Resolving investment disputes in Saudi Arabia

Resolving investment disputes in Saudi Arabia

The updated Investment Law stipulates in Article Ten the permissibility of using alternative means to settle disputes arising as a result of investment. The first paragraph of the article states that an investor who is a party to any dispute – including disputes arising with the competent authority – may resort to the competent court, unless the parties to the dispute agree otherwise. The second paragraph states that investors may agree to settle their disputes through alternative means of dispute resolution, including arbitration, mediation, and conciliation.

Therefore, the Saudi regulator has given the investor the right to resort to the court competent to resolve the dispute or the right to agree to use other means such as arbitration, mediation and conciliation. During this article, the Abdulaziz bin Yasser Al-Anzi Law Firm for Advocacy and Legal Consultations will explain the methods of resolving investment disputes in Saudi Arabia.

 Abdulaziz bin Yasser Al-Anzi Law Firm

Resolving investment disputes through the courts

The first paragraph of Article Ten of the updated Investment Law states that an investor who is a party to any dispute - including disputes arising with the competent authority - may resort to the competent court unless the parties to the dispute agree otherwise.

The court with jurisdiction over disputes arising from investment contracts is the Commercial Court, as stipulated in Article (16) of the Commercial Courts Law of 1441 AH:

The court has jurisdiction to consider the following:

Disputes that arise between merchants due to their original or subsidiary business activities.

Lawsuits filed against a merchant in commercial contract disputes, provided the original claim exceeds one hundred thousand riyals, may be increased by the council as needed.

Disputes arising from partnership contracts as stipulated in the Civil Transactions Law

Claims and violations arising from the application of the provisions of the Companies Law.

Claims and violations arising from the application of the provisions of the Bankruptcy Law.

Claims and violations arising from the application of intellectual property regulations.

Claims and violations arising from the application of other commercial regulations.

Claims and requests relating to the judicial guardian, trustee, liquidator, appointed expert, and the like; whenever the dispute relates to a claim that falls under the jurisdiction of the court.

Claims for compensation for damages arising from a case previously adjudicated by the court.

If the parties do not choose the location of the competent court or if no specific provision is made in any Saudi law, then the court shall be chosen according to four cases stipulated in Article (17) of the system:

The territorial jurisdiction is that of the court within whose jurisdiction the defendant's place of residence is located.

If the defendant has no place of residence in the Kingdom, jurisdiction lies with the court within whose jurisdiction the plaintiff's place of residence is located.

The lawsuit may be filed in the court within whose jurisdiction the contract was concluded, executed, or was to be executed.

In lawsuits concerning companies, the court with territorial jurisdiction lies within whose jurisdiction the company's head office is located, whether the lawsuit is against the company, by the company against a partner, by a partner against another, or against its directors or board members. Disputes arising from contracts with a company branch may be brought before the court within whose jurisdiction the branch is located.

Resolving investment disputes through arbitration

The resolution of investment disputes through arbitration is defined as the settlement of disputes related to investments as a procedural guarantee for settling investment disputes and an exceptional way to which the parties to the investment contract resort based on their agreement, whether it is a condition included in the terms of the investment contract before the dispute arises or an arbitration agreement concluded before or after the dispute arises, with the aim of resolving their disputes away from procrastination with a binding and final ruling that puts an end to the dispute.

The law applicable in Saudi Arabia to investment disputes resolved by arbitration is the Arbitration Law issued by Royal Decree No. (M/34) dated 24/5/1433 AH. Whether the arbitration takes place in the Kingdom or is an international commercial arbitration conducted abroad, and both parties agree to subject it to the provisions of this law, the arbitration agreement between the state and the investor or between investors themselves – according to this law – takes three forms as follows:

First: The arbitration clause.

It is the first form of an arbitration agreement, which is a prior agreement between two parties that any dispute arising between them will be resolved by arbitration. The condition is usually included in the original investment contract, which is the source of the legal relationship. The two parties agree that any dispute arising in the interpretation of the contract or regarding its implementation will be resolved by arbitration.

The Saudi Arbitration Law stipulated in Article 9, Paragraph 1 that (the arbitration agreement may precede the dispute, whether it is independent or included in a specific contract). Paragraph 2 of the same article stipulated that (the arbitration agreement must be in writing, otherwise it is void).

Secondly, the arbitration agreement.

It is an independent arbitration agreement signed by the parties when a dispute arises concerning the original contract or its interpretation. The agreement is written and signed by the parties or their agents. The agreement may be made after the dispute arises, but it must contain the identification of the substantive contract or the relationship in dispute, the type of dispute, the parties, the method of forming the arbitration panel, the number of arbitrators, the place of arbitration, the language of arbitration, and the law applicable to the arbitration proceedings. The arbitration agreement is closer to a statement of claim because it is made after the dispute arises between the parties.

The Saudi Arbitration Law, in Article 9, Paragraph 1, stipulates the arbitration agreement. 🙁 The arbitration agreement may also be made after the dispute has arisen, even if a lawsuit has been filed before the competent court. In this case, the agreement must specify the matters covered by the arbitration, otherwise the agreement is void.

Therefore, the Arbitration Law stipulated that the arbitration agreement must include the matters covered by arbitration, otherwise the agreement is void.

Third: The arbitration clause by referral.

The arbitration clause by reference is one of the modern forms of an arbitration agreement. The purpose of this clause is that the original contract concluded between the parties to the dispute did not include an explicit arbitration clause, but rather agreed by reference or by reference to a previous contract between the parties to the dispute, or by reference to a model document or an international agreement, to bear the deficiency or to fill the gaps that are in the contract, so that the contract referred to includes in its clauses a clause that stipulates the settlement of disputes arising between the parties by way of arbitration. In that case, the effect of this clause is reflected on the original contract and becomes binding on the parties to the dispute, so that the disputes arising from the contract by reference are settled through arbitration.

The Saudi Arbitration Law stipulates the arbitration clause by reference in Article Nine, Paragraph Three (…and any reference in a contract, or a reference therein to a document containing an arbitration clause, is considered an arbitration agreement. Likewise, any reference in the contract to the provisions of a model contract, an international agreement, or any other document containing an arbitration clause is considered a written arbitration agreement if the reference is clear in considering this clause as part of the contract.)

Effects of the arbitration agreement between parties in investment disputes:

The parties are bound by the arbitration agreement in the event of a dispute between them, and recourse to the courts or mediation is not permissible except with the consent of all parties. If one of the parties resorts to the courts, the other party has the right to plead the existence of the arbitration agreement. In that case, according to the text of Article (11) of the system, the court to which a dispute is brought concerning which there is an arbitration agreement must rule that the case is inadmissible if the defendant pleads this before any request or defense in the case.

If an agreement to arbitrate is reached after resorting to litigation, the Saudi Arbitration Law stipulates that parties who agree to arbitration must resolve their dispute through arbitration, even if the agreement is made while the case is being heard in court. This is stated in Article (12) (…if an agreement to arbitrate is made while the dispute is being heard before the competent court, the court must decide to refer the dispute to arbitration.)

Important questions:

Is it permissible for government entities that establish investment contracts to agree to arbitration?

To answer this question, we refer back to the text of Article Ten, Paragraph Two of the Arbitration Law, where an exception was made stating that government agencies may not agree to arbitration except after the approval of the Prime Minister, unless a special regulatory text permits it.

Some Saudi regulations have given the government entity the right – as an exception – to agree to arbitration directly without obtaining prior approval from the Prime Minister, including the Saudi Mining Investment Law of 1441 AH, which stipulated in Article (58) that (any dispute or disagreement arising between any licensee and the Ministry may be settled by arbitration in accordance with the provisions of the Arbitration Law. For the purposes of this Law, the Administrative Court is the competent authority to consider the dispute).

However, the real exception to the arbitration clause is what is stipulated in the Saudi Government Competition and Procurement Law in Article (92), Paragraph Two thereof: (The government entity - after the Minister's approval - may agree to arbitration as explained in the regulations.) And the regulations have specified in Article (154) thereof the conditions for resorting to arbitration as follows:

The arbitration shall be limited to contracts whose estimated value exceeds (one hundred million) riyals, and the Minister may amend this limit as he sees fit.

The regulations of the Kingdom of Saudi Arabia shall be applied to the subject of the dispute, and arbitration by international arbitration bodies outside the Kingdom and the application of their procedures shall not be permitted except in contracts with foreign persons.

The contract documents should stipulate arbitration and its conditions.

In light of the flexibility and variety of investment dispute resolution mechanisms offered by the updated investment system, the role ofAbdulaziz bin Yasser Al-Anzi Law FirmOur legal consultancy firm, specializing in investment dispute management and resolution, offers in-depth expertise in this area. We utilize institutional arbitration before centers such as the GCC Commercial Arbitration Centre, as well as conciliation and mediation within the Saudi legal framework. Our team comprises locally and internationally qualified lawyers and legal consultants with a proven track record of representing both foreign and domestic investors before judicial and alternative bodies. Our services include drafting arbitration agreements, representing parties in pre-dispute consultations, and providing full representation before arbitration panels. Don't hesitate to contact us.Contact us.