By IBRAHIM ALAJAJI – Saudi attorney and columnist. He can be reached at: firstname.lastname@example.org – Riyadh, Saudi Arabia
mob: (966) 598760333
Arbitration law needs to be amended in order to keep pace with other judicial systems.
Saudi Arabia has been ranked 138th globally by the World Bank in the latest 2011 Economy Doing Business Report, which is deplorable in view of the important role the country has in the Gulf region. It is time that the Saudi judicial authorities formulated and implemented significant measures to address this shortcoming.
A major reason for the Kingdom’s low rating is the ongoing problem of contract enforcement. First, the definition of enforcing a contract must be explained, because many people are confused between enforcing a contract and enforcing a judgment. Enforcement of a contract is not a legal definition, such as judgment enforcement. Instead, it relies upon several factors, such as procedures to enforce a contract through the courts, the time required to complete the procedures, and the required cost to complete the procedures. Often, contract enforcement includes the enforcement of a judgment but not always.
The rules for contract enforcement, however, necessarily gauge the efficiency of a judicial system in resolving a commercial dispute, and certainly, the ability to make and enforce contracts and resolve disputes is essential if capital markets are to function properly. Good enforcement procedures enhance predictability in commercial relationships and reduce uncertainty by assuring investors that their contractual rights will be upheld promptly by arbitration or the courts.
When procedures for enforcing commercial transactions are bureaucratic and cumbersome, or when contractual disputes cannot be resolved in a timely and cost-effective manner, economies rely on less-efficient commercial practices. Traders depend more heavily on personal and family contacts; banks reduce the amount of lending because they cannot be assured of the ability to collect debts or obtain control of property pledged as collateral to secure loans; and transactions tend to be conducted on a cash-only basis. This limits the funding available for business expansion and slows down trade, investments, economic growth, and commercial development.
In such an environment, what are the solutions for Saudi Arabia to improve the process of dispute resolution, which will lead to better enforcement of contracts?
Saudi judicial authorities should redouble their efforts to compete with global initiatives, which include using new technologies to work on reducing backlogs by introducing periodic reviews to clear inactive cases from the docket, and by making procedures for resolving a commercial lawsuit faster and more efficient. We should also look to other developed countries as examples in the area of dispute resolution. For example, the Saudi arbitration law needs to be amended in order to keep pace with other judicial systems. Furthermore, Saudi Arabia, as the largest economy in the Middle East, needs to establish an International Arbitration Center for specialized, faster and confidential judicial proceedings as an alternative dispute resolution method.
As an example, the Dubai International Financial Center (DIFC) and its corporate law have instilled confidence in international companies to do business there. A similar model in The King Abdullah Financial Center or The King Abdullah Economic City is needed to create a special corporate law in the Kingdom to handle those local and international companies that are licensed by it. This will help business entities, especially multinational companies, to come and operate their projects in Saudi Arabia with the confidence that their corporate assets will be protected.
Relevant departments of the Saudi judicial system should follow the example of other developed countries in enforcing contracts. Countries such as Luxembourg, Norway and Iceland have made great progress in helping local and international investors protect their business assets within their jurisdictions.
The King Abdullah Project for the Development of the Judiciary, which began in 2007, addressed a number of areas such as human resources and training, restructuring of work processes, IT and E- Justice, court development, notaries, disseminating the culture of justice, judicial facilities, management development, and organizational projects. We are confident that these initiatives will take contract enforcement to a new level of trust for the corporate and commercial sector, which in the end will enhance the ranking of Saudi Arabia among the global community of nations.