Following Mayer Brown and Al Akeel & Partners’ recent alliance in May 2022, we are delighted to launch this joint series about arbitration in the Kingdom of Saudi Arabia.
Part 2 - Arbitration in Saudi Arabia: Spotlight on the Saudi Center for Commercial Arbitration (SCCA)
Having explained, in Part 1, why arbitration in the Kingdom of Saudi Arabia (the "KSA") is on the rise, in Part 2 we focus on the Saudi Center for Commercial Arbitration ("SCCA"), the first institutional arbitration centre in the KSA which administers civil and commercial disputes.
The SCCA has undergone "major transformation1" in recent years to strengthen its local and international standing as a first-class arbitration center. It has recently opened SCCA Dubai, a branch office based in the Dubai International Financial Centre, and announced the establishment of an independent "SCCA Court" (discussed further below). The SCCA's CEO, Dr. Hamed Bin Hassan Merah, recently commented that "on a professional and technical level, the [SCCA]… is ready to offer ADR services within a well-ordered regulatory framework that ensures the industry’s transition from isolated practices to institutional work organized in accordance with international best standards2."
In this Legal Update we cover:
- The SCCA's role, its services and its recent noteworthy activities;
- The SCCA Arbitration Rules, including novel provisions when compared to other leading institutional rules;
- The SCCA Codes of Ethics, focusing on the Codes for (i) arbitrators and (ii) parties and their representatives; and
- The pivotal role that the SCCA is likely to play in the KSA and in the MENA region.
You can skip between sections 1. to 4. above by clicking on the above titles.
The SCCA was established pursuant to Ministerial Resolution No. 257 of 14/6/1435H, corresponding to 15/04/2014. It became operational in late 2016 when it physically opened in Riyadh and published its Arbitration Rules and since then has proven to be a modern, fast-moving and innovative institution. In 2018, it adopted Rules for Conciliation (now called "Mediation Rules") and for Expedited Arbitration and its Codes of Ethics (discussed below).
Pursuant to the KSA's Vision 2030 initiative, announced in 2016, the KSA seeks to bolster economic diversification and is actively encouraging foreign investment in the Kingdom. The SCCA was established as part of this plan and one of the SCCA's goals is to "create a safe environment that attracts both foreign and domestic investment to the [KSA]…. by eliminating obstacles and difficulties related to ADR between investing parties3." The SCCA administers arbitration and mediation proceedings in both Arabic and English. The SCCA is dedicated to providing professional, transparent and efficient ADR services, inspired by Sharia. An arbitration may take the form of a standard arbitration, an expedited arbitration, an emergency arbitration or an online arbitration.
Regarding online arbitration, in 2021, the SCCA updated its Arbitration Rules to incorporate its Online Dispute Resolution ("ODR") Service and its ODR Protocol. The SCCA's ODR Service is an electronic arbitration service which relies on state-of-the-art technology. It is suitable for resolving small-scale commercial disputes with a sum of up to SAR 200,000 (currently about GBP 43,000) quickly and efficiently. Use of the ODR Service costs SAR 9,000 (just under GBP 2,000) covering both the SCCA's administration fee and the arbitrator fees. The ODR Protocol supporting this service provides for a sole arbitrator, a Riyadh seat and Arabic language (subject to party agreement otherwise) and a final award within 30 days of the arbitrator's appointment.
In addition to offering arbitration and mediation services, and providing model ADR Clauses, the SCCA offers what it calls “a la carte” services, namely:
- assisting with arbitrator selection and appointment in non-SCCA cases;
- helping to decide arbitrator challenges and disputes, for example as to the seat or language of the arbitration, through its Committee for Administrative Decisions; and
- providing state-of-the-art facilities in Riyadh, Jeddah and Dubai.
The SCCA's vision is to become the region's preferred ADR provider by 2030 and in June 2022, it announced it had joined the International Federation of Commercial Arbitration Institutions, which includes the world's top 52 international arbitration centres globally. On 13 November 2022, the SCCA established a branch based in the Dubai International Financial Centre ("DIFC") meaning that parties may therefore chose the SCCA Arbitration Rules in conjunction with a DIFC seat.
The SCCA has an independent Board of Directors ("Board") whose members come from diverse public sector backgrounds and are not allowed to hold any government position during their membership4. The Board and the SCCA's Committees comprise of well-renowned international ADR experts. Presently, the Board comprises 40% foreign experts and has a foreign Vice Chairman, albeit it only has one female representative. The gender ratio is more balanced when it comes to the SCCA’s Committee for Administrative Decisions which comprises three females and two males.
In November 2022, the SCCA announced that it will launch new SCCA Arbitration Rules in early 2023, following which an independent "SCCA Court" will replace the SCCA Committee for Administrative Decisions and take over its functions. The Court, headed by Mr. Jan Paulsson, will comprise 15 leading arbitration experts and it will determine administrative and technical matters related to SCCA‑administered arbitrations and mediations including:
- reviewing emergency applications;
- determining jurisdictional objections;
- appointing arbitrators;
- determining arbitrator challenges;
- determining disputes relating to the place of arbitration, the number of arbitrators, the fixing of advance deposits as well as final payments for neutrals; and
- reviewing awards.
Some of the SCCA's other recent noteworthy activities include:
- Its public confirmation that under the KSA's 2012 arbitration law5 (the "Arbitration Law") and the SCCA's Arbitration Rules, the concept of party autonomy is paramount and accordingly, non-Saudi nationals and non-lawyers may act as legal representatives for parties to a KSA-seated arbitration.
- A partnership with CIArb implementing the "SCCA-CIArb Pathways to Fellowship" (an arbitrator and mediator accreditation programme). Those achieving Fellowship status may apply to be admitted to the SCCA's Roster of Arbitrators.
- Launching an online interactive costs calculator to help assess, at the outset, the likely arbitration costs.
- Signing the Equal Representation in Arbitration ("ERA") Pledge6 in April 2021, thereby signalling its commitment to gender diversity in international arbitration.
- Commencing educational webinars and seminars on topics of interest to the arbitration community, such as the November 2022 Seminar with Gary Born on Developments in International Arbitration.
- Partnering with Jus Mundi to make non-confidential SCCA arbitration materials freely available to users of Jus Mundi's international law and arbitration database.
Based largely on the UNCITRAL Arbitration Rules, the SCCA Arbitration Rules (the "Rules"), effective on Shawwal 1437 corresponding to May 2016, were created to provide parties with "a clear, concise and efficient dispute resolution procedure" and are consistent with the Arbitration Law. The Rules apply without prejudice to the rules of Sharia (Article 31(4)).
As foreshadowed above, the Rules were amended in 2018 and 2021 to keep abreast of important developments in the arbitration sphere. The 2018 revisions introduced:
- an expedited procedure, applicable to any case where the aggregate value in dispute is SAR 4,000,000 or less (circa GBP 860,000) and the arbitration agreement was concluded after 15 October 2018. However, parties remain free to opt out or to opt in for higher value cases. The expedited procedure provides parties with comprehensive filing, an expedited appointment process, the possibility of deciding the case without a hearing based only on parties’ submissions and abbreviated time limits. The expedited procedure usually costs about 20% less than the cost of the SCCA's standard arbitration process.
- A new, detailed emergency arbitrator procedure, following the trends in other institutional rules (discussed further below).
A light-touch update was also made to the Rules in 2021 (effective on Safar 1443, corresponding to September 2021) to streamline the process and make SCCA proceedings more affordable and hence more appealing to diverse sectors and to parties of any size and nationality. The latest Rules:
- eliminate the SCCA's filing fee (now there is only a flat registration fee of SAR 5,000 (circa GBP 1,075) which is credited towards the Claimant's share of the administrative fees);
- place a SAR 300,000 (circa GBP 64,500) cap on SCCA's administrative fees;
- reduce the cost of its ODR service by 40%;
- reduce arbitrators fees by up to 30%;
- provide flexibility for parties to compensate arbitrators based on their hourly rates should they prefer that to the SCCA's ad valorem method (based on the amount in dispute); and
- provide parties with options to pay the deposits, including by instalment plans and by bank guarantee.
Overall, the SCCA offers modern Rules which are generally in line with most other modern institutional rules. Below is a summary of eight key aspects of the Rules, including more novel aspects when compared to other well-known institutional rules.
- Joinder and Consolidation. Reminiscent of the ICC Rules, Article 7 provides for automatic joinder of an additional party, at the request of a party, prior to the appointment of any arbitrator. Once one or more arbitrators have been appointed, joinder is only permitted if all parties (including the additional party) agree. Mirroring the Arbitration Law, the Rules do not address consolidation of arbitral proceedings so consolidation of separate SCCA proceedings will not be an option.
- Emergency Arbitration. Article 6 and Appendix III provide detailed provisions relating to the SCCA's emergency arbitration procedure and they are particularly prescriptive about an emergency arbitrator's powers to "order or award any interim, provisional or precautionary measures…including injunctive relief and measures for the protection or conservation of property". An emergency arbitrator has 14 days to issue his/her decision, with reasons, following receipt of the file, and it "shall be binding on the parties when rendered." The Rules give flexibility to parties since they confirm the usual position that the emergency arbitrator may not serve as a member of the tribunal, but, interestingly, they expressly provide that the parties can agree the opposite (i.e. that the emergency arbitrator sits on the tribunal).
- Tribunal appointments. The Rules provide for the default appointment of a sole arbitrator, unless the parties previously agree otherwise or the SCCA Administrator (in consultation with the parties) consider a three-member tribunal to be more appropriate given the size, complexity or other factor(s) in the case.
- Appointment process. The Rules leave significant autonomy to the parties to agree the procedure for appointing the tribunal, but if they are unable to agree, the list method in Article 12 will be used (essentially the parties should try to agree an arbitrator(s) from a list sent by the SCCA and if it proves impossible, a strike out process follows). The SCCA will always designate the presiding arbitrator. The SCCA has a roster of 350 arbitrators (and mediators) with experience in the KSA and abroad which it relies on when it provides the list of neutrals to the parties.
- Disclosures. The Rules outline an arbitrator's duty to be impartial and independent and accordingly, an arbitrator can be challenged on the basis of lack of impartiality or lack of independence. They also emphasise the importance of the arbitrator's and the parties' continuing duty of disclosure and the disclosure obligation relates to any circumstances that may give rise to justifiable doubts as to the arbitrator's impartiality or independence. Interestingly, Article 13(5) expressly provides that failure of a party to make such disclosure within a reasonable period after that party becomes aware of the information will amount to a waiver of the right to challenge an arbitrator based on those circumstances.
- Privilege. The Rules tackle this challenging topic head on by expressly providing that the tribunal shall take into account applicable principles of privilege and where the parties, their counsel or their documents are subject under applicable law to different rules, the tribunal should, to the extent possible, apply the rule which provides for the highest level of protection to all parties (Article 22).
- Set period for rendering an award. The Rules provide that the final award should be made within 60 days of the date of the closing of the hearing (unless otherwise agreed by the parties, specified by law, or determined by the SCCA Administrator). This short timeframe highlights the SCCA's aim of being an efficient and cost-effective institution.
- Confidentiality. In line with some other institutional rules like the ICDR International Arbitration Rules 2021, there is a general obligation of confidentiality in SCCA arbitrations but it applies only to the tribunal members and to the SCCA Administrator (Article 38).
The SCCA have issued a Code of Ethics, which is divided into three parts: (i) Code of Conduct for Arbitrators; (ii) Code of Conduct for Mediators; and (iii) Code of Conduct for Parties and Representatives (the "SCCA Code").
The SCCA partnered with the ICDR-AAA when developing the Rules and the SCCA Code. Accordingly, it is likely to have been inspired by the AAA-ICDR's Code of Ethics for Arbitrators in Commercial Disputes and Standard of Conduct for Parties and Representatives. Parties in LCIA arbitrations also have similar "General Guidelines for the Authorised Representatives of the Parties", annexed to the LCIA Rules (2014 and 2020), but the key difference is that the SCCA Code applies to parties as well as their representatives, and parties and their representatives must sign an express statement committing to observe its terms.
The SCCA Code sets out twelve rules with respect to the conduct of parties and their representatives, setting out the modes of behaviour required by them during an SCCA arbitration, including refraining from using vulgar/inappropriate language and harassing/threatening conduct, avoiding unnecessary delay and expense, respecting confidentiality and prohibiting contact with the SCCA Board on case-related matters. Non-compliance with the SCCA Code may "result in the SCCA declining to administer a particular case or caseload". Since the conduct of party representatives is likely to be increasingly scrutinised in international commercial arbitration, it will be interesting to see if the SCCA will feel comfortable using the aforementioned sanction, when appropriate, hence enabling it to be a meaningful tool to control party behaviour.
Arbitrator codes of conduct/ethics are now fairly common in international arbitration, with institutions like the AAA-ICDR, SIAC, CIETAC, HKIAC and the LCIA having their own such codes. Looking specifically at arbitrator conduct, the SCCA Code sets out seven canons for arbitrator behaviour. They essentially set the standards that he/she should follow to uphold the integrity and fairness of the arbitration process (including in relation to compensation arrangements), to avoid impropriety (or the appearance of it) when communicating with parties and reinforce the need to disclose all circumstances that are likely to raise a reasonable doubt as to his/her impartiality and independence.
The SCCA Code has to be read in conjunction with other rules of ethics which may be set by other ethical rules, the parties' arbitration agreement, the Rules and/or the applicable law. The SCCA Code is a welcome development to ensure that arbitrators, as well as parties and their representatives, in the KSA and the MENA region adhere to the highest standards of behaviour. It should help maintain confidence in SCCA arbitrations.
As at late 2021, construction cases comprised about half of the SCCA's caseload followed by banking and finance, then real estate and a diverse range of 24 other sectors7. In Part 1, we discussed the likely projected rise of arbitral disputes in the KSA, especially given the sheer volume of construction and giga projects. It is well known that the construction industry is "dispute-rich and claims-oriented8" and the construction industry is highly important in the MENA region too. As a key dispute resolution mechanism for these disputes, arbitration is proving popular in both areas and this trend will continue.
In addition to being well-suited to dealing with disputes that are closely connected to the KSA and the MENA region, like those related to large-scale and/or local joint operation projects, the SCCA may attract disputes that cannot be arbitrated in foreign seats due to public policy (such as in rem disputes, disputes about the performance of pilgrim contracts and certain matrimonial law disputes)9.
The SCCA in the KSA and Dubai are therefore likely to continue to play a pivotal role in helping resolving both local and international arbitral disputes in the KSA and MENA region.
Traditionally in the KSA litigation has been favoured over arbitration but the tides are turning. Between October 2016 and 2021, the SCCA received in the region of 200 cases, totalling circa USD one billion, involving domestic and international parties10. Over 70% of those cases were filed in the years 2020 and 2021, highlighting (i) the SCCA's increasing popularity as the institution has gained increased local and global traction and (ii) user confidence in SCCA arbitration.
For the foreseeable future, the SCCA's caseload is "expected to skyrocket"11. In addition to regional and international businesses being more confident in the arbitral procedure in the KSA, SCCA arbitration has been written into numerous model contracts, including model Government procurement contracts, so we may see more disputes in years to come as result of this. It should be noted that while Governmental entities have bylaws enabling them to resort to arbitration, they can only enter into arbitration agreements after approval from the Ministry of Finance (albeit the General Authority for Military Industries submits to arbitration in a different way to other Governmental entities).
The SCCA offers modern and user-friendly Rules that comply with the KSA's Arbitration Law and with Sharia law, a commendable Code of Ethics and a multitude of services suitable for a wide variety of parties' needs. Importantly, the institution is doing a lot to increase awareness of arbitration in the region and globally and the SCCA's caseload is becoming increasingly international, even though domestic cases still account for the majority of its caseload12. The SCCA's caseload continues to grow and this growth will only accelerate given its expansion into Dubai and the increasing use of arbitration clauses in governmental and commercial contracts. Accordingly, the current outlook is that the SCCA is likely to play a pivotal role in helping to develop the KSA into a leading arbitration nation in the Arab region.
It will be interesting to see what changes will be made to the SCCA's Rules when they are launched this year and we will write a further update on this subject in due course.
Introducing Part 3
In our next Legal Update in this Saudi Arabia Series, we will explore how to draft and conclude effective arbitration agreements in the KSA.
12 Commentary in October 2021 indicated that domestic cases comprised circa 84% of the SCCA's caseload: https://www.reedsmith.com/en/perspectives/2021/10/an-update-on-the-scca-with-adr-chief-christian-alberti.