Arbitration In The Kingdom Of Saudi Arabia Part 2 – Spotlight On The Saudi Center For Commercial Arbitration (SCCA) – Arbitration & Dispute Resolution

Following
Mayer Brown and Al Akeel & Partners’ recent alliance in
May 2022,we are delighted to launch this joint series about
arbitration in the Kingdomof 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:

1. The SCCA’s role, its services and its recent noteworthy
   activities;




2. The SCCA Arbitration Rules, including novel provisions when
   compared to other leading institutional rules;




3. The SCCA Codes of Ethics, focusing on the Codes for (i)
   arbitrators and (ii) parties and their representatives; and




4. 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’s role, services and noteworthy activities

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:

1. assisting with arbitrator selection and appointment in non-SCCA
   cases;




2. 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




3. 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:

1. 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.




2. 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.




3. Launching an online interactive costs calculator to help
   assess, at the outset, the likely arbitration costs.




4. Signing the Equal Representation in Arbitration
   (“ERA“) Pledge⁶ in April
   2021, thereby signalling its commitment to gender diversity in
   international arbitration.




5. 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.




6. Partnering with Jus Mundi to make non-confidential SCCA
   arbitration materials freely available to users of Jus Mundi’s
   international law and arbitration database.

The SCCA Arbitration Rules

Based largely on the UNCITRAL Arbitration Rules, the SCCA
Arbitration Rules (the “Rules“),
effective on Shawwal1437 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.

1. 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.




2. 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).




3. 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.




4. 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.




5. 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.




6. 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).




7. 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.




8. 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 Codes of Ethics for (i) arbitrators and (ii) parties
and their representatives

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.

The pivotal role that the SCCA is likely to play in the KSA and
in the MENA region

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).

Concluding comments

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.

Footnotes

1 SCCA_Report_Eng.pdf
(sadr.org)

2 News Details (sadr.org)

3 https://www.sadr.org/home?lang=en

4 See National Report for Saudi Arabia (2019
through 2022) by Jean-Benoit Zegers in Lise Bosman, ICCA
International Handbook on Commercial Arbitration.

5 Royal Decree No. M/34 dated 24/5/1433H corresponding to
16/4/2012, which came into effect on 9 July 2012.

6 The ERA Pledge aims to improve the profile and
representation of women in international arbitration and seeks the
appointment of women as arbitrators on an equal opportunity
basis.

7 See https://www.reedsmith.com/en/perspectives/2021/10/an-update-on-the-scca-with-adr-chief-christian-alberti

8
https://globalarbitrationreview.com/guide/the-guide-construction-arbitration/fourth-edition/article/construction-arbitration-in-the-mena-region

9 See The Saudi Center for Commercial
Arbitration: The Catalyst Most Needed by Hamel Alsulamy in ASA
Bulletin (Scherer; Sep 2019).

10 “A Progress Report on Saudi-Arabia’s
arbitration-friendliness” by James McPherson (SCCA), GAR
Middle East and Africa Arbitration Review 2022.

11 See The Saudi Center for Commercial
Arbitration: The Catalyst Most Needed by Hamel Alsulamy in ASA
Bulletin (Scherer; Sep 2019).

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

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