have been published at the time of writing.

It used to be difficult, but not impossible, to obtain injunctive relief through the Saudi Arabian courts. In recent years it has become easier to obtain orders for injunctions and specific performance. The Civil Transactions Regulation has a chapter setting out rules governing specific performance. Orders for injunctive relief may freeze assets or ban a defendant from travelling. 

Injunctive relief can be granted at a single hearing. Before the Commercial Courts, such hearings must take place within three days from the referral. Under the Commercial Courts Regulation 2020, the court may rule on an expedited application outside working hours or on holidays.

Injunctive relief can be obtained on an ex parte basis.

An application for an asset freeze or travel ban requires the submission of countersecurity and the claimant can be held liable in respect of the defendant’s losses if the claim fails.

Saudi Arabian courts do not exercise extraterritorial jurisdiction.

Injunctive relief cannot be obtained against third parties.

There are no formal mechanisms against a defendant who fails to comply with an injunction. It is in the judge’s discretion to have the defendant arrested.

Proceedings before all Saudi Arabian courts and judicial tribunals are broadly similar to proceedings in civil law jurisdictions. Litigation takes place in a series of short hearings, which can last between 15 minutes and one-and-a-half hours. Since May 2020, most hearings are conducted on electronic platforms.

Once the action is formally instituted, the parties are summoned to a hearing, usually within a few weeks of the filing of the complaint. At this and subsequent hearings the parties file written submissions, oral argument is heard and evidence is produced. The parties’ arguments unfold step by step. It is open to the parties to change their respective arguments at any stage of the proceedings.

In between hearings there are normally intervals of several weeks, depending on the concerned court’s caseload. There is no limit on how many submissions may be filed in the course of proceedings. It is common for both parties to exhaust their respective arguments before their submissions are closed.

There are no case management hearings or similar proceedings in Saudi Arabia.

There are no jury trials in Saudi Arabia.

Most commercial cases proceed on documentary evidence alone. A party or its employees or agents are not treated as witnesses and their statements have no evidential value. Witnesses must be independent and the general standard of proof is the evidence of two male Muslims of good character, or one male and two females. 

One important feature of Saudi Arabian law of evidence concerns the taking of an oath. If the claimant has failed to prove their case conclusively through witnesses or documentary evidence, they may challenge the defendant to deny their liability on oath. If the defendant accepts the challenge and denies the claim on oath, the case is closed with only limited means of appeal. The defendant also has the option to refuse to take the oath and instead request the claimant to confirm their claim. Should the claimant refuse, the case is dismissed. In situations where the claimant has produced evidence which is inconclusive, the court may ask them to swear a supplementary oath to confirm their rights. If the claimant takes the oath, judgment must be entered in their favour. Because of the extreme religious significance attached to demanding and taking an oath, the right to challenge a party was not frequently invoked in the past, but, in recent years, challenges to take an oath have become more common. In the past, a company’s chairman could be compelled to take the oath on behalf of the company. Since 2020 a request to take an oath may not be directed at a body corporate.

The parties to Saudi Arabian legal proceedings are free to introduce expert evidence into the proceedings. Where technical or complex financial issues are raised, it is common for the judges to appoint an expert or experts as

advisers to the tribunal. It is within the tribunal’s discretion whom it appoints as an expert and to accept or disregard all or part of the expert’s findings, but, ordinarily, the determination of technical or complex financial issues falls to the expert. The Evidence Regulation sets out detailed rules governing expert evidence.

See 1.3 Court Filings and Proceedings.

Saudi Arabian proceedings are inquisitorial in nature and the judge has full conduct of the proceedings, including the questioning of witnesses. A judge may raise issues that neither party has raised. A judge can issue a judgment whenever they are satisfied that both parties have presented their case fully. This is usually done in the course of a hearing and a written judgment is issued a few weeks later.

Prior to the COVID-19 crisis and the move to electronic proceedings, legal proceedings typically took from 18 to 30 months to reach a final judgment. This has not changed with the introduction of electronic litigation, which proceeds at the same pace as physical hearings used to take.

It is open to the parties to settle a dispute at any time without the court’s approval, but court proceedings will only be formally discontinued if the claimant withdraws their complaint or the settlement is recorded before the court.

Given that court proceedings before courts and tribunals other than the Commercial Court are treated as confidential, settlements of lawsuits before them also remain confidential. A settlement that is recorded in the records of the Commercial Courts is not confidential, unless one or both parties can persuade the court to treat this information as confidential.

A settlement agreement made in the course of legal proceedings has the effect of a judgment. If a settlement agreement is notarised or formally sealed, it can be enforced like a judgment.

If a settlement agreement is obtained fraudulently or without authority, it can be set aside by the court.

The Civil Transactions Regulation has introduced major changes to the remedies that are available in Saudi Arabian legal proceedings. Article 136 of the Regulation provides that compensation shall be such as makes good the harm in full, by restoration of the injured party to the position they were in, or could have been in, but for the occurrence of the harm. Article 137 provides that one can claim for lost earnings, which opens the door to loss of profit claims. Under Article 138 compensation for moral damage may be claimed, which includes sensory or mental suffering, consequent upon prejudice to the claimant’s body or liberty or dignity or reputation or social standing. Breaches of obligations may result in orders for specific performances or monetary compensation if specific performances are not possible.

In cases of death or accidental personal injury, the responsible party is liable to pay blood money (Arabic: “diyah” in case of death, and “arsh” in personal injury cases) as compensation to the victim or the victim’s heirs. The amount of blood money payable for accidental death was fixed early in the history of Islam at 100 camels, with personal injuries liability pro-rated with reference to this ceiling. From time to time, and location to location, the value of 100 camels has been expressed in a monetary equivalent. The current standard applicable in Saudi Arabia was laid down by Royal Order No 43108 of 3 Shawwal 1432 Hejra, corresponding to 1 September 2011, at SAR300,000. 

Punitive damages are not awarded by Saudi Arabian courts. It remains to be seen to what extent the courts will award damages for lost profits, which has become possible under the Civil Transactions Regulation. 

The Saudi Arabian courts do not award interest in any form.

Pursuant to the Enforcement Regulation, Royal Decree No M/53 of 13 Sha’ban 1433 Hejra, corresponding to 14 July 2012, applications for the enforcement of judgments are lodged with enforcement judges, who have wide-ranging powers, including summoning a judgment debtor’s bankers and accountants. If a defendant fails to satisfy a judgment, their access to government services may be cancelled and their bank accounts are likely to be frozen. Travel bans are not uncommon and in extreme cases an uncooperative judgment debtor may be imprisoned. 

The Enforcement Regulation excludes property owned by the State, which extends to shares in corporations. This has been rectified by the Board of Grievances Enforcement Regulation, Royal Decree No. M/15 of 27 Muharram 1443 Hejra corresponding to 4 September 2021, which has established the Administrative Enforcement Court. The court became operational on 20 August 2023 and has the power to enforce judgments and arbitration awards against or in favour of government agencies and state-owned property. If a government agency confirms that it has taken all necessary steps to satisfy an execution order issued by the court and that non-payment is attributable to the Ministry of Finance, an execution order must be issued against the Ministry of Finance. The Regulation gives the Administrative Enforcement Court the power to imprison for up to seven years and/or fine public servants who frustrate or delay enforcement of judgments.

The only international treaties on the reciprocal enforcement of judgments to which Saudi Arabia is a party are the Arab League Treaty on the Enforcement of Judgments signed at Riyadh on 16 April 1983, which superseded the Arab League Treaty on the Enforcement of Judgments dated 14 September 1952, and the Arab Gulf Cooperation Council Convention on the Enforcement of Judgments of 6 December 1995. However, a foreign judgment can be enforced in Saudi Arabia if the applicant can demonstrate that the country where the judgment was issued will give reciprocal treatment to Saudi Arabian judgments.

Until 14 February 2013 the Board of Grievances, being the tribunal having general jurisdiction over most categories of commercial and administrative disputes, had exclusive jurisdiction to hear applications for the execution of foreign judgments and arbitration awards. Since the enactment of the 2012 Enforcement Regulation, applications for the enforcement of foreign judgments must be submitted to enforcement judges.

In a judgment issued in 1992, the Board of Grievances ruled that a judgment of the English High Court of Justice was not enforceable on the basis of reciprocity in Saudi Arabia. The Board of Grievances ruled that the only judgments that are enforceable in Saudi Arabia on the basis of reciprocity are judgments of countries who are party to a treaty or convention for the reciprocal enforcement of judgments to which Saudi Arabia is also a party, or whose authorities would give executive force to judgments of the courts of Saudi Arabia without the requirement of instituting an action on the judgment. Similarly, a judgment of the Board of Grievances issued in 2007 that a judgment of the US District Court for the District of Columbia in the USA was enforceable in Saudi Arabia was overturned on appeal. In 2019 the Enforcement Court in Al Khobar refused to recognise an English High Court judgment, which refusal was confirmed by the Court of Appeal.

Appeals from the General Courts, the Labour Court and the Commercial Court are heard by the Court of Appeal. A decision of the Court of Appeal can be appealed before the Supreme Court on the basis that it contravenes Islamic Law or Saudi Arabian regulations, that the court passing judgment was not properly constituted or did not have jurisdiction, or that the court did not properly characterise the facts.

The Administrative Court, the Committee for Banking Disputes, the Committee for the Resolution of Securities Disputes and the Committee for the Settlement of Insurance Disputes and Violations of the Saudi Arabian Monetary Agency each has its own appellate tribunal, but the appeals process in these appellate tribunals is broadly similar.

All first-instance judgments and interim decisions of Saudi Arabian courts and tribunals, other than small claims with a value below USD13,350, can be appealed. A final and enforceable judgment of the Court of Appeal can be appealed to the Supreme Court, on the basis of errors of law, mischaracterisation or misdescription of facts, lack of jurisdiction and res judicata, but this does not apply to banking disputes, insurance disputes and securities disputes. An appeal to the Supreme Court does not result in a stay of enforcement. Lastly, it is possible to object to a final and enforceable judgment by way of review on the basis of narrow grounds such as fraud or forgery, lack of representation, and the like.

The rules of all courts and tribunals require the application for an appeal from a judgment to be filed within 30 days from receipt of the written judgment. Appeals against expedited judgments or orders must be filed within ten days from receipt of the judgment or order. Appeals are very common, and in most cases the appellate tribunal reviews the appeal application, the judgment and case file without further argument from the parties, and issues a decision making the judgment final and enforceable.

Where the appellate tribunal considers that the application has merit, it may refer the case back to the court or tribunal of first instance, with a request to adduce additional evidence or reconsider the facts in light of directions given by the appellate tribunal. In such situations, the court or tribunal of first instance usually invites further argument from the parties and issues a new judgment. There have been several instances of proceedings where the process was repeated three times before a final and enforceable judgment was issued. The appellate tribunal can also take over the handling of the case and make its own ruling.

The Court of Appeal can consider both issues of law and issues of fact, but will ordinarily remit the case to the court at first instance where further facts must be ascertained.

There are no rules that provide for the Court of Appeal to impose any conditions on granting an appeal.

Judgments which have been appealed are not final and enforceable until the Court of Appeal has confirmed the first instance judgment.

Until 2022 there were no charges for using the courts. This was changed with the Court Fees Regulation, Royal Decree No M/16 of 30 Muharram 1443 Hejra, corresponding to 7 September 2021, which entered into force on 16 March 2022. Court fees are calculated on a sliding scale, as follows:

  • 5% for claims up to USD26,667;
  • 4% for claims up to USD133,333;
  • 3% for claims up USD266,667; and
  • 2% for claims above USD266,666, with an upper limit for the fees of USD266,666. Accordingly, once the claim value has reached USD13,333,333, the court fees stay at USD266,666, no matter how big the claim amount is.

It is within the court’s discretion to award legal costs to a successful litigant. In the past this discretion was rarely exercised and, when it was, the sums

were modest and well below the cost of engaging a commercial law firm. More recently, the Commercial Court has been more willing to award costs to successful claimants.

Given that the awarding of costs is discretionary, there are no clear parameters that dictate how awards of costs are calculated.

Saudi Arabian courts do not award interest.

Islamic law prescribes that settlement is preferable to litigation and the courts are under a duty to exhort the parties to seek mediation or conciliation, if possible. The Saudi Centre for Commercial Arbitration offers alternative dispute resolution (ADR) facilities.

Under the Implementing Rules of the Commercial Courts Regulation 2020, conciliation and mediation is mandatory in:

  • disputes among partners in a mudaraba company;
  • disputes between merchants or claims against merchants under commercial contracts with a claim value below SAR1 million (USD266,000);
  • commercial disputes between spouses or close relatives; and
  • where the contract provides that disputes must be mediated.

In family disputes and labour disputes, the court will first refer the parties to official mediation before the case is heard by the court.

ADR in family and labour disputes, and before the Saudi Centre for Commercial Arbitration, is well established.

Saudi Arabian Courts and Changes in Law

The law governing arbitrations in Saudi Arabia underwent radical change with the enactment of the new Arbitration Regulation, Royal Decree No M/34 of 25 Jumada Awwal 1433 Hejra, corresponding to 16 April 2012. Under the old legislation, arbitrations had to be conducted under close supervision of the competent court or judicial tribunal. In particular, once an award was issued, either party had an automatic right to raise objections on substantive and procedural grounds to the competent court. Such objections were common, with the courts often hearing all or part of the case anew and substituting their own ruling for that of the arbitrators, so that most commercial arbitrations in Saudi Arabia just added a further layer to the dispute resolution process.

The Appointment of non-Muslim arbitrators

The new legislation is based on the UNCITRAL model and removes much of the courts' control. Furthermore, it is now possible to conduct arbitrations in Saudi Arabia in a language other than Arabic and to appoint non-Muslim arbitrators. In commercial disputes the parties are free to agree to the procedures of an international arbitration body, such as the Chartered Institute of Arbitrators or the ICC, or to the procedural rules of another country, or to determine their own procedural rules. Failing such an express choice, the procedural rules applicable under Saudi Arabian law govern the arbitration.

New procedures

Under the new Regulation, no involvement of the courts is necessary in principle until the award is deposited with the competent court by the arbitral tribunal. Prior to that stage, the involvement of the courts will only be necessary if invoked by a party or the arbitrators; for example:

  • because the parties fail to agree on a sole arbitrator;
  • the respondent fails to appoint its arbitrator within 15 days of having been notified of the claimant's appointment;
  • there is an application for recusal of one or more arbitrators;
  • the parties or the arbitrators apply for provisional measures;
  • no agreement is reached with an arbitrator over their fees; or
  • the arbitrators are unable to reach a decision.

Disputes relating to personal status may not be submitted to arbitration. In general, cases involving the government or government agencies may not be submitted to arbitration without a Royal Order. However, under the Government Tenders and Procurement Regulation, Royal Decree No M/128 of 13 Dhul Qada 1440 Hejra, corresponding to 16 July 2019, disputes under government procurement contracts may be submitted to arbitration with the permission of the Minister of Finance, provided that this takes place before the Saudi Centre for Commercial Arbitration.

Article 49 of the Arbitration Regulation provides that arbitral awards that are made in accordance with its rules may not be appealed in any form. However, under Article 50 an application for nullity of an award may be lodged with the competent court; for example, because of procedural defects. Furthermore, Article 50(1)(d) provides that an award may be declared null if there is a failure to "apply any of the rules of law that the parties to the arbitration had agreed should be applied to the subject matter of the dispute"; and Article 50(2) provides that the competent court shall rule of its own motion that an award is void if "it contains material contrary to the provisions of Islamic Law and public order in the Kingdom".

This, obviously, leaves the door open to re-hearings of the dispute, whether the award was rendered in Saudi Arabia or abroad. Nevertheless, unless the parties have agreed otherwise, a ruling of nullity by the competent court does not invalidate the agreement to arbitrate. Therefore, in most cases, a ruling of nullity should result in a new arbitration or a rectification of the award by the original arbitral tribunal.

Applications for the enforcement of arbitration awards must be lodged with an enforcement judge.

Pursuant to Royal Decree No M/11 of 16 Rajab 1414 Hejra, corresponding to 29 December 1993, Saudi Arabia ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention), with effect from 18 July 1994, albeit subject to an express

public policy reservation, which is commonly understood to mean that no part of an award that conflicts with Islamic law is enforceable in Saudi Arabia.

Under Article 9(6) of the Enforcement Regulation, applications for the execution of foreign arbitration awards must be lodged with an execution judge. Article 11 of the Execution Regulation and its Implementing Regulations sets out the rules for the enforcement of foreign judgments and arbitration awards, which include the following:

  • the award must be final and unappealable;
  • there must not have been any action pending before a Saudi Arabian court in respect of the same issues;
  • the defendant was summoned to attend, was properly represented and was put in a position to defend themselves; and
  • the award does not conflict with Islamic law.

Dispute resolution in Saudi Arabia has already undergone fundamental changes starting with the reform of the courts system that was begun in 2007, and the Arbitration Regulation and Enforcement Regulation of 2012. More recently, in the past five years, court proceedings (and government services generally) have gradually been moved to digital platforms. Comprehensive new laws covering civil transactions and evidence are in preparation and are expected to be enacted in the near future.

Derayah LLPC

Office Number 113
First Floor
Saudi Business Centre
Madina Road, Al Baghdadiyah
Jeddah 21442
Saudi Arabi

+966 12 650 4475

+966 12 657 2007

secretariat@saudilegal.com www.saudilegal.com
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Dr Saud Al-Ammari Law Firm has the expertise of a full-service business law firm that serves a diverse national and international client base from offices in Al-Khobar and Riyadh in the Kingdom of Saudi Arabia, as well as Manama in the Kingdom of Bahrain. The firm has capabilities in most areas of business law, in addition to deep industry sector specialisation in ADR and local litigation, as well as foreign investment and representing sovereign clients. Its team of 12 lawyers, together with a number of experienced of counsel and legal researchers, is comprised of both local bilingual Arabic-speaking lawyers and expatriate lawyers resident in the Kingdom. Most of the firm’s lawyers are qualified and trained in the US or UK and in the Kingdom of Saudi Arabia. Its areas of expertise include litigation before Shari’ah courts, local and international arbitration, sovereign immunity, corporate mandates, insolvency, competition and antitrust.

A Quantum Leap in the Saudi Legal System: The New Civil Transactions Law

Introduction

The new Civil Transactions Law (the “Civil Law”) (Royal Decree No M/191, dated 19 June 2023) will take effect in the Kingdom of Saudi Arabia (the “Kingdom”) as of 19 December 2023. This ground-breaking piece of legislation is a key building block in the implementation of the country’s Vision 2030, which was launched by HRH The Crown Prince in April 2016. The Civil Law will upgrade the Kingdom’s legislative system and will introduce a set of modernised laws and regulations that cover practically all aspects of life.

This development marks a milestone as the first codification of civil law in the Kingdom. Previously, civil law matters in Saudi Arabia were governed by Shari’ah-based guidelines and principles. The new law focuses on contractual and property rights, tort and other commercial and personal injury matters.  It will stabilise transactions, reduce the causes of contract invalidation and termination, and expand contractual freedom. In addition, it will speed up the process of resolving disputes and reduce variation in judicial rulings. The Civil Law will thus provide both domestic and foreign investors with a clear and modern legal framework for conducting business in the Kingdom.

Before the enactment of the Civil Law, the Basic Law of Governance, promulgated by Royal Decree A/90 dated 2 March 1992 as amended)(the “Basic Law”) provided for all the aspects of the law in the Kingdom. The Basic Law provides that Shari’ah law governs the legal sphere in the Kingdom as per the teaching of the Quran and Sunnah (prophetic teachings of the Prophet Mohammed PBUH). The interpretation of Shari’ah law in Saudi Arabia was, in turn, subject to four schools of Islamic jurisprudence, of which the Hanbali school is the most dominant in the Kingdom.

The Civil Law’s key features include the following

  • Contract Formation and Validity – The Civil Law establishes clear guidelines for contract formation and validity, which emphasises mutual consent, defined terms and clear intention. It includes provisions for electronic contracts.
  • Performance of Contracts – The Civil Law addresses the performance of contracts, including good faith and fair dealing, contractual obligations, responsibilities and consequences of non-performance or breach. It also defines remedies for breach of contract.
  • Consumer Protection – The Civil Law provides for consumer protection, introducing provisions for product liability, warranties, unfair trade practices, and dispute resolution mechanisms to safeguard consumer rights.
  • Property Rights – The Civil Law includes provisions relating to property rights, ownership, real estate transactions and lease agreements. It outlines procedures for registration, transfers and mortgages. This will create a stable legal framework for property transactions to encourage investment in that area.
  • Dispute Resolution – The Civil Law encourages alternative dispute resolution, including mediation and arbitration, to efficiently and amicably resolve civil disputes. It promotes a more expedited and cost-effective dispute resolution process.

The new Civil Law’s primary benefits to consumers and businesses include the following

  • Legal Certainty – The Civil Law enhances legal certainty by providing clearer guidelines and regulations for commercial transactions.
  • Enhanced Consumer Protection – Consumer protection provisions strengthen rights and safeguards for consumers, ensuring fair treatment and quality products and services.
  • Facilitated Business Transactions – The Civil Law streamlines processes and updates regulations to facilitate more efficient business transactions, which will encourage investment and economic growth.
  • Modernisation and Alignment – The Civil Law reflects Saudi Arabia’s commitment to aligning its legal system with international standards and to promote a more business-friendly environment. It will reflect the new face of the Saudi judiciary.

By establishing a comprehensive framework consisting of 721 articles, the Civil Law is intended to instil confidence in businesses and entrepreneurs, especially foreign investors, and to encourage long-term partnerships and ventures. Overall, the new Civil Transactions Law will ease entrance to the Kingdom’s business environment for foreign investors and businesses, providing them with a solid legal foundation to thrive and succeed in the country’s dynamic and growing economy.

Prominent features of the Civil Law

Mandatory provisions

An important element to bear in mind relating to the new Civil Law is the existence of mandatory provisions which cannot be contracted out of by the parties. An example of this is the principle of good faith. The principle of good faith is set out in the new Civil Law and states, “The contract must be executed in accordance with its provisions, and in a manner consistent with the requirements of good faith” (Article 95(1)).

Mandatory provisions are intended to protect the interests of parties and maintain fairness. Violating mandatory provisions could lead to the invalidation of a provision in private contracts and business deadlines. It should be noted that the new Civil Law should be read as supplementing, rather than replacing, the parties’ contractual provisions.

Good faith obligations

Under the new Civil Law, parties will be expected to act honestly, reasonably and with integrity when fulfilling their contractual obligations. Not only that, but they may also not act in bad faith. The Law states that entering into negotiations with no intention of reaching an agreement is an act that will constitute bad faith. The principle of good faith is a mandatory provision intended to protect the interests and maintain fairness among contracting parties and cannot be circumvented through side agreements. In such situations, a court of law is likely to invalidate a provision in a contract if it deems that a party violated such a mandatory provision.

Although the article obligating the parties to negotiate in good faith is new, the principle is not. The principle of good faith is well rooted in Shari’ah law and was implied in all contracts originating from the Shari’ah maxim that “there shall be neither harming nor reciprocation of harm”. Several civil law jurisdictions require contracting parties to perform their contractual obligations in good faith. Certain jurisdictions, however, such as Saudi Arabia, have gone further and have imposed a pre-contractual duty to negotiate in good faith. Specifically, the Civil Law provides that, “Contract negotiations may not oblige the contracting parties to conclude the contract. The defaulting party, under bad faith, shall compensate the other party against any loss incurred, excluding the expected profit of the contract” (Article 41).

In spite of the fact that courts in the past did not factor in good faith when resolving disputes, the concept of good faith in Shari’ah law is so profound that the legislature included it in the new Civil Law to ensure it is well enshrined in Saudi jurisprudence.

Compensation

Historically, courts in the Kingdom have not awarded liquidated damages citing Shari'ah rules and principles on compensation, according to which only real and quantifiable losses can be compensated. This prevented claimants, such as foreign companies, from making successful claims even if the liquidated damages clause being disputed was reasonable and proportionate. The new law departs from this traditional principle.

A person now has the right to compensation including claimants who experience reputational loss or psychological trauma. Parties can also specify the liquidated damages in advance in their contracts. Courts may also step in to obtain compensation for the amount of the liquidated damages if the affected party was anticipating gains or profits that were almost certain when a person harmed another, causing the loss of realised profit.

The new Civil Law also provides for the right to compensation for moral damages. In this connection, the Civil law states the following: “Compensation for a wrongful act shall include compensation for moral damage… Moral damage shall include sensory or psychological damage caused to a natural person as a result of offending his body, freedom, honor, reputation or social standing” (Article 138). Moral damages will only be available to natural persons, excluding legal entities such as companies.

Retrospective effect

Another significant part of the new Civil Law is that it will have retrospective effect. Specifically, its provisions will apply, in most cases, to contracts entered into both prior to the date on which the new law takes effect, and those entered into afterwards.

It should be noted that there are two exceptions to the new Civil Law’s retrospective applicability, the Civil Law will not be applied retrospectively where: (i) a contracting party can prove that such application would contradict an existing statutory provision or judicial principle; or (ii) the limitation period in respect of a given right had begun to run before the Civil Law came into force. With respect to the first exception, the burden of proof is on the party contesting the retroactive application of a certain provision of the Civil Law to show it would contradict existing statutory provisions or judicial principles.

There are fears that this may adversely affect existing contracts. In response, proponents of the new law argue that it is better to have this retrospective effect as it will stabilise and organise business transactions and make clear the rights of individuals. On balance, this is more advantageous for the legal system in the Kingdom.

Severability

Article 84 of the Law provides for severability in contracts. If one provision of the contract is invalid or voidable, the other provisions remain intact by default. This is different to other jurisdictions such as the United States that requires a severability clause in contracts, without which the entire contract can be voided.

Interpretation of the Civil Law

Interpretation of Shari’ah principles may differ from one legal scholar to another because of the different schools of jurisprudence followed in Saudi Arabia. As a result, the application of the law used to vary from one case to another leading to a degree of uncertainty in the outcome of some business law and commercial transactions. However, with the codification of the key principles of Shari’ah in the Civil Law, the uncertainty in the law will be eliminated to a great extent resulting in more stability in civil transactions and consistency in case law precedent.

Overall, the Civil Law will have a positive impact on the country’s business environment. It will increase investment attractiveness in the Kingdom and contribute to economic growth and the stability of financial rights. Moreover, it will enhance transparency and reduce discrepancies in case law judgements and should contribute tobringing down the volume of disputes. In addition, the Law will ease the way for investors to enforce foreign judgements in the Kingdom now that Shari'ah rules are codified.

Conclusion

Shari’ah Law remains the ultimate authority in the Kingdom. If the new legislation does not cover a particular area of the law, Shari’ah principles apply. The 41 Shari’ah maxims included at the end of the Law will be resorted to for the resolution of any legal issue not addressed by the Civil Law.

The ultimate objective in Shari’ah law is to protect the private interests of the parties. Not only that, it also aims to protect the public interests, all within a comprehensive legal framework that provides fairness and justice to all.

Finally, it is worth noting that there have been some discussions in the Kingdom on a new Commercial Transactions Law to regulate specific types of commercial transactions. It remains to be seen how this will complement or supplement the new Civil Law.

Dr Saud Al-Ammari Law Firm

Al-Bustan, King Faisal Road
Majd Business Center, Tower A
3rd Floor, Suite 112
Al-Khobar 34422
Saudi Arabia

+966 54 835 5911

www.ammarilaw.co
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Derayah LLPC is an independent Saudi Arabian law firm with offices in Jeddah and Riyadh. The firm regularly acts for international clients in disputes before Saudi Arabian courts. As an independent firm, it is often instructed by other law firms, including firms with Saudi Arabian affiliates when their local offices are conflicted. It remains the first-choice Saudi counsel for many foreign companies and international law firms seeking advice on Saudi Arabian law. Recent clients include Saudi National Bank, Citicorp Trustee Company Limited and Golden Belt 1 Sukuk Company. The firm is currently involved in nine bankruptcy proceedings, including the Maan Al Sanea/Saad Trading liquidation involving claims in excess of USD8 billion

Trends and Development

Authors



Dr Saud Al-Ammari Law Firm has the expertise of a full-service business law firm that serves a diverse national and international client base from offices in Al-Khobar and Riyadh in the Kingdom of Saudi Arabia, as well as Manama in the Kingdom of Bahrain. The firm has capabilities in most areas of business law, in addition to deep industry sector specialisation in ADR and local litigation, as well as foreign investment and representing sovereign clients. Its team of 12 lawyers, together with a number of experienced of counsel and legal researchers, is comprised of both local bilingual Arabic-speaking lawyers and expatriate lawyers resident in the Kingdom. Most of the firm’s lawyers are qualified and trained in the US or UK and in the Kingdom of Saudi Arabia. Its areas of expertise include litigation before Shari’ah courts, local and international arbitration, sovereign immunity, corporate mandates, insolvency, competition and antitrust.

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