The new Arbitration Law of Saudi Arabia approved on April 16, 2012, is a significant step forward and has wide-ranging implications for businesses (both local and international) trading in the domestic market, Clyde & Co - a global law firm with expertise in aviation, energy, infrastructure, insurance, marine, and trade - said Tuesday. The law will come into effect 30 days after it has been published in the Official Gazette, which has not happened yet, it added. In particular, the new law removes many of the negative aspects of the 1983 Arbitration Law such that businesses can have much greater confidence in arbitration as an effective means of dispute resolution, it added. "The new law makes clear that invalidity or termination of a contract does not render an arbitration agreement invalid as long as the arbitration agreement is independently valid," Clyde & Co said. The new law also clarifies that parties may agree to refer matters to arbitration by incorporating standard form conditions into their agreements (e.g. FIDIC contracts) and by referring to the rules issued by arbitration institutions from time to time (e.g. ICC). Moreover, the new law requires that sole arbitrators or chairmen of panels of multiple arbitrators be holders of at least a university degree in Shariah science. The new law sets out a helpful procedure for the selection of arbitrators where parties cannot agree the constitution of the arbitral tribunal. "In particular, where there are multiple arbitrators, the new law provides that each party nominates an arbitrator and that the two selected arbitrators can then choose the third arbitrator (failing which the court will appoint the third arbitrator). This procedure overcomes a common obstacle, which would otherwise require the intervention of the supervising court," the law firm said. Further, the new Arbitration Law The new Law sets out a defined process for challenges to the arbitral tribunal to be made (e.g. due to bias or conflict of interest), including time limits for complaining parties to lodge objections in the relevant court. This removes the ability of parties to object to the enforcement of arbitral awards on the basis of such grounds when they have not been raised previously within the time limit. The new law allows the arbitral tribunal to ask a relevant authority for help in the arbitration process, such as summoning a witness or expert and ordering the production of documents. This is a significant change, given that arbitral tribunals do not themselves have the power to make orders against parties outside of the arbitration agreement. Upon issuing such an application within the 60-day period, the parties have limited grounds upon which they can argue that the award should be invalidated. In addition, arguments that the award violates Shariah law, public order or the arbitration agreement may only be heard if the relevant court raises such issues on its own initiative. The new law provides that the relevant court may not examine the subject matter and facts of the dispute in considering whether the award should be invalidated. This is a major improvement from the 1983 Law, which gave the courts a broad discretion to revisit the merits of the dispute in the course of the enforcement process and undermined the arbitration process.
