Investment Dispute Resolution in Saudi Arabia

Investment Dispute Resolution in Saudi Arabia

The updated Investment Law in Saudi Arabia, under Article 10, permits the use of alternative dispute resolution (ADR) methods for resolving disputes arising from investment activities. Specifically, Paragraph 1 of Article 10 states that an investor who is party to a dispute—including disputes involving the competent authority—may resort to the competent court, unless the parties to the dispute agree otherwise. Paragraph 2 further provides that investors may agree to resolve their disputes through ADR mechanisms, including arbitration, mediation, and conciliation.

Accordingly, the Saudi legislator has granted investors the right either to resort to the competent judiciary or to agree on alternative mechanisms such as arbitration, mediation, or conciliation. This article by Al-Salama Law Firm will explain the available methods for resolving investment disputes in Saudi Arabia.

Dispute Resolution through the Courts

Paragraph 1 of Article 10 of the updated Investment Law permits an investor who is party to a dispute—including those involving the competent authority—to resort to the competent court, unless otherwise agreed by the parties.

In investment-related contract disputes, the competent court is the Commercial Court, as stipulated in Article 16 of the Commercial Courts Law (1441H), which states:

The court shall have jurisdiction over the following:

• Disputes between merchants arising from their original or auxiliary commercial activities.
• Claims brought against a merchant under commercial contracts, where the original claim exceeds SAR 100,000. The Council may increase this threshold as needed.
• Disputes arising from partnership contracts under the Civil Transactions Law.
• Claims and violations arising under the Companies Law.
• Claims and violations arising under the Bankruptcy Law.
• Claims and violations arising under intellectual property regulations.
• Claims and violations arising under other commercial laws.
• Claims and requests concerning court-appointed custodians, trustees, liquidators, and experts when the matter falls within the court’s jurisdiction.
• Claims for damages resulting from previously adjudicated cases.

Where the parties have not agreed on the venue or where no specific legal provision applies, Article 17 outlines four jurisdictional rules:

1. Jurisdiction lies with the court where the defendant resides.
2. If the defendant has no place of residence in the Kingdom, jurisdiction lies with the plaintiff’s place of residence.
3. A claim may be filed in the court where the contract was concluded, executed, or ought to have been executed.
4. In corporate-related disputes, jurisdiction lies with the court in the district of the company’s headquarters. This applies whether the claim is by or against the company, its partners, managers, or board members. Claims may also be filed in the district of a company’s branch if the dispute relates to dealings with that branch.

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Dispute Resolution through Arbitration

Arbitration in the context of investment disputes is recognized as a procedural guarantee and exceptional mechanism to ensure efficient resolution. It enables the parties to resolve their dispute based on mutual agreement—either through a prior arbitration clause in the investment contract or a submission agreement (compromis) after a dispute arises—with a final and binding decision, eliminating prolonged litigation.

In Saudi Arabia, investment disputes resolved through arbitration are governed by the Arbitration Law issued under Royal Decree No. (M/34) dated 24/5/1433H. This law applies to arbitrations conducted within the Kingdom, as well as international commercial arbitrations conducted abroad when the parties agree to apply the Saudi Arbitration Law.

There are three main forms of arbitration agreements under the law:

1. Arbitration Clause

This is a pre-dispute agreement between the parties to resolve future disputes through arbitration. It is usually included in the original investment contract and covers disputes related to interpretation or execution.

Article 9(1) of the Arbitration Law provides:

“An arbitration agreement may precede the occurrence of a dispute, whether in a separate agreement or included within a contract.”

Article 9(2) requires:

“The arbitration agreement must be in writing; otherwise, it shall be null and void.”

2. Submission Agreement (Compromis)

This is an agreement signed after a dispute arises, whether over the contract or its interpretation. The agreement must be written and signed by the parties or their legal representatives. It should specify the underlying contract, the nature of the dispute, the parties involved, the formation of the arbitral tribunal, number of arbitrators, arbitration seat, language, and applicable procedural law.

Article 9(1) also provides:

“An arbitration agreement may be concluded after a dispute arises, even if a lawsuit is already filed in court. In such cases, the agreement must specify the matters subject to arbitration; otherwise, it is void.”

3. Incorporation by Reference

This modern approach involves referencing an earlier contract or model document containing an arbitration clause, even if the main contract does not contain one explicitly. If the reference is clear and intended to incorporate the clause, it becomes binding.

Article 9(3) provides:

“A reference in a contract to another document containing an arbitration clause shall constitute an arbitration agreement, provided the reference clearly indicates that the clause is part of the contract.”

Legal Effects of Arbitration Agreements in Investment Disputes

• Once an arbitration agreement is concluded, the parties are bound by it. Judicial or mediation proceedings may not be initiated unless all parties consent.
• If one party files a lawsuit in violation of the arbitration agreement, the other party may raise an objection. Under Article 11, the court must dismiss the case if the defendant invokes the arbitration agreement before making any substantive submissions.
• If the parties agree to arbitrate after the case is filed, the court must refer the dispute to arbitration under Article 12.

Can Government Entities Enter Arbitration Agreements?

Under Article 10(2) of the Arbitration Law, government entities may not agree to arbitration without the prior approval of the Prime Minister, unless otherwise provided by law.

However, some Saudi regulations explicitly allow arbitration by public entities without such approval, including:

• The Mining Investment Law (1441H), Article 58:

   

“Any dispute between a licensee and the Ministry may be resolved by arbitration in accordance with the Arbitration Law. The Administrative Court is the competent authority for such disputes.”

The most notable restriction is found in:

• The Government Tenders and Procurement Law, Article 92(2):

   

“A government entity may agree to arbitration only with the Minister’s approval and under the conditions specified in the regulations.”

According to Article 154 of the implementing regulations, arbitration is allowed if:

1. The contract’s estimated value exceeds SAR 100 million (subject to ministerial discretion).
2. Saudi laws apply to the dispute. International arbitration bodies may only be used for contracts with foreign parties.
3. The arbitration clause and terms are explicitly included in the contract documents.

In light of the flexibility and multiplicity of dispute resolution mechanisms provided under the updated Investment Law, Al-Salama Law Firm plays a pivotal role in managing and resolving investment disputes. Whether through institutional arbitration at centers such as the GCC Commercial Arbitration Centre, or through amicable means such as mediation and conciliation, the firm leverages its team of locally and internationally qualified attorneys and legal consultants with extensive experience in representing both domestic and foreign investors. This includes drafting arbitration agreements, handling pre-dispute consultations, and full representation before arbitral tribunals.

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