Dispute Resolution Strategies for Foreign Businesses: How Top Law Firms in Saudi Arabia Are Approaching Commercial Conflicts in 2025

Navigating commercial disputes in Saudi Arabia’s evolving legal landscape requires strategic planning, cultural understanding, and expert legal guidance. As foreign businesses increasingly enter the Kingdom’s dynamic market, understanding the available dispute resolution mechanisms becomes crucial for protecting investments and maintaining successful operations. This comprehensive guide explores the essential strategies that lawyers in Saudi Arabia recommend for effective dispute resolution.

Understanding Saudi Arabia’s Modern Legal Framework

The Transformation of Saudi Arabia’s Legal System

Saudi Arabia’s legal system has undergone significant modernization as part of Vision 2030, fundamentally changing how commercial disputes are resolved. The kingdom’s legal reforms aim to provide a legal environment conducive to business while at the same time upholding the centrality of sharia in the kingdom’s judicial and legal systems.

The most transformative change came with the enactment of the Civil Transactions Law (the “KSA Civil Code”) on June 19, 2023, which entered into force on December 16, 2023. This law marked the kingdom’s first written civil code, replacing a system where judges would have full discretion in ruling on commercial disputes using Islamic law, sharia, as guidance.

Key Components of the Legal Framework

Sharia Law Foundation: While modern codification has provided greater certainty, the legal system of Saudi Arabia is based on Sharia, Islamic law derived from the Quran and the Sunnah (the traditions) of the Islamic prophet Muhammad. The interpretation by judges in Saudi Arabia is influenced by the medieval texts of the literalist Hanbali school of Fiqh.

Modern Court Structure: The Saudi judicial system now includes specialized courts that handle different types of disputes:

• Commercial Courts: The Board of Grievances used to have jurisdiction in commercial disputes, which was transferred to the newly formed Commercial Courts in October 2017
• Labor Courts: Handle employment-related disputes
• Administrative Court (Board of Grievances): has exclusive jurisdiction over disputes to which the government or government agencies are party

Common Dispute Types Facing Foreign Businesses

Commercial Contract Disputes

The most frequent disputes involve contractual disagreements arising from unclear terms, breach of contract, or differing interpretations of obligations. With the new Civil Code, the new law also allows to sue for loss of profit, previously a legal grey area, because sharia guidance generally stated that compensation had to be a fixed amount.

Regulatory Compliance Issues

Foreign businesses often face challenges with Saudi Arabia’s complex regulatory environment, including labor laws, environmental standards, and sector-specific regulations. Best law firms in Saudi Arabia emphasize the importance of proactive compliance to avoid disputes with regulatory authorities.

Intellectual Property Disputes

As the government recently revised its intellectual property laws to meet World Trade Organization standards, as part of its admission to the WTO in 2004, IP protection has improved, but disputes still occur regarding trademark infringement, patent violations, and unauthorized use of proprietary information.

Dispute Resolution Mechanisms in Saudi Arabia

Traditional Litigation Through Saudi Courts

The Saudi court system provides formal resolution through various specialized courts. However, litigation can be time-consuming and may not always provide the predictability that international businesses seek. The Commercial Courts Regulation, Royal Decree No M/93 of 15 Sha’ban 1441 Hejra, corresponding to 8 April 2020, which entered into force on 16 June 2020 governs commercial litigation procedures.

Arbitration: The Preferred Choice for International Disputes

Saudi Center for Commercial Arbitration (SCCA)

The Saudi Center for Commercial Arbitration (SCCA) is considered the preferred method for dispute resolution for investors. The SCCA is a not-for-profit, non-governmental organisation established by Saudi Cabinet Decree No. 257 of 15 March 2014.

Key Features of SCCA:

• Its services are provided in accordance with international standards and best practices in Arabic and English
• On 1 May 2023, the SCCA introduced its latest edition of the SCCA Rules
• The SCCA announced the creation of an independent SCCA Court in November 2022 to make key administrative and procedural decisions
• The President of the SCCA Court is Professor Jan Paulsson who was a former president of the London Court of International Arbitration (LCIA)

Cost Advantages: Based on a US$10 million claim with a sole arbitrator, the SCCA’s fees are estimated to be 31 percent less than those of DIAC and 37 percent less than those of the ICC.

Government Support for Arbitration

The Saudi government has shown strong support for arbitration through various initiatives:

• Royal Order No. 28004 of 28 January 2019, directed government agencies and state-owned companies seeking to settle their disputes with foreign investors to do so through arbitration and stipulated that the arbitration should take place in Saudi Arabia
• The Saudi Ministry of Finance adopted a model arbitration submission agreement for submitting disputes to SCCA

Mediation: Culturally Aligned Dispute Resolution

The Saudi Center for Commercial Arbitration (SCCA) is a not-for-profit organization established to administer arbitration procedures for civil and commercial disputes and also provides mediation services. Additionally, on May 5, 2020, Saudi Arabia ratified the United Nations Convention on International Settlement Agreements Resulting from Mediation (the “Singapore Convention”).

Mediation aligns well with Saudi cultural preferences for amicable resolution and maintaining business relationships.

Strategic Approaches for Successful Dispute Resolution

Choosing the Right Legal Representation

Importance of Local Expertise: Working with experienced lawyers in Saudi Arabia is crucial for several reasons:

1. Deep Understanding of Sharia Principles: Since the creation of the Kingdom of Saudi Arabia on 23 September 1932, it has been the government’s express policy that the country is governed by Islamic law (Sharia)
2. Knowledge of Local Procedures: Law firms in Saudi Arabia understand the intricacies of the judicial system and can navigate both traditional and modern legal frameworks effectively
3. Cultural Competency: The best law firms in Saudi Arabia combine legal expertise with cultural understanding essential for successful dispute resolution

Pre-Dispute Planning: Contract Drafting Best Practices

Essential Contract Provisions:

1. Clear Dispute Resolution Clauses: Specify whether disputes will be resolved through litigation, arbitration, or mediation
2. Governing Law: Determine whether Saudi law or international law will apply
3. Language Requirements: Ensure contracts comply with local language requirements when necessary
4. Sharia Compliance: Ensure contract terms do not conflict with Islamic principles

New Civil Code Implications: The KSA Civil Code which came into force on December 16, 2023, have retrospective effect, meaning it will apply to events or situations that occurred and contracts that have been executed before then.

Cultural Considerations in Dispute Resolution Saudi Arabia

Understanding Saudi Business Culture

Relationship-Centric Approach: Saudi business culture emphasizes personal relationships and trust. Successful dispute resolution often depends on:

• Building strong personal connections before conflicts arise
• Demonstrating respect for local customs and Islamic values
• Maintaining dignity and honor for all parties involved

Preference for Amicable Resolution: Reconciliation offices in courts were introduced as early as 2013 and have been expanded through the establishment of an independent Markaz Al-Mosalaha (Reconciliation Center), demonstrating the cultural preference for mediated solutions.

Islamic Principles in Dispute Resolution

Good Faith and Justice: Islamic law emphasizes fairness, justice, and good faith in all dealings. An example of this is the principle of good faith discussed above as a mandatory provision in the new Civil Code.

Prohibition of Interest: Lawyers in Saudi Arabia must ensure that dispute resolutions comply with Islamic prohibitions on interest (riba), which can affect damage calculations and settlement structures.

Modern Developments in Saudi Dispute Resolution

Technology Integration

The 2023 Rules has surpassed expectations; it contains provisions that are innovative, perceptive and an apposite response to the growing criticisms that have been levied against international arbitrations. The SCCA has introduced:

• Online Dispute Resolution (ODR): The Online Dispute Resolution (“ODR”) Protocol Rules which apply on parties’ written agreement to disputes where the aggregate value does not exceed SAR 200,000
• Technology-Enhanced Proceedings: Modern video conferencing and digital evidence presentation capabilities

Expedited Procedures

A notable feature of the 2023 Rules is the increase in the threshold amount in dispute for the Expedited Procedure Rules to apply, from SAR 200,000 to SAR 4 million, allowing more disputes to be resolved quickly and cost-effectively.

Enforcement of Dispute Resolution Outcomes

Arbitration Award Enforcement

The enforceability of arbitration awards has been strengthened through:

• Saudi Arabia’s commitment to international arbitration conventions
• The enforceability of arbitration awards under international conventions also makes it a preferred choice for foreign businesses
• Government support for institutional arbitration

Court Judgment Enforcement

The enforcement of judgments has been reformed, as was arbitration, providing more predictable enforcement mechanisms for foreign businesses.

Practical Recommendations for Foreign Businesses

Immediate Action Steps

1. Legal Audit: Engage lawyers in Saudi Arabia to review existing contracts and identify potential dispute risks
2. Relationship Building: Invest time in building relationships with local partners and stakeholders
3. Training: Ensure management teams understand Saudi business culture and legal requirements
4. Documentation: Maintain comprehensive records in both Arabic and English

Long-term Strategy Development

1. Local Legal Counsel: Establish relationships with the best law firms in Saudi Arabia before disputes arise
2. Alternative Dispute Resolution: Include ADR clauses in all commercial agreements
3. Cultural Integration: Develop cultural competency within your organization
4. Regulatory Compliance: Implement robust compliance programs to prevent disputes

The Path Forward:

As Saudi Arabia continues its transformation under Vision 2030, the dispute resolution landscape will become increasingly sophisticated and internationally aligned. Foreign businesses that invest in understanding the legal framework, building local relationships, and working with the best law firms in Saudi Arabia will be well-positioned to resolve disputes effectively and maintain successful operations in the Kingdom.

The combination of traditional Islamic principles with modern legal frameworks creates a unique but navigable environment for dispute resolution. By embracing both aspects and working with qualified lawyers in Saudi Arabia, foreign businesses can confidently approach the Saudi market knowing they have effective mechanisms for resolving any conflicts that may arise.

For businesses seeking to establish or expand operations in Saudi Arabia, early engagement with experienced law firms in Saudi Arabia specializing in dispute resolution Saudi Arabia will provide the foundation for long-term success in this dynamic and rapidly evolving market.