Foundations of the Problem

Suretyship constitutes one of the principal forms of personal security for debts. It is achieved by attaching an additional financial liability to that of the debtor in order to secure the creditor’s right. Personal securities may take the form of placing one liability alongside another on an equal footing. Such forms include joint and several liability among debtors, the indivisibility of the debt, and the direct action available to the creditor.

Alternatively, personal security may take the form of attaching a subsidiary liability to a principal one, as is characteristic of suretyship. In this context, recourse against the subsidiary liability may be sequential, whereby the creditor is required to pursue the principal debtor first and may only resort to the guarantor thereafter, as is the case in ordinary suretyship. Recourse may also be concurrent, allowing the creditor to proceed against either the principal debtor or the guarantor at his discretion; this is the defining feature of joint and several (solidary) suretyship.

The nature of the surety’s obligation under the provisions governing the contract of suretyship in the Civil Transactions Law is that it is ancillary to the obligation of the principal debtor. Accordingly, it is the principal debtor’s obligation that determines the scope and extent of the surety’s obligation. On this basis, the Law has established several legal effects, including the following:

1. The surety’s obligation may not exceed or be more onerous than that of the principal debtor.Thus, the surety’s obligation may not be immediate and due where the principal debtor’s obligation is subject to a condition or deferred. However, the suretyship may be limited to a lesser amount, such as where the surety guarantees only part of the debt, or may be subject to less onerous conditions. If the suretyship is undertaken for an amount exceeding the principal debt, or subject to more burdensome conditions, it shall not be formed or deemed valid except within the limits of the debt and in accordance with its terms[1].
2. The surety’s obligation may not subsist after the extinction of the principal debtor’s obligation[2].

Another consequence of the ancillary nature of the surety’s obligation to that of the principal debtor is that the surety may raise several pleas against the creditor’s claim, as follows:

1. The plea of prior recourse against the principal debtor, unless the suretyship is joint and several[3].
2. The plea of excussion of the debtor’s assets or beneficium excussionis, that allows the surety to demand that a creditor exhaust all legal remedies against the principal debtor unless the suretyship is joint and several[4].

It should be noted that neither the plea of prior recourse nor the plea of excussion constitutes a matter of public policy; rather, the surety must expressly invoke either defense for the court to rule thereon.

3. The plea requiring the exhaustion of real security before enforcement against the surety’s assets[5].
4. The surety may raise against the creditor all defenses and objections available to the principal debtor, whether relating to the invalidity of the debt or to its extinction[6].
5. The surety may seek discharge from liability to the extent of any security lost by the creditor due to the creditor’s own fault[7].
6. The surety may seek discharge from liability where the creditor delays in claiming the debt despite having been formally put in default by the surety[8].
7. The surety may invoke the lapse of the creditor’s right of recourse against the surety in the event that any liquidation proceedings are opened pursuant to the relevant statutory provisions, and the creditor fails to submit its claim within such proceedings, to the extent that the creditor would have recovered had it submitted a claim against the debtor[9].

This latter defense raises several issues concerning its scope, the conditions for its application, and the manner in which it may be reconciled with the relevant provisions of the Bankruptcy Law.

Moreover, where the surety satisfies part of the debtor’s obligation and subsequently seeks recourse against the debtor by way of subrogation, it becomes necessary to examine how this effect operates in the event that liquidation proceedings are opened against the debtor under the Bankruptcy Law[10].

The Effect of the Commencement of Liquidation Proceedings under the Bankruptcy Law on the Subrogation Claim

Article (599) of the Civil Transactions Law provides that where the surety satisfies the debt, he shall be subrogated to the creditor in respect of the rights held against the debtor. Where the surety satisfies only part of the debt, he may not exercise recourse in respect of what he has paid until the creditor has recovered the entirety of his claim from the debtor.

The import of this provision is that a surety’s subrogation claim arising from partial payment of the debt does not prejudice the creditor. Rather, the creditor is given priority over the surety in recovering the remaining balance of his claim, before the surety is subrogated to the extent of the amount paid.

This provision constitutes an application of the general principle whereby, if a person other than the debtor satisfies part of the creditor’s claim and is subrogated thereto, such payment must not operate to the detriment of the creditor. Accordingly, the creditor remains entitled to priority in recovering the balance of his claim over the person who has effected payment, as reflected in the general rules governing subrogation and the recovery of debts from the debtor[11].

It should be noted that the Bankruptcy Law provides that where a surety of the debtor’s obligation, or any other person, satisfies part of the debt owed to the creditor either before or after the commencement of liquidation proceedings, the creditor must deduct the amount received from the claim submitted to the trustee. The Law further provides that the paying party—whether a surety of the debtor or a third party—may submit a claim to the trustee in respect of the amount paid[12].

The provisions of Article (111) of the Bankruptcy Law do not conflict with the rules governing the subrogation claim set out in the Civil Transactions Law; rather, they affirm them. Payment by the surety or by a third party results in the substitution of that party for the creditor in submitting a claim to the trustee, whether in respect of the full amount of the debt in the case of full payment, or in respect of the portion of the debt that has been satisfied in the case of partial payment.

However, in cases of partial payment by the surety, the creditor must not be prejudiced thereby. Accordingly, the surety who has satisfied part of the debt may submit a claim to the trustee pursuant to the rules of subrogation. Nevertheless, upon the distribution of the liquidation proceeds, the priority of claims set forth in Chapter Twelve of the Bankruptcy Law must be applied in such a manner that the creditor is given precedence over the surety where both fall within the same class of creditors as enumerated in Article (196) of the Bankruptcy Law. In such circumstances, no pro rata distribution shall take place between them; rather, the surety’s recovery pursuant to the subrogation claim shall occur only after the creditor has received full satisfaction of his claim.

This does not constitute an amendment to Article (196) of the Bankruptcy Law. This is because Article (76) of the Implementing Regulations of the Bankruptcy Law provides that the order of priority of debts within each of the categories set forth in Article (196) shall be determined in accordance with their order under the relevant applicable laws. Consequently, the provisions of Article (599) of the Civil Transactions Law apply where the creditor and the surety —who has made a partial payment and seeks recourse against the debtor through subrogation—fall within the same priority class. In such a case, the creditor is to be given priority over the surety in recovering his claim, and no pari passu distribution shall occur between them.

The Effect of the Creditor’s Failure to Submit a Claim against the Debtor on the Subrogation Claim in Bankruptcy Proceedings

In Liquidation Proceedings

The Civil Transactions Law provides that where any liquidation proceedings are commenced against the debtor pursuant to the applicable statutory provisions, and the creditor fails to submit its claim for the debt within such proceedings, the creditor’s right of recourse against the surety shall lapse to the extent of the amount that the creditor would have recovered had it submitted its claim against the debtor[13].

This provision raises the need to determine the scope of its application, as its literal wording suggests that it applies to any form of liquidation proceedings under the Bankruptcy Law, the Companies Law, or any other statute that provides for the liquidation of the debtor.

The difficulty arises from the fact that liquidation under the Companies Law does not involve a formal procedure for inviting creditors to submit their claims in the same manner as under the Bankruptcy Law. Rather, the liquidator inventories the company’s assets and liabilities and settles its debts before returning any remaining value to the partners or shareholders, or distributing any surplus proceeds of liquidation among them.

Many comparative legal systems containing similar provisions restrict their application to cases where the creditor neglects to submit its claim in the debtor’s bankruptcy proceedings. This is the approach adopted, inter alia, in Egyptian, Syrian, Libyan, Iraqi, Lebanese, Kuwaiti, Jordanian, and Swiss law, among others.

It appears from the context of the provision and from the use of the phrase “the commencement of any liquidation proceedings” that the provision is intended to apply to liquidation proceedings under the Bankruptcy Law, rather than to other forms of liquidation.

On the other hand, the provision limits the lapse of the creditor’s right of recourse against the surety to the amount that the creditor would have recovered had it submitted its claim against the debtor. This gives rise to a further question concerning the scenario in which the creditor submits its claim belatedly, after one or more distributions of the bankruptcy estate have already been made, thereby affecting the creditor’s share of the distribution as a result of such delay. In such circumstances, the creditor would be unable to recover its claim after the implementation of a single or final distribution decision unless there are remaining assets in the estate or the debtor acquires assets after the distribution and before the termination of the liquidation proceedings[14]. This raises the question of whether the sanction provided for in this provision applies only in cases of a complete failure to submit a claim, or whether it also extends to delayed submission.

Given that the purpose of this provision is to eliminate the harm suffered by the surety as a result of the creditor’s negligence in submitting its claim in the debtor’s bankruptcy proceedings, the provision should be applied in both situations: whether the creditor entirely fails to submit its claim, or submits it belatedly in a manner that causes prejudice to the surety by depriving the creditor of the opportunity to recover the debt in full, or by reducing the amount recovered to the extent of the remaining distributions of the bankruptcy estate.

In Financial Restructuring Proceedings

Article (590) of the Civil Transactions Law does not explicitly address the scenario in which a creditor fails to submit its claim in financial restructuring proceedings under the Bankruptcy Law, and the impact of this failure on his claim against the surety.

It should be noted that the consequences of failing to submit a claim in financial restructuring proceedings under the Bankruptcy Law include the exclusion of the creditor from voting on the financial restructure proposal (FRP), as provided by Article (64) of the Bankruptcy Law. The FRP may include a reduction of the creditor’s rights by the debtor, and the creditor may be unable to vote on the plan due to its failure to submit a claim in the debtor’s bankruptcy or due to a delayed submission. Once approved by the court, the plan becomes binding on both the debtor and the creditor.

This raises the question: Does the creditor have the right to claim the remainder of the debt from the surety if, under the financial restructuring proceedings, it recovers only a portion of the debt due to its failure to submit a claim in the debtor’s bankruptcy, combined with the approval of other creditors in favor of the plan and the subsequent court ratification?

Although neither the Civil Transactions Law nor the Bankruptcy Law explicitly addresses the extension of the sanction under Article (590) of the Civil Transactions Law to cases where the creditor’s own negligence results in a reduction of the amount it can recover, either by failing to submit a claim, by failing to participate in the vote in the financial restructuring proceedings, or by voting in favor of a proposal that reduces its rights, the principle is that the surety should not bear the consequences of the creditor’s negligence in claiming the debtor.

This principle constitutes an application of general tort rules: the creditor’s fault in failing to properly claim the debt against the principal debtor causes harm to the surety. Accordingly, the remedy should be a reduction in the creditor’s right to recover from the surety, to the extent of the loss caused by the creditor’s negligence. This reflects the general principle, as articulated in Rule Sixteen of the general rules set forth in Article (720) of the Civil Transactions Law, that harm must be removed.

Furthermore, the provisions of the Civil Transactions Law indicate that harm caused by the creditor’s negligence in impairing or diminishing its rights against the principal debtor is not considered a matter of public policy. Therefore, parties may agree otherwise. The surety must, however, assert its discharge or raise a defense based on these provisions when responding to the creditor’s claim.

Many comparative legal systems adopt a similar approach. The French Civil Code, for example, establishes a general rule exonerating the surety to the extent that the creditor’s negligence affects the surety’s subrogation claim, treating it as a matter of public policy, such that it cannot be contracted around[15]. Spanish law adopts a comparable position, even extending it to joint and several guarantees so long as the creditor’s conduct affects the subrogation claim[16]. The Egyptian Civil Code likewise provides that, in the event of the debtor’s bankruptcy, the creditor must submit its claim in the bankruptcy; otherwise, its right of recourse against the surety is reduced to the extent of the harm caused to the surety by the creditor’s negligence[17].

It appears that the Saudi Bankruptcy Law and Civil Transactions Law adopt a similar position to these comparative systems: the creditor bears the consequences of its failure to claim the debtor, to the extent that this affects the surety’s subrogation claim. The creditor’s right of recourse against the surety is thus reduced to the amount it could have recovered had it properly submitted its claim. While the Civil Transactions Law explicitly addresses this scenario in liquidation proceedings, its application to financial restructuring proceedings follows naturally from general principles of tort liability.

Final Observations

Given that personal guarantees play a critical role in facilitating access to credit—by enabling financing for enterprises that cannot provide sufficient real security—and that the Saudi legal system protects the surety from competition by the creditor in claiming the debtor through the subrogation mechanism, creditors should not rely solely on the solvency of the personal surety, to the extent that it encourages negligence in claiming the debtor during bankruptcy or restructuring proceedings, thereby prejudicing the surety’s rights under the subrogation claim.

[1] Article (584) Civil Transaction Law.

[2] Article (603) Civil Transaction Law.

[3] Article (591) Civil Transaction Law.

[4] Article (591) Civil Transaction Law.

[5] Article (594) Civil Transaction Law.

[6] Article (603) Civil Transaction Law.

[7] Article (588) Civil Transaction Law.

[8] Article (589) Civil Transaction Law.

[9] Article (590) Civil Transaction Law.

[10] Article (599) Civil Transaction Law.

[11] Article (263/2) Civil Transaction Law.

[12] Article (111) Bankruptcy Law.

[13] Article (590) Civil Transaction Law.

[14] Article (117) Bankruptcy Law.

[15] Article 2314 du Code Civil Français prévoit: “La caution est déchargée, lorsque la subrogation aux droits, hypothèques et privilèges du créancier, ne peut plus, par le fait de ce créancier, s’opérer en faveur de la caution. Toute clause contraire est réputée non écrite”.

[16] Article 1852 Spanish Civil Code provides that: “The guarantors, even if they are joint and several, shall be released from their obligation if, as a result of any act of the creditor, they cannot be subrogated in the rights, mortgages and privileges thereof”.

[17] Article (786) Egyptian Civil Code.

 

 

 

 

 

Introduction

The vis attractiva concursus principle or the attracting force of the bankruptcy proceeding is a priciple that implies that all ancillary proceddings may be attracted to and brought before the forum concursus. In another words, the court that has opened insolvency proceedings claims sole jurisdiction to deal with the claims of creditors and any incidental disputes arising from the debtor’s insolvency.

The practical importance of considering the extent to which this principle is applicable raises several questions. how can the efficiency and effectiveness of bankruptcy procedures be reconciled with the parties’ rights to due process? how is this principle applied in the various ancillary proceedings, particulary when there is an arbitration agreement? finally is this principle applicable in the context of cross-border insolvencies?

This article will explore how this principle is applied in Continental Europe, The United States and Saudi Arabia.

Europe

Efficicieny and due process: are they at odds in bankruptcy proceedings?

The application of the Vis Attractiva Concursus Principle raises concerns about its consistency with the parties’ due process rights. This principle shifts the case from the forum designated by procedural law to the bankruptcy courts. Such an exception may surprise the parties, and, thus affect their due process rights. This issue has been examined by the European Court of Justice (The ECJ). The ECJ concluded that concentrating all the actions directly related to the insolvency of an undertaking before the courts of the Member State with jurisdiction to open the insolvency proceedings also appears consistent with the objective of improving the effectiveness and efficiency of insolvency proceedings. The ECJ also found it necessary for the proper functioning of the internal market to avoid incentives for the parties to transfer assets or judicial proceedings from one Member State to another, seeking to obtain a more favourable legal position (forum shopping)[1].

Scope of the principle and the different types of ancillary proceedings

The new European Union Regulations on Insolvency Proceedings provided that the courts of the member state within the territory of which insolvency proceedings have been opened shall have jurisdiction for any action which derives directly from the insolvency proceedings and is closely linked with them, such as avoidance actions[2].

To determine whether an action derives directly from insolvency proceedings, The decisive criterion adopted by the ECJ to identify the area within which an action falls is not the procedural context of which that action is part, but the legal basis thereof. According to that approach it must be determined whether the right or the obligation which forms the basis of the action has its source in the ordinary rules of civil and commercial law or in derogating rules specific to insolvency proceedings[3].

In another case, the ECJ limited the application of the principle of vis attractiva concursus. The Court ruled that an action for damages for unfair competition, in which the assignee of part of a business acquired during insolvency proceedings is accused of misrepresenting itself as the exclusive distributor of products manufactured by the debtor, does not fall within the jurisdiction of the court that opened the insolvency proceeding[4].

United States

The principle of vis attractiva concursus is a concept from civil law systems where the initiation of insolvency proceedings centralizes all related legal actions and claims to the court handling the insolvency case. This means that all matters pertaining to the debtor’s estate are drawn into the jurisdiction of the insolvency court. In the context of the United States, which operates under a common law system, the principle as it is traditionally understood in civil law jurisdictions does not apply. However, the U.S. Bankruptcy Code does embody a similar centralizing principle to some extent. Here are the relevant aspects of how this works in the U.S.:

Automatic Stay

When a bankruptcy petition is filed, an automatic stay immediately takes effect, halting most actions by creditors against the debtor or the debtor’s property. This stay aims to preserve the estate and ensure that it can be distributed equitably among creditors through the bankruptcy proceedings. Prohibited collection actions are listed in Bankruptcy Code §362. Common examples of prohibited actions include contacting the debtor by telephone, mail or otherwise to demand repayment; taking actions to collect money or obtain property from the debtor; repossessing the debtor’s property; starting or continuing lawsuits or foreclosures; and garnishing or deducting from the debtor’s wages. Under certain circumstances, the stay may be limited to 30 days or not exist at all, although the debtor can request the court to extend or impose a stay.

Jurisdiction of Bankruptcy Courts

U.S. bankruptcy courts have comprehensive jurisdiction over matters involving the debtor’s estate. This includes the power to hear and determine all cases under the Bankruptcy Code. Additionally, bankruptcy courts have jurisdiction over all property, wherever located, of the debtor’s estate. The bankruptcy court considered whether foreign creditors could be held accountable for violating the automatic stay as a result of the creditors procuring the arrest of one of the debtor’s vessels in a Belgian court in order to compel payment of pre-petition claims owed by the debtor to the foreign creditors. In considering the question, the bankruptcy court began its analysis with a discussion of whether it could exercise in personam jurisdiction over the foreign creditors. With respect to one of the creditors, Andrea Shipping (PTH) Ltd., the court stated that it clearly has personal jurisdiction over Andrea Shipping because Andrea filed a proof of claim and has therefore consented to the jurisdiction of the United States Bankruptcy Court[5].

Centralization of Disputes

Much like vis attractiva concursus, U.S. bankruptcy law aims to centralize disputes related to the bankruptcy estate to streamline the process and ensure consistent adjudication. This centralization helps in managing the debtor’s estate effectively and efficiently. The Seventh Amendment to the United States Constitution provides that parties litigating in federal court have the right to a trial by jury in civil cases. This right to a jury trial is subject to being waived and, in the context of a bankruptcy case, may be waived unintentionally as a result of filing a proof of claim[6]

In conclusion, while the U.S. does not explicitly adopt the vis attractiva concursus principle, the Bankruptcy Code incorporates mechanisms that achieve a similar effect. These mechanisms centralize the handling of the debtor’s financial matters and disputes within the bankruptcy court system. Key features include the automatic stay, which halts most creditor actions against the debtor’s estate upon the filing of a bankruptcy petition, and the comprehensive jurisdiction of bankruptcy courts over all matters related to the debtor’s estate. This centralization ensures efficient and consistent adjudication of claims and disputes, mirroring the intent of vis attractiva concursus in civil law jurisdictions.

Saudi Arabia

The principle of vis attractiva concursus is not explicitly provided for in the Saudi Bankruptcy legal system. However, some procedures within the system have equivalent effects. These include the moratorium, which suspend all actions and enforcement procedures against the debtor or the debtor’s estate. Additionally, Saudi law grants comprehensive jurisdiction to commercial courts handling bankruptcy cases, allowing them to decide on creditors’ claims regardless of their origin.

Mortoruim

The Saudi Bankruptcy Law incorporates a moratorium period in both financial reorganization and liquidation processes. Under the financial reorganization procedure, the moratorium spans 180 days from the filing date, with the provision for a potential extension of another 180 days at the discretion of the court. This moratorium commences upon filing but can be terminated prematurely if the court approves the financial reorganization proposal or decides to conclude the financial reorganization proceedings. In the liquidation procedure, the moratorium starts upon filing and remains in effect until the liquidation process is terminated.

During the moratorium period, no action, claim, or enforcement procedure can be initiated or continued against the debtor, the estate, or any debtor guarantor. This restriction applies across all jurisdictions with the authority to hear such claims or actions. The moratorium thus constitutes a legally binding suspension of the right to pursue debts from the debtor or the estate. Any action or enforcement procedure undertaken during the moratorium is deemed null and void. Furthermore, the commercial court retains the authority to reclaim any assets disposed of in contravention of the moratorium restrictions.

Jurisdiction of Commercial Courts

In Saudi bankruptcy law, for both financial reorganization and liquidation procedures, creditors whose debts predate the commencement of the procedure need to file their claims with the bankruptcy trustee. After receiving and considering proofs of claims, the trustee will then create a list of creditors, which must be submitted to the court for approval.

Under Saudi bankruptcy law, the commercial court maintains jurisdiction over claims that might originally fall under different court domains. This means a labor claim, originally under the jurisdiction of the labor court, an alimony claim originally under the jurisdiction of the personal status court, or a banking claim originally under the jurisdiction of the banking dispute committee, can all come under the jurisdiction of the commercial court in a bankruptcy case. Moreover, this principle applies even when an arbitration clause is in place. When submitting a claim to the commercial court under bankruptcy procedure, the creditor is considered as waiving the previously agreed upon arbitration clause.

If a creditor chooses not to submit his claim to the commercial court, but instead waits to file a claim in the appropriate forum after the moratorium, there could be several repercussions:

1. In the financial reorganization processes, the creditor would be ineligible to vote on the proposal. This means they would forfeit any say in shaping the proposal, including any debt impairment where they do not bear any voting rights. Moreover, the creditor might no longer have the right to challenge the proposal’s ratification by the court.
2. As for liquidation processes, the creditor might risk missing out on their rightful share when the estate’s liquidated assets get distributed.

Centralization of Disputes

There are some other examples of the centralized approach of the Saudi Bankruptcy law which include:

1. The law suggests that any request to initiate a bankruptcy procedure relevant to a regulated entity must be preceded by an approval decision from the competent regulatory authority responsible for overseeing and supervising the entity’s activities. The law, interestingly, grants the commercial court the jurisdiction to handle disputes arising from these competent authority decisions. This is true even if the authority is an administrative body, which traditionally would fall under the jurisdiction of the board of grievances.
2. Article 6 of the law confers jurisdiction upon the commercial court to oversee the enforcement of its decisions and judgments, as well as to address any disputes arising from such enforcement.
3. Article 208 of the the law grants the commercial court criminal jurisdiction to adjudicate cases related to bankruptcy and levy penalties.
4. Article 3 of the Rules Governing Bankruptcy Procedures in Commercial Courts empowers the commercial court to adjudicate debtor claims against third parties arising from bankruptcy procedures.

Conclusion

The attaracting force of bankruptcy court jurisdiction is crucial for successfully resolving insolvencies. A centralized approach to managing bankruptcy-related claims fosters efficient administration of justice, prevents forum shopping and abuse of the process, and equips bankruptcy proceedings with the necessary tools for effective financial reorganization or liquidation.

 

[1] ECJ judgement of 12 February 2009, Christopher Seagon v Deko Marty Belgium NV., Case C-339/07, European Court Reports 2009 1-00767.

[2] Article (6), Paragraph (1) of the European Union Regulations on Insolvency Proceedings of 20 May 2015.

[3] ECJ judgment of 4 September 2014, Nickel & Goeldner Spedition v Kintra UAB, Case C-157/13.

[4] ECJ judgement of 9 November 2017, Tünkers France, Tünkers Maschinenbau GmbH, Case C-641/16.

[5] United States Bankruptcy Court, M.D. Florida, Bankruptcy No. 95-10453-8P1. Adv. No. 97-365, March 12, 1997.

[6] Richard E. Lear, proof of claim: To File, or Not to File…, Holland & Knight Newsletter, February 2009.

Introduction and Background of the Problem

Interim relief or conservatory measures represent a form of temporary protection, taking the form of orders or rulings issued with a provisional nature until the dispute is definitively resolved. These measures serve various purposes, including preserving the status quo or restoring it to its previous state until a final decision is made, preventing tampering with evidence, or safeguarding assets that may ensure the enforcement of the final judgment.

The regulation and request for interim and conservatory measures are well-established in most modern judicial systems. Moreover, seeking such measures in arbitration proceedings has become increasingly common and is incorporated into numerous comparative legal systems. Additionally, interim relief is widely recognized in the rules of many leading international arbitration institutions, such as the International Centre for Dispute Resolution of the American Arbitration Association (AAA-ICDR), the International Court of Arbitration of the International Chamber of Commerce (ICC), the Singapore International Arbitration Centre (SIAC), the London Court of International Arbitration (LCIA), and the Saudi Center for Commercial Arbitration (SCCA). These institutions allow parties to request such measures either from the arbitral tribunal once it has been constituted or from an emergency arbitrator or interim measures arbitrator, who may be appointed to rule on these requests before the consititution of the arbitral tribunal.

Although requesting interim and conservatory measures has become available in modern arbitration proceedings, whether in ad hoc or institutional arbitration, seeking such measures from the courts still holds a particular appeal for many arbitration parties. One of the factors contributing to this appeal is that, in many comparative legal systems, interim measures can be requested through an ex-parte application without the need for a fully established adversarial proceeding. Additionally, court-ordered interim and conservatory measures can be enforceable against third parties, as is the case with an order freezing a bank account with a financial institution[1].

Comparative arbitration laws address situations where the parties have agreed to grant the arbitral tribunal the authority to rule on requests for interim and conservatory measures, as well as scenarios where such an agreement is absent. These laws also outline how parties can obtain interim and conservatory protection.

This paper examines the issue of jurisdiction over the issuance of interim and conservatory measures under the Saudi arbitration law and comparative laws, as well as the available options in both ad hoc and institutional arbitration.

Does the Arbitration Agreement Confer Jurisdiction on the Arbitral Tribunal to Consider and Issue Interim and Precautionary Measures?

Although it has become well-established in practice that arbitration is now the natural forum for international trade disputes, an arbitration agreement remains an essential prerequisite for an arbitral tribunal to have jurisdiction over a dispute. Unlike state judiciary, arbitration is not always available or uniform; rather, it is the parties’ agreement that establishes the deviation from the general jurisdiction of state courts and grants jurisdiction to the arbitral tribunal. The role of the state, in this regard, is to recognize the full effect of the parties’ will as reflected in the arbitration agreement and to regulate its boundaries[2]. This means that an arbitration agreement has two effects; a negative effect, which prevents state courts from hearing the dispute, and a positive effect, which grants the arbitral tribunal jurisdiction to hear and decide the dispute with a binding and final award.

The key question that arises is whether the negative and positive effects of an arbitration agreement extend to interim and precautionary measures—meaning that the mere existence of an arbitration agreement automatically deprives state courts of jurisdiction to grant such measures and confers exclusive jurisdiction on the arbitral tribunal—or whether a specific agreement is required to this effect[3]? The following discussion will examine the position of the UNCITRAL Model Law and some comparative legal systems before analyzing the position of the Saudi Arbitration Law.

Jurisdiction over Requests for Interim and Precautionary Measures Under the UNCITRAL Model Law

The UNCITRAL Model Law does not attribute a negative effect to an arbitration agreement that would prevent parties from seeking interim and precautionary measures from the courts before arbitration proceedings commence or from allowing courts to issue such measures in response to these requests[4].

However, once arbitration proceedings have begun and the arbitral tribunal has been constituted, the Model Law permits the tribunal to issue interim measures at the request of either party, unless the parties have agreed otherwise[5]. Furthermore, the Model Law mandates that an interim measure issued by an arbitral tribunal be recognized as binding and enforced, regardless of the country in which it was issued[6].

At the same time, the UNCITRAL Model Law does not deprive the judiciary of the power to issue interim measures during arbitration proceedings. It explicitly allows courts to grant such measures for the purposes of arbitration, irrespective of whether the arbitration is seated in the jurisdiction where the court is being requested to issue the interim measure[7].

The Explanatory Note to the Model Law underscores that this provision—added in 2006—aims to eliminate any uncertainty regarding whether an arbitration agreement affects the authority of the competent court to issue interim measures. It clarifies that a party to an arbitration agreement remains free to request interim measures from the court, just as they are free to request them from the arbitral tribunal.

The overall implication of these provisions is that jurisdiction over interim and precautionary measures under the UNCITRAL Model Law is shared between courts and arbitral tribunals. The parties are free to choose either forum unless their arbitration agreement provides otherwise. Therefore, there is no requirement for a special agreement granting the arbitral tribunal authority to issue interim and precautionary measures; rather, the parties may explicitly exclude the tribunal from exercising such authority if they so agree.

Jurisdiction Over Requests for Interim and Precautionary Measures in Comparative Laws

The English Arbitration Act allows parties to agree that the arbitral tribunal shall have the authority to issue interim and precautionary measures. However, this jurisdiction is contingent upon an explicit agreement between the parties granting the tribunal such authority. If no specific agreement is made, the tribunal does not have this power[8].

Conversely, the English Arbitration Act grants the judiciary the authority to issue interim and precautionary measures in support of arbitration. This applies in cases where the arbitral tribunal does not have such authority or is unable to exercise it[9].

Accordingly, the English Arbitration Act does not provide for shared jurisdiction between arbitral tribunals and courts regarding the issuance of interim or precautionary measures. Instead, it makes the tribunal’s authority to grant such measures dependent on the parties’ agreement. In the absence of such an agreement, jurisdiction to issue interim and precautionary measures remains with the courts as part of their role in supporting arbitration proceedings.

Under French law, the existence of an arbitration agreement does not prevent parties from seeking interim and precautionary measures from the court as long as the arbitral tribunal has not yet been constituted[10].

However, once the tribunal is constituted, jurisdiction over interim and precautionary measures generally shifts to the arbitral tribunal. Exceptions exist for certain types of interim measures, such as attachment orders and judicial guarantees “Sûretés Judiciaires”, which remain within the jurisdiction of the courts[11].

Egyptian arbitration law allows the court, at the request of either party, to order interim or precautionary measures both before arbitration proceedings commence and during their course[12].

Additionally, the law permits arbitration parties to agree that the arbitral tribunal may, at the request of either party, order any interim or precautionary measures it deems necessary based on the nature of the dispute. The tribunal may also require sufficient security to cover the costs of the ordered measure. If the party subject to the order fails to comply, the tribunal—at the request of the other party—may either authorize that party to take the necessary steps for enforcement or request the court to enforce the measure[13].

These provisions indicate that Egyptian arbitration law considers the court’s jurisdiction over interim and precautionary measures as an inherent authority that remains intact even after arbitration proceedings begin. This jurisdiction is only displaced if the parties explicitly agree to grant the arbitral tribunal the power to order such measures[14].

Jurisdiction over Requests for Interim and Precautionary Measures Under the Saudi Arbitration Law

The Saudi Arbitration Law grants the court the authority to order interim or precautionary measures at the request of one of the arbitration parties before arbitration proceedings commence or at the request of the arbitral tribunal during the arbitration process. The law also allows for the revocation of such measures through the same procedure, unless the parties have agreed otherwise[15].

On the other hand, the Saudi Arbitration Law permits arbitration parties to agree that the arbitral tribunal—at the request of one of the parties—may order any interim or precautionary measures it deems necessary based on the nature of the dispute. The tribunal may also require the requesting party to provide appropriate financial security for the implementation of such measures. If the party subject to the order fails to comply, the tribunal—at the request of the other party—may authorize that party to take the necessary steps to enforce it, including requesting the competent authority to compel compliance[16].

This indicates that the Saudi Arbitration Law allows the judiciary, in its role of supporting arbitration, to order interim and precautionary measures at the request of any party before arbitration proceedings commence. However, once arbitration has begun, the power to issue such measures is reserved for the arbitral tribunal, which evaluates the request to determine its validity and likelihood of success. If the tribunal deems the request justified, it may refer it to the court and request it to order the interim or precautionary measures; otherwise, it may reject it.

A challenge that arbitration parties may face in this regard is that the formation of the arbitral tribunal may occur after arbitration proceedings have officially commenced. According to Article 26 of the Saudi Arbitration Law, arbitration proceedings begin on the date one party receives the request for arbitration from the other party, unless they agree otherwise. Consequently, there may be a gap between the initiation of arbitration and the constitution of the tribunal during which parties are unable to obtain interim or precautionary protection from either the court or the arbitral tribunal.

While we believe that interim protection remains under the jurisdiction of the courts until the tribunal is formed, it may be advisable for the concerned party to assess the need for an interim or precautionary measure before initiating arbitration and, if necessary, request such measures from the court in advance of the commencement of arbitration proceedings.

Interim and Precautionary Measures Under the Rules of the Saudi Center for Commercial Arbitration

The rules of the Saudi Center for Commercial Arbitration (SCCA) allow the arbitral tribunal—at the request of either party—to order any interim or precautionary measures it deems necessary[17].

Additionally, and in line with many international arbitration institutions, the SCCA rules permit parties to request the appointment of an emergency arbitrator if urgent relief is required before the tribunal is constituted[18].

To further regulate the process, the SCCA has dedicated an annex specifically addressing emergency arbitrator proceedings—Annex III of the rules. These proceedings are designed to ensure expedited timelines for appointing the arbitrator, reviewing the request, and issuing a decision. The total period for rendering an interim measure is limited to fourteen days from the date the case is referred to the emergency arbitrator.

It is noteworthy that, under Article 4 of the Saudi Arbitration Law, an agreement by the parties to arbitrate under the rules of an arbitration institution constitutes authorization for that institution to determine the appropriate procedures to be followed. This includes procedures that the law allows the parties to agree on—among them, the authority of the arbitral tribunal to issue interim and precautionary measures.

Some view the practice adopted by arbitration institutions of incorporating special provisions for emergency arbitrators as a means of effectively enhancing interim protection in arbitration proceedings[19]. In this regard, the English Supreme Court ruled that it lacked the authority to grant interim measures under the Arbitration Act when the parties had the option to request the appointment of an emergency arbitrator under the rules of the London Court of International Arbitration (LCIA). The court reasoned that the judiciary’s jurisdiction to issue such measures is restricted to situations where the arbitral tribunal or other relevant bodies lack the authority or are unable to exercise such jurisdiction. Accordingly, the court found that the emergency arbitrator mechanism provides parties with a sufficient opportunity to obtain interim protection[20].

Before initiating arbitration proceedings, parties should carefully consider the limitations on the jurisdiction of both courts and arbitral tribunals in issuing interim or precautionary measures and take these into account when determining the timing of such requests. Institutional arbitration offers a valuable opportunity to secure interim and precautionary protection, whether through the application of emergency arbitrator provisions or the tribunal’s authority to grant such measures.