An Examination of the Role of Shariah in the Recognition and Enforcement of Arbitral Awards in ...

279 Pages·2017·2.63 MB·English

An Examination of the Role of Shariah in the Recognition and
Enforcement of Arbitral Awards in Saudi Arabia

Submitted by Abdullah Mohammed Al-abdullah to the University of Exeter
as a thesis for the degree of
Doctor of Philosophy in Law
in December 2016

This thesis is available for Library use on the understanding that it is copyright
material and that no quotation from the thesis may be published without proper
acknowledgement.

I certify that all material in this thesis which is not my own work has been
identified and that no material has previously been submitted and approved for
the award of a degree by this or any other University.

Signature: …………………………………………………………..

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Abstract

This thesis explores the challenges encountered by parties seeking to have
arbitral awards recognised and enforced within the Kingdom of Saudi Arabia.
Specifically, this thesis critically assesses the impact of Shariah on the
enforcement of international awards within the Kingdom and aims to suggest
actionable reforms to further develop the Saudi arbitration framework, and build
on the modernisation efforts initiated through the Saudi Arbitration Law and
Enforcement Law, both issued in 2012.

This study aims to examine issues around the treatment and enforcement of
domestic and international awards under the Saudi legal system and dispute
settlement machinery. Particular focus will be directed to the differences
between the enforcement of domestic and foreign awards, and the challenges
that arise therein. By way of critical analysis, this thesis explores the history and
development of arbitration law and procedure in Saudi Arabia, focusing on the
role of Shariah principles in contract construction and dispute resolution. By
bringing Saudi arbitration procedures into greater alignment with international
standards and practices, and curtailing the power of local courts, the New
Arbitration Law has been widely welcomed as establishing a more hospitable
arbitration environment for commercial actors, foreign and domestic.

While the New Saudi Arbitration Regime aimed to bring much-needed certainty
and predictability to Saudi-based commercial arbitration awards, the Saudi legal
system is still in its infancy and struggling to balance its Shariah roots with
secular practices. As this thesis explores, the Saudi model of contract
construction and dispute resolution is not yet embedded in a settled or ‘gapless’
body of legal principles, in large part because of on-going contestation among
Islamic scholars over the scope and meaning of Shariah principles. While the
new law significantly curtails the review power of local courts, judicial authorities
in Saudi Arabia continue to enjoy broad discretion to reopen a final non-
localised arbitral award issued elsewhere and to subject it to review on the
merits. The grounds for annulment, revision or refusal to enforce include any
agreement deemed to contravene Shariah law, Saudi public policy and prior
Saudi court decrees, in addition to other public policy related defences.
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In the final analysis, the proposed thesis will consider the potential impacts of
Shariah on arbitral award enforcement proceedings initiated in Saudi Arabia. At
the level of conceptual analysis, the proposed research reflects on the familiar
tension between international regulations, which is principally achieved through
harmonisation of applicable arbitral procedures and the domestic enforcement
of applicable national (substantive) laws on arbitration. From these premises,
the proposed thesis will critically evaluate the extent to which Saudi arbitration
law has reconciled the modernising ambitions of an ‘commerce friendly’
arbitration regime and where progress is still needed to achieve efficient and
effective award enforcement.

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Acknowledgements

All the praises and thanks are due to Allah Almighty, the Compassionate and
the Magnificent, who helped me to achieve this study and I ask Him to bless this
work.

This thesis would not have been possible without the support of many people.
Firstly, my deepest appreciation goes to my supervisor, Professor James
Devenney, who gave me his kind guidance, support and encouragement to
work hard to strive towards my goal.

I would like also to thank my second supervisor Dr. Severine Saintier. Many
thanks are due to the entire faculty and administrative staff at University of
Exeter for their invaluable help and support.

Last but not least, I would like to express my gratitude to my father, my mother,
my brothers and sisters, my relatives and friends for their prayers, support and
encouragement during my journey towards the completion of this study, and
without whose constant encouragement, understanding and support the work
would not have been completed.

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TABLE OF CONTENTS
LIST OF ISLAMIC LEGAL TERMS ................................................................................... 8
LIST OF RELEVANT TREATIES AND LEGISLATIONS ....................................................... 9
CHAPTER 1: INTRODUCTION .................................................................................... 10
1.1 Introduction ......................................................................................................... 10
1.2 Contribution of Thesis ......................................................................................... 13
1.3 Literature Review ................................................................................................ 15
1.3.1 The Role of Shariah in Contract Law Construction and Theory ..................... 15
1.3.2 The Importance of Choice of Law in Arbitration ................................................ 20
1.3.3 Shariah Law in the Muslim World ........................................................................ 22
1.3.4 Shariah and Commercial Transactions .............................................................. 25
1.3.5 Arbitration and Award Enforcement .................................................................... 27
1.4 Statement of Issues ............................................................................................ 29
1.5 Objectives and Aims ........................................................................................... 30
1.6 Research Questions ........................................................................................... 32
1.7 Methodology ....................................................................................................... 33
1.8 Limitations of the Study ...................................................................................... 34
1.9 Thesis Structure .................................................................................................. 36
Chapter 2: Background of Arbitration in the Kingdom of Saudi Arabia ..................... 38
2.1 Introduction ......................................................................................................... 38
2.2 Growth of Saudi Arbitration ................................................................................. 39
2.2.1 Arbitration Before the Birth of Islam .................................................................... 40
2.2.2 Arbitration After Birth of Islam .............................................................................. 41
2.2.3 The Modern History of Arbitration in Saudi Arabia ........................................... 44
2.3 The Role of Arbitration in Settling Commercial Disputes .................................... 48
2.3.1 How Do National Courts View Arbitration Practices ......................................... 51
2.3.2 Perceptions of Arbitral Practice ........................................................................... 52
2.4 The Modern Saudi Arbitration Law ..................................................................... 57
2.5 Saudi Legislative System .................................................................................... 61
2.5.1 Background of Saudi Legislative System ........................................................... 61
2.5.2 The Position of the Saudi Legislative System ................................................... 63
2.5.3 Reformation of Saudi Legislative System .......................................................... 65
2.5.4 The Impact of the Reformation on Saudi Legislative System ......................... 67
2.6 Position of the Saudi Judicial System ................................................................. 68
2.6.1 Before the Reformation of the Saudi Judicial System ...................................... 68
2.6.2 After the Reformation of the Saudi Judicial System ......................................... 70
2.7 Enforcement Circuit ............................................................................................ 71
2.8 International Contracting Parties ........................................................................ 72
2.9 Conclusions ........................................................................................................ 78
Chapter 3: The Basics of Commercial Arbitration Award Enforcement ..................... 82
3.1 Introduction ......................................................................................................... 82
3.2 The Applicable Law in Commercial Contracts and Dispute Settlement .............. 82
3.3 The Parties’ Autonomy ....................................................................................... 88
3.4 How National Law Affects Both Domestic and International Arbitrations ........... 91
3.5 Effect of Choice of Law on Recognition and Enforcement of Arbitral Awards .... 93
3.6 Understanding the Recognition and Enforcement of Awards in Saudi Arabia .... 96
3.6.1 Differentiating Between Domestic and International Arbitration ..................... 96
3.6.2 When Does the Saudi Arbitration Law Apply? .................................................. 98
3.6.3 Key Aspects of the New Arbitration Law .......................................................... 100
3.6.4 How Awards Are Rendered ................................................................................ 101
3.6.5 Finality of Arbitral Awards ................................................................................... 103
3.6.6 Enforcement of Arbitral Awards ......................................................................... 103
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3.7 Conclusion ........................................................................................................ 110
Chapter 4: The Role of Shariah in Saudi Arbitration Proceedings ............................ 114
4.1 Introduction ....................................................................................................... 114
4.2 Why Understanding the Role of Shariah Is Important ...................................... 115
4.3 The Shariah Roots of Arbitration Proceedings in Saudi Arabia ........................ 115
4.4 The Effects of Shariah in Practice in Arbitral Proceedings ............................... 117
4.4.1 Arbitration Clause ................................................................................................ 117
4.4.2 The Absence of an Arbitration Agreement ....................................................... 121
4.4.3 Appointment of Arbitrators .................................................................................. 122
4.4.4 Legal Requirements for Appointment of Arbitrators ....................................... 126
4.4.5 Choice of Forum .................................................................................................. 132
4.4.6 Jurisdiction of the Tribunal ................................................................................. 135
4.4.7 Choice of Substantive Law ................................................................................. 136
4.4.8 Conducting the Arbitration Proceedings ........................................................... 138
4.4.9 Issuance and Enforcement of Arbitral Awards ................................................ 139
4.5 Conclusion ........................................................................................................ 141
Chapter 5: How Differing Interpretations of Shariah Law Affect Commercial
Arbitration ............................................................................................................. 145
5.1 Introduction ....................................................................................................... 145
5.2 Why Are There Challenges with Interpreting Saudi Legislation? ...................... 146
5.2.1 The Role of Islamic Schools of Thought .......................................................... 147
5.2.2 Analysing and Challenging Differing Interpretations of the Legal Text of
Shariah as Applied to Saudi Arbitration Law ............................................................. 156
5.3 The Relevance of Sharia Perspectives on Arbitration ...................................... 168
5.4 The Role of Shariah Law in Interpreting Saudi Legislation ............................... 175
5.5 Effect of Differing Interpretations on Enforcement of Arbitral Awards .............. 178
5.6 Conclusion ........................................................................................................ 179
Chapter 6: Recognition and Enforcement of Arbitral Awards in Saudi Arabia ......... 182
6.1 Introduction ....................................................................................................... 182
6.2 Recognition and Enforcement of Domestic Arbitral Awards ............................. 183
6.2.1 Respecting the Finality of Arbitral Awards ....................................................... 183
6.2.2 Enforcing a Domestic Award .............................................................................. 184
6.3 Recognition and Enforcement of Foreign Arbitral Awards ................................ 185
6.3.1 The Influence of International Conventions ..................................................... 186
6.3.2 Refusal to Recognise and Enforce Foreign Arbitral Awards under the New
York Convention ............................................................................................................ 192
6.3.3 Implication of UNCITRAL Model Law for Award Enforcement ...................... 198
6.3.4 Saudi Arabia’s Position on Recognising and Enforcing Foreign Arbitral
Awards ............................................................................................................................ 201
6.4 Ineffectiveness of Saudi Arbitral Reform Efforts for Increased Efficiency in the
Recognition and Enforcement of Awards ............................................................... 203
6.5 Reconciling Treaty Obligations with the Application of Shariah Principles ....... 204
6.5.1 Legal Requirements for Fulfilling Treaty Obligations ...................................... 206
6.5.2 Defining Public Policy .......................................................................................... 207
6.6 A Lacking Judiciary System .............................................................................. 211
6.7 Conclusion ........................................................................................................ 213
Chapter 7: Conclusions and Recommendations ...................................................... 215
7.1 Introduction ....................................................................................................... 215
7.2 Summary of the Research ................................................................................ 216
7.3 Recommendations ............................................................................................ 224
7.3.1 Embrace Legal Pluralism .................................................................................... 225
7.3.2 Create an Arbitration-Specific Shura Council .................................................. 227
7.3.3 Create a Specialised Arbitral Enforcement Court ........................................... 228
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7.3.4 Encourage Consistency in Judicial Enforcement Proceedings ..................... 229
7.4 Recategorise Prohibited Award Elements into Permissible Forms ................... 231
7.3.5 Develop a Refined Conception of Public Policy .............................................. 235
7.5 Contribution of this Study .................................................................................. 236
7.6 Areas for Further Research .............................................................................. 237
7.7 Conclusion ........................................................................................................ 238
Bibliography ................................................................... Error! Bookmark not defined.
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LIST OF ISLAMIC LEGAL TERMS

Al-Mutaqaddimum Habit of the ancient jurists to remain silent.
Fatwa Interpretations of Islamic religious opinions.
Fiqh Collective body of Islamic jurisprudence literature.
Gharar Uncertainty
Haad Fixed punishment
Hadith The practices and teachings of Islam by the Prophet
Muhammad (also known as Sunna’h).
Hakam Third-party arbitrator
Hanbali Hanbali School of religious thought. The most popular
in Saudi Arabian law.
Harbi Non-Muslim.
Hasan Morally right action.
Ijima Islamic legal scholars
Ijma Secondary religious sources.
Isharat Al-Nass Alluded, contextual meaning
Jahallah The unknown facts of a case.
Maslaha Public interest.
Qabih Morally wrong action.
Qiasa Justifiable retaliation.
Qiyas The process of analytical reasoning by a group of
scholars based on the primary sources of Shariah
law.
Riba Charged interest.
Shafi’i School Another major school of religious interpretation
popular with other Arab nations.
Siyasa Shar’iyya Governance in accordance with divine law.
Takhim Negotiated self-help resolution mirroring mediation.

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LIST OF RELEVANT TREATIES AND LEGISLATIONS

2012 Saudi Arbitration Law Arbitration Law 2012, art 50(4
Commercial Court Act Royal Decree No. 32 of 15 Moharram 1350
(H), arts 49-54
Law of Treaties United Nations Vienna Convention on the
Law of Treaties, art 31(3)(c), 23 May 1969.
New York Convention The Recognition and Enforcement of
Foreign Arbitral Awards in 1958
Saudi Arbitration Regulation of Saudi Arbitration Regulation of 1983
1983

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CHAPTER 1:
INTRODUCTION

1.1 Introduction

In a globalised age where commerce continues to grow and expand, both
domestically and internationally, so too has the need for an effective means of
resolving commercial disputes. Saudi Arabia has taken note that arbitration has
become widely recognized by commercial contracting parties as one of the
most popular modes of dispute resolution.1 In response to the increased use of
this alternative form of dispute resolution, the Kingdom has undertaken to
reform its domestic arbitration law and evaluated its position in light of prevailing
international arbitral instruments, such as the New York Convention on the
Recognition and Enforcement of Arbitral Awards. Saudi Arabia’s attempts to
modernize its arbitration regime have focused on accommodating the
commercial preference for arbitration and providing efficient means for obtaining
the recognition and enforcement of arbitral awards.

It has become apparent that arbitration is well-suited for the commercial
transaction environment and is able to adeptly handle disputes involving both
foreign and domestic parties.2 In contrast to formal court-based litigation
procedures, arbitration provides the parties with significant autonomy to make

1 For the purpose of this thesis, it would be helpful to interpret foreign investors and international
commercial parties as international contracting parties because this thesis attempt to analysis the
challenges confronted by both contracting parties, by nature, more arbitral orientated than business.
2 There are several views and opinions on why international arbitration is a popular mode for resolving
international commercial disputes among international contracting parties. For example, Born assessed
‘international arbitration is worthy of attention because it operates within a framework of international
legal rules and institutions which-with remarkable and enduring success-provide a fair, neutral, expert and
efficient means of resolving difficult and contentious transnational problems. That framework enables
private and public actors from diverse jurisdictions to cooperatively resolve deep-seated and complex
international disputes in a neutral, durable and satisfactory manner’. GB Born, International Commercial
Arbitration, Vol lI: International Arbitration Agreements (2nd edn, Kluwer Law International, 2014) 1;
see also C Burhing-Uhle, Arbitration and Mediation in International Business (2nd end, Kluwer Law
International, 2006) 31-33; L Daradkeh, ‘Commercial Arbitration under Investment Treaties and
Contracts: Its Importance and Danger in the Arab World’ (2013) 27 A.R.Q. 393; PB Rutledge, Arbitration
and the Constitution (Cambridge University Press, 2013); S Al-Ammari & AT Martin, ‘Arbitration in the
Kingdom of Saudi Arabia’ (2014) 30(2) Arbitration International 387, 387-408; JDM Lew, LA Mistelis
& SM Kroll, Comparative International Commercial Arbitration (Kluwer Law International, 2003) 4,
113; J Nakagawa, Transparency in International Trade and Investment Dispute Settlement (Routledge
Taylor & Francis Group, 2013)16; R Hogan, ‘ADR: Adding Extra Value to Law' (2012) 78(3) Arbitration
247, 247-55.
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