Arbitration Clause in Saudi Arabia: When Is It Valid?

You signed a supply contract with a short clause: "Any dispute shall be referred to arbitration." Two years later, the supplier sues you in the Commercial Court. If you attend and argue the merits straight away, you may lose your right to arbitration without noticing.

The practical rule: a written arbitration clause prevents the court from hearing the dispute, but only if you rely on it before you make any request or defence in the case (Article 11 of the Arbitration Law). If you raise it in your first memorandum, the court rules that it cannot hear the case. If you argue the merits first, you lose this defence.

When is an arbitration agreement valid in Saudi Arabia?

• It must be in writing, or it is void. It counts as written if it is in a document signed by both parties, or in documented correspondence or electronic communications. A clear reference in the contract to a document that contains an arbitration clause also counts as an arbitration agreement (Article 9).
• It may be made before or after the dispute arises. If it is made after the dispute, it must state the matters it covers, or it is void (Article 9).
• It is valid only if made by a person, natural or legal, who has the capacity to dispose of their rights (Article 10, as amended in 1447H).
• Government entities may not agree to arbitration without the approval of the Prime Minister, unless a special provision allows it (Article 10).

The arbitration clause is independent from the rest of the contract. If the contract is void, rescinded or terminated, the clause is not void as long as the clause itself is valid (Article 21). So if the other side claims the whole contract has been rescinded, the dispute about the rescission itself still belongs to the arbitral tribunal.

Which disputes cannot go to arbitration in Saudi Arabia?

The Arbitration Law does not apply to personal status disputes or to matters that cannot be settled by compromise (Article 2). For example, divorce, custody and nafaqa (maintenance for a wife or children) stay with the competent court even if there is an agreement to arbitrate. If an arbitral award is issued on a matter that cannot be arbitrated, the court annuls it on its own initiative (Article 50).

How do you rely on the arbitration clause in court?

When a case is filed in court on a dispute covered by an arbitration agreement, the court must rule that it cannot hear the case if the defendant raises this before any request or defence in the case (Article 11). This means the arbitration defence must be the first thing you say. Otherwise, in practice, it is treated as giving up arbitration. Filing a case in court does not prevent the start or continuation of arbitration proceedings.

If the Commercial Court rules on the arbitration defence, its ruling can be appealed before the judgment on the merits (Article 74 of the Commercial Courts Law). If the parties agree to arbitrate while the court case is pending, the court refers the dispute to arbitration (Article 12), and this later agreement must state the matters it covers or it is void (Article 9).

A supply contract worth SAR 900,000 states: "Any dispute arising from this contract shall be referred to arbitration under the Saudi Arbitration Law." The supplier files a case in the Commercial Court claiming the amount.

In his first memorandum, before answering the claim, the buyer raises the arbitration clause and attaches the contract. The court rules that it cannot hear the case.

If he had started his memorandum by discussing the quality of the goods and mentioned the clause only at the end, his defence could have been rejected because it came after a defence on the merits.

What should an arbitration clause in a Saudi contract include?

• The number of arbitrators. It must be an odd number, or the arbitration is void (Article 13).
• How they are chosen, or a reference to an arbitration centre and its rules.
• The seat and language of the arbitration and the governing law.
• The scope: every dispute arising from or related to the contract, not only "disputes about payments".
• The arbitrator's qualifications if you want specific expertise. Note that the law requires the arbitrator, or the chair of the tribunal, to hold at least a university degree in Sharia or legal sciences (Article 14).

If one party to the contract is a government entity, it may not agree to arbitration without the approval of the Prime Minister, unless a special legal provision allows it (Article 10). An arbitration clause in a government contract without this approval may not be relied on.

This is general information based on the official Arabic texts of Saudi laws, which prevail over any translation. It is not legal advice for your specific case.

Practical solutions for both situations

If you are sued in court despite an arbitration clause:

• Raise the arbitration agreement in your first memorandum or at the first hearing, before any defence.
• Attach the contract and point to the clause.
• If you want to go ahead with arbitration, start the proceedings without waiting for the court's ruling.

If you are drafting a new contract:

• Write the clause clearly: the seat of arbitration, the number of arbitrators, the governing law, the language and the institution, if any.
• Compare the cost of arbitration with the size of the contract; not every dispute is worth arbitration.
• Check that the person signing has the capacity and authority to sign for the company.

An arbitration clause decides the path of a dispute before it starts. If you have received a statement of claim and your contract has an arbitration clause, send us the contract and the claim on WhatsApp before the first hearing, and we will review the validity of the clause and how to raise it.