The Saudi Center for Commercial Arbitration (SCCA), the leading institution for the resolution of commercial disputes in the Kingdom of Saudi Arabia, has recently updated its arbitration rules. This step is the SCCA’s second very significant step this year, after the opening of its first office outside of Saudi Arabia, in DFIC Dubai, in February.1
Around the same time the SCCA was opening its office, the Economist
noted that Saudi Arabia is undergoing “a shift from state-led economies and conservative social norms towards somewhat more liberal and open societies
While societal shifts may be difficult to observe from the outside, what anyone reading the news could not fail to note was that Saudi Arabia has announced various mega projects which, if put into action, will easily make Saudi Arabia the world’s biggest construction site.3
These mega projects offer numerous opportunities for construction and many other companies, including those from Malaysia. Saudi Arabia and Malaysia have deep historical ties dating back to the Malacca Sultanate era and since the 1970s, Malaysian leaders have been keen on developing strong relations with Saudi Arabia. Saudi Arabia has since provided financial assistance to support Malaysia's economic development on multiple occasions and trade between the countries exceeded USD 4 billion in 2021.4
While crude oil and petrochemical products are Saudi Arabia’s most important product finding its way from Saudi Arabia to Malaysia, Malaysia’s main exports among others include palm oil, petroleum oils, electronic equipment, rubbers and machinery.
With multiple ongoing mega-projects in Saudi Arabia and several others in planning and taking into account the good historic ties between the Saudi Arabia and Malaysia, there are excellent opportunities for Malaysian companies. Many of the underlying contracts may be governed by an SCCA arbitration clause – and thus be governed by the new arbitration rules. We take this occasion to look at the most important features:
The SCCA is not-for-profit organization established by a Saudi minister council decision in 2014. It administers arbitration and mediation procedures and offers what it calls “à la carte services” – those related to the selection and appointment of neutrals. In 2022, the SCCA saw a registration of 82 cases totalling USD 559,878,018.99 (approximately MYR 2,584,956.30). This represents a 587% increase from 2021.5
The 2023 Arbitration Rules
The 2023 Rules (the “2023 Rules”)6
came into force on 1 May 2023 and apply to all arbitrations filed on or after that date. The following features are noteworthy:
Role of the Court
The “SCCA Court” – an independent body formed in November 2022 to replace the Committee for Administrative Decisions – performs various important financial and administrative decision-making functions under the 2023 Rules. This among others includes (i) the review of emergency applications; (ii) the appointment of arbitrators; (iii) taking decisions on objections to jurisdictions as well as on challenges to arbitrators; and (iv) the scrutiny of draft awards.
The Court is composed of 15 arbitration experts (12 men and three women) from around the world and led by Professor Jan Paulsson, one of the world’s most renown figures in international arbitration. 7
In establishing this independent body and giving it more powers than its predecessor, the SCCA is in line with some of the world’s most established arbitral institutions, including the ICC and the LCIA, both of which have their own supervisory body. This step is testament of the SCCA’s striving for observing the highest international standards.
Tribunals established under the previous version of the SCCA Rules were required to apply the rules of Shariah by default, in addition to the rules of law designated by the parties. Under the 2023 Rules, the choice as to the applicable law is now fully left to the parties. In the absence of such choice, the arbitral tribunal is tasked with making an according determination. In other words, Shariah principles do not apply by default any longer in principle.
However, there is one exception: in Saudi-seated arbitrations and in enforcement proceedings before the Saudi courts, Shariah principles continue to apply by default.
There is a noteworthy innovation in the rules as regards the law applicable to the arbitration agreement. This is an issue which few arbitral tribunals have been addressing to date, although it has led to unnecessary costs in many instances.8
Malaysia’s Asian International Arbitration Centre is one of the few exceptions as it recommends agreeing on the law applicable to the arbitration agreement as part of its model clause.
The 2023 Rules take a different approach by setting forth that the law applicable to the arbitration agreement shall be the same law as that of the seat of arbitration – unless the parties expressly agree otherwise. This approach stands for certainty while still leaving all matters to the discretion of the parties, who can deviate from the default rule if that is what they want, and is therefore a very welcome innovation.
Third party funding in international arbitration is becoming more and more prevalent. While third party funding enhances the parties’ opportunity to pursue their claims, the involvement of a third party can lead to situations where there are conflicts of interest.
The 2023 Rules make sure that these conflicts do not arise and require disclosure of the identity of any non-party with an economic interest in the outcome of the arbitration. This includes any third party funder. This is an elevated standard.
Sustainability and online dispute resolution
Arguably, sustainability has been the buzzword in arbitration in the year 2023. The 2023 Rules follow that important trend and urge the participants of the arbitration to consider the use of technology. This includes using electronic communication/documents instead of printed materials to reduce the carbon footprint of the arbitration process. There is also a default rule that administrative conferences shall be held remotely instead of in-person.
With virtually all countries around the world having opened their borders as Covid-19 is no longer seen as a threat, arbitrations now – again – mainly take place in person. The 2023 Rules remind tribunals and parties, including on the use of paper, that they should at least consider whether environmentally friendly solutions are possible.
This is the case for online dispute resolution (ODR), where the entire process takes place online. The SCCA takes a leading role in the region for providing ODR services and Appendix IV to the 2023 Rules foresees and ODR procedure for small-value claims. Arbitrators appointed under the ODR procedure must issue an award within only 30 days from the appointment and there is usually no hearing.
Early disposition of claims or defences
With the long duration of arbitral proceedings being one of the major complaints by users,9
more and more arbitral institutions around the world now allow for an expeditious and efficient management of the proceedings in the form of early disposition. As such, the 2023 Rules also allow for the tribunal to summarily dispose of both claims and defences “without the need to follow every step that would otherwise be taken in the ordinary course of an arbitration
The tribunal’s powers in early disposition matters extend to issues of “jurisdiction, admissibility or legal merit
.” This is supplemented by three examples where an early disposition is possible,
The expansion of powers serves the greater efficiency of the proceedings as it allows tribunals to provide directions more to the point and limits a party’s ability to disrupt proceedings, such as is the case when a party attempts to disqualify one or more tribunal members by changing its representation, or when repeatedly amending one’s claims/counterclaims.
Points to consider for Malaysian parties
Malaysia’s economy is becoming more and more internationalized and with a multitude of mega-projects taking place in Saudi Arabia, several Malaysian companies will be involved one way or another. To Malaysian companies, the local Asian International Arbitration Centre (AIAC) will always be the first choice.
However, as the term arbitration agreement
implies, the choice of arbitration is not unilateral and must be made in conjunction with the other party. It would not come as a surprise if in the scope of a Saudi Arabian mega-project, the Saudi Arabian project owner has more negotiation power and will thus get its way. For a Saudi Arabian project owner, going with the SCCA would be a natural choice.
Although for a Malaysian company, the more natural choice would be the AIAC, this does not mean that going with the SCCA Rules would be a bad choice. On the contrary, updates in the 2023 Rules make them a very lean, flexible and modern choice. A Malaysian company could in any event still rely on Malaysian counsel, who ideally would not only be an arbitration expert, but also very well-acquainted with the SCCA Rules.
A few points are noteworthy for Malaysian parties. As such, while Shariah principles do not apply by default under the 2023 Rules, as they did before, Malaysian parties must remember that such principles will continue to be applied in Saudi-seated arbitrations and whenever a Malaysian party is seeking enforcement before the courts of Saudi Arabia. It is of utmost importance for Malaysian parties to remember this as an award that is not in line with Shariah principles may not be enforced.
All the while, we anticipate that some of the contracts between Saudi Arabian and Malaysian parties are governed by Shariah principles one way or another in any event. Malaysia takes pride in being the world’s largest halal hub, and according to the Malaysian Investment Development Authority, the segment contributes almost 10 per cent to Malaysia’s gross domestic product.10
For parties who wish to ensure compliance with Shariah principles or at least certain parts thereof when the substantive law or the law governing the arbitration agreement is not Sharia-based, the SCCA offers an adaptation of its model clause.11
When they are in doubts that the applicable substantive law or the law governing the arbitration agreement could deviate from important Shariah principles, parties agreeing to resolve their disputes under the 2023 Rules should consider adopting this clause.
Saudi law protects party autonomy when it comes to the selection of legal representation and SCCA already confirmed this in coordination with the Saudi Arabian Ministry of Justice in August 2022.12
The New Rules now expressly permit parties to rely on foreign counsel. Malaysian parties involved in SCCA arbitrations may thus rely on their trusted Malaysian advisors (although they should make sure that such advisor is very well-acquainted with the SCCA Rules and arbitration as such).
In conclusion, the updates to the 2023 Rules are very welcome and will certainly help the SCCA in further establishing its position as not only Saudi Arabia’s leading institution, but also in the region overall.
For details, see
SCCA News, SCCA: Saudi Arabia has become a world class arbitration seat, 31st
May 2022, available at https://sadr.org/news-details/151
(last accessed on 2023-06-12).
For one instance of that kind, see
the authors’ note on the decision by the French Cour de Cassation
in the – now infamous – Kabab-Ji
case: M. Bin Mansor & H. Sippel, Why contracts should always state the law applicable to the arbitration agreement: lessons from the French and UK apex courts applied to Malaysia and beyond, available at www.lexology.com/library/detail.aspx?g=086cdefd-e2f8-40b0-bad0-84939e0458a9
(last accessed on 2023-06-13).
the clause under the heading Special Notes About the Substantive Law Applicable to the Contract and Arbitration Agreement.
For details, see
SCCA News, SCCA: Saudi Arabia Underscores Party Autonomy in the Choice of Party Representation in Arbitration Proceedings, 16th
August 2022, available at
(last accessed on 2023-06-12).