The Saudi Arabian legal system is based on Islamic law, the Shari’a, with the Koran providing the most important source of law. Nonetheless, Royal and Ministerial Decrees are periodically issued to meet the complexities of modern life and commercialized business transactions. Such Decrees are only valid, however, if they do not conflict with Shari’a law. Also, the use of settlement or arbitration for deciding conflicts is becoming more common.
The main court is the Shari'a Court, which operates within the Ministry of Justice and deals with family, real estate and criminal matters. Appeals are made to the Shari'a Court of Appeals, and subsequently to the Custodian of the Two Holy Mosques.
The Ministry of Justice addresses disputes regarding commercial and labor matters. All cases concerning commercial disputes are dealt with through the Ministry’s Board of Grievances. The Commission for the Settlement of Labor Disputes deals with labor disputes and criminal violations of the Labor Law. The Government Administrative Judicial Committees decide matters concerning insurance disputes, unlicensed foreign capital investment and violations of customs duties.
The Board of Grievances administers disputes between Saudi Arabian government bodies and private parties as well as other matters provided for by special codes such as bribery, forgery and trademarks. Most cases are decided on their individual merits, and judges are therefore not bound by legal precedent.
Historically, Saudis have not used commercial contracts that provide for arbitration or adjudication mechanisms outside of such mechanisms within the Saudi government. Saudi Arabia, however, has recently enacted an Arbitration Law and Regulations. As a result, the arbitration of disputes is no longer uncommon in the Kingdom.
Prevailing procedures are more time consuming than those in Europe and the United States and can cause personal inconvenience to foreigners. For example, a letter of no-objection is required from the Saudi sponsor of a foreign employee whose employment has terminated before the Government will issue an exit visa. Unfortunately, this requirement could be used to coerce or to intimidate people in certain business situations. Foreign business passengers traveling on a business visa do not require a letter of no-objection to leave the country.
The Saudis maintain, however, that they have made tremendous progress in resolving the backlog of commercial disputes, almost to the point of complete elimination. Moreover, the government no longer requires exclusive applicability of Saudi law in the resolution of private commercial disputes. In practice, however, Saudi courts tend to apply Saudi law in commercial disputes litigated in the Kingdom, even when the relevant contract contains a foreign choice of law provision and provides for a foreign forum to have jurisdiction. Business-to-business arbitration assistance, although expensive, is available from local chambers of commerce for some types of disputes.
© 2000 Mena Report (www.menareport.com)