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١٥ /٩ /٢٠١٧ Governing Law and Dispute Resolution Provisions
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Home > Middle East & Africa > Litigation, Mediation &
Arbitration
Last Updated: 19 March 2010
Article by Nicholas Diacos
Al Tamimi & Company
Saudi Arabia: Governing Law and Dispute Resolution
Provisions for Commercial Agreements
For the reasons set out in this article, it is even more important
in the Kingdom of Saudi Arabia ("KSA"), than in most other
jurisdictions, to carefully consider the wording of governing
law and dispute resolution provisions in commercial
documentation
involving foreign parties.
Governing Law Provisions

It has been common practice in KSA for major commercial and
project transaction documentation, involving foreign parties, to
nominate English law as the governing law. This is consistent
with international practice because English law is widely
understood within the international commercial community.
However in KSA the choice of English law as the governing law
may not always be in the best interests of the parties.
Under the Basic Law of Governance of KSA ("Basic Law") the
fundamental law of KSA is the Shari'ah. The Shari'ah is a
collection of principles derived from different sources but
principally the Holy Quran and Sunnah (the witnessed sayings
and
actions of the Prophet Mohammad, peace be upon him). The
government also issues laws particularly for commercial,
administrative and business applications that under the Basic
Law have to be consistent with the Shari'ah. Accordingly KSA
courts, as a policy, generally only apply KSA law, regardless of
the choice of governing law of the parties.
Not only does this mean that any choice of foreign law in a
governing law provision may be totally ineffective, but it may
also
result in the parties not addressing any implications arising
from the application of KSA law in the mistaken belief that it
will not
be applicable. This is regrettable as it is better that the issues
arising, for instance, from an inability to claim interest under
the
Shari'ah, be resolved at the outset of the transaction rather than
when the parties are in dispute.
There will be situations where the choice of a foreign law as the
governing law is more appropriate. A common example are
KSA transactions which involve parties and/or assets in more
expedient jurisdictions in which to resolve a dispute and obtain

recourse. In those cases choosing the law of that jurisdiction, as
the governing law, is usually preferable.
Dispute Resolution Provision
It is also common practice in KSA, in respect of major
commercial and project transactions, involving foreign parties,
that
dispute resolution provisions nominate foreign courts or foreign
arbitral tribunals as the agreed dispute resolution forum.
The main reasons for this are the lack of certainty, and
consequent lack of confidence, in the KSA court and arbitral
system
which arises from the following:
As the Shari'ah is the fundamental law of KSA the courts (with
one exception discussed below) will not enforce any
contractual provisions that are inconsistent with the Shari'ah
such as interest, the waiver of future rights, or the treatment
of money as a commodity, for instance in foreign exchange
contracts.
There is no doctrine of precedent in KSA and accordingly a
court may deliver a decision totally contrary to its prior
decisions. In any event as there is no court reporting system or
centrally accessible database of decisions it is difficult to
predict the attitude of the court.
As most judges are Shari'ah scholars, without formal legal
training, there are instances where they may not predictably
interpret secular law.
The Board of Grievances ("BG") which has the principal
commercial jurisdiction in KSA has a long court list. It takes a
minimum of 2-3 years from commencement to judgment.

The KSA arbitration law requires that each arbitration be
supervised by the court that would normally have jurisdiction.
The parties can appeal to that court from any decision. There
are no commonly accepted arbitral rules or centers.
Accordingly arbitration can often be lengthy, lack finality
because of the right of appeal and be expensive.
Despite the above issues in many instances it is still more
appropriate for the parties to specify that Saudi courts have at
least
non-exclusive jurisdiction for the following reasons:
As explained further in this article, the enforceability of foreign
judgments in KSA can be problematic.
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If the choice of a KSA forum is on a non-exclusive basis the

parties have maximum flexibility as they can resolve their
disputes in a foreign jurisdiction should it be more appropriate
to do so at that time, for instance if either party and/or
assets are in a foreign jurisdiction.
Enforceability of Foreign Judgments in Saudi Arabia
Pursuant to article 8 (1) (g) of Royal Decree No. 10/51 dated
17/7/1402 (H) [11/5/1982 (G)] ("Grievances Board Law"), the
BG
has jurisdiction for the enforcement of foreign judgments in
KSA. Article 6 of the Rules of Pleadings and Proceedings of the
Grievance Board pursuant to Council of Ministers Resolution
No. 190 dated 16/11/1409 (H) [20/6/1989 (G)] ("Rules")
specifies
the requirements that must be satisfied for enforcement of a
foreign judgment in KSA.
The BG must be satisfied that the jurisdiction in which the
foreign judgment was made will reciprocally enforce judgments
of
KSA courts and the judgment is consistent with the law of KSA.
In the past it has proven difficult to satisfy these criteria for the
following reasons:
There are no guidelines from the BG nor is there any doctrine of
precedent in KSA to give guidance as to how these
criteria can be satisfied.
As there is no doctrine of precedent in KSA, previous decisions
where the criteria have been satisfied are not binding on
the BG and in any event because there is no system of court
reporting are not often available.
As judges are usually not lawyers but Shari'ah scholars they
may not be familiar with the principal reciprocal enforcement

treaties to which KSA is a party.
As foreign judgments will often have an interest component and
other aspects inconsistent with KSA law, the BG may
sever that part of judgment or decline to enforce the judgment
entirely.
However, in respect of lending transactions there is a quasi
judicial tribunal, the Special Committee for the Resolution of
Banking Disputes ("Committee") (comprising at least two
members with banking experience) operating under the auspices
of
the Saudi Arabian Monetary Agency ("SAMA").
The Committee has a reputation for being pragmatic and has in
the past awarded compensation equivalent to interest claims
made by banks. It will also generally recognise other
transactions that would be considered "haram" by the BG and
unenforceable such as foreign exchange contracts and option
agreements, provided they are part of a banking transaction.
Clearly for banks recovering interest or in respect of other
haram transactions, the preferable course is to nominate the
Committee as the agreed forum rather than a foreign tribunal,
because the foreign judgment would have to be enforced before
the BG.
For the above reasons we recommend where the principal
enforcement in any dispute arising from a transaction is
contemplated against a party and/or asset in KSA, or involves a
bank, the dispute resolution provision include the courts and
tribunals of KSA, at least, on a non-exclusive basis.
Preferred Foreign Forums
If for whatever reason the parties wish to have a dispute

resolution forum outside KSA it is preferable, ideally, that the
forum be
within a GCC state or otherwise within an Arab League state.
This is because the three reciprocal enforcement treaties to
which KSA is a party in two cases exclusively relate to either
GCC or Arab League states and in the third case only apply to
arbitral awards.
Reciprocal Enforcement Treaties
KSA is a party to the 1983 Convention on Judicial Co-operation
between the States of the Arab League ("Riyadh Convention"),
the 1995 Protocol on Enforcement of Judgments Letters
Rogatory and Judicial Notices issued by the Courts of the
Member
States of the Arab Gulf Co-operation Council ("GCC Protocol")
and the 1958 Convention for the Recognition and Enforcement
of Foreign Arbitral Awards ("New York Convention").
In the Riyadh Convention, article 37 provides that arbitral
awards and judgments from Originating States will be
recognised and
enforced in Recipient States subject to certain exceptions.
The GCC Protocol provides similar reciprocal enforcement
arrangements for arbitral awards and judgments between GCC
states.
The New York Convention, in respect of arbitral awards, was
adopted by Royal Decree No. M/11 dated 16/7/1414 (H)
13/12/1993 (G). This provides for the recognition of
enforcement of arbitral awards between member states. The
New York
convention also sets out criteria by which a member state can
decline to enforce an arbitral award, in particular the "public
policy" exception in article 5.

KSA has in the past invoked the "public policy" exception set
out in article 5 whereby a member state may decline to
recognise
or enforce an arbitral award contrary to the public policy of that
member state. In KSA this exception has been raised where the
arbitral award is inconsistent with KSA law in particular the
Shari'ah.
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Conclusion
Too often, little attention is paid to the governing law and
dispute resolution provisions in major commercial agreements
involving foreign parties in KSA. As outlined above, in KSA it
is particularly important that the parties direct their attention to
these provisions and make informed choices. This will
inevitably be more efficient than enforcing an agreement, with
less than
optimum governing law or dispute resolution provisions, when
the parties are in dispute.
The content of this article is intended to provide a general guide
to the subject matter. Specialist advice should be sought about
your specific circumstances.
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Week 3 questions
1.- Please name and explain the functions of the Membrane
proteins.
2.- Please explain the passive transport. Give an example. What
is the difference between passive and active transport.
3.- What are the functions of gap junctions, and
the tight junctions?

4.- Cells in multicellular organisms that respond to a chemical
signal from other cells in the same organism are called:
a) Transmitter cell. b) Target cell. c) Signaling
cells. d) None of the above.
Week 3 lab question
1.-What is the difference between solvent and solute?
2.- What happens to a red blood cells if they are exposed to an
isotonic environment? Why?
3.- What is diffusion and what is osmosis?
4.- What does Plasmolysis means?
١٥ /٩ /٢٠١٧ The Role Of Shari'a Law On The Enforcement Of
Arbitral Awards In The Kingdom Of Saudi Arabia - Litigation,
Mediation & Arbitration - Sau…
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Arbitration
Last Updated: 3 October 2016
Article by Abdulkadir Guzeloglu
Guzeloglu Attorneys-at-law
Saudi Arabia: The Role Of Shari'a Law On The Enforcement
Of Arbitral Awards In The Kingdom Of Saudi Arabia
Article 55 of the Arbitration Law of the Kingdom of Saudi
Arabia (Royal Decree No M/34) seeks not only compliance with
the
public policy rules of the Kingdom but also with the rules of
Shari'a Law in order to recognize and enforce a foreign arbitral
award. Hence, the question is whether or not Saudi Arabia has
imposed more onerous conditions on parties' shoulders for the
enforcement of arbitral awards than those stipulated under New
York Convention by seeking compliance with the Shari'a law.
I. Introduction
There is no question that today business world recognizes no
boundaries; where an "international transaction" virtually
converted into a regular operation. In alliance with this fact,
arbitration has become an exceptionally popular dispute
settlement
mechanism, for it succeeded to eliminate jurisdictional
boundaries to an outstanding extent while maintaining a binding
and
enforceable outcome in the end. That being said, "outstanding
extent" does not cover an entirety. States still exercise a
significant control over arbitration proceedings, may it be

through the mandatory rules of lex arbitri, the supervision and
assistance of the state courts or the recognition and enforcement
of an arbitral award.
It is interesting to examine states' authority over the recognition
and enforcement of foreign arbitral awards within the
perspective of the Saudi Arabian legal system1, by examining
its implementation of the public policy exception provided
under
the New York Convention.2
II. Recognition and Enforcement of Foreign Arbitral Awards
To be able to resort to available legal channels to ensure the
performance of an arbitral award, first, the award in question
needs to be recognized and enforced by the respective state
where the performance is being sought.3 In other words, states
hold the ultimate power to render an award legally enforceable
within their jurisdiction. Naturally such substantial power calls
for an explicit framework in order to avoid unpredictability and
dissimilar practices. The New York Convention, with 149
member states4, is the key international legal instrument for the
purposes of setting international standards for the recognition
and enforcement of foreign arbitral awards.
Under Article V5 of the NY Convention, circumstances where
an arbitral award may be refused are laid down ("grounds for
refusal"), according to these the violation of the public policy
of the state where the enforcement is sought, among others, is
recognized to be of such nature. That being said, it should be
stressed that the grounds for refusal are exhaustive; meaning
that no circumstances outside the scope of those listed shall be
deemed as a valid ground for non-recognition and enforcement

III. Public Policy Exception
Due to the fact that each state is different in its social,
economic and legal background; their application of the very
same legal
text may result in rather different outcomes. Indeed, when it
comes to "public policy" provisions of many international texts,
said
discrepancy grows even further since the norm itself embodies a
large scale of ambiguity and there exists no clear and
comprehensive uniform definition6.
In that respect, the Arbitration Law dated 2012 of the Kingdom
of Saudi Arabia certainly raises some questions given that
Article 55 seeks not only compliance with the public policy
rules of the Kingdom but also with the rules of Shari'a Law in
order
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to recognize and enforce a foreign arbitral award. Hence, the
question is whether or not Saudi Arabia has imposed more
onerous conditions on parties' shoulders than those stipulated
under New York Convention by seeking compliance with the
Shari'a law.
IV. Saudi Arabian Legal System and the Public Policy
Shari'a Law is the principal source of legislation in Saudi
Arabia7. Saudi Arabian government issues laws and regulations
only if
these do not conflict with the established principles of Islamic
law, as they are held preeminent and sacred. In this vein,
established Islamic rules are respected in Saudi Arabia to be the
rulings of God, as opposed to creation of mankind. Hence,
these established Shari'a rules are held higher than any other
rule issued by the Saudi Arabian government. As a result, the
obligatory provisions of the Shari'a law form part of Saudi
Arabia's public policy.8 In other words, public policy in Saudi
Arabia
encompasses the mandatory principles of Sharia law. Therefore
the explicit indication of 'Sharia Law' under Article 55 becomes
only indicative rather than prescriptive since the public policy
of Saudi Arabia already includes the mandatory terms of Sharia
Law.
In this regard, if one considers the wording of the Article 55 as

a setback against the enforcement of an arbitral award in Saudi
Arabia, no resolution can be produced as the position of Sharia
Law is manifestly resolute in the Kingdom and it is not realistic
to expect it to be changed. Indeed, some of the prohibitions in
Islamic commercial law such as interest (riba), avoidance of
excessive risk (gharar), avoidance of transactions based on luck
or chance (maisir)9 may be difficult to relate in other legal
systems, but they are all based on a specific rationale and
constitutes a part of Kingdom's public policy rules. Hence the
issue
here is not the rules themselves but how these Sharia rules are
implemented as a 'public policy' exception.
The focus should be brought on how the rules on public policy
are perceived and applied in the enforcement procedure of an
international arbitration award. It is often voiced that the
Kingdom should implement a more transparent case law and
codify
the established Sharia rules categorically10 in order to avoid
any arbitrary practice, encourage consistent rulings and secure
legal certainty. If the rules are persistently applied in this
transparent manner, necessary precautions may be taken by the
arbitrators, such as rendering an award that is separable in its
parts which may potentially be considered to be in violation of
Saudi Arabian public policy rules so that the rest of the award
remains executable.
V. Conclusion
The main purpose of the New York Convention is to facilitate
recognition and enforcement of foreign arbitral awards in the
contracting states. Therefore, in order to achieve a universally
harmonized infrastructure of recognition and enforcement, the
'public policy' exception is meant to be narrowly interpreted. In
this regard, the fact that Saudi Arabia seeks compliance with its
Sharia rules, should not be a source of distress for actors of

other legal systems as long as the public policy exception is
implemented in a transparent and systematic manner, in
accordance with the purpose of the New York Convention,
respecting
the 'international' feature of the dispute in question. It should
not be disregarded that the task resides not only with Saudi
Arabia but each New York Convention signatory state to apply
public policy exception in accordance with the spirit of the
instrument.
Footnotes
[1] Saudi Arabia is recognized to be the home for the first
written constitution in the world, Medina Charter, which was
promulgated for a plural society,
granting equal rights to every citizen.
[2] The Convention on the Recognition and Enforcement of
Foreign Arbitral Awards (1958)
[3] Alfons, Claudia. Recognition and Enforcement of Annulled
Foreign Arbitral Awards: An Analysis of the Legal Framework
and Its Interpretation in Case
Law and Literature, Peter Lang, 2010, p.17.
[4] As of 2013: http://www.newyorkconvention.org/contracting-
states, retrieved on 17.07.2015.
[5] Under Art. 5 of New York Convention, the grounds for
refusal are, in summary, incapacity of the parties to the
arbitration agreement, invalidity of the
arbitration agreement, violation of due process or right to be
heard, the award being ultra petita and infra petita, improper
composition of the arbitral
tribunal, non-compliance with the relevant arbitration
procedure, setting aside of an award, non-arbitrability of the

matter or violation of public policy
under the laws of the state where the enforcement is being
sought.
[6] Belohlavek, Alexander J. Arbitration, Ordre Public And
Criminal Law. Bilingual Edition (English, Russian) Interaction
of Private and Public
International and Domestic Law. Vol. 2 (of 3 publ.), Kyiv,
Taxon, 2009.
[7] 'Saleem, Abdulrahman Mamdoh. A Critical Study on How
the Saudi Arbitration Code Could Be Improved and on
Overcoming the Issues of Enforcing
Foreign Awards in the Country as a Signatory State to The New
York Convention '.CEPMLP Annual Review, Vol. 16, 2013.
[8] Childs, Thomas. Egypt, Syria and Saudi Arabia Enforcement
of foreign arbitral awards in Egypt, Syria and Saudi Arabia,
Arbitration Newsletter, 2010.
Retrieved on 28.01.2016, from:
http://www.kslaw.com/imageserver/kspublic/library/publication/
9-10arbitrationcommitteenewsletterchilds.pdf
[9] Garner, James M. A Critical Perspective on the Principles of
Islamic Finance Focusing on Sharia Compliance and Arbitrage.
Leeds Journal of Law &
Criminology, Vol. 1, No. 1. Retrieved on 28.01.2016, from:
http://criminology.leeds.ac.uk/files/2013/09/Islamic-Finance-
Principles_Garner.pdf
[10] "In addition Saudi judges have had wide discretion to issue
rulings according to their own interpretation of Sharia law, and
the judiciary has long
resisted the codification of laws or the reliance on precedent
when making rulings. From a practical standpoint a party
seeking to enforce a foreign

arbitral award against a party domiciled in KSA faces a number
of significant challenges which relate to KSA's judicial system
and its strict adherence to
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Sharia law. One area in which the Regulations fail to improve
matters, however, is the enforcement of foreign awards in KSA,
which to date has been an
uncertain prospect. Although the Regulations affirm that the
courts will have due regard to KSA's obligations under
international agreements, nothing
more is said about enforcing foreign awards" Zegers, Jean-
Benoît and Elzorkany, Omar. Kingdom of Saudi Arabia.
Arbitration Guide IBA Arbitration
Committee, 2014
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Arbitration
Article by Abdulkadir Guzeloglu
Saudi Arabia: The Role Of Shari'a Law On The Enforcement
Of Arbitral Awards In The Kingdom Of Saudi Arabia
Article 55 of the Arbitration Law of the Kingdom of Saudi
Arabia (Royal Decree No M/34) seeks not only compliance with
the
public policy rules of the Kingdom but also with the rules of
Shari'a Law in order to recognize and enforce a foreign arbitral
award. Hence, the question is whether or not Saudi Arabia has
imposed more onerous conditions on parties' shoulders for the
enforcement of arbitral awards than those stipulated under New
York Convention by seeking compliance with the Shari'a law.
I. Introduction

There is no question that today business world recognizes no
boundaries; where an "international transaction" virtually
converted into a regular operation. In alliance with this fact,
arbitration has become an exceptionally popular dispute
settlement
mechanism, for it succeeded to eliminate jurisdictional
boundaries to an outstanding extent while maintaining a binding
and
enforceable outcome in the end. That being said, "outstanding
extent" does not cover an entirety. States still exercise a
significant control over arbitration proceedings, may it be
through the mandatory rules of lex arbitri, the supervision and
assistance of the state courts or the recognition and enforcement
It is interesting to examine states' authority over the recognition
and enforcement of foreign arbitral awards within the
perspective of the Saudi Arabian legal system1, by examining
its implementation of the public policy exception provided
under
the New York Convention.2
II. Recognition and Enforcement of Foreign Arbitral Awards
To be able to resort to available legal channels to ensure the
performance of an arbitral award, first, the award in question
needs to be recognized and enforced by the respective state
where the performance is being sought.3 In other words, states
hold the ultimate power to render an award legally enforceable
within their jurisdiction. Naturally such substantial power calls
for an explicit framework in order to avoid unpredictability and
dissimilar practices. The New York Convention, with 149
member states4, is the key international legal instrument for the
purposes of setting international standards for the recognition
and enforcement of foreign arbitral awards.

Under Article V5 of the NY Convention, circumstances where
an arbitral award may be refused are laid down ("grounds for
refusal"), according to these the violation of the public policy
of the state where the enforcement is sought, among others, is
recognized to be of such nature. That being said, it should be
stressed that the grounds for refusal are exhaustive; meaning
that no circumstances outside the scope of those listed shall be
deemed as a valid ground for non-recognition and enforcement
III. Public Policy Exception
Due to the fact that each state is different in its social,
economic and legal background; their application of the very
same legal
text may result in rather different outcomes. Indeed, when it
comes to "public policy" provisions of many international texts,
said
discrepancy grows even further since the norm itself embodies a
large scale of ambiguity and there exists no clear and
comprehensive uniform definition6.
In that respect, the Arbitration Law dated 2012 of the Kingdom
of Saudi Arabia certainly raises some questions given that
Article 55 seeks not only compliance with the public policy
rules of the Kingdom but also with the rules of Shari'a Law in
order
81
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to recognize and enforce a foreign arbitral award. Hence, the
question is whether or not Saudi Arabia has imposed more
onerous conditions on parties' shoulders than those stipulated
under New York Convention by seeking compliance with the
Shari'a law.
IV. Saudi Arabian Legal System and the Public Policy
Shari'a Law is the principal source of legislation in Saudi
Arabia7. Saudi Arabian government issues laws and regulations
only if
these do not conflict with the established principles of Islamic
law, as they are held preeminent and sacred. In this vein,
established Islamic rules are respected in Saudi Arabia to be the
rulings of God, as opposed to creation of mankind. Hence,
these established Shari'a rules are held higher than any other

rule issued by the Saudi Arabian government. As a result, the
obligatory provisions of the Shari'a law form part of Saudi
Arabia's public policy.8 In other words, public policy in Saudi
Arabia
encompasses the mandatory principles of Sharia law. Therefore
the explicit indication of 'Sharia Law' under Article 55 becomes
only indicative rather than prescriptive since the public policy
of Saudi Arabia already includes the mandatory terms of Sharia
Law.
In this regard, if one considers the wording of the Article 55 as
a setback against the enforcement of an arbitral award in Saudi
Arabia, no resolution can be produced as the position of Sharia
Law is manifestly resolute in the Kingdom and it is not realistic
to expect it to be changed. Indeed, some of the prohibitions in
Islamic commercial law such as interest (riba), avoidance of
excessive risk (gharar), avoidance of transactions based on luck
or chance (maisir)9 may be difficult to relate in other legal
systems, but they are all based on a specific rationale and
constitutes a part of Kingdom's public policy rules. Hence the
issue
here is not the rules themselves but how these Sharia rules are
implemented as a 'public policy' exception.
The focus should be brought on how the rules on public policy
are perceived and applied in the enforcement procedure of an
international arbitration award. It is often voiced that the
Kingdom should implement a more transparent case law and
codify
the established Sharia rules categorically10 in order to avoid
any arbitrary practice, encourage consistent rulings and secure
legal certainty. If the rules are persistently applied in this
transparent manner, necessary precautions may be taken by the
arbitrators, such as rendering an award that is separable in its
parts which may potentially be considered to be in violation of
Saudi Arabian public policy rules so that the rest of the award

remains executable.
V. Conclusion
The main purpose of the New York Convention is to facilitate
recognition and enforcement of foreign arbitral awards in the
contracting states. Therefore, in order to achieve a universally
harmonized infrastructure of recognition and enforcement, the
'public policy' exception is meant to be narrowly interpreted. In
this regard, the fact that Saudi Arabia seeks compliance with its
Sharia rules, should not be a source of distress for actors of
other legal systems as long as the public policy exception is
implemented in a transparent and systematic manner, in
accordance with the purpose of the New York Convention,
respecting
the 'international' feature of the dispute in question. It should
not be disregarded that the task resides not only with Saudi
Arabia but each New York Convention signatory state to apply
public policy exception in accordance with the spirit of the
instrument.
Footnotes
[1] Saudi Arabia is recognized to be the home for the first
written constitution in the world, Medina Charter, which was
promulgated for a plural society,
granting equal rights to every citizen.
[2] The Convention on the Recognition and Enforcement of
Foreign Arbitral Awards (1958)
[3] Alfons, Claudia. Recognition and Enforcement of Annulled
Foreign Arbitral Awards: An Analysis of the Legal Framework
and Its Interpretation in Case
Law and Literature, Peter Lang, 2010, p.17.

[4] As of 2013: http://www.newyorkconvention.org/contracting-
states, retrieved on 17.07.2015.
[5] Under Art. 5 of New York Convention, the grounds for
refusal are, in summary, incapacity of the parties to the
arbitration agreement, invalidity of the
arbitration agreement, violation of due process or right to be
heard, the award being ultra petita and infra petita, improper
composition of the arbitral
tribunal, non-compliance with the relevant arbitration
procedure, setting aside of an award, non-arbitrability of the
matter or violation of public policy
under the laws of the state where the enforcement is being
sought.
[6] Belohlavek, Alexander J. Arbitration, Ordre Public And
Criminal Law. Bilingual Edition (English, Russian) Interaction
of Private and Public
International and Domestic Law. Vol. 2 (of 3 publ.), Kyiv,
Taxon, 2009.
[7] 'Saleem, Abdulrahman Mamdoh. A Critical Study on How
the Saudi Arbitration Code Could Be Improved and on
Overcoming the Issues of Enforcing
Foreign Awards in the Country as a Signatory State to The New
York Convention '.CEPMLP Annual Review, Vol. 16, 2013.
[8] Childs, Thomas. Egypt, Syria and Saudi Arabia Enforcement
of foreign arbitral awards in Egypt, Syria and Saudi Arabia,
Arbitration Newsletter, 2010.
Retrieved on 28.01.2016, from:
[9] Garner, James M. A Critical Perspective on the Principles of
Islamic Finance Focusing on Sharia Compliance and Arbitrage.

Leeds Journal of Law &
Criminology, Vol. 1, No. 1. Retrieved on 28.01.2016, from:
[10] "In addition Saudi judges have had wide discretion to issue
rulings according to their own interpretation of Sharia law, and
the judiciary has long
resisted the codification of laws or the reliance on precedent
when making rulings. From a practical standpoint a party
seeking to enforce a foreign
arbitral award against a party domiciled in KSA faces a number
of significant challenges which relate to KSA's judicial system
and its strict adherence to
http://www.newyorkconvention.org/contracting-states
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Sharia law. One area in which the Regulations fail to improve
matters, however, is the enforcement of foreign awards in KSA,
which to date has been an
uncertain prospect. Although the Regulations affirm that the
courts will have due regard to KSA's obligations under
international agreements, nothing
more is said about enforcing foreign awards" Zegers, Jean-
Benoît and Elzorkany, Omar. Kingdom of Saudi Arabia.
Arbitration Guide IBA Arbitration
Committee, 2014

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١٥ /٩ /٢٠١٧ Introduction To The Legal System Of The Kingdom
Of Saudi Arabia - Corporate/Commercial Law - Saudi Arabia
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Saudi Arabia: Introduction To The Legal System Of The

Kingdom Of Saudi Arabia
Shariah Law
Shariah law underpins the legal framework of the Kingdom.
Shariah law is a set of principles derived from the Quran, the
Hadith (sayings of the Prophet Mohammed) and the works of
jurists and Shariah scholars. In addition to Shariah law, the
Kingdom's legal framework includes laws promulgated by Royal
Orders and Decrees, various ministerial resolutions and
circulars.
The judicial system of the Kingdom comprises a number of
courts and adjudicatory bodies. These include the General
Courts,
the Board of Grievances and various specialised committees,
such as the Committee for the Settlement of Banking Disputes,
the Committee for Resolution of Securities Disputes and the
Committees for the Settlement of Labour Disputes.
Shariah law does not have a doctrine of precedent and each
judge has the power to decide the matter that comes before him
at his sole discretion based on his understanding of Shariah law.
Furthermore, court reports are not published and the
application of Shariah Law is not uniform throughout the court
system.
General Principles of Contract
Contracting parties are free to negotiate the terms of their
contracts unless those terms are prohibited and/or relate to
activities
that are prohibited under Shariah law. There must be no element
of deception or uncertainty in contracts. Where there is
uncertainty as to the fundamental terms of a contract, such as
the subject matter or price, such contracts may be considered

void. Contracts that involve speculation are not permissible and
are therefore considered void. The speculation prohibited
under Shariah law is not general business speculation, but
speculation akin to gambling, particularly gaining something by
chance rather than by a productive effort.
Interest and Fairness in Contract Dealings
According to Shariah law, the payment or receipt of sums in the
nature of interest is not enforceable. It follows that contractual
provisions relating to payment or receipt of interest on sums
loaned or borrowed, even when worded to avoid specific
"interest"
terminology, are unenforceable in the Kingdom. While the
interest provisions are commonly found in contracts between
parties
in practice, they will not be enforced by the Saudi courts in case
of disputes.
Even though interest-related transactions are unenforceable
before the Saudi courts, they are not illegal and are, in certain
cases such as banking related agreements, enforceable before
certain statutory tribunals, such as the Banking Disputes
Committee (see below). As per the Negotiable Instruments
Regulation, the interest on the amount of promissory notes is
considered to be null and void. The Banking Disputes
Committee of the Saudi Arabian Monetary Agency, which deals
with
disputes between banks and their customers, or the Committee
for the Settlement of Negotiable Instruments Disputes, may, in
practice, uphold payments of interest by ordering debtors to pay
gross sums which include interest elements.
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Clauses addressing the consequences of delayed performance
are permitted to be structured on "a percentage of contract
value" basis, but such amounts must not be excessive or penal,
which is determined on a case-bycase basis, if a dispute
arises.
Contracting parties must maintain principles of fairness and
equity in their dealings. Contracts where one party gains

unjustly at
the expense of the other party may be considered void
especially if the party gaining unjustly has a monopoly or
market
dominance in the subject matter of the contract. In each
contract, the commercial substance of the transaction must be
analysed to evaluate whether or not the party's actions would
amount to unjust enrichment under Shariah law.
Power of Attorney
Shariah law does not ordinarily recognise an irrevocable power
of attorney. Under Shariah law, and as a matter of public policy,
a power of attorney is revocable at will by the grantor thereof
even if the grantor has expressed a contrary position in writing
at
the time of granting the power of attorney. It is possible to
grant a revocable power of attorney within the Kingdom to carry
out
almost any activity, bearing in mind that the grantor can revoke
the same at will. A power of attorney must be notarised to be
valid in the Kingdom.
Awards of Damages
Saudi courts and judicial committees generally do not award
damages representing loss of profits, indirect losses or other
forms of consequential loss. Foreign judgments awarding such
damages are at risk of not being enforced. Only direct, proven
economic losses can be recovered. Any contract provision for
liquidated damages should be considered in this context. If
challenged by the party responsible for the payment of
liquidated damages, a Saudi court or judicial committee may not
enforce a contract provision for the payment of liquidated
damages where the agreed liquidated damages are excessive so
as

to amount to a penalty, notwithstanding the fact that the parties
agreed to such a provision.
Conflict of Laws
Shariah law does not recognise the concept of conflict of laws.
Furthermore, Shariah law does not accept the concept of
absence of jurisdiction to rule on a matter that has come before
the court. Therefore, a Saudi court will apply Saudi law to any
dispute before it irrespective of the disputing parties' choice of
foreign law in their contract.
Arbitration
The Arbitration Law of 2012 acknowledges the right of parties
to arbitrate under an institutional set of arbitration rules such as
the ICC or the LCIA rules. The Arbitration Law also recognises
the parties' choice of governing law, language and arbitrators—
as long as the sole arbitrator or president of an arbitration panel
holds a degree in Shariah law. The law provides for a default
arbitration procedure if the parties have not agreed a separate
arbitration agreement. Enforcement of Foreign Judgments
and Arbitral Awards
The Kingdom is a party to the 1958 New York Convention on
the Recognition and Enforcement of Foreign Arbitral Awards
("New York Convention") and, accordingly, a foreign arbitral
award should generally be recognised and enforceable in the
Kingdom under the New York Convention, provided the
conditions to enforcement set out in the New York Convention
and the
rules of the Enforcement Law are met. The Enforcement Law
provides that a foreign judgment or award may only be enforced
in the Kingdom provided that:
the Saudi Arabian courts do not have jurisdiction over the

subject matter of the judgment or award and that the foreign
award or judgment was issued by a competent authority having
jurisdiction under applicable law;
the litigants to the case in respect of which the judgment or
award was issued were given due notice, were properly
represented and were permitted to present their own defense;
the court judgment or award has become final in accordance
with the law of the court or tribunal that passed it;
the court judgment is in no way inconsistent with any judgment
or order previously issued by the Saudi Arabian courts;
and
the judgment does not provide for anything which constitutes a
breach of Saudi Arabian public order, including Shariah
law.
For example, Shariah law does not allow for payment of
interest, so a judgment or award referring to payment of interest
would
not be enforceable in the Kingdom. As a result, it will not be
possible to obtain recognition or enforcement in the Kingdom of
a
foreign judgment in respect of interest payments.
Real Property
Ownership of real estate is evidenced by title deeds. Title
ownership records are administered by designated public
notaries
who also register ownership and record transfers of real
property.
Ownership and investment in real property by non-GCC
nationals is governed by the Regulations on Ownership of and
Investment in Property by Foreigners. A non-GCC investor in
possession of a foreign investment licence from SAGIA may
own

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Marwan Elaraby
Shearman & Sterling LLP
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Marwan Elaraby Sultan Almasoud Sanjarbek
Abdukhalilov
Alexander Bevan
real estate in the Kingdom (excluding land and buildings

located within the limits of the two holy cities of Makkah and
Al-
Madinah) that is necessary to its investment project, including
real property necessary to house the employees.
Retention of Title Clauses
Retention of title clauses, although common in most contracts,
are not legally enforceable within the Kingdom. Additionally,
one
of the features of Shariah law is that the owner of an item bears
the risk of loss or damage in relation to that particular item.
Accordingly, it should be noted that risk of loss or damage
cannot pass unless ownership passes. That said, risk may
actually
pass without ownership passing where either:
a person is in the business of looking
after/protecting/maintaining the asset left in his care; or
the asset is lost or damaged by a negligent/wrongful act.
Patents
The Patent Law, enacted by Royal Decree in 2005, is overseen
by the King Abdulaziz City for Science and Technology. The
law provides protection within the Kingdom for industrial
designs, inventions, layout designs of integrated circuits and
plant
varieties. A Saudi patent is valid for 20 years. As a signatory to
several international conventions, the Kingdom extends patent
protections to foreigners from any World Intellectual Property
Organisation member state.
Trademarks
Under the Trademark Law, protected trademarks include names

of distinct shapes, signatures, words, letters, numbers,
drawings, symbols, stamps and prominent inscriptions or any
other sign or combination thereof that are suitable to distinguish
industrial, commercial, vocational or agricultural products, or
projects to exploit forests or natural resources or to indicate that
the item on which the mark is carried belongs to the owner of
the mark on the grounds of manufacture, selection and invention
thereof or trading therewith or to indicate the rendering of a
certain service.
Items that may not be registered as trademarks include, among
others, public emblems, flags, misleading geographic names,
signs without any specific distinction, signs or drawings
violating Islamic law or those that are inconsistent with public
morality.
Trademark protection in the Kingdom lasts for ten years and
may be renewed. The Ministry of Commerce and Investment
("MOCI") is responsible for trademark registration.
Trade Names
The Trade Names Law protects registered trade names in the
Kingdom by requiring every business operating in the Kingdom
to register its trade name with the Commercial Register at
MOCI and proscribing any other business or individual from
using
registered trade names. Only Arabic or "Arabised" trade names
may be registered, except for companies with foreign
shareholders whose names are registered outside of the
Kingdom or foreign companies seeking to trade under the names
registered in their countries of origin or variations thereof. A
process of pre-registration or name reservation is done via an
online submission of the website of MOCI.

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The Shari’a Factor in International Commercial Arbitration
Faisal Kutty, LL.B.
Baksh & Kutty
Barristers, Solicitors, Notaries and Trade Mark Agents
80 Corporate Drive, Suite 302
Toronto, Ontario, M1H 3G5
Tel. (416) 289-9666x28
Email: [email protected]
Major Research Paper
Part Time LL.M. Program
Osgoode Hall Law School
York University

April 17, 2006
2
Table of Contents
Abstract ……………………………………………………………
3
I. Introduction
…………………………………………………………… 4

II. International Commercial Arbitration
…………………………… 8
III. Islam and its Legal System
…………………………………………… 17
a) Islam ……………………………………………………………
17
b) Sources and Methodology of Islamic Law ……………………
22
i) Qur’an …………………………………………………… 22
ii) Sunnah …………………………………………………… 25
iii) Ijma, Qiyas and Ijtihad …………………………………… 26
IV. Arbitration under the Shari’a
…………………………………… 30
V. Arbitration in the Middle East
…………………………………… 31
VI. Comparative Analysis
…………………………………………… 38
1) Nature of Arbitration ……………………………………………
39
2) Scope of Arbitration ……………………………………………
42

3) Uncertainty in the Rules and Philosophical Differences ……
46
a) Public Policy …………………………………………… 47
b) Interest, Speculation and Unfair Trade Practices …… 49
c) Capacity of Arbitrator …………………………………… 52
d) Sanctity of Contract …………………………………… 56
e) Liability of Arbitrators …………………………………… 58
f) Statute of Limitations …………………………………… 60
4) Choice of Law ……………………………………………………
61
5) Scope of Judicial Review and Enforcement
…………………… 63
VII. Conclusion
…………………………………………………………… 68
3

Abstract
The world has witnessed a phenomenal growth in commercial
disputes transcending national
borders due to our increasingly interrelated and globalized
world economy. In addition to issues
in interpretation of commercial agreements and practices,
differences in custom, language, culture
and religion continue to fuel conflicts and disagreements
between commercial players. Over the
last few decades there have been growing commercial
interaction between Western companies
and their Middle Eastern counterparts. Given this interaction
and the great geo-political and
economic importance of this region, it is imperative that
Western lawyers and dispute resolution
professionals have a reasonable grasp of the general principles
of Shari’ a or Islamic law, a
source (to varying degrees) of law in most nations in the Middle
East. It is clear that the increase
in international commercial transactions has contributed to the
globalization of the legal
community, but it is disturbing that there has been very little
examination of the influence and
impact on the Middle East’s legal system’s religious
underpinnings upon the continued
acceptance of international commercial arbitration. Given the
growing calls for a return to the
Shari’a and increasing global interdependence, the western legal
community can no longer be

satisfied to leave the Shari’ a as a preserve of Middle East
specialists, Arabists and comparative
law experts. It is a trite observation that cultural or more aptly
in the Middle East, religious
considerations, can play a vital role in the acceptance and
successful functioning of international
commercial arbitration. The religious variable may impact on
the following: the scope of
arbitration; the nature of arbitration; the choice of law; the
appointment of arbitrators; liability of
arbitrators; limitations periods; interest awards; public policy
considerations; evidentiary
considerations; enforceability of decisions, etc. This paper will
explore the development and
acceptance of international commercial arbitration in the Middle
East and analyze the issues and
areas which create tension between international commercial
arbitration and the Shari’ a. There
is certainly a need to reform Islamic law from within to deal
with contemporary norms,
transactions and institutions, but there is an equal need to better
accommodate and address the
issues of concern from an Islamic perspective. The assumption
and belief that the Shari’ a is
being sidelined, and that the current international commercial
arbitration framework is
exclusively derived from the Western legal heritage may create
obstacles in the acceptance and
continued legitimacy of international commercial arbitration in
the Middle East, and even in the
other Islamic nations. This is clearly unacceptable if we recall
that the twin objectives of the
legal framework underpinning international commercial
arbitration are to ensure enforceability of
arbitration agreements/clauses and arbitral awards and to
insulate the arbitration process as much

as possible from interference by domestic courts and other
national or international institutions.
This can only be achieved when there is mutual respect and
understanding of the various laws,
practices, cultures and religious worldviews prevalent in the
world today. There is a clear need
for dialogue. The aim of such a dialogue will be to help develop
an international commercial
arbitration regime in which the business community can have
confidence, while staying true to
the core principles of tahkim (arbitration) under the Shari’ a.
This will help remove a potential
crutch that may be used by those who oppose the international
commercial arbitration movement
as being one of purely Western import.
4
The Shari’ a Factor in International Commercial Arbitration
1
By Faisal Kutty

I. Introduction
The world has witnessed a phenomenal growth in commercial
disputes transcending
national borders due to our increasingly interrelated and
globalized world economy.2 In
addition to issues in interpretation of commercial agreements
and practices, differences in
custom, language, culture and religion continue to fuel conflicts
and disagreements
between commercial players.3
Consistent with the increased globalization, there has been
growing commercial
interaction between Western companies and their Middle
Eastern counterparts.4 The
interaction is now evolving from raw material extraction to
more sophisticated
transactions and growing trade and investments, as parties
explore commercial
1 LL.B. (cum laude) University of Ottawa. This paper was
prepared for the LL.M. program at Osgoode
Hall Law School of York University.
2 Volker Behr, Enforcement of United States Money Judgments

in Germany, 13 J.L. & Com. 211, 211
(1994).
3 Jane L. Volz & Roger S. Haydock, “Foreign Arbitral Awards:
Enforcing the Award Against the
Recalcitrant Loser,” 21 Wm. Mitchell L. Rev. 867.
4 In Canada, for instance, imports from the Arabian peninsula
has grown from $400 million in 1998 to over
$1 billion in 2003, while exports have grown from $700 million
to $1 billion during the same time. See
(www.dfait-maeci.gc.ca/middle_east/trade_stats_jan04-en.asp).
See the United States Trade
Representatives website for information about all the new free
trade agreements with Middle Eastern
countries (http://www.ustr.gov/new/fta/middleeast.htm).
5
opportunities beyond oil and gas exploration.5 Given the great
geo-political and
economic importance of the Middle East, it is imperative that
Western lawyers and
dispute resolution professionals have a reasonable grasp of the
general principles of
Shari’ a or Islamic law6, a source of law, of varying degrees, in
most nations in the
Middle East, and one of the three major legal systems prevailing
in the world today. It is
clear that the increase in international commercial transactions
has contributed to the

globalization of the legal community, but it is disturbing that
there has been very little
examination of the influence and impact on the Middle East’s
legal system’s religious
underpinnings upon the continued acceptance of international
commercial arbitration.
Given the growing calls for a return to the Shari’a and
increasing global interdependence,
the western legal community can no longer be satisfied to leave
Islamic law or the Shari’
a as a preserve of Middle East specialists, Arabists and
comparative law experts. As
Professor M. Ballantyne notes:
“Even where the Shari’ a is not applied in current practice,
there could be a
reversion to it in any particular case…Without doubt, a
knowledge of the Shari’ a
will become increasingly important for practitioner, not only in
Saudi Arabia, but
in the other Muslim jurisdictions.”7
5 This trend will continue as nations attempt to develop other
sources of income. For instance, Bahrain has
been promoting itself as a regional Banking center and the
United Arab Emirates as a tourist and

commercial center.
6 Shari’ a and Islamic law will be used interchangeable
throughout the paper though the two may not
exactly have the same meaning. Muhammad Asad, the
prominent Islamic thinker, narrows down the
Shari’a to the nusus, the definitive ordinances of the Qur’an
which are expounded in positive legal terms,
see M. H. Kamali, “Source, Nature and Objectives of Shari’ah”
33 Islamic Quarterly 211 at 233. While
Islamic law is far broader and includes those rules and laws that
have been derived using the sources and
methodologies for deriving laws sanctioned by Islamic
jurisprudence as well as all the quasi-Islamic laws
in existence in Muslim countries as a result of colonization and
secularization.
7 M. Ballantyne, “Book Review of Commercial Arbitration in
the Arab Middle East (A Study in Shari’ a
and Statute Law,” Arbitration International, Vol. 4, No. 3
(1989), pp. 269-274.
6
It is a trite observation that cultural considerations, or more
aptly in the Middle East,
religious considerations, can play a crucial role in the
acceptance and successful
functioning of international commercial arbitration.8 The
religious variable may impact
the following: the scope of arbitration; the nature of arbitration;
the choice of law; the

appointment of arbitrators; liability of arbitrators; limitations
periods; interest awards;
public policy considerations; evidentiary considerations;
enforceability of decisions, etc.9
As M. Mccary points out:
“Where arbitral clause do not specify the commercial principles
governing
a dispute (e.g., those found in U.N. Investment Dispute
Resolution of
International Transactions (UNIDROIT), arbitrators are forced
to evaluate
foreign legal provisions and cultural differences in determining
an equitable
settlement. In cases concerning Islamic issues or clients,
Middle Eastern
cultural differences will have to be considered in any
interpretation of
contract formation and negotiation.”10
This paper will explore the development and acceptance of
international commercial
arbitration in the Middle East and analyze the issues and areas
which create tension
between international commercial arbitration and the Shari’ a.
Given that the legal
systems of Middle Eastern nations incorporate Shari’ a
principles to varying degrees, this

paper will use the existing commercial arbitration laws in Saudi
Arabia and to a lesser
extent in the United Arab Emirates (UAE) to compare and
evaluate the tensions and
8 The Canadian Department of Foreign Affairs and International
Trade website (www.dfait-
maeci.gc.ca/middle_east/doing_business-en.asp) notes for
instance: It is impossible to establish meaningful
business relationships in the Middle East without some
understanding and knowledge of Islam…Muslims
see their religion as an integral part of their daily life. They
make no distinction between sacred and the
secular, morality, laws and politics. For example, the Quran
lays down clear economic guidelines.”
9 M. McCary, “Bridging Ethical Borders: International Legal
Ethics with an Islamic Perspective,” 35 Tex.
Int’l L. J. 289, at 319.
10 Id. See also Carolyn R. Ruis, Legal Practice Shaped by
Loyalty to Tradition: The Case of Saudi Arabia,
7 Mich. Y. B. Int’l Legal Stud.: Issues of Transnat’l Legal Prac.
103, 107-11 (Linda Elliott et al. eds. 1985).
7
differences that exist or may arise between international
commercial arbitration in
general and arbitration as it would be practiced in jurisdictions
influence by the Shari’a.11

In the process, this paper hopes to dispel the prevalent Western
notion that the Shari’ a is
an unsophisticated, obscure and defective system.12 This
attitude on the part of Western
lawyers breeds significant distrust within the Islamic world and
devalues an influential
legal system in the eyes of many in the West. The recognition,
acceptance and analysis
of Islamic law and its impact on the practice of international
commercial arbitration in the
Middle East is particularly important given the increasing
Islamic revivalist spirit
sweeping the region. Moreover, the experience from the Middle
East will be helpful in
understanding the same topic in Islamic nations outside the
Middle East.13 As Nudrat
Majeed accurately points out, the ground realities in many
Muslim nations and growing
11 “Middle East” is used in the loose sense to include the
countries spanning fro Morocco to Iran and from
Sudan to Turkey. Islamic law is a factor to some level or the
other, in all of the countries in this region,
except Israel. The UAE legal system though claiming to be
based on Islamic law is more western oriented

than the Saudi system, particularly in the area of commercial
law. Though it is by no means the most
western in the region. It is worth noting that even the
commercial laws of Saudi Arabia are significantly
influenced by Western commercial laws, though the Saudi
Arabian legal system itself is among the least
influence by Western legal principles.
12 Shlomo Avieri, The Return to Islam, In Global Studies: The
Middle East 167-70 (1973). Unfortunately,
this is not a new attitude. For instance the renowned Roman
legal scholar opined that “Every nation’s law,
except our own, is crude and almost laughable.” Though, it is
interesting to note that a number of legal
scholars, including John Makdisi and George Makdisi have
documented the influence of Islamic law on
common law. See generally John A. Makdisi, “The Islamic
Origins of the Common Law,” 77 N. C. L. Rev.
1635 (1999). See also George Makdisi, “Legal History of
Islamic Law and The English Common Law:
Origins and Metamorphoses” 34 Cleveland State Law Review 3.
13 Islamic law is not only a force in the Middle East, but is the
basis – to varying degrees -- of much
legislation in other countries which are becoming growing
players in the international marketplace,
including Malaysia, Indonesia, Pakistan, Nigeria, and even
some of the more recently minted republics of
Central Asia. It is worth noting that contrary to popular
perception, the vast majority of the world’s
Muslim population lives outside of the Middle East.
8
calls for a return to the Shari’ a suggest that “it is doubts about

the significance of the
Sharíah that are now academic.”14
A caveat is in order at the outset. Any endeavor, which attempts
to provide an overview
and comparative analysis of complex systems and institutions,
will always run the risk of
oversimplification. Clearly, it is an impossible task to set out
detailed discussions of the
systems, institutions and principles covered in this paper as
such a task can easily take up
a number of volumes. The paper does not attempt to provide a
comprehensive study, but
rather a basic or even cursory survey of some of the issues.
Such a survey will hopefully
contribute to a better understanding of some of the unique
concerns of Islamic law
jurisdictions concerning the practice and procedure of
International commercial
arbitration.
II. International Commercial Arbitration

At its most basic, commercial arbitration is a private dispute
resolution system which
allows parties to resolve their disputes faster, cheaper and
within a neutral and
confidential setting.15 It is chosen because it provides parties
more flexibility and control
14 Nudrat Majeed, “Good Faith and Due Process: Lessons from
the Shari’ah,” Arbitration International
Vol. 20, No. 1 (2004), at 97. Majeed refers to the decision of
the Supreme Court of Pakistan in 2000 which
stunned the domestic and international banking community
when it held that “all prevailing forms of riba
(interest), either in banking transactions or in private
transaction” are in contravention of Shari’ a.
15 See, e.g., A. Redfern & M. Hunter, Law and Practice of
International Commercial Arbitration 3 (2d ed.
1991) (“two or more parties, faced with a dispute which they
cannot resolve for themselves, agreeing that
some private individual will resolve it for them and if the
arbitration runs its full course ... it will not be
settled by a compromise, but by a decision.”); de Vries,
International Commercial Arbitration: A
Contractual Substitute for National Courts, 57 Tulane L. Rev.
42, 42-43 (1982) (“a mode of resolving
disputes by one or more persons who derive their power from
the agreement of the parties and whose
decision is binding upon them”); M. Reisman, L. Craig, W. Park
& J. Paulsson, International Commercial
9

over the proceedings and helps eliminate the uncertainties in
choice of decision maker,
forum and applicable law.16 Moreover, arbitration tribunals
can maintain jurisdiction
over parties17 who have submitted to it pursuant to an
agreement or arbitration clause,
and perhaps most importantly commercial arbitration provides
the mechanism to
internationally enforce arbitral awards, at least within the
nations that are signatories to
the relevant conventions and treaties.18
International commercial arbitration is essentially arbitration
between or among
transnational actors be it between states or private parties.19
Arbitration has become the
preferred mechanism to resolve international commercial
disputes:
“In the realm of international commercial transactions,
arbitration has
become the preferred method of dispute resolution. Arbitration
is prefer-
red over judicial methods of dispute resolution because the
parties have

considerable freedom and flexibility with regard to choice of
arbitrators,
location of the arbitration, procedural rules for the arbitration,
and the
substantive law that will govern the relationship and rights of
the parties.”20
International commercial arbitration is designed to assure
parties from different
jurisdictions that their dispute will be settled in a neutral
fashion using presumably
Arbitration xxviii (1997) (“a contractual method for the
relatively private settlement of disputes”); Carolyn
B. Lamm, Recent Developments in International Arbitration, 36
Fed. B. News & J. 276, at 276 (1989). See
also Gabriel M. Wilker, Domke on Commercial Arbitration 2.01
at 13.
16 Richard H. McLaren and John P. Sanderson, Q.C.,
Innovative Dispute Resolution: The Alternative 8-1
(Thomson/Carswell, 2004).
17 J. Sorton Jones, International Arbitration, 8 Hastings Int’l &
Comp. L. Rev. 213 (1985). Essentially when
parties agree to arbitration before a dispute arises, they waive
potential jurisdictional objections.
18 Supra note 15.
19 Arbitrations may also be differentiated by those that involve
states as a party, and those which do not.
Special institutions are available for arbitrations in which states
are a party. The Permanent Court of
Arbitration in the Hague (http://www.pca-cpa.org) was formed
to handle arbitrations exclusively involving

states, but since 1992 has broadened its mandate to include
disputes involving states and private parties, as
well as disputes involving international organizations. The
International Center for the Settlement of
Investment Disputes (ICSID) (http://www.worldbank.org/icsid/)
is also concerned with disputes between
foreign investors and state parties.
20 Buchanan, Public Policy and International Commercial
Arbitration, 26 Am. Bus. L.J. 511, 512 (1988).
10
internationally-neutral procedural rules detached from domestic
courts, governmental
institutions and without the “cultural biases of either party.”21
As we shall see, this is a
tall order indeed.
National laws, international conventions, and institutional
arbitration rules provide a
specialized legal regime governing international commercial
arbitrations:
“In addition to transnational treaties, international commercial
arbitration
is governed by several sources of law, including: (1) the
national law
governing the parties’ capacity to enter into the arbitration

agreement; (2)
the law governing the arbitration agreement itself; (3) the law
controlling
the arbitral proceedings, such as the rules of a permanent
arbitral institution
like the International Arbitration Forum or an ad hoc arbitral
body established
by the parties; and (4) the law governing the substantive issues
in the dispute.”22
The potential for disagreements and differences between nations
and regions in both
substance and procedure is obvious from the foregoing passage.
We will now proceed to explore briefly the major international
conventions as well as the
leading arbitral institutions and the United Nations Commission
on International Trade
Law Model Law (“UNCITRAL Model Law”) to set up our
comparative analysis.
Arbitration can be ad hoc or institutional.23 Ad hoc
arbitrations are conducted by parties
without the assistance or supervision of an arbitral institution.
The parties can either

adopt the rules of the United Nations Commission on
International Trade Law
21 G. A. Born, International Commercial Arbitration, (2nd ed.
2001), at p. 1.
22 Supra note 3 at 872-873.
23 Supra note 21at pp. 1 – 52.
11
(“UNCITRAL”)24 or select another set of procedural rules. The
UNCITRAL rules are
not, for instance, as comprehensive as the arbitration rules of
the ICC discussed below for
instance.25 Parties have to be a more careful in planning when
involved in ad hoc
arbitration, as they will lack the expertise available from the
institutions.26
An institutional arbitration is one entrusted to a major
arbitration institution. The best
known of these institutions include the International Chamber
of Commerce (ICC), the
London Court of International Arbitration (LCIA), and the
American Arbitration

Association (AAA).27 It is important to note that these are not
the only arbitral
institutions, though these have become the most respected and
experienced.28 Each of
these arbitral institutions, as well as the others, have enacted
sets of procedural rules that
apply where parties have agreed to arbitration pursuant to such
rules.
These institutions do not arbitrate the dispute, but merely
facilitate and provide support
and guidance to the arbitrators selected by the parties.29 The
institutional rules set out
24 U.N. Comm’n on Int’l Trade Law, UNCITRAL Arbitration
Rules, U.N. Doc. No. A/31/17, U.N. Sales
No. E. 77.V.6 (1976), reprinted in 15 I.L.M. 702 (1976)
[hereinafter UNCITRAL Rules].
25 Avraham Azrieli, “Improving Arbitration Under the U.S.-
Israel Free Trade Agreement: A Framework for
a Middle East Free Trade Zone,” 67 St. John’s L. Rev. 187.
26 For instance, the parties need to ensure they have designated
an “appointing authority” in the event they
cannot agree on an arbitrator. Most of the leading arbitral
institutions can act as an “appointing authority,”
if the parties in an ad hoc arbitration request them.
27 Their websites which provide detailed information are as

follows: ICC -- http://www.iccwbo.org/; LCIA
-- http://www.lcia-arbitration.com/lcia/lcia/index.htm; AAA --
http://www.adr.org/index2.1.jsp.
28 For brief descriptions of major international arbitration
institutions, see G. Born, International
Arbitration and Forum Selection Agreements 44-55 (1999); von
Mehren, Rules of Arbitral Bodies
Considered From a Practical Point of View, 9 J. Int'l Arb. 105
(1992); Tiefenbrun, A Comparison of
International Arbitral Rules, 15 Boston C. Int'l & Comp. L. Rev.
25 (1992). Links to other arbitral
institutions can be found at the website for Juris International
(http://www.jurisint.org/pub/03/en/index.htm), and from the
WWW Virtual Library Arbitration
(http://www.interarb.com/vl/pages/).
29 Id.
12
the basic procedural framework for the arbitration process.
Generally, the rules also
authorize the arbitral institution to act as an “appointing
authority” in the event the parties
cannot agree; set a timetable for the proceedings; help resolve
challenges to arbitrators;
designates the place of arbitration; help set or influence the fees
that can be charged by
arbitrators; and in some situations review the arbitral award to
reduce the risk of

unenforceability.30
The International Chamber of Commerce is the world’s leading
arbitral institution.31 The
ICC's International Court of Arbitration (the Court) established
in 1923 currently boasts
membership from over eighty nations.32 The ICC remains a
pioneer in the development
of international arbitration and its Rules of Conciliation and
Arbitration (ICC Rules) are
used extensively.33 Since its inception the Court has handled
more than 13,000 cases,
and in 2003 about 580 new matters involving 123 jurisdictions
were filed with the
Court.34
The ICC Rules were ratified at the ICC Congress in 1923 and
were most recently revised
in 1998.35 Pursuant to the ICC Rules, the ICC is involved
extensively in the
administration of individual arbitrations. This role includes,
but is not limited to, the

30 Supra note 21 at pp. 1 – 52.
31 For commentary on the ICC, see Y. Derains & E. Schwarz, A
Guide to the New ICC Rules of Arbitration
(1998); ICC, Guide to ICC Arbitration (1994); W. Craig, W.
Park & J. Paulson, International Chamber of
Commerce Arbitration (2d ed. 1990); Bond, The Present Status
of the International Court of Arbitration of
the ICC: A Comment on an Appraisal, 1 Am. Rev. Int'l Arb. 108
(1990); Wetter, The Present Status of the
International Court of Arbitration of the ICC: An Appraisal, 1
Am. Rev. Int'l Arb. 91 (1990).
32See the ICC website --
http://www.iccwbo.org/court/english/arbitration/introduction.as
p.
33 Cohn, The Rules of Arbitration of the International Chamber
of Commerce, 14 Int'l & Comp. L.Q. 132
(1965).
34 Supra note 9.
35 Y. Derains & E. Schwarz, supra, note 31
13
following:36 (1) determine whether there is a prima facie
agreement to arbitrate; (2)
decide on the number of arbitrators; (3) appoint arbitrators in
the event one party defaults
or the parties cannot agree; (4) decide challenges against
arbitrators; (5) ensure that
arbitrators are conducting the arbitration in accordance with the
ICC Rules and replace

the arbitrators if necessary; (6) determine the place of
arbitration; (7) fix and extend time-
limits; (8) determine the fees and expenses of the arbitrators;
(9) set and collect payments
on account of costs; (10) review the “Terms of Reference”
which define the issues to be
arbitrated; and (11) scrutinize arbitral awards.
Founded in 1892, the London Court of International Arbitration
(LCIA) is becoming an
increasingly important player in international commercial
arbitration.37 It is mainly
viewed as a primarily English institution, despite its efforts to
shake this image.38 The
LCIA administers a set of arbitration rules, the London Court of
International Arbitration
Rules (“LCIA Rules”), which were extensively revised in
1998.39 The LCIA is not as
involved in the arbitration process as the ICC. In contrast with
the ICC Rules, the LCIA
Rules do not contain Terms of Reference procedure and do not
provide for review of
arbitral awards.40 However, the LCIA does have power to
order discovery and security

for legal costs.41
36 Id.
37 See the LCIA website at http://www.lcia-
arbitration.com/arb/. It claims a current caseload of 50 cases
per year.
38 For instance the UK members on the Court are now restricted
to 25%. See website id.
39 Supra note 37.
40 Id.
41 Id.
14
The most active arbitral institution is the American Arbitration
Association (“AAA”).42
It is increasingly becoming active in resolving international
commercial disputes. This
arbitral institute has promulgated numerous arbitration rules for
specialized types of
disputes.43 The most extensively used are the AAA
Commercial Arbitration Rules.44
The AAA boasts of handling roughly 400 international disputes
on an annual basis.45 In
1991, the AAA promulgated the AAA International Arbitration
Rules designed

specifically for international arbitrations. The rules are based
principally on the
UNCITRAL Arbitration Rules (discussed below), and were
intended to permit a
maximum of flexibility and a minimum of administrative
supervision.46 They were most
recently revised in April 1997.47 Under the 1997 version, the
AAA International
Arbitration Rules provide the applicable set of AAA arbitration
rules in “international”
disputes.
The AAA administrative staff play less of a role in the
arbitration process than the ICC.
Besides playing a less significant role in setting the arbitrators’
fees, the AAA does not
receive or serve initial notices or requests for arbitration;
require or review a Terms of
Reference, or review draft awards.48
42 See the AAA website at
http://www.adr.org/index2.1.jsp?JSPssid=15747. The AAA
claims to have

arbitrated over 2 million cases.
43 Id. Mostly of relevance to domestic arbitration. Parties can
select these in their arbitration agreements.
44 Id.
45 Id.
46 Id.
47 Id.
48 Id.
15
In addition to the foregoing institutions, there are also other
subject specific arbitral
institutions.49 The International Center for the Settlement of
Investment Disputes
(ICSID)50 offers an alternative to foreign investors who do not
wish to use the domestic
courts to resolve investment disputes.51 The limitations in
using the ICSID include; the
fact that the subject country must have ratified the ICSID
Convention; the matter must be
an “investment dispute” as defined in the Convention; and the
dispute must be between a
party and a foreign country, rather than between two parties.
The United Nations Commission on International Trade Law

Arbitration Rules
(“UNCITRAL Arbitration Rules”) in 1976 also contributed
significantly to the spread of
international commercial arbitration.52 The UNCITRAL
Arbitration Rules could be used
by parties who wanted to participate in ad hoc arbitration, as
well as those who did not
wish to use existing arbitral institutions. The Commission also
drafted the UNCITRAL
Model Law in 1985 as a model law for use in international
commercial arbitration.53
The Model Law has served as the basis for the arbitration laws
of many nations.54
In our comparative analysis section we shall touch upon various
rules from some of these
institutions as well as the UNCITRAL Model Law for purposes
of illustration and
comparison.
49 See for instance, inter alia, the websites for the World
Intellectual Property Organization (WIPO)
Arbitration and Mediation Center
(http://www.arbiter.wipo.int/center/index.html), and the Court

of
Arbitration for Sport (http://www.tas-cas.org).
50 See website http://www.worldbank.org/icsid/
51 Id.
52 See website
http://www.uncitral.org/english/texts/arbitration/arb-rules.htm
53 See website
http://www.uncitral.org/english/texts/arbitration/ml-arb.htm
54 Id.
16
It should also be noted that most developed trading states (and
many other countries)
have enacted national arbitration legislation. These provide for
inter alia the
enforcement of international arbitration agreements and awards,
limit judicial
interference in the arbitration process, authorize specified
judicial support for the arbitral
process, affirm the capacity of parties to enter into valid and
binding agreements to
arbitrate future commercial disputes, provide mechanisms for
the enforcement of such
arbitration agreements, and require the recognition and
enforcement of arbitration

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