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.

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A call for specialized courts, competent judges
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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).

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Ministry of Justice stalls on reforms,
Ministry of Commerce and Industry presses on
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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.
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JCCI SecGen: Give judges more training,
don't neglect labor law reform
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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.

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Shariah-compliant but business-friendly
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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.

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Hoping for the best, but not waiting for it
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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