Welcome to the Saudi Arabia focus edition of Law Update.
One of the key markets in the Middle East and North Africa (MENA) that continues to lead from the front is the Kingdom of Saudi Arabia (KSA). As the largest country in the Middle East and the 18th largest economy in the world, the progress KSA continues to make is underpinned by its Vision 2030 that envisions developing the country as an investment powerhouse and hub that ultimately connects Asia, Europe, and Africa. Given Saudi Arabia’s significance to the regional economy, our team of experts have prepared a range of pertinent articles that provide insights into new laws, regulations, and the legal landscape in the Kingdom.
This edition will provide you with an up-to-date guide on matters such as; the framework issued by the Saudi Central Bank on IT governance, the anti-corruption landscape under Vision 2030; we also provide practical tips for dispute avoidance. This is only a snapshot; there are many more articles within the KSA focus section for you to read, which we hope you will find valuable and enjoyable.Read the edition
Marwa El Mahdy
July – August 2014
In many jurisdictions arbitration clauses can be incorporated by reference. For example, although the main commercial terms will be set out in one agreement, certain standard terms will be incorporated by reference to a second document, and these standard terms may include an arbitral agreement.
Under UAE law however arbitration is viewed as a special form of dispute resolution which requires parties to clearly evidence that they both consent to the process in writing. This is because by agreeing to arbitration parties are waiving their right to refer the dispute to court. UAE law will not allow a party to lose this right unless there is clear evidence that the party consciously chose to waive it by signing an arbitration clause.
Incorporating an arbitration clause by reference to the terms of another document is therefore problematic because will give rise to the possibility that party will sign the main document without being fully aware of the arbitration clause that exists in the standard terms being incorporated by reference.
In Dubai Court of Cassation case in 2012 (Real Estate appeal 153 of 2011, issued on 19 February 2012) the Court explained on what conditions arbitration clause might be incorporated by reference.
The parties had entered into an agreement for the sale of land. The Purchaser brought a claim before the Court of First Instance seeking the recovery of its paid instalments due to an alleged breach of the agreement by the seller.
At the Court of First Instance the Seller applied to the case dismissed on the basis that there was a valid arbitration clause. The main sale agreement that was signed by the parties contained a clause that stated that the Seller’s general terms and conditions were incorporated into the main agreement. These general terms and conditions were attached to the main agreement and contained an arbitration clause. When the main agreement was signed the Purchaser signed the main agreement in full, and initialled the appended terms and conditions.
The First Instance Court dismissed the Seller’s argument and directed the Seller to refund the Purchaser with the paid instalments along with interest.
The Seller appealed to the Dubai Court of Appeal and requested that the appeal court quash the lower court ruling and dismiss the claim due to the parties’ agreement to refer their disputes to arbitration. Alternatively, the Seller requested that the court refer the case for investigation to prove that the signatory on behalf of the Purchaser signed and agreed to refer disputes that may arise out of the execution of the land’s sale agreement to arbitration
The Appeal Court referred the case for investigation to question the purchaser’s manager who had signed on the Agreement on behalf of the purchase and whose initials were on the general terms and conditions attached to it.
After questioning the manager the court allowed the Seller to evidence through witnesses that the manager of the Purchaser acknowledged the arbitration clause incorporated in the general terms and conditions of the sale agreement by reference.
Following submission of the witnesses’ statements, the Appeal Court rendered its decision to dismiss the appeal and uphold the ruling of the Court of First Instance. The Court found that the general terms and conditions and the schedules appended to the sale agreement were not signed by the Purchaser, but were only initialled.
The Cassation Court:
Before the Cassation Court the Seller argued that the Court of Appeal had erred in its application of the law and itdisregard the witness statements in respect of the Purchaser’s agreement to refer any disputes to arbitration.
The Court of Cassation dismissed the appeal and held that:
The Court of Cassation therefore found that the lower courts did not err in the application of the law and as such dismissed the Seller’s challenge.
In light of the above ruling, it is important that parties explicitly state their agreement to arbitrate. If the arbitration clause is to be incorporated by reference to another document, this other document must be fully signed on each page so that there can be no doubt that both parties consented to it.