Under Saudi law, a dismissal based on an arbitration clause is not necessarily the final stage of the dispute. Once the Court of Appeal overturns such dismissal and remands the matter back to the court of first instance, the lower court is generally expected in practice to address the legal or procedural issues identified by the appellate court rather than simply repeat the same reasoning. As a result, although a second dismissal remains theoretically possible, appellate intervention often shifts the dispute toward substantive judicial review of the merits and validity of the arbitration agreement itself.
A dispute arose from a claim for payment of an alleged outstanding amount under a Purchase Order (PO) issued between the parties. The claimant relied on the PO without revealing the arbitration clause as the contractual basis of the claim. The defendant submitted the PO in full with a valid arbitration clause.
In the first hearing before the court of first instance, the defendant raised a jurisdictional defense based on the existence of the arbitration clause. The court accepted the defense and dismissed the case on jurisdictional grounds, holding that the dispute should be referred to arbitration in accordance with the arbitration agreement contained in the PO.
Subsequently, the claimant filed an appeal before the Appellate Court by submitting a new evidence, arguing that the individual who signed the PO lacked the legal authority to execute the agreement on behalf of the company. The claimant further alleged that the company stamp appearing on the PO was not affiliated with the company and was fabricated. On this basis, the claimant contended that the Purchase Order, including the arbitration clause contained therein, could not be relied upon or enforced against the claimant.
Appellate Court set aside the dismissal judgment and remanded the matter to the court of first instance for consideration on the merits, holding that the lower court should proceed with examining the substantive dispute notwithstanding the arbitration clause contained in the PO.
The dispute raises an important issue under Saudi arbitration law concerning Articles 10, 11, and 20 of the Saudi Arbitration Law (“SAL", Royal Decree No. M/34), together with Article 34 of the Implementing Regulations for Methods of Appealing on Judgments("Appeal Regulations", Decision of the Minister of Justice No. 512), and demonstrates the limits of relying on arbitration clauses where questions of authority and legal capacity arise.
Under Article 11(1) of the SAL, where a defendant invokes the existence of an arbitration agreement before raising any other claim or defense, the court is generally required to dismiss the action and refer the parties to arbitration. The purpose of this provision is to uphold party autonomy and preserve the enforceability of arbitration agreements freely entered into by the contracting parties.
In the present case, the defendant raised the challenge of the jurisdiction as a preliminary jurisdictional defense during the first hearing of the court proceeding. The court of first instance accepted this argument and dismissed the case on the basis that the dispute fell within the scope of the arbitration agreement.
However, the court’s analysis appears to have been limited to the existence of the clause without fully examining whether the arbitration agreement had been validly concluded in the first place. This distinction later became central to the appellate proceedings.
Before the Appellate Court, the claimant challenged not merely the applicability of the arbitration clause, but the validity of the PO itself. The claimant argued that the individual who signed the PO lacked the authority and legal capacity to bind the company and further alleged that the Claimant’s company stamp appearing on the PO was fabricated and unaffiliated with the claimant company.
Under Article 10(1) of the SAL, an arbitration agreement may only be concluded by a person possessing the legal capacity to dispose of the rights forming the subject matter of the dispute. Consequently, where the signatory lacks authority or legal capacity, the arbitration agreement may be deemed void and unenforceable.
Although Article 20 of the SAL recognizes the principle of competence-competence and provides that the arbitral tribunal shall decide on pleas relating to its jurisdiction, including objections based on the absence, expiry, or nullity of the arbitration agreement,the present case demonstrates that Saudi courts may still intervene where the very existence or validity of the arbitration agreement is fundamentally challenged before arbitration proceedings commence. Unlike the first instance court, which focused primarily on the presence of the arbitration clause, the Appellate Court considered whether the clause could legally bind the parties in light of the allegations relating to authority and authenticity.
Article 34 of Appeal Regulations expressly permits appeals against judgments dismissing cases due to the existence of arbitration clauses. It further provides that where the Court of Appeal overturns such dismissal judgments, the matter shall be remanded to the court of first instance so that the dispute can be addressed on its substantive merits, rather than being disposed of at the arbitration-clause stage.
While, in theory, the court of first instance could still issue the same dismissal after remand—depending on how the case is presented and the issues to be resolved—this is highly unlikely in Saudi Arabia in practical terms. The key reason is that an appellate reversal against a dismissal on arbitration grounds usually reflects that the first instance court committed a legal or procedural error in applying the arbitration clause (such as its scope, effect, or procedural consequences). As a result, the remand stage typically requires the first instance court to correct the identified error and proceed in a manner consistent with the Court of Appeal’s view.
Therefore, although remand does not legally guarantee a different result, Saudi practice often makes it difficult for the first instance court to simply repeat the same reasoning and reach the same dismissal outcome after being overturned.
Although the dispute was returned to the court of first instance for consideration on the merits, this does not automatically prevent the defendant from seeking to initiate—or continue—arbitration in parallel.
Under the Saudi Arbitration Law, the arbitral tribunal is empowered to rule on objections relating to its jurisdiction, including objections connected with the arbitration agreement. Accordingly, where the defendant raises jurisdictional challenges in connection with the arbitration agreement, the tribunal may address those challenges within the arbitration proceedings, even while related issues may also be subject to court review in the litigation.
Although not guaranteed, this may result in a practical overlap in which arbitral and judicial authorities engage with related jurisdictional arguments during the same period, depending on the procedural posture and the exact court questions being dealt with.
The case ultimately illustrates the balance within Saudi arbitration law between respecting arbitration agreements and preserving judicial oversight over the validity of such agreements. While Saudi law strongly supports arbitration and recognizes the principle of competence-competence under Article 20 of the SAL, the courts retain supervisory authority to determine whether a valid arbitration agreement exists in the first place.
Accordingly, the case demonstrates that courts are not obligated to dismiss proceedings solely because an arbitration clause appears within a contractual document. Where serious allegation are raised concerning authority, legal capacity, or the authenticity of the agreement itself, the courts may intervene to determine whether the arbitration agreement is legally enforceable before referring the matter to arbitration.
Apr 3, 2026
Aug 11, 2026
