Nullity, in legal terms, refers to a sanction imposed either by legislative provisions or by judicial decision in the absence of a specific legal text, when a legal action lacks the necessary formal or substantive conditions required for its validity. This sanction renders legal action ineffective and deprives it of any presumed legal value. The UNCITRAL Model Law on International Commercial Arbitration prohibits judicial appeals of arbitration awards, a stance that has been adopted by many arbitration laws worldwide, including the Saudi Arbitration Law. This law deems arbitration awards as final and binding on the parties, with the possibility of challenging only in exceptional circumstances.
Under the Saudi Arbitration Law, issued by Royal Decree No. (M/34) of 1433H (2012), an arbitration award can be challenged through an annulment action, but only under specific circumstances outlined by the law.
Circumstances for Challenging an Arbitration Award in Saudi Arabia
The Saudi Arbitration Law specifies that arbitration awards issued in accordance with its provisions are not subject to appeal by any means, except through an annulment lawsuit, as outlined in the law.
The following outlines the specific grounds on which an annulment lawsuit may be accepted in Saudi Arabia, the parties authorized to file such a lawsuit, the process for adjudicating such claims, and the impact of the court’s decision on the arbitration agreement.
Grounds for Annulment of an Arbitration Award:
1. Absence or Invalidity of the Arbitration Agreement:
An annulment may be sought if there was no arbitration agreement, if the agreement is invalid or subject to an annulment, or if it had expired.
2. Lack of Legal Capacity:
An annulment may be granted if one of the parties to the arbitration agreement lacked legal capacity at the time of its conclusion or had diminished capacity according to the law governing that party’s capacity.
3. Inability to Present a Defense:
If one of the parties was unable to present its defense due to improper notification regarding the appointment of an arbitrator or arbitration proceedings, or due to any other reason beyond the party’s control, an annulment may be sought.
4. Failure to Apply Agreed Legal Rules:
If the arbitration tribunal failed to apply the legal rules agreed upon by the parties concerning the subject matter of the dispute, the award may be subject to annulment.
5. Improper Formation of the Arbitration Tribunal:
An annulment may be pursued if the arbitration tribunal was formed, or the arbitrators were appointed, in a manner that contravenes either the provisions of the law or the parties’ agreement.
6. Exceeding the Scope of the Arbitration Agreement:
If the arbitration award addresses matter not covered by the arbitration agreement, those sections of the award may be annulled. However, if the parts of the award related to matters within the scope of arbitration can be separated from those outside its scope, only the latter parts may be annulled.
7. Non-compliance with Award Requirements:
If the arbitration tribunal failed to meet the required conditions for the award in a manner that affected its content, or if the award was based on invalid arbitration procedures that had an impact on the outcome, an annulment may be granted.
Additionally, the competent court has the authority to invalidate an arbitration award if it finds that the award conflicts with the principles of Islamic law (Sharia), public policy in Saudi Arabia, the agreed-upon terms between the parties, or if the subject matter of the dispute is not arbitrable under Saudi law.
Filing an Annulment Lawsuit Against an Arbitration Award:
An annulment lawsuit must be filed by either party within sixty days from the date on which the party was notified of the award. A waiver of the right to file such a lawsuit, made before the issuance of the arbitration award, does not prevent the court from accepting the lawsuit.
Adjudication of the Annulment Lawsuit:
The competent court will consider the annulment lawsuit without reviewing the facts or merits of the original dispute. If the court upholds the arbitration award, it must order its enforcement, and such a decision is not subject to appeal. However, if the court annuls the arbitration award, its decision may be appealed within thirty days of notification.
Effect of Annulment on the Arbitration Agreement:
The issuance of a court judgment annulling the arbitration award does not terminate the arbitration agreement unless the parties have expressly agreed to terminate it or the court judgment explicitly includes an annulment of the arbitration agreement.
