Article 55 of the Arbitration Law of the Kingdom of Saudi Arabia (Royal Decree No M/34) seeks not only compliance with the public policy rules of the Kingdom but also with the rules of Shari’a Law in order to recognize and enforce a foreign arbitral award. Hence, the question is whether or not Saudi Arabia has imposed more onerous conditions on parties’ shoulders for the enforcement of arbitral awards than those stipulated under New York Convention by seeking compliance with the Shari’a law.
The Role of Shari'a Law on the Enforcement of
Arbitral Awards in the Kingdom of Saudi Arabia
By Abdülkadir Güzeloğlu
28 January 2016
I. Introduction
There is no question that today
business world recognizes no boundaries; where an “international transaction”
virtually converted into a regular operation. In alliance with this fact,
arbitration has become an exceptionally popular dispute settlement mechanism,
for it succeeded to eliminate jurisdictional boundaries to an outstanding
extent while maintaining a binding and enforceable outcome in the end. That
being said, “outstanding extent” does not cover an entirety. States still
exercise a significant control over arbitration proceedings, may it be through
the mandatory rules of lex arbitri, the supervision and assistance
of the state courts or the recognition and enforcement of an arbitral award.
It is interesting to examine
states’ authority over the recognition and enforcement of foreign arbitral
awards within the perspective of the Saudi Arabian legal system[1], by examining its implementation of the
public policy exception provided under the New York Convention.[2]
II. Recognition
and Enforcement of Foreign Arbitral Awards
To be able to resort to
available legal channels to ensure the performance of an arbitral award, first,
the award in question needs to be recognized and enforced by the respective
state where the performance is being sought.[3] In other words, states hold the
ultimate power to render an award legally enforceable within their
jurisdiction. Naturally such substantial power calls for an explicit framework
in order to avoid unpredictability and dissimilar practices. The New York
Convention, with 149 member states[4], is the key international legal instrument
for the purposes of setting international standards for the recognition and
enforcement of foreign arbitral awards.
Under Article V[5] of the NY Convention, circumstances
where an arbitral award may be refused are laid down (“grounds for refusal”),
according to these the violation of the public policy of the state where the
enforcement is sought, among others, is recognized to be of such nature. That
being said, it should be stressed that the grounds for refusal are exhaustive;
meaning that no circumstances outside the scope of those listed shall be deemed
as a valid ground for non-recognition and enforcement of an arbitral award.
III. Public
Policy Exception
Due to the fact that each state
is different in its social, economic and legal background; their application of
the very same legal text may result in rather different outcomes. Indeed, when
it comes to “public policy” provisions of many international texts, said
discrepancy grows even further since the norm itself embodies a large scale of
ambiguity and there exists no clear and comprehensive uniform definition[6].
In that respect, the
Arbitration Law dated 2012 of the Kingdom of Saudi Arabia certainly raises some
questions given that Article 55 seeks not only compliance with the public
policy rules of the Kingdom but also with the rules of Shari’a Law in order to
recognize and enforce a foreign arbitral award. Hence, the question is
whether or not Saudi Arabia has imposed more onerous conditions on parties’
shoulders than those stipulated under New York Convention by seeking compliance
with the Shari’a law.
IV. Saudi
Arabian Legal System and the Public Policy
Shari’a Law is the principal
source of legislation in Saudi Arabia[7]. Saudi Arabian government issues
laws and regulations only if these do not conflict with the established principles
of Islamic law, as they are held preeminent and sacred. In this vein,
established Islamic rules are respected in Saudi Arabia to be the rulings of
God, as opposed to creation of mankind. Hence, these established Shari’a rules
are held higher than any other rule issued by the Saudi Arabian government. As
a result, the obligatory provisions of the Shari’a law form part of Saudi Arabia’s
public policy.[8] In other words, public policy in
Saudi Arabia encompasses the mandatory principles of Sharia law. Therefore the
explicit indication of ‘Sharia Law’ under Article 55 becomes only indicative
rather than prescriptive since the public policy of Saudi Arabia already
includes the mandatory terms of Sharia Law.
In this regard, if one
considers the wording of the Article 55 as a setback against the enforcement of
an arbitral award in Saudi Arabia, no resolution can be produced as the
position of Sharia Law is manifestly resolute in the Kingdom and it is not
realistic to expect it to be changed. Indeed, some of the prohibitions in Islamic
commercial law such as interest (riba), avoidance of excessive risk (gharar),
avoidance of transactions based on luck or chance (maisir)[9] may be difficult to relate in other
legal systems, but they are all based on a specific rationale and constitutes a
part of Kingdom’s public policy rules. Hence the issue here is not the rules
themselves but how these Sharia rules are implemented as a ‘public policy’
exception.
The focus should be brought on
how the rules on public policy are perceived and applied in the enforcement
procedure of an international arbitration award. It is often voiced that the
Kingdom should implement a more transparent case law and codify the established
Sharia rules categorically [10] in order to avoid any arbitrary practice,
encourage consistent rulings and secure legal certainty.
If the rules are persistently applied in this transparent
manner, necessary precautions may be taken by the arbitrators, such as rendering
an award that is separable in its parts which may potentially be considered to
be in violation of Saudi Arabian public policy rules so that the rest of the
award remains executable.
V. Conclusion
The main purpose of the New
York Convention is to facilitate recognition and enforcement of foreign
arbitral awards in the contracting states. Therefore, in order to achieve a
universally harmonized infrastructure of recognition and enforcement, the
‘public policy’ exception is meant to be narrowly interpreted. In this regard,
the fact that Saudi Arabia seeks compliance with its Sharia rules, should not
be a source of distress for actors of other legal systems as long as the public
policy exception is implemented in a transparent and systematic manner, in
accordance with the purpose of the New York Convention, respecting the
‘international’ feature of the dispute in question. It should not be
disregarded that the task resides not only with Saudi Arabia but each New York
Convention signatory state to apply public policy exception in accordance with
the spirit of the instrument.
[1] Saudi
Arabia is recognized to be the home for the first written constitution in the
world, Medina Charter, which was promulgated for a plural society, granting
equal rights to every citizen.
[2] The
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)
[3]Alfons,
Claudia. Recognition and Enforcement of Annulled Foreign Arbitral Awards: An
Analysis of the Legal Framework and Its Interpretation in Case Law and
Literature, Peter Lang, 2010, p.17.
[4] As
of 2013: http://www.newyorkconvention.org/contracting-states,
retrieved on 17.07.2015.
[5] Under
Art. 5 of New York Convention, the grounds for refusal are, in summary,
incapacity of the parties to the arbitration agreement, invalidity of the
arbitration agreement, violation of due process or right to be heard, the award
being ultra petita and infra petita, improper composition of the arbitral
tribunal, non-compliance with the relevant arbitration procedure, setting aside
of an award, non-arbitrability of the matter or violation of public policy
under the laws of the state where the enforcement is being sought.
[6] Belohlavek,
Alexander J. Arbitration, Ordre Public And Criminal Law. Bilingual Edition (English,
Russian) Interaction of Private and Public International and Domestic Law. Vol.
2 (of 3 publ.), Kyiv, Taxon, 2009.
[7]‘Saleem,
Abdulrahman Mamdoh. A Critical Study on How the Saudi Arbitration Code Could Be
Improved and on Overcoming the Issues of Enforcing Foreign Awards in the
Country as a Signatory State to The New York Convention ‘.CEPMLP Annual
Review, Vol. 16, 2013.
[8]Childs,
Thomas. Egypt, Syria and Saudi Arabia Enforcement of foreign arbitral awards in
Egypt, Syria and Saudi Arabia, Arbitration Newsletter, 2010.
Retrieved on 28.01.2016, from:
http://www.kslaw.com/imageserver/kspublic/library/publication/9-10arbitrationcommitteenewsletterchilds.pdf
[9]Garner,
James M. A Critical Perspective on the Principles of Islamic Finance Focusing
on Sharia Compliance and Arbitrage. Leeds Journal of Law &
Criminology, Vol. 1, No. 1. Retrieved on 28.01.2016, from:
http://criminology.leeds.ac.uk/files/2013/09/Islamic-Finance-Principles_Garner.pdf
[10] “In
addition Saudi judges have had wide discretion to issue rulings according to
their own interpretation of Sharia law, and the judiciary has long resisted the
codification of laws or the reliance on precedent when making rulings. From a
practical standpoint a party seeking to enforce a foreign arbitral award
against a party domiciled in KSA faces a number of significant challenges which
relate to KSA’s judicial system and its strict adherence to Sharia law. One
area in which the Regulations fail to improve matters, however, is the enforcement
of foreign awards in KSA, which to date has been an uncertain prospect.
Although the Regulations affirm that the courts will have due regard to KSA’s
obligations under international agreements, nothing more is said about
enforcing foreign awards” Zegers, Jean-Benoît and Elzorkany, Omar.
Kingdom of Saudi Arabia. Arbitration Guide IBA Arbitration Committee,
2014