BUSINESS LEADERS SEE MODEST PROGRESS TOWARDS LEGAL REFORM

C O N F I D E N T I A L SECTION 01 OF 03 JEDDAH 000327 RIYADH PLEASE PASS TO DHAHRAN; DEPARTMENT FOR NEA/ARP E.O. 12958: DECL: 08/10/2018 TAGS: ECON EINV ETRD PGOV SA SUBJECT: BUSINESS LEADERS SEE MODEST PROGRESS TOWARDS LEGAL REFORM REF: 08RIYADH326 Classified By: Acting Consul General CB Toney for Reasons 1.4 (b) and ( d). ¶1. (C) BEGIN SUMMARY: Jeddah business leaders note modest progress towards the implementation of King Abdullah's October 2007 decree overhauling the Kingdom's judicial system. An executive at the Saudi Arabian General Investment Authority (SAGIA) is concerned by the lack of headway in establishing commercial courts, but sees increased efficiency in the Ministry of Commerce and Industry's own tribunals. The Secretary General of the Jeddah Chamber of Commerce and Industry (JCCI) thinks the pace of legal reform is promising by Saudi standards, although he questions whether commercial court judges will receive adequate training. A prominent commercial lawyer believes the legal reforms underway could improve the business climate and soften clerical dominance of the judicial system. END SUMMARY. -------------- -- A call for specialized courts, competent judges -------------- -- ¶2. (U) King Abdullah's October 2007 decree to overhaul the Kingdom's judicial system calls for specialized criminal, commercial, and labor courts, which are to be staffed by judges trained in these respective fields. These divisions will apply to a system of lower, first-degree courts as well as to the higher courts of appeal. Above the appeals circuits, a new Supreme Court will replace the Supreme Judicial Council (SJC) as the highest legal authority, although the SJC will retain administrative authorities including oversight of judicial appointments. The decree also emphasizes judicial competence, mandating 7 billion SAR (approximately 1.9 billion USD) for training judges and building new courts. Parallel to these judicial courts, the Board of Grievances will continue to exist as a system of administrative tribunals to address disputes involving the government. According to open sources, the Board's previous authority over cases involving bribery, forgery, abuse of authority, or human rights violations has been transferred to the reformed judicial courts (reftel). -------------- Ministry of Justice stalls on reforms, Ministry of Commerce and Industry presses on -------------- ¶3. (C) Implementation of the October 2007 decree has been slow, according to Ali Shenaemer, CEO of Investor Services at the Saudi Arabian General Investment Authority (SAGIA). In his role as advocate for foreign investors, he sees specialized commercial courts as essential to attracting the multinational corporations that can bring skilled jobs to the Kingdom. In a July 15 meeting with PolEconOff and CommercialConsul at SAGIA headquarters, Shenaemer expressed frustration at the Ministry of Justice's slow progress towards setting up commercial courts and training commercial judges. However, he said his concern was mitigated by notable progress on other fronts, including improved administrative efficiency at the Ministry of Commerce and Industry (MoC&I) and the King's visible commitment to legal reform. ¶4. (C) Shenaemer said that the administrative tribunals in the MoC&I have recently reduced a longstanding backlog of commercial disputes. He estimated that approximately 80 percent of such disputes are typically resolved within these tribunals, with the remainder moving to the Board of Grievances on appeal. Shenaemer expressed esteem for the new Minister of Commerce, Abdullah Zainal Alireiza, and said that MoC&I tribunals have become more efficient under his watch. He also said that SAGIA and the Ministry have greatly improved cooperation over the recent year. ¶5. (C) In addition to legal reform, Shenaemer cited several regulatory trends that favor foreign investors. He said that the minimum capital requirement has been waived for most sectors, and that there has been an 80 percent decrease in the commercial registration fee levied by the MoC&I. Regulators are also enforcing investment transparency more vigorously, with the Capital Market Authority (CMA) fining 8 firms for delinquent 2007 financial statements. The CMA is also implementing a new rule mandating the disclosure of investors with a 5 percent or greater stake in a company, and has plans to allow foreigners to invest transparently in Saudi stocks through domestic intermediary funds. Shenaemer supports this move and believes the participation of foreign institutional investors could provide stability to the volatile Saudi stock market. -------------- JCCI SecGen: Give judges more training, don't neglect labor law reform -------------- ¶6. (C) In a July 15 meeting in his office, Jeddah Chamber of Commerce and Industry (JCCI) Secretary General Mustafa Sabri told PolEconOff and CommercialConsul that although the SAG has made only limited progress towards implementing the October 2007 decree, the scope of reform is very significant by Saudi standards. Sabri, a Cairo-educated lawyer and former head of JCCI's legal department, said his greatest concern was ensuring adequate training for commercial court judges. He doubted that the minimum two months of training mandated by the October 2007 decree would be sufficient for a typical Saudi judge, who generally holds a degree from one of the Kingdom's Islamic colleges and has little experience with issues pertaining to trade law. ¶7. (C) In the effort to make the Kingdom attractive to foreign investors, Sabri said that labor law reform would be as important as commerce law reform. He noted several challenges still facing the implementation of the September 2005 labor law, all pertaining to the balance between the rights of employers and those of employees. These include standards for annual leave and the length of the work week. Sabri said that such standards need to be attractive enough to encourage Saudis to seek private sector employment while not imposing an undue burden on employers. He described this balance as a more subtle facet of the debate about Saudization, the Ministry of Labor's quota system mandating the hiring of Saudis. -------------- Shariah-compliant but business-friendly -------------- ¶8. (C) Sultan Salah Al-Hejailan (strictly protect),a prominent commercial lawyer in Jeddah, emphasized the legal and political significance of the October 2007 decree during a July 20 meeting with PolEconOff and CommercialConsul. He said the decree marks a historic effort to modernize the Kingdom's legal system and to diminish the influence of clerics. Al-Hejailan said that in the absence of a uniform legal code, judges tend to be heavily swayed by the Islamic school of thought, or fiqh, in which they were educated. He said that judges belonging to Hanbali, the most conservative fiqh, are responsible for about 80 percent of the verdicts in the Kingdom, although Hanafi, a more liberal and business-friendly fiqh, enjoys some influence in the Hijaz. He expects the appointees to the new Supreme Court to be qualified lawyers. ¶9. (C) Al-Hejailan said that although the reformed legal system will be completely compliant with Islamic religious law, or shariah, it will include codified statutes addressing modern, practical needs. These statutes will have bylaws detailing their implementation and administration. Judges will also be guided by the principle of judicial precedence. Al-Hejailan showed a book titled "Judicial Decisions" that the Ministry of Justice published in January as the first of what is to be a series of publications documenting court precedents for judges' reference. According to Al-Hejailan, the October 2007 decree emphasizes the principle of judicial independence by limiting the amount of administrative control that the Ministry of Justice can exercise over judges. He characterized this as a delineation of the respective powers of the executive branch and the judiciary. ¶10. (C) Al-Hejailan said that businesses will benefit from the increased judicial transparency that will accompany standardized statutes. As an example, he mentioned the Kingdom's growing body of anti-counterfeit statutes. Asked about the enforcement of international arbitration clauses, Al-Hejailan admitted that non-enforcement was a common complaint from foreign businesses, but pointed out that it can be equally difficult to enforce local judgments. He said he was optimistic that the new commercial courts would be more effective at enforcing all judgments. ¶11. (C) Asked to list the biggest challenges facing successful implementation of the October 2007 decree, Al-Hejailan said that administration of justice will continue to be difficult under any judicial structure due to the high volume of "meaningless" cases that reach court, and complained that Saudi society has been getting more litigious. He added that it would take at least five years to implement the decree, and only then if reform efforts continue to receive strong and consistent support from the King and from advocates such as SAGIA. -------------- Hoping for the best, but not waiting for it -------------- ¶12. (C) COMMENT: Although Jeddah's business leaders appear cautiously optimistic that the October 2007 decree could lead to meaningful judicial reform, they are accustomed to making the most out of the legal framework available. While many may hope for a qualified and independent judiciary presiding over a system of specialized courts, they show themselves ready to resort to incremental administrative and regulatory improvements should wider reform efforts stall. END COMMENT. TONEY