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Clarified legal landscape for KSA offers investors potential new playground

Speedier commercial cases, reshaped economic rights for women and local HQ requirements all prove good news for cohesion in the region.

International businesses that contract with the Kingdom of Saudi Arabia have only three years to set up regional headquarters in the country, it was recently decreed. The decision that KSA will not contract with companies whose Middle East headquarters are not located in the Kingdom was just one of many recent directives that look to pave the way for a revitalised – and increasingly localised – economic climate in the country.

The directive is expected to increase employment within the Kingdom, as well as decrease economic leakage and ramp up spending efficiency. It will include agencies, institutions and funds owned by the government, said the Saudi Press Agency (SPA).

It is expected that a spate of foreign businesses will head to Riyadh – where BSA Ahmad Bin Hezeem & Associates LLP also maintains a presence. The SPA reported that 24 foreign companies announced plans to move to the Kingdom's capital during the Future Investment Initiative, held in January 2021. The companies – which include US engineering group Bechtel, PwC and Indian hospitality chain Oyo – will look to stay abreast of the decision, which comes into effect on January 1st, 2024.

On February 8th, 2021, the legal landscape looked set to be further revitalised with Crown Prince Mohammed Bin Salman's announcement that the Kingdom of Saudi Arabia is taking serious steps towards enhancing the legislative environment through developing new laws and reforming the current litigation-related legislation. This announcement is the latest among the economic and social reforms launched by the Crown Prince as part of the Vision 2030 framework, which aims to reduce Saudi Arabia's dependence on oil, diversify its economy, and attract foreign talent and investment to the Kingdom as a destination for international business headquarters.

The reforms would take place pursuant to the recent developments adopted in the past years. Most notable among these changes was the effective transfer of jurisdiction related to the settlement of commercial disputes from the Board of Grievances to Commercial Courts in 2018, and subsequently, the enactment of the Law of Procedure before Commercial Courts and its Implementing Regulations last year under Royal Decree No. M/93, which effectively entered into force in June 2020.

We note that the Law of Procedure before Commercial Courts paved the way to modernize the judicial system in Saudi Arabia, since it introduced new measures in an effort to organize the Commercial Courts, which include introducing statute of limitations for commercial claims, payment orders, e-filing, flexibility for the parties to decide on the finality of the first instance ruling, judgment publication and most importantly, expedited procedures. As a result, and several months onwards today, commercial cases are notably faster and more efficient. Nowadays, cases before the Commercial Court of First Instance take up to six months, while cases in front of the Appeal Court take up to three months.

The Crown Prince also stated that four new draft laws are being prepared by the relevant authorities and will be approved throughout the course of 2021. The four new draft laws include the Personal Status Law, the Civil Transactions Law, the Penal Code for Discretionary Sentences, and the Law of Evidence. These laws will be primarily referred to the Council of Ministers to be studied and reviewed according to the legislative principles, then to the Shura Council. Ultimately, they will be issued according to the statutory principles followed in this regard.

The plan is to create a codified legal system in the Kingdom of Saudi Arabia that preserves and protects human rights, consolidates principles of justice and transparency, and enhances the Kingdom’s global competitiveness. “The lack of applicable legislation has led to discrepancies in judicial decisions and a lack of clarity in the principles governing facts and practices,” said the Crown Prince, adding that this resulted in “prolonged litigation that is not based on legal texts. In addition, the absence of a clear legal framework for individuals and business sectors has led to ambiguity with respect to obligations.”

Historically, the Saudi Arabian judges had considerable discretion in issuing judgments based on their individual interpretations of the principles of Shari'ah, which is the basic and primary law that serves as a guideline for all legal matters in Saudi Arabia. Such discretion allowed the Saudi Arabian courts to issue different rulings in similar cases, thus creating unpredictability in the judicial system, which, among other matters, discouraged international investors and created risk for foreign investors. As such, Saudi officials are now working towards codifying the judicial system while remaining coherent with the principles of Shari'ah.

As stated by the Crown Prince, the four new laws will represent a new wave of reforms that will contribute to the predictability of judgments, raise the level of integrity and efficiency of the judicial courts' performance, and increase the reliability of legislative procedures. We expect that the four new laws will further revolutionize the litigation scene, similar to what has already begun with the above-mentioned Law of Procedure before Commercial Courts and the restructure of the Saudi courts before that.

Furthermore, the announcement made a specific mention to women in Saudi Arabia who have been significantly affected by the lack of clarity in the written laws governing certain matters, which “allowed some individuals to evade their responsibilities”, according to the Crown Prince. The new laws would tackle these matters to further increase women’s legal and economic rights in Saudi Arabia, which, in recent years, have been improved in areas including driving, employment, and freedom of movement.

The Crown Prince noted that the process of developing the judicial system in the Kingdom was a continuous one, with further developments expected in the short and mid-term. With the Kingdom undergoing a major transformation across sectors, and a plethora of opportunities awaiting prospective investors, new legal framework could make the possibility of doing business more clear, codified and cohesive than before.

Authored by: Jean Abboud, Senior Associate
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