Business relations flourish on the foundation of mutual trust.  It is true in the case of internal business.  It is found that most of the trade disputes could have been avoided if both the partners were clear in their terms of agreement.

        Most often the terms of the agreement were vague and not properly authenticated by trade regulatory authorities.

Trade can be on the basis of irrevocable L/C.  The agreements should describe the terms clearly and properly authenticated by the Saudi Embassy/Consulate in India.  These documents should be on proper letterhead of the companies and should have stamp and signature.

Lodging a Trade Dispute Complaint with the Embassy/Consulate General:

     If a trade dispute crop up between an Indian company and Saudi establishment, a complaint in this regard can be lodged with the Commercial Wing of the Embassy/Consulate General.  The complaints should give all the details relevant to the dispute.  Copies of agreements, L/C, and all correspondence relevant to the case (especially those received from the Saudi party) should be enclosed.  In many cases, the Indian companies lodge the complaint without any proper address of the Saudi company and without any documents.

     The Embassy/Consulate General strives initially to settle the matter amicable by establishing liaison with both the parties involved.  In the case of a non-settlement, the dispute will be forwarded to the respective Saudi Chambers of Commerce and Industry for amicable settlement.  Pending settlement further, the Indian companies will be offered advice/assistance to file a case with the Saudi Arabian Shariah Courts. In this case they have to seek the help of a Saudi legal consultant to present their case in the courts.  This is the most effective step for settling disputes, but should be used as a last resort as it involves expenditure.

     The Embassy/Consulate General will also receive complaint against Indian companies.  In this case, the Consulate General attempts to reach an amicable settlement.  If the Indian party is at fault, the matter will be referred to concerned Indian authorities for taking action at their end.

      Some unhealthy business practices are used by a minor segment of the businessmen in Saudi Arabia.  They will order for goods against cash and establish faith.  Once trust is established, import will be made on credit basis and delay payment or even non-payment.  Exporters must take due precautions about such businessmen.

     Further, in the event of a dispute arising between a foreign company and a Saudi party, the foreign company should consider suing the party in Saudi Arabia, as that provides the best assurance that a favourable judgement will be enforced.  Before suing a Saudi in another country, a foreign company should learn whether the Kingdom has a reciprocal enforcement treaty with that country.

If a dispute arises, a company could sue — or could be sued — in Saudi courts. As a result, it is important for a company to understand, before entering into a transaction, how potential disputes will be resolved. This involves three important considerations: whether to use Saudi courts or courts of other countries, the type of Saudi tribunal in which the dispute will be resolved, and the possibility of arbitration.

The Saudi Judicial System

     In Saudi Arabia, for resolution of disputes, a foreign company might have to appear before a variety of tribunals. The Saudi judicial system consists of both general courts and specialized tribunals. The courts and tribunals may consist of a combination of judges and non-judges.

     The Sharia courts are the courts of general jurisdiction in the Saudi judicial system. Sharia judges preside over almost any dispute unless Saudi law provides otherwise and usually apply Islamic Law to decide a case, which is normally decided within a few months. There is no time limit within which a party must bring a lawsuit. All decisions of Sharia courts could be appealed.

     The Board of Grievances has the exclusive power to decide disputes over Saudi Government contracts and may decide some types of commercial disputes.  The Board of Grievances observes a system of precedent. Decisions of the Board of Grievances could be appealed.

     Several other tribunals also resolve disputes in specialized areas of Saudi law. The Civil Rights Directorate is primarily responsibile for enforcing the judgment of a Saudi Arabian court or tribunal. The Negotiable Instruments Committee decides cases involving bills of exchange, promissory notes, and cheques. The SAMA Committee resolves certain disputes between banks and their customers. The Conciliation Committee at the Chamber of Commerce assists in settling problems that arise when a foreign company attempts to change commercial agents. The Preliminary Committee for the Settlement of Labour Disputes hears all matters related to labour and employee relations.

Arbitration

     Arbitration is an accepted practice for resolving disputes in Saudi Arabia. Arbitration must conform to a detailed set of requirements that govern the selection of arbitrators, the length of the arbitration, and review of the arbitrators’ decision. The chairman of the arbitrators must be expert in Sharia or Saudi commercial law.  Saudi law requires a court to approve the arbitration award.  In the case of arbitrations within Saudi Arabia, the Civil Rights Directorate enforces all arbitration awards.  The beneficiary party may have to petition a court to enforce an arbitration decision.

An Agreement on Legal Protection for Guaranteed Foreign Investment between the Multilateral Investment Guarantee Agency (MIGA) and the Kingdom of Saudi Arabia was signed in July 1995. MIGA has its own Arbitration Rules incorporated into its standard Contracts of Guarantee, based on ICSID rules.