Category Archives: Legal Updates

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Managing Construction Disputes in Saudi Arabia

Posted on February 28, 2023 - 1:51 pm by

The construction industry in Saudi Arabia has experienced significant growth in recent years, with numerous infrastructure projects and real estate developments underway across the Kingdom. From tourist attractions to transport projects, the Kingdom is undergoing a transformation fuelled by rapid infrastructure development.

While this trend presents significant opportunities for investors and developers, it has also given rise to its fair share of challenges, including construction disputes. These disputes can occur due to a variety of reasons and can often lead to costly and time-consuming legal proceedings.

Effective management of construction disputes is therefore crucial for the success of any construction project in Saudi Arabia. This article will provide an overview of common types of construction disputes in the Kingdom and examine the available dispute resolution methods.

Common Types of Construction Disputes in Saudi Arabia

It’s an unfortunate reality of the construction industry that disputes are a frequent occurrence. However, the root cause of many of these disputes can be narrowed down to several common issues. Here are the main types of construction disputes, which commonly arise in Saudi Arabia.

  • Design Faults and Errors. These types of disputes may arise when the construction design does not meet local regulations or when the design fails to match the specifications agreed upon in the contract.
  • Delay Claims and Disputes. Delays can be triggered by a range of issues, such as adverse weather conditions, modifications to the scope of work, or the late delivery of equipment or materials. This can impact the timeline of a project and lead to claims for compensation or other remedies.
  • Scope of Work Disagreements. Disagreements about the scope of work can lead to disputes during the completion of construction projects. These disputes can occur when relevant parties disagree over the interpretation of the contract, or when there is unclear contract language, or an unexpected change in the scope of work.
  • Payment and Billing Disputes. Disagreements over payment are common in Saudi Arabia’s construction industry, with contractors and subcontractors sometimes coming into conflict over compensation for unpaid work or additional work that was not included in the original contract.
  • Contractual Obligation Disputes. Finally, contractors and developers may disagree about the terms of a contract, such as payment schedules or other contractual obligations, leading to costly and time-consuming disputes.

Dispute Resolution Methods in Saudi Arabia

When construction disputes arise in Saudi Arabia, there are a variety of dispute resolution methods available for the parties involved to resolve their disagreements. These methods can include litigation in the courts or alternative dispute resolution (ADR) methods, such as mediation, arbitration, and expert determination. Here’s a brief overview of each of these dispute resolution methods:

  • Litigation in the Courts. The most traditional method of resolving disputes is through litigation in the courts. The dispute is presented before a judge, who decides on the outcome of the case. Litigation can be a time-consuming and expensive process and may not always result in a favourable outcome for all parties.
  • Mediation is an ADR method in which a neutral third party, the mediator, assists the parties in reaching a mutually acceptable solution. Mediation is voluntary and confidential and can often result in a faster and more cost-effective resolution to the dispute.
  • Arbitration is another ADR method in which a neutral third party – the arbitrator – listens to both sides of the dispute and renders a binding decision. Arbitration can be faster and less expensive than litigation, but it can also result in a limited ability to appeal.
  • Expert Determination. Expert determination is an ADR method in which an independent expert is appointed to determine the outcome of a dispute. The expert’s decision is binding, and the process is often faster and less formal than other ADR methods.

Resolve and Prevent Disputes for a Stronger Construction Industry

Construction disputes in Saudi Arabia can be costly and disruptive for all parties involved, delaying the completion of projects, and causing financial losses. However, construction disputes in the Kingdom are an unfortunate but common reality for stakeholders within the industry. By understanding the common types of construction disputes, stakeholders can take proactive steps to mitigate the risk of disputes occurring in the first place.

Additionally, by utilising the appropriate dispute resolution methods available, such as mediation or arbitration, stakeholders can resolve disputes more efficiently and effectively than through traditional litigation. If you need help with a construction dispute in Saudi Arabia, it is best to seek legal advice from a qualified expert who can guide you through the process and help you reach a resolution.

A Summary of Saudi Arabia’s Mediation Draft Law

Posted on March 14, 2023 - 12:50 pm by

Saudi Arabia recently introduced a draft law introducing mediation as an alternative way to resolve disputes. This law is currently in the 30-day public consultation phase, and once implemented, it will apply to all legal entities registered with the Ministry of Commerce who are engaged in commercial disputes.

The law defines mediation as a process in which two or more parties come together to resolve their disputes with the assistance of a neutral third party (the mediator). It is intended to provide a more efficient and cost-effective method for resolving disputes between parties outside of the court system while ensuring that their rights are protected.

What Does the Law Mean for Parties Involved in Disputes?

The law lays out a framework for mediation and outlines the requirements that parties must meet in order to participate in this process. Here are some key takeaways from the new draft law below.

Confidentiality and Privacy

Mediation must be conducted in a confidential setting, which includes both in-person and virtual sessions. The mediator is bound by a duty of strict confidentiality and all parties involved in the mediation session must agree to maintain a similar standard of confidentiality. This means that the mediator and all participants must agree not to disclose any confidential information obtained during the mediation process and nothing that is discovered during mediation may be used as evidence in court.

Selecting a Mediator

The mediator must be approved by the Saudi Centre for Commercial Arbitration, with the appropriate qualifications and accreditation. The mediator will act as an impartial arbiter and facilitate communications between the parties in order to reach a resolution that is acceptable to everyone involved. The parties involved in the mediation session are responsible for paying the mediator, and the mediator’s fees should be agreed upon before the mediation session begins.

Terminating Mediation

If one of the parties decides to terminate the mediation, the law states that all information discussed during the session must remain confidential and may not be used in any subsequent legal proceedings. Failure to appear for a mediation session will also result in a termination of the mediation, and any expenses incurred in relation to the session will be borne by the party that failed to appear.

Mediation Agreements

The agreement reached through the mediation session must be recorded in writing and signed by both parties. This agreement will be enforceable by law and the parties are expected to abide by the terms of the agreement. There are a few exceptions to this, such as cases in which one or both parties are discovered to have been fully competent at the time of the agreement or if the mediator seriously violated their duties during proceedings.

How Does This Law Benefit Businesses in Saudi Arabia?

The introduction of this draft law is a positive development for those seeking to resolve disputes through mediation. Not only does it bring the Kingdom in line with international best practices for commercial mediation, but it also facilitates a more business-friendly environment. It creates a framework that ensures fairness, transparency, and privacy for all parties involved.

The law provides legal certainty and clarity, which should encourage more individuals and entities to explore mediation as an alternative dispute resolution method. As a result, businesses will benefit from a faster and more cost-effective way to settle disputes and will benefit from greater peace of mind while operating in Saudi Arabia.

Navigating M&A in KSA: A legal roadmap

Posted on April 3, 2023 - 1:14 pm by

Mergers and acquisitions (M&A) have become a standard business strategy for companies seeking to expand, diversify or enter new markets. In Saudi Arabia, M&A activity has grown significantly, with the government encouraging foreign investment to promote economic growth and diversification.

M&A transactions in Saudi Arabia are subject to a complex legal framework, and navigating the process can be challenging. A combination of laws and regulations governs the legal framework for M&A. The most significant is the Companies Law, which sets out the requirements for the incorporation, management, and dissolution of companies in Saudi Arabia. Other relevant laws and regulations include the Capital Market Law, the Anti-Monopoly Law, and the Foreign Investment Law.

In addition to these laws, M&A transactions in Saudi Arabia are subject to the rules and regulations of the Capital Market Authority (CMA) and the Saudi Arabian General Investment Authority (SAGIA). The CMA is responsible for regulating the securities industry in Saudi Arabia, while SAGIA is responsible for promoting foreign investment in the country.

The process of an M&A in Saudi Arabia generally involves the following steps:

Due diligence: The acquirer thoroughly analyses the target company to determine its financial, legal, and operational position. This is done to identify potential risks or liabilities associated with the target company.

Negotiation of terms: Once due diligence is complete, the acquirer and target company negotiate the terms of the merger or acquisition, including the purchase price and the transaction structure.

Memorandum of Understanding (MOU): The parties sign a non-binding MOU outlining the key terms of the transaction.

Approval from regulatory authorities: The transaction is subject to approval from regulatory authorities, including SAGIA and the CMA. The parties must submit the required documents to the authorities, including a share purchase agreement, audited financial statements, and other relevant documents.

Shareholders’ approval: The transaction is subject to approval by the shareholders of both companies. A meeting is held to obtain the necessary approvals.

Closing: Once all approvals have been obtained, the transaction is completed. The acquirer pays the agreed-upon purchase price, and the target company’s shares are transferred to the acquirer.

Post-merger integration: After the transaction, the acquirer and target company must integrate their operations. This includes IT systems, combining departments, and restructuring the organisation.

The exact process may vary depending on the nature of the transaction and the companies involved.

M&A in Saudi Arabia is subject to a range of legal requirements that must be carefully considered by the parties involved. Some of the essential legal requirements to consider include the following:

Regulatory approvals: M&A transactions in Saudi Arabia require approval from regulatory authorities, including the Saudi Arabian General Investment Authority (SAGIA) and the Capital Market Authority (CMA). The parties must submit the required documents to the authorities, including a share purchase agreement, audited financial statements, and other relevant documents.

Foreign investment restrictions: Certain industries in Saudi Arabia are restricted or closed to foreign investment. The parties must ensure compliance with these restrictions and obtain any necessary approvals or licenses.

Anti-trust regulations: transactions may be subject to anti-trust regulations, which prohibit anti-competitive behavior. The parties must ensure that the transaction does not result in a dominant market position or otherwise violate anti-trust laws.

Employment laws: M&A transactions may have implications for the employment of staff of the target company. The parties must comply with Saudi Arabia’s employment laws and ensure that staff is treated fairly and appropriately during the transaction and integration process.

Tax laws: The parties must ensure compliance with Saudi Arabia’s tax laws and seek appropriate advice to manage any tax implications of the transaction.

Intellectual property rights: The parties must ensure that any intellectual property rights associated with the target company, such as patents, trademarks, and copyrights, are transferred adequately as part of the transaction.

Contractual obligations: The parties must carefully review any existing contracts or agreements of the target company to ensure that the transaction does not violate any contractual obligations.

It is important to note that the above list is not exhaustive, and the exact legal requirements will depend on the specific circumstances of the M&A transaction. Therefore, it is recommended that the parties seek legal and financial advice to ensure compliance with all applicable laws and regulations.

 

Suhaib Hammad and Rakesh Bassi have presented a comprehensive analysis and insightful perspectives on strategic mergers and acquisitions in the Saudi Arabian market. Their expertise and acumen in this field are evident in the thought-provoking insights and valuable contributions that this article offers. Should you wish to engage in further discussions or seek clarifications, please reach out to the authors on info@hmco.com.sa

 

An Insight into Kuwait’s Economic Market

Posted on April 3, 2023 - 2:33 pm by

Situated at the tip of the Persian Gulf, Kuwait is a small but fascinating oil-rich nation, with a population of just over 4 million people. Before its reinvention as a global oil supplier, it was a busy trade port, connecting merchants and traders between ancient Mesopotamia, Persia, and India. Today, Kuwait is considered one of the most prosperous countries in the Middle East – it has one of the highest GDPs per capita and is a major player in the global oil industry.

It currently holds around 7 percent of the world’s oil reserves and is one of the wealthiest nations in the region. But there is more to modern-day Kuwait than just oil. In this article, we will explore some of the exciting investment opportunities that Kuwait has to offer.

Exploring Kuwait’s Economic Opportunities

There are plenty of reasons why Kuwait should be on the radar of investors. Thanks to its long history of oil production, Kuwait has benefited from a stable economic foundation on which to build further prosperity. Here are some of the economic opportunities Kuwait has to offer:

Infrastructure Development. Kuwait’s government is making enormous investments in infrastructure projects, aiming to build a new subway system and modernize its airport in the coming years.

Oil-backed economy. While Kuwait makes gains in developing other economic sectors, its significant oil reserves provide investors with a stable economic foundation for investment.

Politically stable. Kuwait ranks well in terms of political stability, providing a beacon of security among the turbulent political climates of other countries in the region.

Business-friendly. Kuwait has created a business-friendly atmosphere, with its open economy characteristics, favorable taxes, and an active venture capital market.

Kuwait’s Most Well-Developed Sectors

Kuwait boasts a diversified economy and is home to some of the most innovative start-ups and modern business ventures in the Middle East. The government has made considerable strides towards liberalizing the economy, making it easier to invest and start businesses. Let’s take a look at some of the most profitable opportunities (outside of the oil sector) in Kuwait.

Renewable Energy

With the increasing demand for electricity and the growing threat of global warming, Kuwait has invested heavily in renewable energy sources. With a goal of 15% of its energy needs being supplied by renewable sources by 2030, solar and wind projects are featuring prominently in Kuwait’s energy sector.

Finance

Kuwait boasts a flourishing banking sector, making it an attractive option for investors looking to take advantage of its highly competitive financial services industry. Regional and international banking institutions are well-established here, so businesses in the finance domain will find all that they need to explore the market.

Technology

As the government seeks to digitize the nation’s healthcare system and bring its other industries up to international standards, technology and ICT companies are finding excellent opportunities for growth in Kuwait. Cybersecurity, mobile application development, and software development are some of the most in-demand industries in the country.

Real Estate

Although Kuwait is a small nation, demand for housing is beginning to pick up pace. The government has recently started to devote its resources to the development of this sector, creating even more attractive opportunities for investors.

Kuwait’s Trade Relationship with Saudi Arabia

Kuwait and Saudi Arabia have a long history of trade ties, with Kuwait often serving as the gateway to regional markets. The two countries share many cultural and economic similarities, making Kuwait an ideal partner for Saudi businesses and investors.

The United Nations COMTRADE database on international trade has revealed that Saudi Arabia’s imports from Kuwait totaled US$566.55 million in 2021, and in the same year, Kuwait imported US$149.89 Million in goods from Saudi Arabia. KSA primarily imports petroleum-related products, paper, iron, and steel from Kuwait, whereas Kuwait largely imports Saudi dairy products, plastics, and soaps.

Kuwait: A Strategic Investment Hub

For investors with an eye for the Middle East, Kuwait is an obvious choice. With its strong economic fundamentals and strategic location, Kuwait provides investors with a stable opportunity to diversify their portfolios. Non-GCC, foreign-owned companies can own 100% of their subsidiary in Kuwait with approval from the Kuwait Direct Investment Promotion Authority (KDIPA). Alternatively, non-GCC foreign investors may join forces with a local Kuwaiti partner and own up to 49% of the company. There is no double taxation treaty between Kuwait and KSA, however, Gulf nationals are not required to pay corporate or personal income tax in Kuwait. Except for the requirement to retain 5% of the contract or transaction value by entities in Kuwait on payment to any incorporated body (which will be released at the presentation of a tax clearance certificate), Kuwait does not have any other form of withholding tax regime on payments made by residents to a non-resident.

Foreign Investors Can Invest in Eight Listed Companies

Posted on May 19, 2021 - 7:55 pm by

Investors will be able to invest in eight companies and funds following the abolition of the ban on foreigners owning shares in the companies located in the Two Holy Mosques.

Previously, the companies and funds in which foreign investors could not own shares were: Jadwa Reit Alharamin, Masher Reit, Mefic Reit, Bonyan Reit, Taiba, Mecca, Jabal Omar, and Madinat Almarifa. Foreign investors include all individuals and companies who are non-Saudis.

Before it was amended, the law banned non-Saudi investors from investing in companies that lay within Mecca and Medina’s remits in any way other than ownership by inheritance.

Venture Capital KSA E-Commerce Investment

Posted on May 11, 2021 - 9:24 am by

The M&A team at Hammad & Al-Mehdar advised VentureSouq and its managed funds as lead investor in the $30.5m Series B equity financing of Sary, a Saudi-based B2B marketplace connecting small businesses with wholesalers and lenders.

The HMCo team was led by partner Abdulrahman Hammad, and included Samy Elsheikh, Tarek Bilani, and Dina Golfaridan.

Fintech Companies Allowed to Join Payment System

Posted on May 6, 2021 - 6:50 pm by

Saudi Arabia’s Central Bank has announced that Fintech companies can join the national Mada payment system. Saudi Payments said the companies STC Pay and Geidea had joined the network as the first two non-banking companies to join the service.

The aim is to enable financial companies to support the private sector and establish a financial infrastructure. The licenses given to the Fintech companies mean they can issue digital and plastic Mada payment cards to enable customers to make payments online or withdraw money. They will also provide hosting services for Point of Sale devices to merchants directly and provide them with Point of Sale devices with complete services. To learn more, contact us.

50 Year Tax Holiday and Unrestricted Foreign Ownership, Saudi Arabia Launches its First Free Zone

Posted on April 4, 2021 - 9:19 am by

In October 2018, a Royal decree was issued approving the regulatory framework for an “Integrated Logistics Bonded Zone” (“ILBZ”) and had assigned its establishment and operation to the General Authority for Civil Aviation (“GACA”) as the Zone Governing Body. GACA has now launched Saudi Arabia’s first ILBZ, which serves as the pilot project in following His Royal Highness Crown Prince Mohammed bin Salman’s Vision 2030 to transform Saudi Arabia’s strategic location into a transportation and logistics hub connecting three continents – Europe, Asia, and Africa. This complies with the major strategic plan of Saudi Arabia to become one of the ten largest city economies in the world.

The ILBZ will be located next to King Khalid International Airport in Riyadh. The three million-square-meter zone is strategically located to serve more than 650 million customers across Africa, Asia, and Europe, linking them through King Khalid International Airport and the domestic and regional markets via the Saudi Land-Bridge Railway crossing Riyadh, and dry ports surrounding King Khalid International Airport.

The ILBZ will enjoy special rules and regulations aiming at attracting more multinational companies to the Kingdom. The zone development offers a significant opportunity for international companies to strengthen their operations, efficiency, and market reach. Prospective incentives that Saudi Arabia will provide to the multinational companies establishing operations at the ILBZ will include:

  • A 50-year Tax Holiday to include VAT suspension while under customs suspension;
  • zero-rated corporate, income and withholding tax on certain payments;
  • 100% business ownership (no restrictions on the private ownership of assets, including intellectual property);
  • 100% suspension of customs and import restrictions; and
  • no restrictions on foreign borrowing and capital repatriation.

The ILBZ offerings are tailored for multinational companies, supporting a wide range of activities and facilities, including aviation facilities, cargo handling, warehousing and fulfillment, inventory management, maintenance and repairs, staging, testing, and assembly, government-sponsored training programs, and advanced cargo-tracking technology, alongside a Government Services Office in the ILBZ to serve as a one-stop-shop to obtain any government services for the investors.

By serving as a unified hub where companies can engage in these activities and access a vast network of transportation corridors by air, land, and sea, the ILBZ is expected to enable the Kingdom of Saudi Arabia to become a global logistics hub increasingly central role in world trade.

Enactment of the ADGM Data Protection Regulations 

Posted on March 25, 2021 - 7:39 am by

The Abu Dhabi Global Market (the “ADGM”) has now enacted its Data Protection Regulations on 14 February 2021 (the “ADGM Data Protection Regulations”). The ADGM requires entities to adopt with the published ADGM Protection Regulations within 12 months for existing establishments and 6 months for new establishments starting from 14 February 2021.

The ADGM Data Protection Regulations are available on the ADGM official portal. Read more>>

Unique Opportunities for Startups: Saudi Arabia Invests $1 Billion

Posted on January 13, 2020 - 4:12 pm by

Recently, Saudi Arabia used its ‘Public Investment Fund’ to launch a venture called Jada, worth $1.07 billion. Here’s some information on the news, in addition to how it affects potential startups.

Introduction to Jada
Jada is planning on investing in both private equity funds and venture capital. The company is looking to add a spark for SME investment in addition to getting some extra jobs going in the region for those who live in the country. There was a ceremony that launched the company in Riyadh on a Tuesday. Those associated with the fund announced that Jada would also invest in companies like Raed Ventures and Vision Ventures.

Jada is now known as the “fund of funds” as a result of the press. The expectation is that the fund will create 2,600 new jobs and add a hundred million dollars USD to the GDP by the end of the year in 2020. The expectation is that this will only continue to rise throughout the years, with the projection going all the way up to 58,000 jobs and billions of dollars by the end of 2027. This is only one of the options that the Public Investment Fund, or PIF, is focusing on for increasing wealth in the region.

Jada, The PIF, and Saudi Arabia’s Plans
The belief is that the PIF has as much as $180 billion in assets. The plan appears to be to use this to create reforms economically that will reduce how much Saudi Arabia has to depend on foreign oil exports as well as, potentially, other foreign exports. The goal appears to be to use some of the money from oil in the region, such as a few percentage points of the funds in Aramco, to start stimulating non-oil companies in the private sector to keep the fund’s assets growing throughout the world and stimulating the economy in the region.

One of the sources of this insight into how the fund will be used comes directly from the Crown Prince Mohammed Bin Salman, who said that they hope to use from half up to more than two-thirds of the fund to invest domestically. In other words, Jada is only one piece of the whole puzzle, which is pointing towards some of the most significant opportunities coming from a country’s government funding that startups throughout the world had ever seen.
In the recent past, in addition to Jada, the PIF has added as much as $45 billion in investments for SoftBank technology, for example. They also had $20 billion to invest in Blackstone in the U.S., related to their infrastructure.

The PIF has even announced schemes to create new projects in Medina and Mecca and to even work on the waterfront of Jeddah in terms of real estate. On top of all that, the PIF will be the chief investor for a 129 square mile block of land in Riyadh, which is being described as an “entertainment city.” It will be full of recreational buildings and cultural opportunities.

Opportunities
All this is to say that Jada is just one of the ventures that Saudi Arabia is using to expand its investments. There is money coming from Jada, which will be specifically used on startup companies, and other investments will be used in other sectors as well, including entertainment and real estate.

Along with Jada, Saudi Arabia also has a vast IT market, and the country has announced partnerships leading to 4 Billion in the initiative over the next five years.
Therefore, regardless of what sector a startup is focused on, there’s a good chance that there will be money available for using it to develop some aspect of Saudi Arabia, including potentially both from Jada and from other parts of the PIF. This includes the Jeddah Waterfront Corniche for real estate, tourism, and commercial projects that will begin construction between now and the end of 2022, for example. It will include Riyadh metro projects designed to relieve the congested capital, which is ongoing over the next four years, the Kingdom Tower in Jeddah, the Red Sea Beach Tourism Project, and many others besides.

Each of these projects will no doubt have essential requirements in all sectors connected to them. It won’t just be craned physically moving dirt around; it will be recreation vendors of all sorts to expand the tourism of the area, for example. Saudi Arabia is very interested in reducing its reliance on oil, and the Red Sea Beach Tourism Project, in particular, is focused on more than 50 islands that will become tourist areas withdraws of just about anything one can imagine in the department of vacationing and recreation.

The key will be in finding inroads with the Saudi government to see how a company’s particular assets and skills could be of use to the Saudi government to connect into one of these many projects that start with Jada but branch out endlessly from there in all directions.

Taking Advantage
For startups to take advantage of the enormous potential of this investment fund, they are going to need lawyers who are highly familiar not only with the law in Saudi Arabia and how the climate works there but specifically with this particular field. Firms that have much experience in these two aspects of the deal are going to be vital in assisting SMEs and startups with gaining access to these funds and thriving in that environment.

With this in mind, please don’t hesitate to go ahead and contact HMCO today. They have the experience required in Saudi Arabia, and with this particular law and financial situation to make sure that your startup will gain the funds it needs to go on to succeed. The quicker you contact them, the faster your success will be assured, and the more likely you’ll be able to make use of the Kingdom’s funds for mutual success all around.

It’s important not to hesitate since the projects from Jada and beyond are all happening right now.

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