KSA continues to improve enforceability in international arbitration sphere

The revival of the Saudi Center for Commercial Arbitration (SCCA) rules, a developing legislative framework governing enforcement, and recent evidence of the Saudi courts show that the KSA is continuing to adopt a pro-enforcement regime.

However, there still remain challenges to enforcement across the KSA.

Enforcement of arbitral award in KSA

The second edition of the SCCA Rules, effective for all arbitrations filed on or after 1 May 2023, aligns the institution with international best practice. 

An important responsibility of the SCCA is the review of arbitral awards prior to their issue. This procedural safeguard is intended to improve the quality and enforceability of SCCA-issued awards, enhancing the likelihood that they will be upheld by the Saudi courts.  

Prior to the new rules, the KSA sought to modernise its legal framework for arbitration, introducing two significant laws intended to provide effective procedures for the enforcement and recognition of foreign and domestic arbitral awards. 

First, the Saudi Arabia Royal Decree No. M34/1433 (the Arbitration Law) came into effect in July 2012. The Arbitration Law sought to align Saudi law with international arbitration standards, and to clarify the requirements for enforcing arbitration awards.  

In March 2013, the Saudi Arabia Royal Decree No. M53/1433 (the Enforcement Law) was introduced to supplement the Arbitration Law. The Enforcement Law governs the recognition and enforcement of domestic and foreign arbitral awards in the KSA. Intended to streamline the process of enforcement, the Enforcement Law establishes specialised enforcement courts to oversee enforcement proceedings. Amongst its provisions, the Enforcement Law states that a domestic arbitral award enclosing an enforcement order has the authority of a judicial ruling and constitutes a writ of enforcement, such that it is enforceable in the Saudi courts.  

Domestic and international arbitral awards are enforceable in the KSA via applications made to the enforcement courts. Proceedings are administered by an enforcement judge. The judge has the authority to enforce a foreign award, if the requisite elements contained in Article 11 of the Enforcement Law are satisfied. 

Statistical evidence of enforcement

In conjunction with the new SCCA rules, statistical evidence demonstrates an increasingly pro-enforcement approach adopted by the Saudi enforcement courts.  

Since enactment of the Arbitration Law, the Saudi enforcement courts have received and processed approximately 35,000 applications for enforcement with an aggregate value of enforced arbitral awards exceeding USD 6.16 billion. The number of enforcement applications filed in 2019 alone exceeded the combined total of applications filed between 2013 and 2018.

In 2021, the enforcement courts processed 297 applications for enforcement of domestic and foreign arbitral awards worth a total of almost USD 640 million, with proceedings concluded in an average timeframe of two weeks. The next year, the SCCA released data confirming the Saudi courts enforced 522 domestic and foreign arbitral awards totalling approximately USD 232 million.

Since 2023, the total value of local arbitral awards enforced by the enforcement courts nearly surpassed USD 800 million, whilst the value of foreign arbitral awards enforced reached approximately USD 400 million.

This evidence demonstrates a trajectory of growth in the number and value of arbitral awards being enforced by the enforcement courts, which looks set to continue post-implementation of the new SCCA rules.  

Appellate courts – applications for nullification  

Recently reported figures demonstrate that the Saudi appellate courts are adopting a pro-enforcement approach for their caseload. In the last three years, the appellate courts have processed more than 4,000 arbitral award rescission claims, upholding 90% of these awards.

The overall results of this SCCA report are indicative of a pro-enforcement approach inherent in the Saudi appellate courts. The report’s study of Saudi case law, 349 motions to annul were identified in 1,420 appeal court judgments between 2017-2022. Only five motions to annul based on Shariah (1.43%) were successful. Of all motions to annul, only 4.54% were granted in full and only 1.14% were partially granted.

Improving enforceability 

While there have been significant improvements made in terms of enforceability, there is still some work to do.

In respect of SCCA-issued arbitral awards, as with all institutions, the quality of the award may vary. It is recommended that the parties appoint a three-member tribunal to enhance the quality of any given award. Whilst such arrangements will certainly increase the costs of the arbitration, the parties may consider these costs worthwhile in ensuring a higher quality award with enhanced enforceability potential.

Failure of an award to comply with Saudi public policy and Shariah law principles may prevent its enforcement.

Article 11(6) of the Enforcement Law provides an exception to the enforcement of foreign arbitral awards, where the award contravenes Saudi public policy. This introduces an element of uncertainty, as the exception is afforded a very broad interpretation, such that it can produce unpredictable results.

Additionally, the court may refuse to enforce an award that contains provisions which themselves contradict Shariah law. For example, recovery for interest, consequential loss or loss of chance are all likely prohibited as a matter of Shariah law.

Whilst part of an award might be caught by the broad public policy exception, or contradict Shariah law, there are ways to overcome these obstacles. In trying to give effect to the non-offending part of an award, the enforcement judge can divide the award and enforce only that part which is compliant. However, to avoid delays to enforcement, any offending provision should be pre-empted and avoided at the outset.

Co-written by Lydia Redman of Pinsent Masons.