The Law and Practice of Arbitration in Arabia from the Pre-Islamic Era till the Emergence of the

270 Pages·2009·1.65 MB·English

Saudi Law and Judicial Practice in Commercial and
Banking Arbitration

A thesis submitted for the degree of Doctor of Philosophy

By

Abdulrahman Yahya Baamir

School of Law, Brunel University

October 2008
Table of Content

Table of Content ............................................................................................................ 3
Acknowledgement ......................................................................................................... 8
List of Legislations, Treaties and Cases ........................................................................ 9
Bilateral Conventions .................................................................................................. 12
Non-Saudi Regulations ............................................................................................... 13
International Conventions: .......................................................................................... 14
Abbreviations .............................................................................................................. 21
Abstract ....................................................................................................................... 23
Introduction ................................................................................................................. 24
Methodology ............................................................................................................... 28
1 The Law and Practice of Arbitration in Arabia from the Pre-Islamic Era till the
Emergence of the Four Schools of Jurisprudence ....................................................... 30
1.1 Arbitration in the Early Stages of the Development of Islamic Law .......... 33
1.1.1 Arbitration in the Quran ...................................................................... 33
1.1.2 Arbitration in the Sunnah .................................................................... 37
1.1.2.1 Definition of Sunnah ....................................................................... 37
1.1.3 The Practice of Arbitration at the Time of Prophet Muhammad and his
Companions ......................................................................................................... 39
1.2 Arbitration in the Islamic Jurisprudence (Fiqh) .......................................... 42
1.2.1 The Distinction between Islamic Law, Shari’a and Islamic
Jurisprudence (Fiqh) and the Saudi Law ............................................................. 42
1.2.2 The Evolution of Islamic Jurisprudence (Fiqh)................................... 45
1.2.2.1 Usul Alfiqh ...................................................................................... 46
1.2.2.1.1 Al Ijtihad ................................................................................... 47
1.2.2.1.2 Al Ijma’ ..................................................................................... 48
1.2.2.1.3 Al Qiyas..................................................................................... 48
1.2.2.1.4 Istihsan ...................................................................................... 50
1.2.2.1.5 Istihab or Istis’hab ..................................................................... 50
1.2.2.1.6 Urf “Local Custom” .................................................................. 51
1.2.3 The Branches of Fiqh “Foru’ Al Fiqh” ............................................... 52
1.3 The Emergence of the Islamic Schools of Thought (Mathahib) ................. 53
1.3.1 Hanafi School ...................................................................................... 54
1.3.2 Maliki School ...................................................................................... 54
1.3.3 Shafi’e School ..................................................................................... 55
1.3.4 Hanbali School .................................................................................... 55
2 Arbitration in the Fully Developed Islamic Law ................................................ 57
2.1 The Difference between Arbitration and Litigation .................................... 57
2.2 The Differences between the Judge and the Arbitrator ............................... 58
2.2.1 Definition of Arbitration ..................................................................... 58
2.2.2 The Legal Status of Arbitration under Shari’a .................................... 60
2.2.3 The Capacity of Parties to Enter into an Arbitration Agreement ........ 62
2.2.3.1 Types of Legal Capacities ............................................................... 62
2.2.4 The Legal Capacity Requirements for Natural Persons ...................... 65
2.2.4.1 Majority ........................................................................................... 65
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2.2.4.2 Prudence .......................................................................................... 66
2.2.5 Incapacitated Persons .......................................................................... 67
2.2.5.1 Natural Defects ................................................................................ 67
2.2.5.1.1 Minority and Insanity ................................................................ 67
2.2.5.1.2 Mortal Illness............................................................................. 67
2.2.5.2 Incidental Defects ............................................................................ 68
2.2.5.2.1 Intoxication................................................................................ 68
2.2.5.2.2 Insolvency ................................................................................. 69
2.3 Shari’a Contract Law in Relation to Arbitration Agreements and Arbitration
Clauses .................................................................................................................... 69
2.3.1 Contract under Shari’a ........................................................................ 70
2.3.1.1 The Meaning of “Contract” ............................................................. 70
2.3.1.2 The Formation of a Contract ........................................................... 71
2.3.1.3 Mutual Consent ............................................................................... 71
2.3.1.4 Khiar Almajlis ................................................................................. 72
2.3.2 Nominate and Innominate Contracts ................................................... 73
2.3.2.1 Special Conditions “Shorout” ......................................................... 74
2.3.3 Termination of the Contract ................................................................ 76
2.4 The Arbitration Agreement and Arbitration Clause in the Islamic Law ..... 77
2.4.1 Arbitration Agreement ........................................................................ 77
2.4.2 Arbitration Clause ............................................................................... 78
2.5 Scope of Arbitration .................................................................................... 80
2.5.1 The Hanafi School ............................................................................... 80
2.5.2 The Maliki School ............................................................................... 81
2.5.3 The Shafi’e School .............................................................................. 81
2.5.4 The Hanbali School ............................................................................. 81
2.6 Applicable Law ........................................................................................... 82
2.7 Arbitrators ................................................................................................... 83
2.7.1 Qualifications of Arbitrators ............................................................... 83
2.7.1.1 The Arbitrator should be Muslim .................................................... 84
2.7.1.2 The Arbitrator should be Mature ..................................................... 84
2.7.1.3 The Arbitrator should be Prudent .................................................... 85
2.7.1.4 The Arbitrator should be Knowledgeable of the Shari’a Law ........ 85
2.7.1.5 The Arbitrator should Possess the Characteristics of AlAdalah ..... 86
2.7.1.6 The Arbitrator should be Male ........................................................ 87
2.7.1.7 The Arbitrator should not be Blind, Deaf or Mute .......................... 87
2.7.1.8 The Arbitrator should be Impartial.................................................. 88
2.7.2 The Appointment of the Arbitrators .................................................... 89
2.7.3 Number of Arbitrators ......................................................................... 90
2.7.4 Remuneration of the Arbitrators and Administration Fees ................. 90
2.7.5 Termination of the Office of the Arbitrator ........................................ 91
2.8 Rules of Evidence........................................................................................ 93
2.8.1 Admission “Iqrar” ............................................................................... 94
2.8.2 Oral Testimony “Shahadah/Baiyenah” ............................................... 94
2.8.3 Oath “Qasam/Yameen” ....................................................................... 95
2.8.4 Written Evidence ................................................................................. 96
2.8.5 Presumptions (Qara’en)....................................................................... 97
2.8.6 Personal Knowledge of the Judge or the Arbitrator ............................ 97
2.9 Rules of Fair Trial ....................................................................................... 97
2.10 Enforcement of Arbitral Awards under Shari’a .......................................... 99
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2.10.1 The Nature of the Arbitral Award ....................................................... 99
2.10.2 The Content of the Arbitral Award ................................................... 100
2.10.3 Challenge of the Arbitral Award ....................................................... 100
2.10.4 Judicial Remedies .............................................................................. 101
2.10.4.1 Revocation ................................................................................. 101
2.10.4.2 Appeal ....................................................................................... 101
2.11 Miscellaneous Issues ................................................................................. 101
2.11.1 The Seat of the Arbitration ................................................................ 101
2.11.2 The Rights of Third Parties ............................................................... 102
2.11.3 The Unanimity of the Award ............................................................ 102
2.12 Conclusion ................................................................................................. 103
3 Arbitration in the Saudi Legal System from 1920s till Now ............................ 104
3.1 The Establishment of the Legal System in Saudi Arabia .......................... 105
3.1.1 The Foundation (1920s-1960s) ......................................................... 105
3.2 The Judicial Bodies in Saudi Arabia ......................................................... 106
3.2.1 The Ministry of Justice ...................................................................... 107
3.2.1.1 The High Court, Almahkama Al’olia ............................................ 108
3.2.1.2 The Court of Appeal ...................................................................... 109
3.2.1.3 Courts of First Instance ................................................................. 109
3.2.2 Independent Judicial Bodies.............................................................. 110
3.2.2.1 Committee for the Settlement of Negotiable Instruments Disputes
110
3.2.2.2 The Committee for Settlement of Banking Disputes of the Saudi
Arabian Monetary Agency “SAMA” ............................................................ 111
3.2.2.3 The Board of Grievances Diwan Almazalim ................................ 112
3.3 Wahhabism and the Saudi Law ................................................................. 113
3.3.1 Foundation and Origin ...................................................................... 113
3.3.2 Wahhabism and Politics .................................................................... 115
3.3.3 Wahhabism and the Saudi Law ......................................................... 116
3.4 The Roles of Women in the Saudi Legal System...................................... 116
3.5 The Influence of the Mufti on the Application of Shari’a in the Saudi
Judiciary ................................................................................................................ 117
3.6 The Influence of Foreign Laws on the Saudi Law .................................... 119
3.7 The Regulatory Attitude toward Arbitration in Saudi Arabia ................... 120
3.8 Arbitration in the Saudi Legal System Prior to the Oil Boom .................. 122
3.8.1 Arbitration under the Code of Commercial Courts 1931 .................. 122
3.8.2 Arbitration Clauses in the Oil Concessions in Saudi Arabia ............ 123
3.9 Aramco v. Saudi Arabia ............................................................................ 125
3.9.1 Background ....................................................................................... 125
3.9.2 Aramco’s Response ........................................................................... 127
3.9.3 The Saudi Government’s Position..................................................... 127
3.9.4 The Applicable Law .......................................................................... 129
3.9.5 Comments on the Case ...................................................................... 132
3.10 The Legal Impacts of the Aramco Award 1958 on Arbitration in Saudi
Arabia 135
3.10.1 The Council of Ministers Resolution No. 58 of 1963 ....................... 135
3.10.2 Ministry of Commerce Circular No. 31/1/331/91 of 1979................ 136
3.10.3 Other Impacts: the Establishment of OPEC ...................................... 137
3.11 The Change in the Governmental Attitude toward Arbitration: 1970s till
Now 139
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3.11.1 Reasons for the Change ..................................................................... 139
3.11.2 Saudi Arabia join ICSID Convention ............................................... 140
3.11.3 The Arbitration Act of 1983 .............................................................. 141
3.12 Conventions on the Recognition and Enforcement of Foreign Arbitral
Awards .................................................................................................................. 142
3.12.1 The New York Convention 1958 ...................................................... 142
3.12.2 The Convention of the Arab League of Nations on the Enforcement of
Judgments of 1952 ............................................................................................ 142
3.12.3 The Gulf Cooperation Council (GCC) Commercial Arbitration Centre
144
3.12.4 Bilateral Investment Treaties ............................................................ 145
3.12.5 The Saudi Arbitration Team .............................................................. 145
3.13 Conclusion ................................................................................................. 146
4 Saudi Law as Lex Arbitri: Evaluation of Saudi Arbitration Law and Judicial
Practice ...................................................................................................................... 149
4.1 Arbitration, Arbitrators and Parties ........................................................... 151
4.2 Arbitration Clause ..................................................................................... 156
4.3 Proceeding ................................................................................................. 160
4.4 Notification of Parties, Appearance and Default, and Representation in the
Arbitration ............................................................................................................. 161
4.5 Notification................................................................................................ 163
4.6 Procedure ................................................................................................... 164
4.7 Hearings, Procedure and Recording of the Case ....................................... 166
4.7.1 Confidentiality of Proceedings .......................................................... 166
4.8 Making of Awards, Challenging the Awards and Enforcement of the
Arbitral Awards ..................................................................................................... 172
4.9 The Enforcement and Recognition of Foreign Arbitral Awards in Saudi
Arabia 175
4.9.1 Riyadh Convention for Judicial Co-operation of 1983 ..................... 176
4.9.2 New York Convention for the Enforcement and Recognition of
Foreign Arbitral Awards of 1958 “New York Convention” ............................ 177
4.10 Public Policy in Saudi Arabia ................................................................... 180
4.11 Conclusion ................................................................................................. 185
5 Arbitration for the Settlement of Banking Disputes in Saudi Arabia ............... 188
5.1 Banking Disputes under the Law of Saudi Arabia .................................... 189
5.2 Arbitrability of Banking Disputes ............................................................. 191
5.2.1 The Law on Conciliation in Saudi Arabia ......................................... 192
5.2.2 The Conciliation Practice in Saudi Arabia ........................................ 194
5.2.2.1 Conciliation in Criminal Disputes ................................................. 194
5.2.2.2 Conciliation in Commercial Disputes ........................................... 196
5.3 Arbitration Clause and Arbitration Agreement in Financial Transactions in
Saudi Arabia .......................................................................................................... 198
5.4 Duality in the Saudi Legal System: Banking Interest as an Example ....... 201
5.4.1 Interest under Shari’a ........................................................................ 202
5.4.2 Interest under the Banking Regulations ............................................ 208
5.5 The Settlement of Banking Disputes in Saudi Arabia............................... 211
5.5.1 Arbitration ......................................................................................... 212
5.5.2 Banking Disputes in Neighbouring Countries .................................. 218
5.5.3 The Committee for the Settlement of Banking Disputes .................. 223
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5.5.4 The Committee for the Settlement of Negotiable Instruments Disputes
230
Conclusions ............................................................................................................... 235
Main Findings ........................................................................................................... 238
Recommendations for Reform .................................................................................. 239
Limitations of the Research....................................................................................... 243
Bibliography .............................................................................................................. 244

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Acknowledgement

I am greatly indebted to the following people:

To my parents.

To my supervisor, Professor Ilias Bantekas.

To Professor, Ben Chigara.

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List of Legislations, Treaties and Cases

Statutes and Conventions:

Domestic Regulations of Saudi Arabia:

Banking Control Law, “Qanoon Moraqabat Albonok” issued by Royal Decree No.
M/5 dated 22/02/1386 H. (1966).

Foreign Investment Regulation, “Nizam Alistithmar Alajnabi” issued by Royal
Decree No. M/1 dated 05/01/1421 H. (2000).

Foreign Investment Regulation, “Nizam Alistithmar Alajnabi” issued by Royal Decree
No. M/4 dated 02/02/1399 H. (1979) (cancelled).

Mining Investment Law, “Nizam Al Isithmar Al Ta’deni” issued by Royal Decree No.
M/47 dated 20/08/1425 H. (2005).

Oil Companies Law, “Nizam Alsharikat Al Amilah Fe Haql Alpetrol” issued by Royal
Decree No. M/1 dated 09/01/1389 H. (1968).

The Arbitration Act of Saudi Arabia, “Nizam Altahkeem Alsaudi” issued by Royal
Decree No. M/46 dated 02/07/1403 H. (1983).

The Basic Law of Saudi Arabia, “Alnizam Alasasi Lil Hokm” issued by Royal Decree
No. A/90 dated 27/08/1412 H. (1992).

The Charter of the Saudi Arabian Monetary Agency “SAMA”, “Nizam Mossasat
Alnaqd Alarabi Alsaudi” issued by Royal Decree No. 23 dated 23/05/1377 H. (1957).

The Code of Commercial Court, “Nizam Almahkamah Altijaiyah” issued by Royal
Decree No.32 dated 15/01/1350 H. (1931).
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The Code of Law Practice, “Nizam Almohamah” issued by Royal Decree No. M/38
dated 28/06/1422 H. (2001).

The Company Law, “Nizam Alsharikat” issued by Royal Decree No. M/6 dated
22/03/1385 H. (1965).

The Implementing Rules of The Arbitration Act of Saudi Arabia, “Al la’iha
Altanfeziyah Le Nizam Altahkeem Alsaudi” issued by the Prime Minister Order No.
M/7/2021 dated 08/09/1405 H. (1985).

The Law of Commercial Mortgage, “Nizam Alrahn Altijari” issued by Royal Decree
No. M/75 dated 21/11/1424 H. (2004).

The Law of Commercial Papers, “Nizam Alawraq Altejariyah” issues by Royal
Decree No. 37 dated 11/10/1383 H. (1963).

The Law of Diwan Almazalim, “Nizam Diwan Almazalim” issued by Royal Decree
No. M/78 dated 19/09/1428 H. (2007).

The Law of Judiciary of 1975, “Nizam Alqada” issued by Royal Decree No. M/64
dated 14/07/1395 H. (1975) (cancelled).

The Law of Judiciary of 2007, “Nizam Alqada” issued by Royal Decree No. M/78
dated 09/09/1428 H. (2007).

The Law of Procedure before the Shari’a Courts, “Nizam Almorafa’at Ashar’iyah”
issued by Royal Decree No. M/21 dated 20/05/1421 H. (2001).

The Law of the Chambers of Commerce and Industry, “Nizam Algoraf Altijaiyah
Alsina iyah” issued by Royal Decree No. M/6 dated 30/04/1400 H. (1980).

The Ownership of the Natural Resources of the Red Sea, “Nizam Tamallouk Tharwat
Albahr Alahmar” issued by Royal Decree No. M/27 dated 09/07/1388 H. (1968).
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The Regulation of the Committee for the Settlement of Banking Disputes, issued by
Royal Order No. 8/729 dated 10/07/1407 H. (1987).

Other Official Documents:

Diwan Almazalim’s Circular No.7 of 15/05/1405 H. (1985).

Royal Decree dated 23/10/1381(1962).

Royal Decree dated 5/9/1344 H. (1926).

Royal Decree No. (90/A) dated 28/06/1412 H. (1992).

Royal Decree No. (M/21) dated 20/05/1421 H. (2001).

Royal Decree No. (M/51) dated 1402 H. (1982).

Royal Decree No. (M/6) dated 24/02/1386 H. (1966).

Royal Decree No. (M/64) dated 1395 H. (1975).

Royal Decree No. (M/78) dated 19/09/1428 H. (2007).

Royal Decree No. (M/8) dated 22/02/1394 H. (1974).

Royal Decree No. 165 dated 7/5/1423 H. (2002).

Royal Decree No. 24836 dated 29/10/1386 H. (1967).

Royal Decree No. 37 dated 11/10/1383 H. (1963).

Royal Decree No. 5737 dated 9/04/1373 H. (1954).
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