ICSID And KSA Laws

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Contents

  1. 1. Overview.. 1
  2. 2. Introduction. 1

2.3. Purpose and Scope of International Investment Treaties. 3

2.4. Ratification on ICSID Convention. 6

2.5. Validity and Severability of the ICSID vis-à-vis the KSA Investment Regulations. 14

2.6. Structure of the KSA Investment Related Laws vis-à-vis ICSID.. 18

2.7. Overlapping between ICSID Rules and the KSA Investment Legislations. 22

2.8. The Effectiveness of ICSID in KSA Laws. 25

2.9. Risk of Foreign Investment in the KSA.. 26

2.0. Discuss and critically analyze Investment Arbitration. 28

2.1. Conclusion. 30

2. 1. Overview

The steady growth of investment activities between investors and nation states has resulted into numerous disputes. The International Centre for Settlement of Investment Disputes (ICSID) is a body that seeks to mitigate the issues caused by such investment disputes. This paper attempts to explain how investment disputes in the Kingdom Saudi Arabia were handled before the Kingdom ratified the ICSID and after the ratification. This will be tackled in the context the competent authorities such as the Commercial and Committee fort Settling Investment Disputes that were mandated to handle commercial disputes before the KSA acceded to the ICSID. The various investment regulations such as the Mining Law, Arbitration Law, and the Foreign Investment Law all which were enacted after the ICSID accession. Lastly, the paper will tackle investment arbitration in general terms with special emphasis given to the role played by the ICSD.  

2. 2. Introduction

Litigations in Saudi Arabia just like in many jurisdictions may take a long time, consume a lot of money, and in most times it is very hard to predict their outcomes.[1] Tellingly, investments involving nationals and/or agencies from different countries are complex. They involve both major and minor transactional and legal dealings that touch the areas of procurement, finance, marketing and branding, property leasehold, taxation and many more others that are directly or indirectly linked to the core investment.[2] The scenario may be even complicated if such disputes involve multi-jurisdictional investment disputes or high value investments involving private individuals and state agencies.[3]

In addition, under the Shari’a laws the Saudi courts are not obliged to approve monetary gains to parties claiming loss of future profits. The courts cannot either give consent for the payment of interest on overdue amounts.[4] Moreover, foreign investors may opt to shun courts in attempts to safeguard the good image of their companies especially if such companies are listed at a stock exchange. Sometimes due to disparities in legal systems across the jurisdictional divide foreign investors may even have low opinions on the impartialness of the local courts. These are fairly strong impediments that threaten the smooth running of inter-jurisdictional business activities in Saudi Arabia. Resultantly, foreign investors always seek alternative dispute resolutions avenues to mitigate the inevitable contractual disputes.[5] As a matter of fact, it is very common among the foreign investors to stress on the importance of including explicit arbitration clauses during the signing of business contracts in Saudi Arabia.[6]

Investment arbitration in Saudi Arabia is governed by a range of commercial legislations drafted in accordance of the ICSID Convention regulations.[7] Basically, the ICSID is a unique legal framework that provides direct recourse to foreign investors shortchanged by nationals and/or state agencies of the host nations.[8] In reinforcement of the ICSID provisions the KSA legal framework through the arbitration law and foreign investment law provide explicit arbitration and mediation procedures that helps to settle investment disputes between foreign nationals and Saudi nationals and/or state agencies.[9] No doubt, these ‘investment-confidence’ inducing legal frameworks are responsible for the steady growth of the Saudi export and import business over the years.[10]

2.3. Purpose and Scope of International Investment Treaties

Developing nation states rely on direct foreign investments to boost their domestic economy.[11] However, the environments in which such foreign investments thrive are inherently uncertain and in many instances result in disputes. Such disputes may tilt the scale of confidence in a countries ability to safeguard investments if not checked and proper measures taken to mitigate their effects.[12] Ideally all domestic courts have got the capacities to handle all manner of disputes including investment related ones. However, due to conflicting legal systems as well as issues of impartiality foreign nationals may feel insecure when pursuing justice through domestic courts.[13] Host nation states may be tempted to invoke political overtones when handling foreign investment disputes to tilt the justice scale to their side.[14] From a different perspective it is evidential that foreign investments are normally complex and therefore pose significant challenges to the sometimes under funded domestic courts.[15] In this regard handling international investment disputes in the domestic courts which are also known to be overburdened by domestic litigations may be overwhelming to them.[16] A combination of these impediments dent the credibility of domestic legal systems in handling investments disputes between foreign nationals and state agencies.[17]

This inherent credibility crisis among domestic legal systems forms the basis for the clamor for international investment treaties that provide alternative universal dispute resolution mechanism. Ideally, so as to enhance capital flows across the globe and hence economic development there is need to draft universally agreed upon laws that govern how nation states and foreign nationals indulge each other in solving investment disputes that are inevitably unavoidable.[18] In light of this information, autonomous dispute resolutions bodies with a global command can go a long way in filling this gap.[19] International investment treaties such as the ICSID Convention, Multilateral Investment Guarantee Agency (MIGA), Overseas Private Investment Corporation (OPIC), International Finance Corporation (IFC), and many more others provides the framework for the creation of arbitral tribunals that facilitate faster, fair, and efficient dispute resolution measures to the inevitable while balancing “the interests of investors and host countries.”[20]

International arbitration treaties are what Nelson (2010) refers to as “enduring institution[s] that … weather[s] worse backlashes” from anti-reformist and oppressive nation states.[21] As a matter of fact, in reference to the 1933 arbitration between Lena Goldfields v. the Soviet Government, Justice V.V. Veeder famously opined that international arbitration treaties that internationalizes trans-jurisdictional investment dispute resolutions was a major invention in the investment world which can be compared to “the caveman’s discovery of fire”.[22]

Some of the most notable arbitrations that underscore the importance and purpose of international arbitration treaties and that consequently changed the world of investor-state disputes include the Iran-US Arbitrational Tribunal in the 1980s and the Alabama Claims Tribunal that was formulated in 1874 to settle the US Civil War disputes between the US ship owners and the Great Britain.[23] Others are the ARAMCO dispute that involved United States/British co-owned oil Exploration Company (ARAMCO) and the Saudi Arabian Government,[24] as well as a gamut of cases emanating from nationalization moves by the Libyan government in the 1970s. Ideally, the circumstances surrounding these cases can be said to have been fueled by high levels of uncertainty and biasness on the part of domestic legal systems of the host states. For instance, in the Libyan nationalization cases the government under the dictatorial leadership of Colonel Muammar Qaddaffi literally commissioned the nationalization of several foreign owned oil companies as a measure to consolidate a firm state control on the lucrative oil industry. [25]

Basically, international arbitration treaties are consensual. It is universally agreed that no nation state should be forced into ratifying a treaty that undermines the spirits of national sovereignty espoused by them.[26] As a matter of fact, most of the international arbitration treaties are flexible so that nation states can categorically subject matters they wish to be handled within the jurisdiction of such treaties and matters they consider the preserve of their domestic court systems. Basically, the meaning and context of most international arbitration treaties pays great emphasis to the spirit of mutual consensus where by entities embroiled in an investment dispute are given the leeway to settle the dispute in an amicable manner failure to which such disputes are taken for arbitration.[27] This is meant to create friendly and mutually benefiting investment environments and most importantly to discourage exploitation and mistreatment by states on foreign investors.[28]

2.4. Ratification on ICSID Convention

Cases of investment disputes arbitration in Saudi Arabia can be traced back to the ARAMCO case that arose following the KSA government introducing new regulations not catered for in the original 1935 concession and ARAMCO’s failure to abide by the new regulations.[29] ARAMCO, Arabian American Oil Company was given an exclusive oil exploration, extraction, development, transportation, and exportation concession in 1935.[30] As fate would have it, the prices of oil shot up following postwar economic shifts prompting the KSA to consider entering into new lucrative deals. Precisely, a company owned by Aristotle Onassis, called Saudi Arabia Maritime Tankers Co., Ltd. (SATCO) was granted special rights that extended for a span of 30 years to transport Saudi oil. Both the KSA government and ARAMCO agreed to take settle the dispute through arbitration. Article 4 of the 1935 concession provided for arbitration process that was based on KSA law “if the disputed questions were of the jurisdiction of Saudi Arabia [or]… in any other law the arbitral tribunal would deem applicable if the disputed questions were not of such jurisdiction.”[31] The ensuing dispute was settled at a Switzerland based arbitrational tribunal that comprised of three members. ARAMCO argued that by granting Saudi Arabia Maritime Tankers exclusive transportation rights was a violation to the 1935 contract.[32] The Saudi government was found guilty of extending rights granted to ARAMCO to a third party and agreed to comply by the arbitrational tribunal ruling. The issues surrounding this historical dispute and the subsequent ruling marked the turning point to the KSA investment dispute resolution track record.[33]

Outstandingly, it was ruled that even though the arbitration was carried out within the Swiss jurisdictional frameworks only international arbitral laws could be applicable in making awards to the aggrieved party and not the Swiss laws but in KSA laws.[34] This was because the concession contract was made under the KSA laws.[35] However, the use of Swiss legal framework was occasioned by the inadequacy of the Shari’a-based KSA law particularly in matters concerning “mining concessions in general and petroleum concessions in particular.”[36] . As a matter of fact it was ruled that the KSA law was inadequate determining cases of such magnitude and therefore it needed to “be complemented by other sources of law.”[37]  It was also ruled that the KSA was under all legal obligations to respect and uphold the 1935 concession terms particularly the clauses that indicated that the KSA government would not undertake to alter or even impede rights granted to ARAMCO. Even so, it was made clear that the national sovereignty latitude extended by international arbitration treaties grant nation states legal capabilities to selectively agree to and grant rights during contract drafting that bars it from retracting its promises.[38]

Following the discovery and the beginning of exploration in the KSA it became apparent that private foreign based investments in the oil industry were inevitable. The economy was growing at a faster rate than witnessed before.[39] Consequently, it slowly dawned on the KSA policy makers that investment disputes are inevitable and hence proper legal frameworks needed to be laid down for such future eventualities. Based on this revelation, on September 28, 1979 the Kingdom of Saudi Arabia signed the ICSID treaty, ratified it on May 8, 1980 and went ahead to give it formal enforcement on September 28, 1980.[40]

All along the KSA has endeavored to be among the world’s most targeted investment destination by the year 2010. However, this has not been an easy task given the inherent lack of investor-confidence on the KSA Shari’a based court system.[41] As a matter of fact, for such an ambitious goal to be realized there must be proper legal framework that espouses international arbitration methods for solving investment disputes. Consequently, the ratification of the ICSID as well as the subsequent legislations such as the Arbitration Law, Foreign Investment Law, and Mining Law made to entrench it (ICSID) into the KSA legal framework was occasioned by this noble goal.[42]

Moreover, it was acknowledged that litigations involving inter-jurisdictional investment contracts may pose significant challenges in terms of interpretation and delivery of impartial rulings that extends justice to both contracting parties.[43] Special emphasis was also given to the notion that international dispute solving conventions such as the ICSID are more credible hence foreign nationals are more obliged to respect their rulings than national legal institutions whose credibility and impartialness may be wanting.[44] Ideally, the ratification of the ICSID was meant to grant nationals of other states involved in contractual disputes with Saudi national and/or state agencies an alternative legal recourse apart from the Saudi Shari’a-based court systems.[45] In a nutshell, the Saudi stance toward foreign investment is based on the notion that the country’s economic development is directly dependent to efforts made to diversify the revenue sources.[46] Apparently, increased foreign investment traffic due to oil exploration, transportation, and exportation, meant more disputes and hence more burden to Saudi courts. It is therefore prudent on the part of the KSA policy makers to reduce the case load handled by the Saudi courts.[47]

Most importantly, the KSA policy makers are well aware that oil is the Kingdom’s chief foreign exchange and that to achieve the envisaged short and long term economic goals of being the friendliest country to invest in Middle East, KSA needs to increase direct foreign capital inflow. In this regard the KSA is committed to enticing foreign investors for both capital and expertise gains.[48] Apparently, this can only be achieved by assuring them of legal and economic protection against potential investment risks that are inevitable in the world of inter-jurisdictional economic activities.[49] Precisely, Saudi leadership is well aware that for it to compete equally with other oil producers in the Middle East and world over it needs to streamline its legal frameworks with view of entrenching foreign investment protectionist clauses.[50] Needless to say, the country needed to do away with all potential impediments that would hamper the smooth flow of international capital. Given the Shari’a based legal system it is obvious foreign investors from non-Muslim countries may have been jittery on some sections of the Quran-based constitution particularly on the provision that, the Saudi courts are not obliged to approve monetary gains to parties claiming loss of future profits or even the provision that, the courts cannot give consent for payments to be made in form of interest on overdue amounts there was a greet need to harmonize the country’s legal framework (the investment part of it) with international standards.[51]

Before the ratification of the ICSID treaty and the subsequent enactment of the Arbitration Law of 1983 and its Implementing Rules of 1985, investment arbitration in the KSA was governed by a gamut of legislations enclosed in the Commercial Court which later was superseded by the Committee for the Settlement of Commercial Disputes.[52] The Commercial Court and its successor, Committee for the Settlement of Commercial Disputes handled all forms of “Company Code, Services Agency Code, Commercial Agency Code …commercial land and maritime issues”, as well as labor and workmen issues.[53] Each of these regulations was responsible for adjudicating investment disputes within its mandate. However, the inherent biasness and the lack of clarity posed a huge impediment to foreign direct investment.[54] Arguably, this scenario was partly responsible for the legislation of the 1983 Arbitration Law which aimed at addressing the existing gaps in investment disputes arbitration.[55] Interestingly, this law was not effective enough in addressing all the critical areas of international investment arbitration. As such, there was need to formulate a set of implementing rules that would give it meaning, purpose, and most importantly enhance its capability to address the lacunae encapsulating the scope of arbitration in the Kingdom.[56] This milestone was achieved in 1985 when the Implementing Rules were passed by the Council of Ministers.[57]

Essentially, the Implementing Rules played a key role in providing a sense of focus to key provisions to the 1983 Arbitration Law and most importantly they provided a clear delineation on the scope and nature of investment disputes to be settled through arbitrations as well as ancillary issues that may be included as part of the arbitration process arising during the implementation of a contract agreement.[58] This provision is catered for by Articles 1, 5, and 7of the Implementing Rules. Precisely Article 3 stipulates:

The parties may agree to arbitrate a specific existing dispute: a prior agreement to arbitrate may also be made in respect of any dispute resulting form the performance of a specific contract.[59]

On the other hand, acting on the element of flexibility inherent in the ICSID it is common among member states to discriminate cases they want to be covered by the convention while leaving others under the jurisdiction of the domestic courts. [60]As a matter of fact, the convention allows the member states to leave out specific investment dispute categories if they feel that resolution by arbitration may negatively affect the terms and conditions governing the consent made thereof during the ratification of agreements governing such disputes or even may dent national sovereignty. To this end, member states that subscribe to the ICSID provisions are also allowed to determine specific categories of investment disputes based on the interpretations of their respective investment legal frame works. [61] Precisely, Article 25 (4) stipulates:

Any Contracting State may, at the time of ratification, acceptance or approval of this Convention or at any time thereafter, notify the Centre of the class or classes of disputes which it would or would not consider submitting to the jurisdiction of the Centre. The Secretary-General shall forthwith transmit such notification to all Contracting States. Such notification shall not constitute the consent required by paragraph (1).[62]

Apparently, this provision seems to grant the KSA substantial benefits particularly on matters concerning oil as well as a number of minerals. As a matter of fact, acting on the leeway extended by this clause the KSA law puts a clear distinction between which investment disputes are to be admitted to the ICSID and which should not. Consequently, this clause empowers the KSA especially in matters considered to be closely linked to the Kingdom sovereignty and most importantly on investment in particular sectors considered sensitive and therefore a preserve of the KSA entities.[63]

For instance, it is stipulated that the Kingdom “reserves the right of not submitting all questions pertaining to acts of sovereignty”.[64] Article (3) of the Mining Investment Law stipulates that, “Without prejudice to the provisions of Article (2) of this Law, the following shall be excluded from its provisions: (1) Petroleum, natural gas and derivatives thereof, and; (2) Pearls, corals and similar organic marine substances.”Moreover, the Royal Decree Number M/8 Dated 22/3/1394H explicitly offers that, though the Kingdom willingly subscribes to the ICSID rules in regard to the arbitration of investment disputes between its nationals and/or agencies and foreign nationals running investments within the Kingdom, “KSA reserves the right not to raise issues relating to oil in the International Centre for Settlement of Investment Disputes to be resolved either by conciliation or arbitration.”[65]

Basing on the fact that the essence to classify some disputes categories  as beyond the ICSID jurisdiction is advised by the notions of national sovereignty and the respect for sensitive national issues it is obvious that the KSA courts handle all investment disputes matters that are not covered by the ICSID. Oil being the country’s most coveted revenue source is considered as a symbol of national recognition and therefore disputes arising from oil investments are a preserve of the KSA courts and special tribunals.[66]

2.5. Validity and Severability of the ICSID vis-à-vis the KSA Investment Regulations

The Saudi Arbitration Law officially recognizes the validity of arbitration clauses mutually agreed upon by the contracting parties during the time of drafting a contract.[67] Article 1, 5, and 7 of Arbitration Law allay the prevailing fears about the validity of the arbitration agreements provided for during the process of drafting a contract particularly in contractual agreements where a party, or both of the parties made it clear to exploit such arbitration agreements way before a dispute occurs.[68] Initially (before the Arbitration Law and its Implementing Rules), the Shari’a courts were better known for their strong stance in refusing to recognize and implement the provisions of the arbitration clauses in a contract before a dispute arose.[69] Moreover, the courts were adamant in dealing with only the first parties to disputes as long as they are parties to an existing arbitration agreement that is subject to premature dispute resolution terms. In clear terms the Implementing Rules acknowledged that arbitration clauses in a contract are legally biding to the contractual parties and that it should not be subjected to the problems of new arbitration agreements.[70]

Even so, the Arbitration Law does not encompass all types of investment disputes. [71]As a matter of fact, the KSA governments as well as its agencies are not bound by the provisions of the arbitration even if they are embroiled in disputes.[72] However, an exception is provided in the form of a ministerial authorization from the Council of Ministers and/or a Presidential consent allowing such. This is a true reaction to the effects of the ARAMCO case where the KSA government was found guilty of a contract breach and fined accordingly. This prompted the KSA policy makers to formulate legislations that would cushion the government and its entities against future ‘unfavorable’ arbitral tribunal award ruling on disputes between the state or its agencies and foreign entities.[73] This is clearly provided for in Article 3 of Arbitration Law which stipulates:

Government bodies may not resort to arbitration for the settlement of their disputes with third parties except after approval of the President of the Council of Ministers. This provision may be amended by a Resolution of the Council of Ministers.

Ideally, such provisions were a follow up of a Royal Decree signed in 1963 that imposed a ban on all form of arbitration if a KSA government agency, ministry, department, or even its representative is involved in a dispute.[74] Moreover, this is in tandem with the notion of flexibility as provided for the ICSID where the jurisdiction of the convention is only limited to investment disputes that the member states outlined/declared during the ratification of the Convention. In this regard it is generally agreed that the ICSID provisions and the arbitration instruments provided thereof are only applicable within the limits of these member state declarations, anything outside these declaration is perceived to be addressed by the host state domestic legal framework.[75]

Moreover, the ICSID regulations are reflected in the rigorous dispute arbitration process that characterizes the KSA Foreign Investment Law.[76] For instance, it is provided for the formation of The Investment Disputes Settlement Committee whose core responsibilities will be to settle investment disputes between foreign investors and Saudi counterparts in an amicable manner.[77] Such dispute resolution is subject to the will power on the part of the estranged contracting parties to abide by the decision reached. In the event any of them is not willing to abide by the decisions reached thereof by the Committee then the law provides for use of arbitration. Article 26 of the Foreign Investment Law Implementing Rules stipulates:

… The committee shall work to settle the dispute amicably. In case an amicable settlement could not be reached, the dispute shall be settled through arbitration according to the Arbitration law and its implementation rules issued by Royal Decree No. (46) Dated 12.7.1403 H…[78]

Such arbitrational process is subject to the provisions of the Royal Decree No (46) Dated 12.7.1403H that offers explicit details on the implementation of the Arbitration Law of 1983. Ideally, the committee will still reserve its professional role of laying the foundation for the commencement of arbitration process. Moreover, the activities of the committee as well as those of the subsequent arbitration tribunal formed thereof the dispute resolution process will be done in accordance with the provisions of Article 13(2) of the Law.[79]

Foreign investors operating in the KSA are subjected to strict vetting procedures to ensure that they operate within the provisions of the Act and the Rule.[80] Violations noted will be compiled and their penalties listed by the Governor or his designate and the report passed on to the concerned foreign investor. If the foreign investor fails to correct the anomalies noted therein within the stipulated period of time then the stipulated penalties are duly imposed.[81] However, acting on the spirit of amicable dispute resolution, the Law and the Rules provide for the formation of a committee that shall comprise of a legal expert and at least two other members. Basing on all the accusations and defenses presented to the committee by the foreign investor and the KSA government representatives and on the specific Act and Rule provisions touching on licensing, implementation, violations, and penalties the committee shall deliver its verdict.[82]

In the event that such verdict shows cause and reason that the foreign investor should incur penalties further recourse is also available. It is provided for an appeal before the Board of Directors within thirty days from the date of the committee’s verdict. [83]Precisely Article 24 of the Rules stipulates:

The Foreign Investor with to whom the penalty decision is issued according to Article 23 of The Rules may object to the rejection decision before the Board of Directors within thirty days effective from the date on which he is notified of the rejection decision.[84]

            Working within a thirty-day time frame the Board of Directors shall make a ruling. If it will be found that the penalty was necessary then the foreign investor will still have an opportunity to pursue recourse before the Board of Grievances before 60 days elapses starting from the date the Board of Directors made their ruling. In essence the KSA Foreign Investment Law and its Implementing Rules are bent on providing a just investment environment.[85] This argument is based on the fact that it is very unlikely that the rigorous processes involved in the enforcement of the investment regulations as well as dispute resolution measures can be circumvented or bypassed by the KSA government to punish foreign investors.[86]

In the event of a dispute arising from a contract whose parties had a prior clause detailing arbitration as a form of dispute resolution, the parties are obligated to consult an authority competent to handle such dispute. Such authorities may include the Shari’a courts, Board of Grievances, as well as the Committee of Settlement of Labor Disputes.[87] These three options are only applicable in the event that the dispute in question involves Saudi parties, however, if a foreign national and/or a representative of a state that is a member of the ICSID then it will be settled in accordance with the provisions of Arbitration and Foreign Investment Laws. This extension is also applicable in situations that the arbitrating authority has agreed to handle a given investment dispute.[88] For the arbitration process to be legally binding all the parties in a dispute or their representatives which in most cases are their attorneys should sign the agreement. Other critical details include the details pertaining to the dispute the official particulars of the arbitrators, their signatures confirming that they are not under any duress to arbitrate such cases and that they will deliver unbiased rulings based on the facts presented thereof.[89]

2.6. Structure of the KSA Investment Related Laws vis-à-vis ICSID

Foreign investors in KSA like in any other sovereign state enjoy significant amount of benefits and risks alike insofar as adherence to the set domestic and international investment regulations is concerned.[90] Basically, foreign investment in the KSA is governed by the ICSID, Arbitration Law and its implementing rules, Foreign Investment Law and its implementing rules, Mining Investment Law, and a number of Royal Decrees on Investment. While each of these legislations targets a particular facet of investment in the KSA the underlying theme is more or less similar – to streamline the KSA investment environment with view of making it more friendly to operate within for both foreigners and Saudis.[91] For instance, the arbitration law which was enacted in 1983 and given meaning by the subsequent implementation rules of 1985 is meant to provide a smooth and concise framework within which foreign nationals and/or entities and the Saudi nationals and/or state agencies can settle investment related disputes in a more open, impartial, and internationally acknowledged methods.[92]

Despite being a global universal dispute resolution vehicle that boasts of many members the ICSID seems reluctant in giving a clear meaning to the key words “direct” and “investment.”[93] Apparently, even Article 25 that delineates which investment disputes falls within the ICSID jurisdiction is conspicuously silent. It only stipulates that:

The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.[94]

It is apparent that the drafters of the convention were reluctant to define investment in explicit terms.[95]Consequently, it has been always the duty of the contracting parties to broadly agree on what should be encompassed in such investments and what should not. To some extent this leeway has served to the benefit of nation states rather than foreign investors.[96]  As a potential foreign investment destination the KSA enjoys great latitude from this article particularly when it comes to defining elements that forms an investment. For instance, Article 1 of the KSA Foreign Investment Law defines foreign investment as, “any foreign capital in an activity licensed by [the] the law.”[97]

The KSA draws equal leeway from Article 46 of the convention that apparently limits the ICSID jurisdiction to issues that are “directly” related to the “investment” dispute in question.[98] In addition ancillary and/or incidental issues that directly arises as a result of the dispute in question and that according to the desecration of the tribunal are within the dictates of the dispute subject matter should be perceived as “directly” related to the “investment” and hence tackled under the convention laws.[99] On the other hand, it deprives the KSA of absolute powers particularly in determining which investment disputes issues are directly linked to an investment. This is because it is provided by Article 46 of the ICSID that the element of directness is not subject to the consent of the parties involved in a dispute. In this regard the subject matter of the dispute should not only be related to an investment issue but must be closely linked.[100]

Moreover, the convention is not explicit in regard to the interplay between ICSID award rulings and matters considered by nation states as touching on their national sovereignty.[101] Although Article 53 and 54(1) (2) of the convention provide that award given by ICSID tribunals should be considered as a final ruling made by a states domestic court system,[102] Articles 54(3) as well as 55 subjects the enforcement and execution of such awards to the domestic legal frameworks of the host state. Precisely, Article 55 stipulates that:

Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.[103]

Even so, the KSA provides a fool proof Foreign Investment Law that induces confidence on the part of the foreign investors.[104]As such, foreign investors should be very keen in ensuring the most basic legal frameworks are in place before committing them selves to a legally binding investment contract with nationals and agencies of foreign states.[105] For instance, Article 11 of the Foreign Investment Law seeks to assure foreign investors that no circumstances can lead to the loss of their capital and accumulated wealth. It achieves this by stipulating that:

The investments of the Foreign Investor are not allowed to be confiscated either partially or entirely without a judicial verdict, and his property is also not allowed to be expropriated, either partially or entirely, except for public interest and in return for fair compensation in accordance with the law and regulations.[106]

Basing on the notion that government policy on foreign investment plays a huge role in attracting foreign investors, the inclusion of the above clause in the Law was meant to provide long-term relations that have clearly defined exit methods as well as ways of solving disputes.[107] While ambiguous and biased legal provisions on foreign investment may cause doubts among potential foreign investors, explicit policies that provides clear procedures for ironing out differences and solving disputes amicably between the contractual parties go a long way in enhancing direct foreign investment.[108]

2.7. Overlapping between ICSID Rules and the KSA Investment Legislations

Foreign investment in the KSA is governed by the Foreign Investment Law that was brought into place in 2000 by the Royal Decree No M/15Muharram 1421/10 April 2000.[109] Under this law a powerful bodies, The Supreme Economic Council and The General Investment Council are mandated to coordinate all foreign investment matters. Run by a board of directors and a governor respectively, the two bodies are directly responsible for overall investment coordination, licensing, monitoring, and even disciplining of errand foreign investors pursuant to Articles 2, 3, 4, 12 and 17. Contrary to the provisions of the ICSID that fails to offer a clear definition of an investment the KSA Foreign Investment Law clearly defines what investment entails.[110] Precisely, Article 1(f) and 5 (1) (2) offer that foreign investment comprises of any form of capital investment jointly or wholly owned by foreign nationals as long as it is within the provisions of the law. Consequently Article 1(e) of the Foreign Investment Law defines as foreign investor as “a natural person who is not [of] Saudi nationality or corporate person whose partners are not all Saudi.” Even so, not all investments qualify the ‘foreign investment’ status. For instance, Article 3 of the same law stipulates that some investment activities in the KSA cannot be left to the hands of foreign nationals.[111] These include, “Petroleum, natural gas and derivatives thereof, Pearls, corals and similar organic marine substances.”[112]

Upon licensure, foreign nationals and/or corporations intending to engage in business activities in the KSA should abide by all the laws governing fair investment activities within the KSA as well as the International jurisdictions. A breach of such laws may lead to severe actions being taken against them by the board of directors.[113] Such actions should be done in accordance with Article 12 (2) (a) (b) (c) provisions, which may include

Withholding of all or some of the incentives and benefits given the foreign investor … [or the imposition of] a fine not exceeding 500,000 (five hundred thousand Saudi Riyals) … [or even in extreme cases] revoking of the foreign investment license. [114]

Even so, foreign investors are provided with recourse in the form of appeals that can be made before the Board of Grievances. In this regard the laws provide that where the KSA is party to a contract that has .............


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