Overview

The Kingdom of Saudi Arabia (KSA or Kingdom) as of 3 August 2023 has now deposited its instrument of accession to the United Nations Convention on Contracts for International Sale of Goods (Vienna, 1980) (CISG).This was preceded by an announcement on 21 June 2023 that KSA had confirmed its accession to CISG through the Council of Ministers led by His Royal Highness King Salman bin Abdulaziz Al-Saud in Decision No. 839 dated 2/12/1444H (21/6/2023)¹. The CISG will enter into force in KSA on 1 September 2024.

KSA's announcement aligns with the KSA Vision 2030 and aims to enhance the ease of doing business for foreign investors from other jurisdiction with KSA. The CISG will be adopted in its entirety with a reservation or opt-out only of Part III. It has now joined the 95 other states from around the world, each of which have similarly acceded with their own reservations in place.

KSA exclusions from CISG principles

KSA’s declaration to opt-out of Part III is in accordance with the provisions of paragraph (1) of Article 92 of the convention, which states that "a Contracting State may declare at the time of signature, ratification, acceptance, approval or accession that it will not be bound by Part II of this Convention or that it will not be bound by Part III of this Convention". These provisions are with respect to "interest" or “riba” in financial transactions which are prohibited in KSA under Islamic law. This is the only exclusion that KSA has submitted, which will be studied further by the country in relation to the CISG.

This study will be led by His Excellency the Minister of Commerce, Chairman of the Board of Directors of the National Competitiveness Centre (or his deputy) who will continue discussions within the framework of the United Nations (in coordination with the Ministry of Foreign Affairs). This is in an effort to fully accede to the Convention (referred to in item (First) of this resolution) after finding the remedies acceptable to the State Parties and the Secretariat General of the United Nations. This will ensure that the Kingdom is not bound by the provisions of Article 78 and the provisions of paragraph (1) of Article 84 of the Convention.

Changes and impact in KSA

KSA's accession to CISG is a ground-breaking advance, putting it firmly on the world stage with respect to international trade. It will also vastly ease dispute resolution in KSA and will give assurance to the parties in a dispute where the CISG is applicable, such as contracts for sales of goods, that local KSA law will not apply to their dispute.

KSA's accession will also now impact the following in such disputes:

• Applicable law: The CISG provides a uniform set of rules for international sales contracts which will now be applicable to KSA as both parties will now be CISG member states. The CISG provisions will automatically apply to their contract, unless explicitly excluded. This means that CISG principles will govern the interpretation and performance of KSA contractual obligations, including dispute resolution.
• Interpretation: Accession now ensures that CISG provisions are interpreted without any domestic character from KSA and this will emphasise the need to maintain the international character in any contract for sales of goods between international parties. This will have an impact on disputes in the contracts to which KSA is a party, by limiting the discretion and interpretation of KSA courts. For international investors, accession to the CISG will demonstrate greater consistency and reduce uncertainties by providing a common framework for resolving disputes in KSA.
• Alternative approaches: As a result of the CISG, KSA will now be further encouraged to consider alternative dispute resolution (ADR) methods, such as mediation or conciliation to amicably resolve their disputes. These approaches will help parties find mutually agreeable solutions without resorting to lengthy and costly litigation in the KSA courts. The Saudi Centre for Commercial Arbitration (SCCA) and its recently updated 2023 international commercial arbitration rules, as well as its facilitation for mediation, will further enhance the use of ADR in KSA, easing any investor apprehension.
• Choice of forum: As the CISG does not mandate a particular forum for resolving disputes, KSA and those parties contracting with it will be free to choose a suitable forum, such as a national court, arbitration or any other available resolution mechanism. Given the importance of ensuring that the selected forum permits the application of CISG principles if the parties wish to rely upon them, this may have implications for the style of agreements and the formulation of dispute resolution clauses for future KSA sale of goods contracts.

The challenges remain as to how quickly these changes will be understood and implemented in practice. Only then can there be the elimination of trade obstacles and further diversification in the KSA economy.

Summary

For KSA and those parties trading with it, accession to the CISG will increase certainty in commercial exchanges and decrease transaction costs. It will ease doing business with KSA and alleviate some concerns regarding dispute resolution in sale of goods contracts. The accession to the CISG should provide greater comfort to international investors due to the increased transparency this development creates.

This article is also available in Arabic, click here to download.

1. Um Al-Qura (Official Newspaper) Approval of the Kingdom's Accession to the United Nations Convention on Contracts for the International Sale of Goods | um Al-Qura Newspaper (uqn.gov.sa)↩