Alternative Commercial Dispute Resolution: A Critical Assessment Research Proposal

Alternative Commercial Dispute Resolution: A Critical Assessment of the ADR Mechanism in the Saudi Legal System and Practice

General review of Alternative Dispute Resolution

The rationale of the ADR movement. The benefits of using arbitration in particular in lieu of formal adjudication in the courts have attracted a growing amount of interest from the private sector around the world. For example, Davis and Katbeh (2009) point out that this process is especially evident in the politically unstable Middle East. According to these authorities, "Increasingly, commercial alternative dispute resolution (ADR) programs are being created throughout the world. These ADR centers provide a model of peaceful dispute resolution for other countries, particularly when they are located in a geographic area known for political conflict" (Davis & Katbeh, 2009, p. 67).

Certainly, Saudi Arabia is no stranger to political conflict, but there are some interesting aspects concerning commercial dispute resolution that are virtually unique to the Saudi legal system. For example, Vogel (2000) reports that in those cases where dispute involve parties from other countries besides Saudi Arabia, the Saudi courts give full sway to their legal systems, even if the outcomes vary from conventional Saudi laws. In this regard, Vogel emphasizes that, "Commercial agreements often provide for foreign law to govern the parties' interactions and any disputes between them, and commercial arbitration or alternative dispute resolution may often produce different outcomes than would result were the case brought before regular courts" (p. 8). In fact, in most countries, national laws and practices prevail when disputants come before the courts. For instance, Vogel adds that, "States are jealous of their monopoly over family laws such as divorce. In such matters, state-legislated and court-enforced rules and requirements are usually considered public policy, which must hold over any contradictory settlements" (2000, p. 8).

The need for restorative justice. In developed as well as developing nations, there is a need for some formal avenue, including alternative dispute resolution, to pursue restorative justice when events deprive disputants of their legal rights (Levad, 2012).

The development of the ADR: a comparison between the practice of the ADR in the developed countries and in the developing countries. Commercial dispute resolution systems differ from country to country on two fundamental aspects of self-determination and control by the disputants that are involved: (a) control over the overall system design, and (b) control within a given case using a specific process that is provided by the overall system design (Bingham, 2004). According to Bingham (2004), the design of the commercial dispute resolution approach used in a given country includes: (a) making choices regarding which cases are subject to the process, (b) which process or sequential processes are available (mediation, early neutral evaluation, or binding arbitration, for example), (c) which due process rules apply, and (d) other structural aspects of a private justice system.

The nature of the commercial disputes. Disputes of a commercial nature that are brought before arbitrators run the complete gamut of contractual provisions, including most especially performance and costs (Vadi, 2010).

2.

ADR and International Institutions

The role of the international institutions in enhancing the ADR: UNCITRAL as an example. The role of international institutions such as the United Nations Commission on International Trade Law (UNCITRAL) in enhancing ADR is to provide "a fixed, predetermined process to settle disputes" (Choi, 2003, p. 1234). The Model Law provided by UNCITRAL, for example, "provides countries with a template that they can adopt for their national laws in order to 'provide a hospitable legal climate for international commercial arbitration" (Griffith & Mitchell, 2002, p. 185).

3.

Legal Framework of the ADR in Saudi Arabia

General discussion of the ability of ADR to resolve commercial disputes. Today, Saudi law is based on the rigid Islamic (shari'a) legal system (Saudi government, 2014), which would lead many observers to believe that this system would make Saudi Arabia even more adamant about the use of its own alternative dispute resolution approaches which are handled by special committees (Saudi government, 2014). Indeed, Vogel argues that, "In the setting of Saudi Arabia, with its state religiosity and its system of religious courts, one would expect even more jealousy about the sway of state laws, respect for the courts, and the religious correctness of the outcome, and especially for family law" (p. 8). The strict observance of Saudi laws in most matters, though, does not extend to conflicts involving disputants from other countries if those countries have other, preferred commercial resolution approaches in place and Saudi courts will respect these other approaches. According to Vogel, "It is the surprising result that the courts of Saudi Arabia enforce as valid the parties' actions based on the fatw-s of respected 'ulam?', even when these fatw-s are in stark contradiction to the courts' own standard rules" (2000, p. 8).

In reality, this flexible approach to commercial dispute resolution is solidly founded in Saudi law that assigns full power and authority to other countries' laws if they are congruent with Islamic teachings. In this regard, Vogel points out that, "Under the law of Saudi Arabia, it is not the case that the courts' result is the law of the land, or Saudi law, while the muft?'s is another law upheld due to state-condoned private ordering, as in the instance of commercial arbitration" (p. 8). This means that even if other countries' laws concerning commercial dispute resolution differ from formal Saudi laws but remain congruent with Islamic teachings, these arbitration laws are regarded as being Saudi laws as well. Indeed, Vogel notes that, "Instead, both are Saudi law, both the law of the land. Any opinion authoritatively rooted in the Qur'an and sunna is Saudi law, because it is a valid statement of shar?'a, and Saudi law is nothing but shar?'a" (emphasis added) (p. 8).

4.

Arbitration

General principles of arbitration. Taylor (2010) advises that unlike mediation and conciliation talks where the results of resolution efforts can be entirely lost after a great deal of investment of time and resources, arbitration has a number of advantages for disputants by providing a finalized outcome. For instance, Taylor reports that, "In efforts to avoid litigious headaches, placing alternative dispute provisions in commercial contracts that mandate any conflict be resolved through binding arbitration is a growing trend" (2010, p. 30). This trend has been fueled in large part by the enormous costs involved in formal litigation, including time, lawyers' fees, and a potentially damaged corporate reputation (Taylor, 2010). Moreover, binding arbitration represents a superior alternative to formal litigation because of the unpredictability and inefficiencies of the legal process in some countries. As Taylor points out, "Judges and juries are unpredictable in civil cases. Therefore, the outcome is unpredictable, and it is impossible to gauge who will come out ahead" (2010, p. 31). In sum, Taylor concludes that, "When a company places a substantial legal dispute in the hands of a judge or jury, it is taking a huge risk" (2010, p. 31).

Although the outcome of binding arbitration is likewise unpredictable, Taylor argues that the arbitration process is inherently more reliable and well as efficient, making it a viable alternative to formal litigation. For instance, according to Taylor, "Binding arbitration serves as an option to litigation or nonbinding mediation. When parties place an arbitration clause in a contract, they forego enforcing their legal rights in court, choosing to rely instead upon the arbitrator's sense of fair play" (p. 31). In some cases, particularly in the West, contractual provisions may require companies to engage in nonbinding mediation before they can resort to binding arbitration or formal adjudication of the case in the courts. In this regard, Cairns (2005) advises that, "In common law jurisdictions it is common practice to include in commercial contracts a reference to mediation prior to initiating arbitration. Only after the failure of mediation are the parties able to move on to litigation or arbitration in a designated forum" (p. 63).

The popularity of the arbitration in Saudi Arabia. Today, Saudi Arabia is a global leader in the production of oil and natural gas and the country possesses approximately 17% of the proven oil reserves in the world (Saudi Arabia, 2014). In December 2005, Saudi Arabia acceded to membership in the World Trade Organization, fueling additional interest from foreign investors (Saudi Arabia, 2014).

Forms of arbitration:

Ad hoc arbitration. This type of arbitration involves arbitration tribunals that are created to arbitrate a case after the facts have been established; however, some tribunal members may be close to one side of the dispute and transparency represents a potential problem (Baudenbacher, 2008).

Institutional arbitration. Some examples of institutional arbitration include the highly standardized services provided by the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), and the American Arbitration Association Center for International Dispute Resolution (AAA). Each of these institutional arbiters has comprehensive procedures in place for administering arbitration proceedings, frequently between transnational disputants (Choi, 2003).

The new Law of arbitration in Saudi Arabia.

Overview of the Law provisions. The Saudi…