A Saudi court partially invalidates an arbitration clause providing for Saudi parties to resort to arbitration outside Saudi Arabia

In contrast to Article 48 of the Tunisian 1993 Arbitration Code, which expressly authorizes the parties to agree to the arbitration procedure outside Tunisia and is enough to internationalize the arbitration (see: Philippe Fouchard: “Quand un arbitrage est-il international?”, Revue de l’Arbitrage, 1970, pp. 59-77; see also Ahmed Ouerfelli: “The Internationality of Arbitration” published in the Arab Journal of Arbitration, 2000, p. 92), a Saudi court considered that Saudi parties do not have the right to grant jurisdiction in their disputes to an arbitral tribunal based outside Saudi Arabia. The justification is that this is prejudicial to the jurisdiction of the Saudi judiciary and “escaping” its jurisdiction (First instance judgment issued in case No. 3050/1Q year of 1431 Hijri; judgment No. 84/d/Com/30 of year 1433 Hijri – Appeal Judgment in case No. 3288/Q of year 1433 Hijri, Judgment No. 70/Appl/7 of year 1432 Hijri, hearing held on 20/07/1432 Hijri, Published in the set of commercial provisions and principles for 1432 Hijri, Office of Technical Affairs, Office of Grievances, Sports, 1436 Hijri, p. 110. According to Khalid al-Nowaiser in the monthly bulletin of his office, May 2017, p. 4).

(حكم صادر في القضية الابتدائية رقم 3050/1ق لعام 1431 هجرية – رقم الحكم الابتدائي 84/د/تج/30 لعام 1433 هـ – رقم القضية الاستئنافية: 3288/ق لعام 1433 هـ – رقم حكم الاستئناف 702/إس/7 لعام 1432 هـ – تاريخ الجلسة: 20/07/1432 هجرية. منشور بمجموعة الأحكام والمبادئ التجارية لعام 1432 هـ، مكتب الشؤون الفنية، ديوان المظالم، الرياضي، 1436 هجرية، ص. 110. ذكره خالد النويصر في النشرة الشهرية لمكتبه، مايو 2017، ص. 4).

However, what is positive in this judgment is that it did not invalidate the arbitration clause, but merely abolished the sub-clause dealing with the seat of arbitration and referred the parties to arbitration in Saudi Arabia and required them to conclude a supplementary agreement to regulate the matter.

In my opinion, this solution could have been avoided because the choice of the seat of arbitration outside Saudi Arabia does not necessarily mean escaping the rules of Saudi law, since the parties can agree to apply Saudi law and even to choose Saudi arbitrators for this dispute, whereas the seat of arbitration is located outside Saudi Arabia. The arbitral award issued abroad can be challenged by refusing to grant it the Exequatur (enforcement) in Saudi Arabia when it turns out to be contrary to Saudi public order, pursuant to the provisions of the 2012 Arbitration Law and the 1958 New York Convention. In contrast, the exequatur may not be granted in other countries to an award made in Saudi Arabia even after being annulled by a Saudi court, when it is proven that it violates the Saudi public policy rules. The arbitration place is not the essence of the problem, because it does not effectively prevent the parties from bringing their claims outside Saudi Arabia and does not deprive them of the possibility of resorting to a foreign “adjudicator” in the country of the seat of arbitration. It does not preclude the enforcement of the arbitral award abroad, nor does it prevent the enforcement of an award issued in Saudi Arabia in violation of The Saudi legal regime.

Arbitration today is cross-border in every sense of the word, and therefore any attempt to geographically frame it is often non-effective.

Ahmed Ouerfelli

Attorney at law