THE SAUDI ARABIAN ARBITRATION LAW IN THE INTERNATIONAL BUSINESS COMMUNITY A ...

236 Pages·2014·9.81 MB·English

THE SAUDI ARABIAN ARBITRATION LAW IN THE
INTERNATIONAL BUSINESS COMMUNITY
A Saudi Perspective
Torki Al-Shubaiki
London School of Economics
Ph.D
UMI Number: U61560B
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ABSTRACT
Arbitration is now generally accepted as a principle method of solving disputes in
commercial transactions. It is no longer a product to be advertised in seminars or symposiums
related to international trade, rather it is a must in international business transactions. Because
we have reached a point where most countries have adopted the UNCITRAL Model Law on
arbitration and become party to the 1958 New York Convention on the recognition and }
enforcement of foreign arbitral awards, we believe that some studies from the Islamic ~
perspective are necessary in order to find a route to the theory of the delocalisation of
arbitration. Moreover, at the time when practitioners are calling for the internationalisation of
arbitration, I believe that my duty as a former Secretary of the Arbitration Board at the Chamber
of Commerce and Industry in Riyadh is to discuss, evaluate, and present the situation as it
stands today. It is also, our responsibility to propose a route to its harmonisation within the
international standards of arbitration. The idea of providing a historical background to
arbitration is not solely for the purpose of historical research. However, as we will see in later
chapters when we describe the Saudi legal system, Shari’a law and Islamic jurisprudence are
the main laws of the land, and they are applicable whenever there is a statutory vacuum.
Therefore, an Islamic solution has to be found when addressing any problems related to
arbitration in this research. Also, the purpose of this research is to set down the reasons that
have made people believe that Saudi Arabia, of all the Arab Middle Eastern countries, is indeed
the one in most need of a well-developed arbitration system, since some of the major banking
and commercial activities are not permitted to come before the Shari’a courts. Moreover, in the
year 2000 Saudi Arabia implemented the Foreign Investment Act, which liberalizes foreign
investment in the Kingdom. The Saudi Arabian Government Investment Authority, which has
responsibility for licensing all new foreign investment in Saudi Arabia, was created under the
Act. This of course comes as a result of the government’s desire to diversify the sources of
national income. All these reasons should have an affect on developing commercial law in
general and arbitration in particular.
ii
TABLE OF CONTENTS
Abstract i
Tables of Contents iii
Abbreviations x
Tables of Cases xiii
CHAPTER 1 - INTRODUCTION 1
1. HISTORICAL BACKGROUND 1
(a) Generally 1
(b) Arbitration Before the Existence of Islam 2
Arbitration and the Social Life of Arabs 2
Laws and Customs of the Arabs 5
Stories of Prophet Mohammed - Arbitration Before Islam 6
(c) Arbitration after the Emergence of Islam 7
The Era of the Prophet Mohammed 7
The Era of Orthodox Caliphs 9
The Era ofBani Omiah and Bani Abbasis (Third and Fourth Islamic Eras) 11
The Judicature in the Ottoman Era (the Fifth Islamic Era to Date) 13
(d) Introducing the Four Jurisprudence Schools 14
Generally 14
The Hanafi School 15
The Maliki School 15
The Shafi School 16
The Hanbali School 16
(e) The Concept of Arbitration in Islamic Jurisprudence 17
Arbitration Agreements and Arbitration Clauses 17
Arbitrators 17
The Good Conduct of Arbitration and Islamic Jurisprudence 18
The Award 19
The General Principles of Enforcing the Award 19
The Request for Appeal or its Setting Aside 19
\ Enforcing Foreign Arbitral Awards 20
2 \ THE DEVELOPMENT OF THE SAUDI ARABIAN SYSTEMS 21
J (a) The General View 21
(b) The Early Development of the Saudi Political System 21
(c) The Early Development of the Saudi Administrative System 22
Advanced Development in the Administrative System 23
3. THE SAUDI LEGAL SYSTEM 24
(a) Shari’a Courts 24
(b) The Board of Grievances 25
(c) Judicial Commissions 26
Committee for Negotiable Instruments 27
Commercial Agency Commission 27
The Commission for Solving Banking Disputes 28
The Committee for Solving Insurance Disputes 28
Other Judicial Committees 29
4. CONCLUSION 29
CHAPTER 2 - SAUDI ARBITRATION LAWS 30
1. DEVELOPMENT OF THE ARB ITRATION LAWS 30
(a) Generally 30
(b) Arbitration Under Commercial Court Regulations 30
(c) Arbitration in the Saudi Chamber of Commerce 30
(d) The Use of International Arbitration by Saudis 31
(e) Arbitration Regulations Royal Decree No. M/46 32
Advisory Committee Work 32
Examining Work 33
2. WHY SAUDI ARBITRATION LAW AND INTERNATIONAL ARBITRATION? 33
(a) Generally 33
(b) International Banking 33
(c) Insurance 34
(d) Issues Related to Local Arbitration Practice 34
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3. ARBITRATION LAW M/46 35
(a) Generally 35
(b) Arbitration Agreement 36
(c) Enforceability 37
Before Saudi Arbitration Law M/46 37
After the Existence of the Arbitration Regulations 38
(d) Arbitrators 38
(e) Procedure for Approving the Agreement 39
Place of Arbitration 39
The Applicable Law 40
Rules of Procedure and Evidence 40
(f) The Award 40
Prior to Arbitration Regulations 41
After Royal Decree M/46 42
4. FORMS OF SUPERVISION 43
(a) Formal Supervision 43
(b) Subjective Supervision 44
(c) The Crisis of Arbitration 45
Legal Issues 45
Political Issues 46
Issues Related to Modem International Arbitration 47
5. CONCLUSION 48
CHAPTER 3 - THE ENVIRONMENT THAT DEVELOPED INTERNATIONAL 49
ARBITRATION
1. THE BACKGROUND 49
(a) Generally 49
(b) The Need for International Communication 49
(c) Arbitration v National Laws 50
Inadequacy 50
Unsuitability for International Trode 51
(d) Arbitration and Harmonisation 52
International Legislation and International Commercial Custom 52
Hard Law and Soft Law 53
(e) The Position of Developing Countries in Regard to Harmonisation 53
International Solutions in the World of Trade 54
The Model Law and its Objectives 54
Developing Countries and the GATT System 55
2. WHAT IS INTERNATIONAL COMMERCIAL ARBITRATION? 56
(a) The Definition of International Arbitration 56
(b) Legal Framework for International Commercial Arbitration 57
(c) Characteristics of International Commercial Arbitration 57
(d) Overview of Foreign Arbitration Statutes 59
Undeveloped and Less Supportive National Arbitration Legislation 60
Developed and Supportive National Arbitration Legislation 60
3. TYPES OF ARBITRATION 62
(a) Institutional and Ad Hoc 62
Ad Hoc Arbitration 62
Institutional Arbitration 62
(b) Differentiation Between Domestic and International Commercial Arbitration 62
The International Nature of the Dispute 63
The Nationality of the Parties 64
The Model Law Approach 64
4. THE APPLICABLE LAW IN INTERNATIONAL COMMERCIAL ARBITRATION 66
(a) Generally 66
(b) The Law Governing the Capacity to Arbitrate 66
(c) The Law Applicable to the Arbitration Agreement 66
(d) The Law Applicable to the Arbitration Proceedings 67
(e) The Law Applicable to the Substance of the Dispute 67
(0 The Law Applicable to Enforcing the Arbitration Award 68
5. CONCEPT OF PUBLIC POLICY IN ARBITRATION 69
(a) Generally 69
(b) The Concept of Domestic Public Policy 69
(c) The Concept of International Public Policy 70
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6. THE ROLE OF THE NATIONAL COURTS IN THE ASSISTANCE OF INTERNATIONAL 71
ARBITRATION
(a) Generally 71
(b) At the Beginning of the Arbitration 72
(c) During the Arbitral Proceedings 73
Measures Under Consideration 74
6. AN OVERVIEW OF LEADING ARBITRAL INSTmjTIONS 75
(a) International Chamber of Commerce and International Court of Arbitration 75
(b) London Court of International Arbitration 76
(c) The American Arbitration Association 76
(d) The WIPO Arbitration Centre 76
7. CONCLUSION 77
CHAPTER 4 - RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL 78
AWARDS
1. BACKGROUND 78
(a) Generally 78
2. REGIONAL CONVENTIONS 80
(a) Generally 80
(b) The Riyadh Convention on Judicial Cooperation of 1983 81
(c) The 1974 Agreement on the Settlement Dispute Between Arab Investment Receiving 81
States and Nationals of Other Arab States and the 1980 Agreement on he Investment of
Arab Capital in Arab States
(d) The Amman Convention on Commercial Arbitration 82
3. OTHER REGIONAL CONVENTIONS 82
(a) Moscow Convention 82
(b) The Panama Convention 83
(c) The European Convention of 1961 83
4. THE INTERNATIONAL CONVENTIONS 84
(a) Generally 84
(b) The Geneva Protocol of 1923 and The Geneva Convention of 1927 84
(c) The ICSID Convention 85
(d) The Overseas Private Investment Corporation OPIC” 86
5. THE NEW YORK CONVENTION ON ENFORCEMENT OF FOREIGN ARBITRAL AWARDS 1958 87
(a) Generally 87
(b) Recognition and Enforcement 88
The Meaning of Recognition 88
The Meaning of Enforcement 89
(c) Enforcing Foreign Arbitral Awards 89
Reciprocity 90
Commercial Relationships 90
(d) Grounds for Refusal of Recognition and Enforcement 91
First Ground for Refusal, Invalid Arbitration Agreement 93
The Second Ground: No proper notice of appointment of arbitrator or of the 94
proceedings; lack of due process
Third Ground: jurisdictional issues 95
Fourth Ground: composition of tribunal or procedure not in accordance with 95
arbitration agreement or the relevant law
Fifth Ground: award of refusal of recognition and enforcement under the New York 96
Convention
Arbitrability and Public Policy 97
6. CONCLUSION 98
CHAPTER 5 - THE UNCITRAL MODEL LAW AND THE SAUDI ARBITRATION 100
REGULATIONS
1 THE BEGINNING 100
(a) Generally 100
(b) The Work of UNCITRAL 100
(c) UNCITRAL Arbitration Rules 101
(d) History of the Drafting the Model Law 102
(e) Types of Adoption 103
Incorporation by Reference 104
Direct Adoption 104
What Method of Adoption Should Saudi Arabia Adopt? 105
V
2. PROVISIONS OF THE ARBITRATION MODEL LAW 106
(a) General Provisions 106
Can Parties in Saudi Arabia Agree on the Application of the Model Law? 106
(b) Agreement to Arbitration 107
(c) Composition of the Arbitral Tribunal 108
Choice v. Nationality 109
Challenge of Arbitrators 110
Appointment of a Substitute Arbitrator 111
(d) Jurisdiction of the Arbitrary Tribunal 111
Interim Measures of Protection 112
(e) Conduct of Arbitral Proceedings 112
Place of Arbitration 113
Commencement of Arbitral Proceedings 114
Language 114
Written and Oral Pleadings 115
Experts 116
Court Assistance in Taking Evidence 117
(0 Making An Award and Termination of Proceedings 117
Amiable Compositeur 118
Majority Decisions 119
Form of Contents of the A ward 119
Correction and Interpretation of A wards and Additional A wards 120
(g) Recourse Against the Award 121
Procedure for Setting Aside an A ward 122
(h) Recognition and Enforcement of Awards 122
Grounds for Refusing Recognition and Enforcement 123
3. SOME MODEL LAW ARAB COUNTRIES 123
(a) Generally 123
(b) Bahrain 124
(c) Egypt 124
(d) Oman 125
4. SOME ARAB ARBITRATION CENTRES INFLUENCED BY UNCITRAL ARBITRATION RULES 126
(a) Generally 126
(b) The Abu Dhabi Commercial Arbitration Centre 126
(c) The Dubai Commercial Arbitration Centre 126
(d) The Cairo Regional Centre for Commercial Arbitration 127
5. PROPOSED FUTUREljNCITRAL DEVELOPMENTS 127
(a) Generally r tx 'JC 127
(b) Conciliation * 128
(c) The Requirement of Written Form for the Arbitration Agreement 129
(d) Liability of Arbitrators 129
(e) Consolidation of Cases Before Arbitral Tribunals 129
6. CONCLUSION ^ ----------\ > 130
J
CHAPTER 6 - THE INTERNATIQNALISATAION OF INTERNATIONAL 131
COMMERCIAL ARBITRATION
1. INTRODUCTION 131
(a) Generally 131
(b) Development Within the English Legal System 132
(c) Development in The Hague 133
(d) Developments by the International Chamber of Commerce (ICC) 133
(e) Developments by the UNIDROIT 134
2. THE DEVELOPMENT OF THE THEORY OF DELOCALISATION OVER THE LAST 100 YEARS 136
(a) Generally 136
(b) Local Law as Curial Law 136
(c) Conflict of Law Rules 137
(d) The Different Types ofApplicable Law 138
National Law 138
If There Is No Substance ijbw Chosen 139
General PrincipleiKQfJedw 139
Common Principles of National Laws (Competing Laws) 140
Concurrent Laws 141
‘Freezing ' the Law Clauses 141
Lex Mercatoria 142
(e) Delocalisation of the Arbitral Award 143
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3. EXPECTED MAJOR HELDS OF INTERNATIONAL ARBITRATION 144
(a) Generally 144
(b) State Arbitration 145
(c) Resolving E-Commerce Disputes 145
(d) Arbitration in International Telecommunications 146
4t COMMENTS AND SUGGESTIONS FOR THE IDEA OF INTERNATIONALISATION 146
(a) Generally 146
(b) Arbitrators 147
The Steps Needed to Reach That Level 147
(c) Increasing Importance of Procedure 148
(d) The Unnecessary Expansion of International Arbitration Centres 149
(e) The Unawareness of the Changes in Applicable Law 149
5. THE DREAM FOR THE FUTURE 151
(a) Generally 151
(b)The Idea of Developing Harmonisation 151
Is the New York Convention Enough? 152
Establishment of a Court for Enforcing Foreign Arbitration A wards 153
Dealing with Public Policy Issues 153
Dealing with Practical Problems 154
6. SUPPORTERS OF THE HARMONISATION MOVEMENT 154
(a) Generally 154
(b) Comparing the Ideas and the Experience of the International Court of Justice 155
Nicaragua v. Honduras 156
Guinea-Bissau v. Senegal 156
7. CONCLUSION 157
CHAPTER 7 - THE PRACTICAL MOVEMENT TOWARDS THE HARMONISATION 158
OF ARBITRATION IN THE INTERNATIONAL BUSINESS COMMUNITY
1. THE GENERAL DIRECTION OF THE MOVEMENT 158
(a) Generally 158
(b) Foreign Direct Investment (FDI) 158
Types of Foreign Investment Contracts 159
Common Reasons for Developing Arbitration in Major Parts of the World 159
2. ASIAN ARBITRATION 160
(a) Generally 160
(b) Hong Kong 161
The Handover 1997 162
(c) The People’s Republic of China 163
(d) Singapore 164
(e) Malaysia 165
(0 Thailand 166
(g) Sri Lanka 167
(h) Indonesia 167
(i) Japan 168
(j) India 169
3 ARBITRATION INVOLVING RUSSIAN, CIS AND EASTERN EUROPEAN PARTIES 170
(a) Generally 170
(b) The Russian Federation 171
(c) Other CIS States 172
(d) Central and Eastern Europe 173
Bulgaria 173
The Czech Republic 174
Hungary 175
Poland 176
Romania 177
4. ARBITRATION IN LATIN AMERICA 173
(a) Generally 173
(b) Argentina 179
(c) Brazil 180
(d) Mexico 180
(e) Peru 181
(f) Uruguay 182
(g) Venezuela 182
5. CONCLUSION 183
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CHAPTER 8 - A PARTICIPATION IN THE DEVELOPMENT OF SAUDI ARABIAN 185
LAWS AND THE ARBITRATION PRACTICE
1. THE CURRENT ENVIRONMENT FOR DEVELOPING SAUDI LAWS AND ARBITRATION 185
(a) Generally 185
(b) Recent Economic Development 185
(c) The General Understanding of Foreign Investment as a Means of Development 186
The Legal Issues Concerning the Foreign Investor 186
(d) The New Saudi Arabian Foreign Investment Law 186
2. THE AREAS THAT NEED TO BE DEVELOPED 187
(a) Generally 187
Events that Show the Importance of National Laws 188
(b) Issues Related to Islamic Law as the Applicable Law 188
(c) The Basic Understanding 189
The Temporary Revolutionary Solution 189
The Effect on the Foreign Investor 190
The Saudi System in Practice 191
(d) The Field of Application of Islamic Law 191
The Experience of the A uthor 192
3. KEY UNDERSTANDINGS IN DEVELOPING ISLAMIC LAW 193
(a) Generally 193
(b) The Real Position of the Previous Jurists’ Input 193
(c) Legal Education in the Old Islamic Societies 194
(d) The Present Position 195
(e) How Will This Understanding Develop Arbitral Issues? 196
Women and Arbitration 196
Non-Muslims and Arbitration 197
Developing the Theory of Delocalisation in Islam 198
(f) The Role of Legislation (Board of Experts) 199
4. THE NEED TO DEVELOP OTHER FORMS OF ADR 200
(a) Generally 200
(b) Are International ADR Mechanisms Applicable in Saudi Arabia? 202
(c) Forms of ADR Suitable for Saudi Arabia 202
Rent a Judge 202
Mini-trial 203
Neutral Listener Agreement 203
Michigan Mediation (“The Velvet Hammer") 204
(d) Forms of Informal Arbitration 204
Does Amiable Compositeur and Ex Aequo et Bono Exist in Saudi Arabia? 205
5. GOVERNMENTAL ACTION TO IMPROVE THE PRACTICE OF ARBITRATION 205
(a) Generally 205
(b) The Role of Legal Education 206
(c) The Need to Establish a Saudi Commercial Court 207
(d) Creating the Practical Legal Environment for International Arbitral Tribunals 208
6. CONCLUSION 209
BIBLIOGRAPHY 213
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