Background knowledge is vital for Saudi success

Saudi Arabia is developing at an astonishing rate. In a country with an unusually young population (60 per cent are under the age of 21) there is a pressing need for the increased production of electricity, drinking water, industrial processing facilities, new roads and railways, wider telecommunication coverage and new housing and schools.

Thanks to record-breaking oil prices (a revenue of $96bn (£48.87bn) is budgeted for 2007) the Saudi Arabian government has the funds and is ready to invest in numerous ambitious, large-scale infrastructure projects. As a result, it is a good time to be a lawyer in the Kingdom.

Most English-qualified lawyers working in Saudi Arabia will continue to draft and negotiate English law documents, since the involvement of international project financiers usually dictates English (or US) law documentation. But lawyers new to Saudi Arabia will very quickly need to get to grips with a couple of key local legal issues.

The first step is to acquire a working understanding of the sharia – the overriding body of law in Saudi Arabia. Any contractual provision that the courts determine conflicts with the sharia will be unenforceable – the most obvious and well-known example being the unenforceability of obligations relating to the payment of interest.

The instinctive reaction of an English-qualified lawyer might be to try to get round any potentially difficult sharia compliance issues by expressing their contracts to be governed by English law, and have the parties submit to the exclusive jurisdiction of the English courts. Unfortunately, the Saudi Arabian legal system is one step ahead, since Saudi Arabian law does not recognise the doctrine of conflict of laws in certain contexts.

Where there are two Saudi companies party to an English law document, with one being an affiliate of an English company, and the purely Saudi company brings proceedings before the Saudi courts, there is a risk that the courts would accept jurisdiction and interpret the agreement in accordance with sharia law. Even if proceedings were brought before an arbitrator in England and an award obtained, enforcement of that award would not necessarily be straightforward. On submission of the foreign arbitral award to the Saudi Arabian courts for enforcement, the courts can exercise discretion not to enforce any aspect of the judgment that is not consistent with the sharia.

The second hurdle for a common law-trained lawyer is the absence of any binding precedent system in relation to decisions of Saudi Arabian courts. It is therefore not possible to adopt a form of wording that has been considered previously by the Saudi Arabian courts, and held to be compliant with sharia principles, for a particular clause, safe in the knowledge that the same wording would be held to be enforceable a second time round.

The upshot of this interplay between Saudi Arabian law and English law is that it is vital that English-qualified lawyers advising on transactions in Saudi Arabia are able to liaise daily with qualified Saudi Arabian legal advisers – something it is near impossible to do without foreign lawyers living and working in the Kingdom.

In addition, lawyers new to working in Saudi Arabia will need to pick up quickly on the way business is conducted in the Kingdom. Personal relationships are of paramount importance. An excellent level of service is, of course, important to commercially minded clients. However, it is vital that lawyers working in Saudi Arabia invest time and resources in getting to know not only their clients’ businesses, but also the individuals driving them. Many of the largest and most successful Saudi businesses are still very much family-owned and run. It is important to know the family as well as the business.