Commercial arbitration in the Kingdom: when to choose it, and how to draft the clause

Why major commercial disputes moved to arbitration

Since the Arbitration Law and its implementing regulations were issued, and with the establishment of the Saudi Center for Commercial Arbitration, arbitration has become the preferred route for high-value commercial disputes and those with a technically complex character.

There are three practical reasons:

• Confidentiality: arbitral hearings are not public, a material consideration for companies that would rather their commercial dispute did not become common currency.
• Specialisation: the parties can appoint a decision-maker who understands the technical nature of the dispute, rather than presenting it to a general circuit.
• Duration: arbitration is bound by a period agreed by the parties or set by the rules, and proceedings typically conclude within twelve months.

When arbitration is not the right choice

Arbitration is not a solution to every dispute. Its upfront costs exceed litigation, so it does not suit small claims. Nor does it suit claims whose purpose is an urgent protective measure, or disputes falling outside what may lawfully be arbitrated.

The three mistakes that most often void awards

Most of the awards we see exposed to challenge trace back to a clause written in haste:

First: an ambiguous seat. Leaving the seat of arbitration undefined opens a dispute over the applicable procedural law before the merits are reached at all.

Second: an unstated language. Where the clause does not fix the language of the arbitration, a costly disagreement arises over the language of documents, pleadings and translation.

Third: an open appointment mechanism. A clause reading "disputes shall be referred to arbitration", without specifying the number of arbitrators and how they are appointed, guarantees that the first stage of the proceedings will be a dispute about constituting the tribunal.

A sound clause settles six things

A good arbitration clause need not be long, but it states clearly:

1. The scope of disputes covered.
2. The institution or rules under which the arbitration is administered.
3. The number of arbitrators and the appointment mechanism.
4. The seat of arbitration.
5. The language of the proceedings.
6. The law governing the merits.

Enforcing the award

Once the award is issued, an enforcement order is sought before the competent enforcement court. What matters here is that the court does not revisit the merits; it verifies that the award does not conflict with public policy or the Arbitration Law, and that the proceedings were properly conducted.

For that reason, procedural care during the arbitration — from service of notices to giving each party a full opportunity to present its case — is not a formality. It is what protects the award at the point of enforcement.

A practical recommendation

Review the arbitration clauses across your existing contract portfolio before a dispute arises, not after. Correcting a defective clause in an addendum or at renewal costs a single page; correcting it after the dispute may cost the entire award.