Dispute Resolution – Page 3 – Hammad & Al-Mehdar Law Firm

Mediation in Saudi Arabia: A Progressive Alternative for Conflict Resolution

Posted on August 7, 2023 - 5:52 pm by perpetual-admin

Mediation is an increasingly popular method of dispute resolution that offers an alternative to traditional litigation and arbitration processes. It is a voluntary and confidential process in which a neutral third party, the mediator, facilitates communication and negotiation between conflicting parties, helping them reach a mutually agreeable solution. Mediation has witnessed significant growth and acceptance in Saudi Arabia as a reliable method for resolving disputes. This article explores the evolution of mediation in the Kingdom and its current usage and examines why it has become a preferred alternative for conflict resolution. Additionally, we will discuss the advantages and disadvantages of mediation as a dispute resolution mechanism.

Traditionally, Saudi Arabia’s legal system heavily relied on litigation and formal court procedures for resolving disputes. However, recognising the need for more efficient and less adversarial methods, the Kingdom has gradually embraced mediation as a viable alternative. The introduction of the Saudi Center for Commercial Arbitration (SCCA) in 2016 significantly promoted mediation as a dispute resolution mechanism. The SCCA actively encourages parties to consider mediation before resorting to arbitration or litigation and provides a platform for mediation services.

Today, mediation is widely utilised across various sectors in Saudi Arabia, including commercial, labour, family, and community disputes. The Saudi Ministry of Justice has established specialised mediation centres staffed by trained and certified mediators to provide access to mediation services and ensure the quality and professionalism of the process. Additionally, mediation is commonly used in family disputes, where preserving relationships and finding amicable solutions are paramount.

Advantages of Mediation:

Confidentiality: Mediation offers a confidential environment, allowing parties to freely discuss their concerns and explore creative solutions without fear of public disclosure. This confidentiality fosters open and honest communication, enabling parties to work towards mutually beneficial outcomes.

Control and Flexibility: Unlike litigation, mediation grants parties greater control over the decision-making process. They actively shape the resolution, ensuring their needs and interests are considered. Moreover, mediation is a flexible process that can be tailored to the specific needs and circumstances of the parties, allowing for more customised and creative solutions.

Cost and Time Efficiency: Mediation is generally faster and less expensive than litigation. The streamlined nature of the process reduces procedural complexities, eliminates lengthy court battles, and minimises legal costs. Mediation frees up court resources, enabling the judicial system to focus on more complex cases.

Preserving Relationships: Mediation emphasises collaborative problem-solving and promotes a non-adversarial approach. It helps parties maintain or restore relationships, particularly valuable in disputes involving families, business partners, or ongoing relationships where preserving harmony is crucial.

Disadvantages of Mediation:

Voluntary Nature: As mediation is a voluntary process, all parties must willingly participate to be effective. If one party is uncooperative or unwilling to mediate, resolving may be challenging, necessitating other dispute resolution mechanisms.

Lack of Binding Decisions: Unlike arbitration or litigation, the mediator does not have the authority to impose a binding decision. The outcome of mediation relies on the parties’ agreement and cooperation. If parties fail to reach a consensus, the dispute may need to be resolved through alternative means.

Mediation has emerged as a valuable alternative for resolving disputes in Saudi Arabia. With its evolution and widespread acceptance, mediation provides a confidential, flexible, and cost-effective method for resolving conflicts in various sectors. While it offers numerous advantages, such as maintaining relationships and preserving confidentiality, it is essential to consider its voluntary nature and potential power imbalances. As Saudi Arabia continues to promote mediation through its legal system and dedicated centres, this alternative method of dispute resolution is likely to gain further recognition and contribute to a more efficient and harmonious society.

Keeping it in the Family: Resolving Disputes in Family Businesses

Posted on May 16, 2023 - 9:42 am by perpetual-admin

Family businesses are unique in their dynamics, combining the intricacies of both business and personal relationships. These enterprises often span generations, with a deep-rooted sense of tradition and shared history. However, the qualities that make family businesses successful can lead to conflicts and disputes. Disagreements can arise due to differences in vision, management styles, and expectations among family members. Resolving these disputes amicably is crucial to maintain harmony within the family and ensuring the long-term sustainability of the business.

When conflicts emerge within a family business, the stakes are high. Disagreements can not only strain personal relationships but also jeopardise the financial health and reputation of the enterprise. It is essential to address disputes promptly and amicably to prevent them from escalating and causing irreparable damage.

Preserving the family’s unity and fostering a collaborative environment can help overcome challenges and lay the foundation for continued success and prosperity in the family business. Family members can work together to find mutually beneficial solutions by opting for amicable resolution methods. There are several measures available, which include:

Mediation and Conciliation:

Mediation and conciliation often provide a less adversarial and more collaborative approach to resolving disputes, preserving family relationships and business interests. Engaging a neutral third party, such as a professional mediator or a trusted family advisor, can help facilitate open communication and negotiation between conflicting parties.

Review the Business’s Legal Framework:

Familiarise yourself with the legal structure of the family business, including any governing documents such as partnership agreements, bylaws, or shareholder agreements. These documents can outline dispute resolution mechanisms, including arbitration or alternative dispute resolution methods, which may offer a faster and more cost-effective means of resolving conflicts than traditional litigation.

Engage Experienced Legal Counsel:

When legal complexities arise, seeking the advice of experienced legal counsel specialising in family business disputes is essential. A skilled legal professional can guide you through the legal process, help assess the merits of your case, and suggest the most appropriate course of action. They can also provide valuable insights into relevant Saudi Arabian laws and regulations, ensuring compliance and protecting your business interests.

Explore Alternative Dispute Resolution (ADR):

ADR methods, such as arbitration or mediation, can offer advantages over traditional litigation. These processes are often more time-efficient, confidential, and flexible, allowing the parties to tailor the resolution process to their needs. ADR can be particularly beneficial for family businesses, providing a more private and less adversarial setting for resolving disputes and minimising potential damage to family relationships.

Document Agreements and Compromises:

In a settlement or agreement reached through mediation or negotiation, it is crucial to document the terms in writing. This agreement should include clear details regarding the resolution of the dispute, any financial settlements, and future actions or obligations. A written agreement helps prevent misunderstandings and provides a legal reference point in further disputes.

Litigation:

While litigation should be the last resort, there may be instances where it becomes necessary to protect the interests of the family business. In such cases, it is crucial to ensure that all legal requirements are met, including filing the appropriate documents and adhering to prescribed procedures and timelines set by the Saudi legal system. Engaging experienced legal counsel specialising in family business litigation can provide valuable guidance and representation throughout the process.

Family businesses play a vital role in the economic landscape of Saudi Arabia, making substantial contributions to its growth and employment. Given their significance, these businesses are subject to various legal laws and regulations in the country. These laws serve as a framework to ensure the smooth functioning and stability of family businesses, protecting the interests of all stakeholders involved. They aim to promote transparency, accountability, and fairness within family businesses while providing clear guidelines for their management and operations; these regulations include:

Saudi Arabian Companies Law:

The Companies Law, issued by the Ministry of Commerce and Investment, provides the general legal framework for all companies in Saudi Arabia, including family businesses. It covers company formation, governance, shareholder rights, and capital requirements matters.

Commercial Companies Law:

The Commercial Companies Law, enacted in 2015, specifically addresses regulations related to joint-stock companies, limited liability companies, and partnerships in Saudi Arabia. It defines the rights and obligations of shareholders, directors, and managers and rules for capital contributions, profit distribution, and shareholder meetings.

Saudi Arabian Labour Law:

The Labour Law governs the relationship between employers and employees, including family members working in the family business. It addresses employment contracts, wages, working hours, leave entitlements, termination, and dispute resolution between employers and employees.

Inheritance Law:

Family businesses are often closely tied to inheritance in Saudi Arabia. The Sharia-based inheritance law governs the distribution of assets and shares within the family upon the death of a business owner. It outlines the rights and entitlements of heirs, including family members involved in the family business.

Regulatory Laws:

Family businesses may also be subject to sector-specific regulations and laws based on their industry or activities. For example, finance, healthcare, real estate, or construction businesses may have to comply with specific laws and regulations about those sectors.

Compliance with these legal requirements is crucial for family businesses to uphold their integrity, sustain long-term growth, and navigate potential challenges effectively. By adhering to the applicable laws and regulations, family businesses in Saudi Arabia can foster a favourable environment for business continuity, preserve family harmony, and contribute to the overall economic prosperity of the nation.

Resolving legal disputes within family businesses requires a delicate balance between protecting the business interests and maintaining family relationships. Family businesses can effectively navigate and resolve disputes by employing mediation, exploring ADR methods, seeking legal counsel, and ensuring compliance with relevant legal frameworks. Ultimately, the goal should be to preserve family harmony and the long-term sustainability of the business.

Recent Developments in Saudi Arabian Arbitration Laws

Posted on March 13, 2022 - 10:53 am by perpetual-admin

Arbitration is becoming an increasingly popular way to resolve disputes in Saudi Arabia. The government has taken significant steps to encourage the use of arbitration, and recent developments in the law have made the process even more efficient and cost-effective. As a result, more businesses are turning to arbitration to resolve their disputes.

In 2014, the Saudi Center for Commercial Arbitration (SCCA) was founded as the Kingdom’s first independent arbitration institution. They are a not-for-profit organization that administers Alternative Dispute Resolution (ADR) procedures guided by Shariah principles.

What Is Arbitration?

Arbitration is used as a means to resolve disputes outside the courtroom. It’s a process in which two or more parties agree to have a neutral third party, called an arbitrator, preside over their case, and make a decision.

Arbitration is often seen as a faster and more cost-effective option than going to court. It allows both parties to agree upon an adjudicator of their own choosing, rather than a court-appointed judge. The arbitrator is often a highly accomplished legal professional or former business leader, who gives both parties the opportunity to present their case.

The Introduction of Arbitration Law in Saudi Arabia

Although previously an uncommon choice in Saudi Arabia, the government has sought to increase the use of arbitration as a means to resolve disputes. In 2012, a royal decree was issued which set forth the legal framework for arbitration in Saudi Arabia. This new Law of Arbitration is based on the UNCITRAL Model Law, which is the international standard for best practice in arbitration law.

The Law of Arbitration sets out the rules and procedures that must be followed in order to initiate and conclude an arbitration proceeding. It also establishes the legal rights and obligations of the parties involved in the arbitration process.

Arbitration in Saudi Arabia is a private process, meaning that the proceedings and the award remain confidential unless there is written consent from both parties to publish the details of the award granted.

In 2013, the Enforcement Law came into effect, which provides for the enforcement of arbitration awards in Saudi Arabia. This means that if one party does not comply with the award, the other party can take legal action to have it enforced.

Cost of Arbitration in Saudi Arabia

Arbitration in Saudi Arabia is considerably cheaper than taking a case through the court and the SCCA has taken recent steps to make it even more affordable. In September 2021, they reduced arbitrator fees by 30% and the initial cost of starting proceedings by 50%.

Filing fees have now been eliminated entirely, and parties are simply required to pay a flat registration fee of SAR 5,000, which is later credited towards the administration fee. The SCCA has also introduced three arbitrator pricing tiers: minimum, maximum, and average. Fees are fixed on a case-by-case basis, depending on the complexity of the case and the time required by the arbitrators to hear and determine the case.

The Online Dispute Resolution (ODR) service also experienced a price reduction of 40%. This allows smaller businesses and entrepreneurs to have access to affordable arbitration, without the need to take their dispute to the courts.

Timeframe for Arbitration

Arbitration in Saudi Arabia is a relatively fast process in comparison to court proceedings. The time it takes to resolve a dispute through arbitration will depend on a number of factors, including the complexity of the case and the availability of the arbitrator.

Generally, arbitration proceedings will take between 6 and 12 months to complete. Once the arbitrator has made a decision, the award will be binding on the parties with a requirement to comply.

The Future of Arbitration in Saudi Arabia

According to a recent statistical report by the SCCA, arbitration continues to be supported by the judiciary and is experiencing fast growth as an alternative to court litigation. Saudi courts are increasingly reluctant to set aside arbitration awards, demonstrating their strong support for the arbitration process. Between 2017 and 2020, 107 motions were initiated to set aside awards. Out of those 107, only 6% were accepted.

In light of this continued success, it is likely that arbitration will continue to grow in popularity in Saudi Arabia. Parties who are looking to resolve disputes quickly and cost-effectively should consider arbitration as an option.

The Enforcement of Judgments against Administrative Bodies in the Kingdom of Saudi Arabia

Posted on April 5, 2022 - 7:40 am by perpetual-admin

In the Kingdom of Saudi Arabia (“KSA”), the absence of a clearly defined and effective mechanism which ensures the protection and fulfillment of rights in administrative disputes has chased challenges. There have been a significant number of cases in which the enforcement of final administrative judgments has been delayed or abandoned. This situation has adversely affected the value and credibility of judgments issued by administrative courts.

Under the current framework, if an administrative body failed to enforce a judgment that has been issued against it, the enforcement creditor should submit an enforcement request to the emirate of the region in which enforcement is sought, who will first notify the administrative body of its obligation to enforce the judgment, and then, in case of defiance by the administrative body, instruct the National Anti-corruption Commission (Nazaha) to take the necessary measures. In some cases, the Emirate can also write to the Ministry of Finance to register the debt in their record and deduct the amount from the Ministry’s future budget. Alas, this method has proven ineffective in promoting administrative bodies’ compliance with the Courts’ rulings.

In response to this historical dilemma, the Council of Ministers have recently issued resolution No. M/15, dated 27/1/1443H, approving the Law of Enforcement before the Board of Grievances (the “Law”). The decision manifests the Saudi Government’s earnest intention to empower the enforcement of final judgments and to ensure justice for both administrative bodies and the public. The Law aims to ensure the judicial security of rights, which will, in turn, support the prosperity of the investment environment and the development of the economic sector in the Kingdom.

The Law marks a positive step forward. It should provide a clear mechanism for the enforcement of judgments against administrative bodies and set forth deterrent punishments and compulsory measures against violators.

Key Highlights of the Law:

Article 3 of the Law gives the Administrative Judicial Council (the “Council”) the authority to establish one or more administrative enforcement courts that will specialize in executing enforcement documents and hearing claims concerning enforcement. The Article also authorizes the Council to establish an administrative circuit in regions and provinces that do not constitute an administrative court, which will carry out the same duties as the courts.

The Law has omitted the requirement of appending judgments issued by administrative courts with the executive form, which is, in contrast, a strict requirement for judgments of non-administrative nature, as provided for in Article 34 of the Enforcement Law, issued by Royal Decree No. M/53, dated 13/8/1433H.

Article 5 of the Law draws a crucial distinction, in terms of appealability, between orders and judgments issued by administrative courts. The Article emphasizes that while the former is not subject to appeal, the latter could be appealed to the specialized administrative appellate courts.

Unprecedently, the Law has followed in the direction of the French judiciary by introducing the concept of astreinte, which is a financial periodic penalty imposed in case of delay in compliance or lack of compliance. The application of the concept of astreinte is manifested in Article 20 of the Law which imposes a penalty of SAR 10,000 upon administrative bodies for each day of delay of enforcement of judgments (after the lapse of the grace period, which is 5 days for urgent judgments and 30 days for non-urgent judgments). Evidently, the said penalty has been used by the legislator as a tool to coerce administrative bodies to enforce judgments.

Article 25 of the Law emphasizes that: “anyone who has an interest in bringing the enforcement claim, whether from the parties to the enforcement or third parties, can bring a claim to enforce the enforcement document.” Accordingly, unlike enforcement claims of non-administrative judgments where the claimant has to have standing to bring a claim of enforcement, any person with an interest can bring an enforcement claim of an administrative judgment regardless of whether or not they have a standing in bringing the claim.

Article 30 of the Law imposes a penalty of imprisonment for a period not exceeding seven years and a fine not exceeding SAR 700,000 or one of these penalties on public employees who intentionally use their authority to prevent the execution of enforcement documents.

Article 30 also imposes a penalty of imprisonment for a period not exceeding five years and a fine not exceeding SAR 500,000 or any of these penalties on public employees who refuse to execute enforcement documents, with the intention of obstructing its enforcement.

It is worth highlighting that although the Article 30 penalties mentioned above apply to all public employees; if the criminal claim was brought against a minister or an official with ministerial rank, the procedure provided for under the Law of Trial of Ministers, issued by Royal Decree No. 88, dated 22/9/1380H, shall apply.

The Law is expected to bring a long-awaited change in the enforcement of judgments against administrative bodies by improving and expediting the enforcement process, which will ensure the credibility of the Judgments issued by the administrative court.

Enforcement Law in Saudi Arabia

Posted on May 12, 2022 - 12:10 pm by perpetual-admin

As the Kingdom of Saudi Arabia continues to pave the way towards Vision 2030, the country continues to reshape its policies and legislation to align with global best practice, whilst attracting foreign direct investment.

In recent years a series of legislations have taken effect, and the codifying of Sharia Law now makes it agile for international entities to pursue legal recourse in Saudi courts.

One of the most important regulations to be applied was the Enforcement Law in 2013 through Royal Decree Number M53. This law guarantees that local and international decisions concerning commercial disputes can be enforced within the Saudi legal system.

The new law provides a different means of litigating and arbitrating cases of commercial disputes in a far different manner to the 1989 Rules of Civil Procedure, which previously determined cases through hearing before a Board of Grievances.

The Perspective of The Enforcement Law

Sharia law allows parties in a dispute to solve their issues out of court and agree on a settlement. If one party fails to reach its end of the settlement agreement, it becomes necessary to seek legal recourse through enforcing a judgment. Another way is by any other legal right executable through an application to an appropriate Saudi court to obtain an execution order.

How the issue goes in front of a judge is dependent on a claim. The claimant must produce written evidence in front of the court that states they have attempted to obtain a voluntary settlement from the other party in the matter. This is where the Enforcement Law comes into play.

Under Articles 7 and 9, the Enforcement Judge is empowered to decide on a broad scope of enforcement disputes, regardless of the value. It will be per provisions that govern summary proceedings. The judge has the power to involve either the police or other law enforcement agencies, and is also capable of;

Imposing or lifting travel bans
Ordering imprisonment or release
Issuing decrees on the disclosure of assets
Notifying licensed credit agencies
Reviewing insolvency claims
Freezing bank accounts

However, parties to a claim should note that the Enforcement Judge is bound under Article 2 to follow the principles established under Sharia Law only if the Enforcement Law has not stated otherwise.

In addition, the debtor is notified of the enforcement judgment and must comply within five days. Article 46 applies if the debtor fails to comply and can face the aforementioned penalties.

Instituting Proceedings Under the Enforcement Law

For a party to obtain an execution order from the Execution Court, the application must comply with Article 34 outlining the Execution Regulations. The application is dependent on these main conditions and procedures.

The application made must be concerning an execution document, which can be a type stated in Article 9 of the law. These documents include;

Orders, decisions, and judgments made by Saudi courts
Awards made by arbitrators and approved for execution in line with Saudi Arbitration Law
Reconciliation minutes issued by departments or those authorized by Saudi courts
Commercial documentation that includes promissory notes, bills of exchange, and checks
Other documents verifiably issued by the debtor as a constitution and a declaration of the debtors’ validity are acceptable to the judge. They will view them as execution documents unless an objection is raised. In case of a protestation, the judge requires the debtor to append their signature on a document declaring the reasons for their objection.

The execution documents before the court must list a specific amount that’s due and payable. The document must be in line with Sharia Law and comply with the requirements stated in Execution Regulations, Article 9.
Suppose a debtor objects to a commercial paper such as a promissory note or a check, the required written objection document must be provided to the court in tandem with the concerned commercial paper.
When the applicant presents their case to the Execution Court, they should also submit an original copy of any power of attorney.
The execution judge must be competent enough to understand the application and should also be within the jurisdiction in which the claimant applies to determine the matter.
In case of an appeal, a judgment stays. The exception is if the decision is by summary execution.

For a company seeking to obtain or recover payments assured to it via a check or other similar commercial paper, or where there are acknowledged settlement or debt agreements, it would be viable to

enforce them via the execution court. This process is quicker than obtaining a judgment via a commercial court.

To discuss the enforcement law further or to explore further insights which may impact your legal position, contact us.

Construction Contracts – Assessing Their Pros & Cons

Posted on May 12, 2022 - 3:26 pm by perpetual-admin

The construction and contracting industry in Saudi Arabia is booming, and presents a significant growth opportunity, particularly with notable large-scale projects such as the Riyadh Metro, The Qiddiya Project, Neom and The Red Sea Project to name a few.

With the scale of opportunity present, the need for legal protection becomes greater, therefore we explore the construction contracting landscape, along with the pros and cons.

There is currently no specific construction law in Saudi Arabia, which enables related parties in the private sector to agree on the method to use for pricing, along with terms. The key element to ensure is that agreements should be Sharia law compliant in order to ensure the terms are enforceable.

Construction contracts outline the contractor’s and project owner’s roles and obligations. The agreements come in various forms, and based on the type, one party may gain more than the other, that is, each contract has its benefits and drawbacks.

Lump-Sum Contracts

A lump-sum contract is the same as a lump-sum agreement or fixed price contract. It is one of the most basic and widespread in Saudi Arabia. The contractor undertakes to perform the job for a set fee, and the project owner agrees to pay the entire cost to the contractor.

The cost of the realization, acquisition of materials, and the marking by miscellaneous expenses and benefits are all in the price.

Pros

Since the contracts are set in stone, completing them under budget means better profits.
With anticipated costs, the owner bears minimal risk
Lump-sum contracts are simple. The contractors don’t have to submit multiple bids and calculate the total price instead.

Cons

The fixed price model is a risk to the contractor when the projects are vast. There is no room for errors, and any missteps with suppliers and subcontractors may lead to losses.
Miscalculations can happen when the lump sum contract fails to account for all the variables. Unforeseen changes can reduce margins.

Time and Materials

In a time and materials agreement, the owner agrees to reimburse the contractor per hour in addition to the materials. The contract is most useful where the project’s scope isn’t well defined.

Pros

The contractor benefits because they do not have to estimate the cost of project completion as with a lump sum contract, and the owner benefits as they only pay for the actual time worked.
The contract allows simple negotiations to cover the unforeseen expenses along the way.
The hourly rate is straightforward

Cons

On the other hand, the contractor can be slow because they are paid for their time.
It is no small task to log in the material costs every time and using the wrong amounts may reduce the profit margin for the contractor.

Cost-Plus Contracts

Also known as a cost-reimbursement contract, the cost-plus method involves paying the contractor for all costs incurred during the contract’s duration. The arrangement sets aside a particular amount as profit, usually a percentage of the project’s overall cost.

A cost-based pricing method is often a moving target and can go out of control. To prevent runaway costs, cost-plus pricing often combines with a guaranteed maximum price (GMP) to set the upper limit for fees and expenses. Anything above it goes to the contractor.

In a nutshell, the cost-plus contract covers the direct costs such as labor and materials, indirect costs, including traveling and communication, and the profit.

Pros

Cost-plus contracts are flexible. Owners can make design alterations along the way, and the contractors know in advance what they stand to make after the alterations.
Unlike lump-sum contracts, miscalculations are not detrimental, given the flexible nature of the arrangement.

Cons

Cost-plus contracts require the justification of costs, and this sometimes is difficult. Owners may be unwilling to reimburse some indirect costs such as administrative expenses.

Unit Price

A unit price contract requires the contractor to establish price per unit of work divided into portions. The method is standard in public work. Also known as measurement contracts, the arrangement allows the contractor to forward the cost of every unit of work instead of an estimate for the whole project. Unit price contracts are practical when the task is tedious, and the material costs are not projectable.

Pros

A simplified invoice is the contract’s strength, allowing for more transparency and fewer disputes.
Ideal for well-defined and repetitive projects
The profit margin stays the same even when there are changes to the scope of the work.

Cons

The owner may insist on comparing the prices, which can cause delays.
It may not be handy with private projects unless as part of other methods such as lump sum for particular work components.
Estimating the final value of the contract is not a walk in the park. The amounts of units needed for project completion is not easy to know.

Construction Contracts Best Practices

While there are different types of construction projects, the contracts follow the same rules and have pretty much the same elements. Here are the best practices when writing construction contracts:

Incentives are helpful when the scope is not very clear, and the budget or costs of the project are not yet determined.
The parties need to agree on defining costs, especially in the cost-plus contract. Will redoing the rejected work be part of the overall costs included in the total bill? What about the contractor’s equipment? What rate will be applied?
How and when will there be communication between the client and the owner? Both parties should know when and how to contact the other before making decisions.
Parties should agree on how to apportion any savings from the project. Will all the savings in the cost-plus method go to the contractor?
Since every project may have unforeseen circumstances, it is vital to accommodate contingencies. It is much easier for the project when there is a roadmap in place if something unplanned happens or there is an unexpected expense.
State the expectations clearly, such as the method of reporting the expenses.

Knowledge of the different types of contracts, their advantages, and their disadvantages is crucial, and it helps to know which one to choose to align with a particular project.

Resolving Shareholder Disputes In Saudi Arabia

Posted on May 22, 2022 - 10:42 am by perpetual-admin

Shareholder disputes are a common occurrence in many business entities worldwide, and Saudi Arabia is no exception. Disputes can arise because of disagreements over the company’s direction, distribution of profits, or management.

When shareholders are unable to resolve their disputes themselves, they may bring the matter to the attention of the board of directors to seek a resolution. In Saudi Arabia, the board of directors has the authority to resolve shareholder disputes. However, if the board is unable to reach a decision, the shareholders may seek resolution through arbitration or the courts. This can be a time consuming and expensive process, so it’s always preferable to try to find a working solution before the situation gets to the point of arbitration or litigation.

What Is Dispute Resolution?

Dispute resolution is the process of resolving conflicts between two or more parties. It can take many different forms, such as mediation, arbitration, and litigation. Mediation is a process in which a neutral third party helps the parties involved in the dispute come to an agreement. Arbitration also involves a neutral third party who listens to both sides of the dispute, but the difference is that they are granted authority to make a binding decision. Litigation is a process in which the dispute is resolved by a court of law.

Key Elements Of Effective Dispute Resolution

The key elements of effective dispute resolution are:

Communication – The parties involved in the dispute must be willing to communicate with each other to reach a resolution.
Cooperation – The parties must be willing to cooperate with each other and the mediator or arbitrator to reach a resolution.
Flexibility – The parties must be willing to be flexible to reach a resolution that is acceptable to all parties involved.
Respect – The parties must respect each other and the mediator or arbitrator to reach a resolution.
Time – The parties must be willing to invest the time necessary to reach a resolution.

Why Are Shareholder Agreements Important?

Shareholder agreements are a key tool in managing and resolving shareholder disputes. These agreements can provide a mechanism for shareholders to resolve their differences without resorting to arbitration or litigation. They can also help prevent disputes from arising in the first place by setting out clear rules and procedures for the management of the company.

How To Start The Arbitration Process In KSA

In 2012, the Saudi government issued the new Law of Arbitration with the aim to modernize and streamline the arbitration process in the Kingdom. This law made arbitration a more viable option for businesses seeking to resolve disputes, which they have failed to resolve internally.

If you are a shareholder in a Saudi company and you have a dispute with another shareholder, you can commence an arbitration process. The arbitration process will typically take about six months to complete. Once the arbitrator has decided, it will be final and binding for the parties involved.

To discuss arbitration in further detail please contact our Head of Dispute Resolution, Ali Altoukhi.

Arbitration and its Role in Family-Businesses

Posted on May 29, 2022 - 7:34 am by perpetual-admin

Family businesses contribute significantly to the GDP of Saudi Arabia, albeit the dynamics of the family business continue to evolve as the second and third generation enter the corporate world.

While family businesses leverage cooperation, disputes may arise which threaten the health of the enterprise. Alternative dispute resolution offers a mechanism family members can use to resolve differences privately and cost effectively.

Common Disputes in Family Businesses

Disputes over succession following the demise of a founding member are common and can take the business on a downward spiral if no succession planning or dispute mechanisms exist.

Often, family and business values will overlap but not necessarily align. Family values will insist on the unity of the members, which sometimes conflicts with the objective of optimizing the economic return of the family business. There may be a reluctance to disassociate a family member whose actions harm the company.

Furthermore, in the event a formal succession plan is not in place, the voting in of a temporary leader may cause unharmony between family members, which brings into question their position and future within the business.

Such rapid changes may lead family members to cash in on their stake, which may give rise to potential liquidation or divestment of stakes, again compromising the family business, brand reputation and future growth plans.

Avoiding Disputes

Families that decide to go into business should plan on ways to resolve conflicts in advance, usually at the outset of drafting company laws.

There are various pre-emptive measures at the disposal of family businesses to prevent disputes. These measures include legal governance structures providing for dispute resolution.

Families must establish a dispute resolution mechanism in their constitution, appointing an arbitrator or mediator.

The constitutional documents should have provisions for family members that want to cash in on their share, allocation of voting rights, processes of operating charities, and a dispute resolution mechanism.

Family businesses should prioritize succession planning in the event the founder expires.

In a nutshell, precautions that family members can take before they decide to go into business together include:

Preparation for conflicts: conflicts are always possible when business and family inter-twin. A careful analysis of the potential pitfalls and interests can preempt conflicts to establish sound mechanisms for resolution.
Focus on transparency: conversations about issues and challenges should come before negotiations on business matters. In addition, discussions on the norms and procedures in conflict resolution should also occur.
Appoint an arbitrator: parties should agree on a competent arbitrator in case of a dispute.

Alternative Dispute Resolution (ADR)

The Saudi government has taken steps to modernize the countries legal system to align with global standards. This includes provisions for mediation and arbitration. Unlike in the past, the parties can choose the foreign law they wish to apply in the ADR process. The provision is practical where one or more parties to the dispute are non-Saudis.

Usually, mediation and arbitration are the two major forms of ADR available to family businesses in KSA. Other variations such as expert determination, conciliation, neutral evaluation, and adjudication may exist, but they are still sub-branches of mediation and arbitration.

Mediation should typically come before arbitration and only move to arbitration when mediation fails. When the government established the Taradhi platform for virtual mediation, the primary objective was to accelerate dispute resolution, which is the overall goal of ADR.

The 2020 Commercial Courts Law introduced various changes to encourage arbitration and mediation in conflict resolution.

The benefit of ADR is control of the process. It is more flexible and inexpensive and provides a faster way to resolve differences between parties.

Arbitration as a Legal Resolution Channel for Family Businesses

With arbitration, dispute resolution between the family members usually involves one or more hearings. The arbitrator is a neutral third party, mutually or contractually engaged by the parties, or the arbitral tribunal based on the arbitration law.

Before the arbitration process, parties to the dispute agree to be bound by the arbitrator’s final decision.

Considering that the arbitration process is private, the public does not access information on disputes or resolutions. However, the parties must sign a non-disclosure agreement to keep all the dispute details confidential.

The process is also preferable when subject matter expertise is necessary. Some arbitrators specialize in particular areas such as construction and real estate law, and the process can leverage this expertise for quick and fair resolutions.

Drawbacks of the arbitration process can include the relaxed evidentiary and discovery rules. The arbitrator may use materials that an actual court may not have to make final decisions, and the result may be an unfavorable outcome that does little to resolve the dispute in the long run.

Normally, the arbitration law in KSA requires the supervision of the process by a court that typically has jurisdiction. Parties can appeal the arbitration decisions through that court, which can lengthen the process. The absence of finality can water down the benefits of the arbitration process, such as swiftness and cost-effectiveness.

The Saudi legal regime is undergoing significant changes, and challenges such as compliance will be apparent. However, the new modifications benefit the overall dispute resolution mechanism and provide greater certainty and clarity.

The decision to include a binding arbitration clause in the governance structure of a family business is up to the members. Nevertheless, the family business should consider drafting a process for arbitration for effectiveness and to avoid wasted time through appeals. Attention to the KSA arbitration law provisions is vital to making informed decisions.

Hammad & Al-Mehdar Law Firm has experience in all legal matters involving businesses and can help with arbitration agreements. Contact us to discuss your requirements further.

Dispute Resolution in a Modern Economy

Posted on September 5, 2022 - 8:41 am by perpetual-admin

Saudi Arabia, the world’s largest oil producer, has been undergoing a major transformation in recent years as it looks to diversify its economy and reduce its reliance on petroleum revenues. As part of this process, the government has laid out a plan to transform Saudi Arabia into a more business-friendly environment. Part of this transformation includes reforming the legal system with respect to commercial law.

Dispute resolution is a key area of commercial law, and Saudi Arabia’s legal system is currently undergoing a process of reform in this area. As the nation begins to attract significant Foreign Direct Investment (FDI), international businesses are set to benefit from greater transparency and confidence in the legal system with respect to disputes.

KSA’s Economic Changes & the Legal System

Saudi Arabia’s legal system is based on Islamic law (sharia) and is therefore distinct from the common law systems of many Western nations. The government has been working to standardise the legal system in recent years, and this process has accelerated in light of the Kingdom’s plans to diversify its economy. These changes are designed to make Saudi Arabia a more attractive destination for Foreign Direct Investment (FDI) and to create a more business-friendly environment.

Some of the key changes that have been made in recent years include:

E-Commerce Licencing

As part of a move to provide greater protection to consumers, the government has informed e-commerce enterprises that they must now apply for a licence in order to operate in Saudi Arabia. Online retailers can either make this application via the Ministry of Commerce or the Freelance Platform. This registration can be performed entirely electronically, removing barriers to entry for businesses.

New Companies Law

In 2022, the Saudi government signed off on a new companies law, which is designed to make it easier for businesses to set up and operate in the Kingdom. The law includes a number of key reforms, such as the introduction of a new type of company called a Simplified Joint Stock Company with an aim to meet the needs of entrepreneurs.

This new law also addresses ownership, governance and employment to help simplify the process of setting up a business while also regulating the business landscape. Speaking to Asharq Al-Awsat, Osama al-Obaidi, Professor of Commercial Law at the Institute of Public Administration (IPA), said that these legal changes will “boost corporate governance principles, facilitate regular procedures, and reduce disputes.”

Commercial Arbitration

The Saudi government has also been working to promote arbitration as a means of dispute resolution and this is an area where businesses can expect to see further reform in the future. The Saudi Center for Commercial Arbitration (SCCA) was established in 2014 and is working to promote the use of arbitration among businesses operating in the Kingdom. It provides training and education on the benefits of arbitration and assists businesses amid disputes.

The Impact on Dispute Resolution

The reforms to Saudi Arabia’s legal system will have a significant impact on commercial disputes. Businesses operating in the Kingdom will benefit from greater clarity and certainty with respect to their legal rights and obligations. While Saudi’s business leaders are still slightly hesitant to engage with arbitrators, there is a growing recognition of the benefits of arbitration as a means of dispute resolution.

This will position Saudi Arabia as a more attractive destination for investment since foreign enterprises will be afforded greater protection thanks to the recognition of transnational arbitration awards and the availability of impartial dispute resolution. It removes an element of risk for international businesses and will encourage more companies to invest in Saudi Arabia.

As Saudi Arabia continues to evolve as an economy, businesses can expect to see further reform in the legal system. Overall, these reforms are proving to be a positive development for businesses operating in the Kingdom and will help transform the nation into a safe and profitable destination for FDI.

Changes to Saudi Arabia’s Dispute Resolution Regulations

Posted on November 9, 2022 - 10:41 am by perpetual-admin

Dispute resolution is a growing industry in Saudi Arabia, and over the past 18 months, there have been some changes to its regulations. These changes aim to maintain high levels of efficiency and bring the system in line with international best practices.

Another significant change concerns the power of KSA’s enforcement courts. In this article, we will outline what these courts are, and what they can do to help ensure the efficient resolution of disputes.

Updates to the Dispute Resolution Framework

Dispute resolution was not a particularly well-developed area of law in Saudi Arabia until recently. In 2012, the government passed the Saudi Arbitration Law, which introduced a new framework for resolving disputes in the Kingdom. The introduction of this law was in response to growing levels of international arbitration, and it is part of a wider plan by the government to improve its legal infrastructure. Since then, a number of changes have been made to this framework to keep pace with international best practices, including the ones outlined below.

Electronic submissions

The introduction of an online dispute resolution system allows businesses to submit and manage disputes electronically. Since the COVID-19 global pandemic, this has become increasingly popular as it allows disputes to be dealt with remotely at a much faster pace than traditional face-to-face proceedings.

New Fee Structure

A new fee structure is one of the most recent changes to Saudi Arabia’s dispute resolution framework. Under this structure, parties who lose in court will be required to pay a fee of 2-5% of the claim value. This is intended to discourage frivolous claims and ensure that disputes are not being pursued to simply pressure the other party.

Saudi Arabia’s Enforcement Court

Saudi Arabia’s enforcement court has considerable power and is responsible for dealing with a wide range of disputes. These include:

Enforcement of court judgments from other countries that apply to people or entities resident in Saudi Arabia.
Enforcement of arbitration awards issued in accordance with the new arbitration law.
Enforcing family law judgments concerning the division of assets and child custody.
Ensuring that financial obligations (such as debts or alimony) are met following a divorce.
Enforcing intellectual property rights, such as trademarks, patents, and designs.

The role of the enforcement court is to ensure that these disputes are resolved in a fair and timely manner, which benefits businesses and individuals alike. With its extensive power, it is an important facet of the Saudi legal system.

In the case of arbitration and dispute resolution, the enforcement court has the power to enforce arbitration awards issued under the new arbitration law. This means that, should one party fail to comply with the award, the other party can seek enforcement of it in court. This gives businesses a level of security and ensures that any awards are respected.

Overall, the changes to Saudi Arabia’s dispute resolution framework have introduced higher levels of efficiency and international best practice to the legal system. This has benefited businesses and individuals alike, making Saudi Arabia a more attractive region for investment and entrepreneurship.