Saudi Business Law in Practice

Laws and Regulations as Applied in the Courts and Judicial Committees of Saudi Arabia

Frank Vogel, Frank E Vogel

• Publisher: Hart Publishing
• Year: 2019
• Print ISBN: 9781509927227
• eBook ISBN: 9781509927203
• Edition: 1
• Topic: Law
• Subtopic: Comparative Law
• Index: Law

In this landmark publication, the world's leading expert in the legal system of Saudi Arabia explains and documents the uncodified principles of contract, tort, and property that frame the business laws of the Kingdom. Drawing on 8, 500 newly published court decisions, as well as on statutory law, interviews and a wide range of other material, the book sets out to determine the actual practice of Saudi courts in these spheres, both substantively and as to reasoning and procedure. With unique insights into and understanding of this fascinating jurisdiction, this book simply must be read by all engaged with law or business in the region. Also, given its focus on how certain Islamic legal rules and principles are applied in practice, the book will prove an invaluable resource for scholars of Islamic law past and present.

1

Introduction

1.1.About the Subject-Matter of this Book

1.1.1.Saudi Business Law and Islamic Legal Principles

1.1.2.Introducing the Saudi Legal and Judicial System

1.1.3.The Comparative Aspect

1.1.4.Aspects of Business Law Covered in the Book

1.2.Sources for this Study

1.2.1.Publications by the Court Systems

1.2.2.Unpublished Court Decisions

1.2.3.Interviews

1.2.4.Fatwas

1.2.5.Graduate Dissertations

1.2.6.Various Other Published Sources

1.2.7.My Own Prior Research and Experience

1.3.How this Study Came About

1.4.Some Technical Matters

1.4.1.Terminology

1.4.2.Other Technical Matters

This book seeks to explain to outsiders to the Saudi legal system some basic matters of Saudi law of relevance to business as these are actually applied. For evidence on practice the book relies on many sources, but primarily on thousands of newly published court decisions covering, for commercial cases, twenty-eight years of past decisions. The goal for this book is not another summary of laws and regulations on ‘doing business’ in Saudi Arabia of a sort that already exists in English. Rather the book has two goals: first, to reveal those aspects of the Saudi system of business law that are the most difficult for the outsider to identify and comprehend; and second, because the subject is a broad one and this book only a single volume, to cover those aspects of that system that are among the most basic and encompassing.

1.1.About the Subject-Matter of this Book

1.1.1.Saudi Business Law and Islamic Legal Principles

It turns out that, given these goals, one subject for the book emerges as the obvious focus of attention – the Islamic legal principles of property, tort, and contract that underlie all the business law of the Kingdom. Islamic law, in a form until now uncodified and drawn from centuries-old scholarly texts, remains the general law of the Kingdom, stating the unwritten constitution of the country and forming the basis of its civil, commercial, and criminal law. From the viewpoint of business, this body of law serves as the equivalent of the laws of property, tort, and contract that are found in the civil code in a civil law system or in the common law of a common law system – with the distinction, however, that in Saudi Arabia the statutes that alter and supplement this basic private law are far fewer and weaker than in other countries, and this in turn is because, under the constitution of Saudi Arabia, many basic Islamic law principles constrain the legislative power. And it is these principles that account for almost all the characteristics of Saudi business law that seem to stand outside the pattern of laws elsewhere.

It is an oddity of Saudi Arabia that the most basic, most encompassing, rules of the legal system are the most unapproachable, the least known, both within the Kingdom and outside, at least for those unable to consult the sources on Islamic law from medieval times down to today. The rules and principles of traditional Islamic law that are most relevant for business have not been written about extensively in English, except insofar as these are relevant to Islamic finance. And even for those who can use works on Islamic law in Arabic, evidence of the actual current practice of the Saudi courts has been – until very recently – almost impossible to gather. Even for me, possessed of a royal order endorsing my study, a diligent effort over two and a half years and many trips to the Kingdom yielded a total of 19 unpublished court decisions, counting only those obtained through official channels. Local scholars and lawyers have faced the same difficulty; even judges were unable to access the decisions of their own courts conveniently or in large numbers until recently. Lawyers and litigants have gleaned knowledge of the courts’ actual practice from personal experience, anecdotes from other litigants and lawyers, and copies of unpublished decisions shared with them by others. A few judges created collections of unpublished cases and circulated them informally. This was the situation until 2015, more than half-way through the period of this study – when the floodgates opened. In one of the most significant steps of legal reform it has taken for decades, the judicial system began a process of publishing thousands of court decisions. These decisions, which continue to appear in large numbers, are the chief source for this study.

Because the focus of this book is on the general private law, rather than the many relatively ad hoc commercial statutes and regulations Saudi Arabia also possesses (called niẓām), I chose not to refer to ‘commercial law’ in the title of this book, using ‘business law’ instead. ‘Commercial law’, in the modern Saudi sense of that term, refers chiefly to the laws governing legal institutions specific to merchants (like commercial companies, commercial papers, and commercial bankruptcy) and to certain commercial functions (like banking, financial securities, and consumer finance), all of which in Saudi Arabia are matters governed chiefly by specific niẓams. This is because the rules and concepts of such commercial law were unknown in Islamic law, and were therefore imported from other legal systems, originally from continental civil law systems (often via the laws of other Arab countries, principally Egypt), and now increasingly from common law systems and international treaties. In any case, the subjects that do fall within ‘commercial law’, being framed on western models and articulated in niẓams, are much easier for the outsider to the system to grasp. Many of them are described and analysed in materials available in English. Again, to avoid confusion with that body of law, I chose as the title of this book ‘Saudi Business Law’.

Even though the study of business law here focuses on the Islamic ‘common law’ or ‘civil code’, statutes make a frequent appearance in this book. My emphasis on the ‘civil code’ aspects of Saudi business law – due to the considerations of relative priorities just explained – should not mislead the reader about the importance also of the ‘commercial law’ component of Saudi law. In everyday business, indeed, the latter is by far the salient part of the law. But I hope this book will aid the outsider to Saudi law even in appreciating Saudi commercial law proper. This is for two major reasons: first, the form and function of the commercial statutes within the legal and judicial system does differ somewhat, due to Saudi Arabia’s unique constitutional framework (to be explained in Chapter 2), from that in other legal systems; and second, as one consequence of that difference, one needs some Islamic law background even to understand and apply the commercial statutes, since they are promulgated with the expectation that the uncodified Islamic law will fill their gaps and guide their interpretation.

Since I focus in this book on how Saudi courts apply the basic or common law of Saudi Arabia in deciding cases brought before them, I will not address, among other things, the degree to which Saudi courts enforce foreign judgments and arbitral awards, or support the use of arbitration, whether domestic or foreign, for the settlement of business disputes. These are areas where Saudi law and practice, regulated through niẓāms, are developing rapidly. They are, again, matters often analysed and written about in English.

The term ‘business law’, as used in this book, includes some subjects outside ordinary commercial practice but of interest to businessmen and legal professionals engaged with Saudi Arabia. Thus, I discuss issues of tort and even criminal law. Criminal law is relevant mostly due to a large overlap in the treatment of tort and crime in Islamic law. Also, some issues of criminal law do directly concern business, such as the crimes of embezzlement, fraud, forgery, and breach of trust.

1.1.2.Introducing the Saudi Legal and Judicial System

Before engaging with the business law, I offer introductions to the Saudi legal and judicial system (Chapter 2) and to the Saudi judicial process (Chapter 3). On both subjects my own examination of the Saudi legal system in a book published in 2000 remains relevant, the Saudi system not having changed in fundamental respects from the system I then described, though it has evolved, and sometimes rapidly and extensively, on the same terms. In Chapter 2, along with basic descriptions of the legal system, I bring my earlier treatment up to date, noting many significant changes in the legal system during the last two decades, especially as to the jurisdictions of various courts, the administrative organisation of courts, the roles and responsibilities of trial and appellate courts, and efforts to unify the rulings of the courts, including a proposal to codify some or all of those rulings. In Chapter 3, I offer my understanding of the process of judicial reasoning in Saudi courts, as shaped both by Islamic law and by longstanding and evolving Saudi judicial practice. The chapter addresses the sources on which Saudi judges base their rulings, and how they reason from those sources. I speculate about the ways in which the current program of extensive publication of court decisions and the possibility of the codification or compilation of Sharia rules may impact judicial practice in the future. I also give a brief summary of procedure and proof in the Saudi courts, because these often have a substantive impact on outcomes and play a role in my later discussions of doctrine, and because they exhibit many features unfamiliar to the outsider.

1.1.3.The Comparative Aspect

If this book attempts to describe Saudi law in three dimensions (business, law, and actual judicial practice), which is a challenge in itself, it also, because it is addressed to outsiders to the system and is in English, intrinsically involves a fourth dimension: comparison with contemporary theory and practice elsewhere. It proved impossible, even with the generous amount of time devoted to research on this book, to incorporate that fourth dimension in an explicit way. To do so at all would require reference to at least the three legal systems most normative today, the French, English, and American, and this neglects dozens of others of interest, European (including the European Union itself) and Arab systems in particular. Therefore, though the choice of subjects for this book was partly driven by the comparative significance of the topics chosen – their interest when juxtaposed with other contemporary laws and legal systems – the comparisons remain largely implicit. Hopefully, given the details on Saudi law covered in this book, the reader will be able, if a legal professional or comparatist, to make comparisons himself. Despite its being implicit, the comparative dimension will be a constant presence, as is unavoidable given my purpose.

I generally do not use legal terminology in English to organise my discussion of Saudi law, except at the most general level. In my view, to do so would be artificial and distorting. In fact, at various places I advocate, and I believe demonstrate, that learning to think about Saudi law and practice using its own legal categories is more than worth the effort. Saudi law, even for business, takes its shape from Islamic law, a religious law with unique characteristics. Approaching it on that basis avoids endless surprise and confusion. Of course, my approach can fall into the trap of making strange or exotic what is in fact not. But I hope my treatment will show that although Saudi law is sometimes anomalous among modern laws, it is also in wide spheres perfectly natural, not strange. Indeed, one of the conclusions of this study is that much of the Islamic law relevant to business is modern and normal (and predictable), especially in the manner in which contemporary Saudi Arabia applies it. But while the results of the law may often match results elsewhere, the intellectual and institutional process that delivers those results is often very different. This is true to the degree that if one starts with some artificially constructed sameness one is unlikely to be able to predict outcomes, or explain them. I believe the truth of this has been demonstrated by the history of outsiders’ efforts to understand and explain the Saudi common law for business. Too often such efforts reach conclusions that outcomes in Saudi courts are unsophisticated, unpredictable – and exotic. A side advantage of using Saudi conceptual categories in this book is that it may equip a reader to engage with Saudi professionals using a shared, and more accurate, standard of reference.

Pursuing the discussion using chiefly Saudi and Islamic law categories entails the use of Arabic technical terms. I generally accompany their use with an approximate one- or two-word translation of these into English. Those interested in pursuing particular topics using English terms will find assistance in the index. I sometimes repeat definitions of legal terms in briefer form when they reappear in the book at points far separated from their original explanations. A glossary of Arabic terms is provided at the end of the volume.

1.1.4.Aspects of Business Law Covered in the Book

Again, this book does not attempt to describe, or even to survey, all Saudi business law. To do so, even in superficial fashion, would have been difficult in the period allowed for this study. And it would be impossible if one attempts to determine on each point the law actually observed in practice, especially in cases where that law is also unwritten (typically due to its reflecting the contemporary interpretation of the uncodified Islamic jurisprudence).

Even if one narrows one’s scope to the Islamic law of contract, tort, and property as applied in Saudi Arabia and related statutes, the topic is too large. Still one has to make choices as to topic and depth of coverage. Given the difficulties one experiences trying to verify the actual practice, on what topics should one expend the effort to do so? As to doctrine, what level of detail should one reach for, when trying to reveal how Saudi judges and scholars reason about and decide an issue?

The approach I have decided to take is to describe the law in two distinct ways, in two registers.

My first method, the first register, is to offer general introductions to broad areas of legal doctrine. (Again, these areas of law are those governed in the main by Islamic law, not statutes, and most of them fall within a sphere that would be called ‘civil’ or ‘common’ and not ‘commercial’ in other systems.) These descriptions of sub...

Table of contents

• Cover
• Title Page
• Acknowledgements
• Brief Contents
• Table of Contents
• List of Abbreviations
• Chapter 1. Introduction
• Chapter 2. Saudi Legal System: Constitution, Laws, and Courts
• Chapter 3. Saudi Judicial Process: Procedure and Reasoning
• Chapter 4. Introduction to the Fiqh Law of Property, Crime, Tort, and Contract
• Chapter 5. Case Study of the Supply Contract
• Chapter 6. Contracts: General Categories and Specific Types
• Chapter 7. Theories of Liability
• Chapter 8. Case Study on Compensation for Lost Profits
• Chapter 9. Case Study on Respondeat Superior or Employer Vicarious Liability
• Chapter 10. Conclusion
• Appendix – Translation of Two Cases
• Guide to Transcription of Arabic Letters
• Glossary of Arabic Terms
• Bibliography
• Index
• Copyright Page