When two parties sit down to sign a commercial contract, they rarely think about a dispute. Yet the question of who will decide a disagreement, should one arise, is among the most important decisions in the contract, because it determines duration, cost, confidentiality and even the nature of the relationship after the dispute. In the Kingdom, businesses have two main routes: litigation before the competent courts, or arbitration under the Saudi Arbitration Law.
What is the fundamental difference between the two?
Litigation means resorting to the State's official judiciary, where the competent court hears the dispute under procedures set by law and the judge is assigned without input from the parties. Arbitration is an agreement by the parties to refer their dispute to an arbitrator or arbitral tribunal of their choosing, which issues a binding award that becomes enforceable once the statutory procedures are completed.
When is arbitration the better fit?
- When confidentiality matters to you: as a rule, arbitration hearings are not public, which is important in disputes touching trade secrets, a company's reputation or its relationships with partners.
- When the dispute needs specialist expertise: arbitration lets you choose an arbitrator experienced in the field of the dispute, such as construction, energy, technology or franchising.
- When one party is foreign: arbitration offers neutral ground both sides can trust, and makes enforcing the award in other countries easier, as the Kingdom is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
- When you want control over the procedure: the parties agree on the language, the seat, the number of arbitrators and the timetable to suit the relationship.
- When the relationship is ongoing: the less adversarial character of arbitration can sometimes help preserve the partnership once the dispute is resolved.
And when is the court the better option?
Litigation has real advantages that should not be overlooked. It is often less costly for small and medium disputes, since the parties do not bear arbitrators' fees or arbitration centre expenses. The court system also offers levels of appeal, whereas an arbitral award is in principle final and can be challenged only by an action for annulment on limited grounds. And where the dispute requires joining parties who did not sign the arbitration agreement, the court may be better placed to bring them together in a single case.
Commercial justice in the Kingdom has developed markedly in recent years, with specialised commercial courts and electronic litigation, making the judicial option more efficient than it once was.
Questions to help you decide
- What is the expected value of potential disputes under this contract, and does it justify the cost of arbitration?
- Do you need complete confidentiality?
- Is the other party foreign, or might you need to enforce the award outside the Kingdom?
- Does the dispute call for precise technical expertise?
- Do levels of appeal matter to you, or do you prefer a swift, final decision?
The right decision is not made at the time of the dispute but when the contract is drafted. If the contract contains no arbitration agreement, the courts are the default route, unless the parties later agree otherwise.
There is no single answer that suits every contract. What matters is that your choice is deliberate and grounded in the nature of your dealings. We would be glad to help you assess your existing contracts and choose the most suitable dispute resolution mechanism for each commercial relationship.