Lakhasly

Legal Harmonization or Conflict Thesis: Evaluating Legal Implications of Saudi Arabia's Accession to the CISG Dissertation Introduction The recent accession of the Kingdom of Saudi Arabia to the United Nations Convention on Contracts for the International Sale of Goods (CISG) is regarded as one of the key reforms within the broader agenda of the country's Vision 2030.Conflict of laws rules would allow the Saudi courts to apply the CISG in international sales contracts to the maximum extent possible (including Part III), but with the ability to deviate from its application when it conflicts with Sharia law and public policy.Consequently, the CTA "always applies before Saudi courts to sale of goods contracts, when Parts I or II of the CISG are not applicable". By virtue of this, the CTA fills all gaps left by the CISG in Saudi law. The lack of conflict rules explains why, under Art. 1(b) CISG, the CTA will apply to international sales contracts to the extent that they conflict with the provisions of Part I, II or III CISG. According to Meskic and Al-Eissa, any gaps left by the CISG would be filled by the Saudi CTA, for instance under Art. 7(2) CISG when a party raises an issue that is not regulated by the CISG. The fact that Saudi law is devoid of any conflict rules is even more surprising given that other Gulf States do have conflict rules. The Status Between Litigation and Arbitration Becomes Disconnected Due to Differences in the Applicable Law It is noteworthy that the situation is less complicated under arbitration than under litigation. According to Art. 38 of the Saudi Arbitration Law, the Saudi Center for Commercial Arbitration can apply the CISG to the extent that it does not violate Islamic Sharia law. Given that Saudi law also adheres to Sharia law, the SCCA can apply the CISG when it does not contradict Sharia law. At the same time, the kingdom adheres to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and therefore foreign arbitral awards are recognized and enforced in Saudi courts, provided, of course, that they do not conflict with Sharia law or public policy. Consequently, when it comes to arbitration, disputes can be resolved in accordance with CISG Part III without the need for additional reservations or declarations, provided, of course, that its application does not conflict with Sharia law. Thus, under Art. 38 of the Saudi Arbitration Law, international commercial disputes can be resolved according to the CISG. According to Meskic and Al-Eissa, this places arbitration in a clearly advantageous position over litigation for international commercial disputes. Consequently, it can be assumed that many commercial disputes will be resolved through arbitration rather than through protracted and complicated litigation proceedings in Saudi courts. Challenges Regarding Sharia and Interest are Likely to Become Particularly Acute Under Art. 78 and 84(1) CISG It may be premature to expect an immediate change in the status quo regarding the application of interest in Saudi Arabia. Sharia law strictly prohibits Riba, and Saudi judges are known to have declined to enforce awards that stipulate interest payable to a creditor. This sensitive issue was the reason why Saudi authorities decided to make a reservation under Art. 92 CISG. Meskic and Al-Eissa explain that when the CISG was being negotiated, the problem of harmonizing Sharia law with the CISG provisions on interest became acute. For instance, CISG Art. 78 concerns interest on overdue payments, whereas CISG Art. 84(1) stipulates that in case of price reduction upon resale, the reduced amount shall be refunded to the buyer with interest. According to the authors, this issue could potentially be resolved by making an interpretation of CISG Art. 78, according to which in case of a conflict with Islamic Sharia law, the interest rate would be zero per cent. The same approach could be applied to CISG Art. 84(1). Such a solution would be acceptable when one of the parties to a sales contract has its place of business in a country that employs Sharia law. In this case, interest rate under CISG Art. 78 would be interpreted as zero, thus complying with Sharia principles. However, Meskic and Al-Eissa note that such an approach would not be compatible with Saudi law. According to the authors, Saudi Arabia "does not (yet) accept conflict rules, and a Saudi judge is very unlikely to follow such hidden conflict rule within Article 78 CISG".Specifically, Meskic and Al-Eissa note that "a comparison of the CTA with the CISG did not reveal any obvious contradictions between the solutions in the CTA and the CISG that would make it impossible to apply Parts I and II of the CISG together with the rest of the CTA to the same contract". Indeed, the CTA contains provisions comparable to those found in Part I of the CISG, which deals with the general provisions of the CISG and the formation of contracts. Specifically, the CTA also recognizes the principle of good faith in contracts, which is consistent with Art. 7(1) CISG. At the same time, Meskic and Al-Eissa note that another advantage of the CTA concerns its compatibility with the substantive norms of the CISG. In this regard, the CTA contains a number of provisions that go beyond the mere CISG harmonization, for instance its rules on force majeure and hardship (Art. 97 CTA), which are comparable to CISG Art. 79 and 81. Notably, the CTA also contains mandatory rules that cannot be deviated from by the parties, including Art. 97(2)(3) CTA which prohibit the parties from waiving the right to renegotiate upon occurrence of a hardship event. Similar mandatory rules can be found in the CISG, for instance Art. 46 CISG concerning the abuse of rights. Part III of the CISG Contains Essential Rights and Obligations of the Parties as well as Remedies; This Has Resulted in the Problem of Disconnection between CISG Parts I, II and III As indicated above, Part III of the CISG, which deals with the rights and obligations of the parties as well as applicable remedies, was explicitly rejected by Saudi Arabia. Therefore, in accordance with the provisions of CISG Part I, Saudi courts will apply Parts I, II and III of the CISG to international sales contracts governed by the CISG. Thus, Saudi courts will apply the provisions of CISG Part I which deals with the general provisions and the formation of contracts, CISG Part II which interprets and supplements contracts, including the application of trade customs (Art. 9 CISG), but at the same time the interpretation of contracts and trade usages will be governed by Saudi law, specifically the CTA. According to Meskic and Al-Eissa, "This is certainly not how the CISG was designed".78 CISG could have been easily avoided". Multiple Courses of Action Open to Saudi Arabia to Address the Current Legal Discrepancy Situation Exist There are several ways for Saudi Arabia to address the current situation and eliminate potential sources of conflict of laws. First, Saudi Arabia may repeal the reservation under Art. 92 CISG and adopt Part III of the CISG, possibly with an interpretative declaration concerning the application of CISG Art. 78 and 84(1) within Saudi law. Alternatively, Saudi Arabia may continue relying on the CTA as the law governing international sales contracts, but apply the CISG Part I and II to interpret the terms of contracts and apply the relevant trade customs. In this regard, Meskic and Al-Eissa note that the current Saudi approach "is certainly not optimal", but "at the same time it was achieved without any amendments and modifications to the CTA, which will certainly continue to function as the general law of obligations and contracts.According to Meskic and Al-Eissa, "it is inevitable that many parties would feel safer either by excluding the CISG entirely, or by incorporating Part III of the CISG into their contract, with the exception of Articles 78 and 84, to ensure that the CISG would become applicable in its entirety". This possibility is supported by the fact that parties to an international sales contract can incorporate the substantive law of the CISG into their contract, thereby avoiding the possibility of a conflict of laws. However, this approach is limited by the fact that a contract governed by Saudi law will still be subject to mandatory rules and considerations of public policy (for instance, the prohibition of applying interest). According to Meskic and Al-Eissa, the incorporation method would allow for resolving potential difficulties with the application of the CISG, but not completely since the problem of the absence of conflict rules would remain. Consequently, the authors explain that the incorporation method is used "as a practical alternative to a direct choice of law by contract".80 CISG).

Legal Harmonization or Conflict Thesis: Evaluating Legal Implications of Saudi Arabia’s Accession to the CISG Dissertation
Introduction
The recent accession of the Kingdom of Saudi Arabia to the United Nations Convention on Contracts for the International Sale of Goods (CISG) is regarded as one of the key reforms within the broader agenda of the country’s Vision 2030. Interestingly, Saudi Arabia has made a reservation upon joining – the only country ever to adopt this type of CISG opt-out. Specifically, Saudi Arabia reserves the right not to be bound by Part III of the CISG, which deals with the rights and obligations of buyers and sellers, as well as remedies available under the Convention. This essay examines the implications of Saudi Arabia’s accession to CISG in the context of legal harmonization and conflicts. The essay will argue that although Saudi Arabia’s accession to CISG is a positive sign, the countries opt-out of Part III creates more questions than answers in terms of the applicable law and legal framework in international commercial disputes, with the Saudi Civil Transactions Law (CTA) serving only as a partial harmonization tool.
Saudi Arabia’s Accession to the CISG: An Overview
Saudi Arabia became the 96 th contracting state to the CISG when it deposited its instrument of accession with the Secretary-General of the United Nations in August 2023. Notably, Saudi Arabia made a reservation upon accession, which is unprecedented as no other contracting state has ever adopted such a CISG reservation. Specifically, through Royal Decree No. M/196 dated 4 Dhu al-Hijjah 1444 AH (22 June 2023), Saudi Arabia reserved the right not to be bound by Part III of the CISG (Articles 25-88). Pursuant to the accession decree, the Minister of Commerce has been instructed to negotiate with other contracting states regarding the non-application of Articles 78 and 84(1) of the CISG to Saudi Arabia. Thus, Saudi Arabia has opted out from Part III of the CISG which contains substantive rights and obligations of the parties as well as remedies.
According to Article 92(1) of the CISG, a contracting state can make a declaration of non-application of a particular part of the CISG, which is what Saudi Arabia did in this case. Earlier, in the 1980 s, the Nordic countries – Denmark, Finland, Norway, and Sweden – made a similar but later withdrawn declaration concerning Part II of the CISG (formation of contracts). Therefore, Saudi Arabia’s reservation does not constitute an anomaly per se, but it is the first instance of its kind concerning Part III, which contains the core substantive provisions.
The rationale for Saudi Arabia’s accession to the CISG and its immediate reservation concerns the compatibility of Part III with Sharia law, particularly in relation to the prohibition of interest. This issue is especially acute in the context of Articles 78 and 84(1) of the CISG, which provide for interest in case of late payment and refund of price with interest, respectively. According to the authors, another reason for Saudi Arabia’s opt-out of Part III concerns potential Sharia law issues with other provisions, particularly with the rules on anticipatory breach (Article 71) and installment sales (Articles 72-73). Indeed, the Saudi decree provides for negotiations with other contracting states on the non-application of the aforementioned CISG articles, which indicates that Saudi Arabia is concerned with potential compatibility problems between the CISG and Sharia law beyond the prohibition of interest.
CTA and the Question of Legal Harmonization
The CTA, which was adopted in June 2023 and came into force in December 2023, appears to represent the new status quo in Saudi Civil and Commercial Law. The CTA, the first comprehensive law of its kind to be adopted in the Kingdom, consists of 721 articles and replaces a number of commercial laws previously based on judicial practices. It should be noted that the CTA continues to be based on Sharia law, although to a lesser extent, as compared to the previous Saudi legal system. Specifically, Article 1 of the CTA provides that in case of a conflict, recourse shall be had to the codified jurisprudence set out in Annex I to the CTA, and then to the most appropriate rules of Sharia law.
It is this very provision that determines the relationship between the CTA and CISG, which is relevant given Saudi Arabia’s opt-out of Part III and the absence of supporting regulations. In this context, the authors conclude that the CTA provides for a harmonious compatibility with the CISG, which indicates that the CTA may have been developed with this prospect in mind. Specifically, Meskic and Al-Eissa note that “a comparison of the CTA with the CISG did not reveal any obvious contradictions between the solutions in the CTA and the CISG that would make it impossible to apply Parts I and II of the CISG together with the rest of the CTA to the same contract”.
Indeed, the CTA contains provisions comparable to those found in Part I of the CISG, which deals with the general provisions of the CISG and the formation of contracts. Specifically, the CTA also recognizes the principle of good faith in contracts, which is consistent with Art. 7(1) CISG. At the same time, Meskic and Al-Eissa note that another advantage of the CTA concerns its compatibility with the substantive norms of the CISG. In this regard, the CTA contains a number of provisions that go beyond the mere CISG harmonization, for instance its rules on force majeure and hardship (Art. 97 CTA), which are comparable to CISG Art. 79 and 81. Notably, the CTA also contains mandatory rules that cannot be deviated from by the parties, including Art. 97(2)(3) CTA which prohibit the parties from waiving the right to renegotiate upon occurrence of a hardship event. Similar mandatory rules can be found in the CISG, for instance Art. 46 CISG concerning the abuse of rights.
Part III of the CISG Contains Essential Rights and Obligations of the Parties as well as Remedies; This Has Resulted in the Problem of Disconnection between CISG Parts I, II and III
As indicated above, Part III of the CISG, which deals with the rights and obligations of the parties as well as applicable remedies, was explicitly rejected by Saudi Arabia. Therefore, in accordance with the provisions of CISG Part I, Saudi courts will apply Parts I, II and III of the CISG to international sales contracts governed by the CISG. Thus, Saudi courts will apply the provisions of CISG Part I which deals with the general provisions and the formation of contracts, CISG Part II which interprets and supplements contracts, including the application of trade customs (Art. 9 CISG), but at the same time the interpretation of contracts and trade usages will be governed by Saudi law, specifically the CTA. According to Meskic and Al-Eissa, “This is certainly not how the CISG was designed”. The authors highlight that “such systematic interpretation CISG Parts I and II become lost when only Parts I and II are applicable”.
For instance, Saudi courts will apply CISG Part II, Chapter 5 concerning the performance of the contract, Article 8 CISG concerning the interpretation of the contract, but at the same time apply the CTA (Arts. 424-429 CTA) to determine the existence of a breach of contract. The problem becomes particularly acute in light of Art. 7(1) CISG which provides that the parties must act in good faith in their negotiations.
Meskic and Al-Eissa note that Art. 7(1) CISG “has far-reaching implications for the CISG” as it “in various places in Part III requires that a party in bad faith bear the consequences of its actions, such as when mitigating damages (Art. 77), when making a claim for specific performance, the defendant acted in bad faith to mitigate the risks (Art 46 CISG), or by the principle of venire contra factum proprium (Art. 80 CISG). Thus, by rejecting Part III, the good faith provisions of the CISG become virtually unworkable in Saudi Arabia. This is because Art. 1-24 CISG, which contain the good faith principle, “almost completely empty” when it comes to interpretation and formation of contracts.
The Gap in Saudi Law Concerning the Lack of Conflict Rules Leaves the Status Between the CTA and the CISG Unsettled
A notable problem with Saudi law concerns the lack of conflict rules, which has considerable impact on the application of the CISG. The relevance of this problem is based on Art. 1(1)(b) CISG which stipulates that the CISG applies if the law of the country concerned (i.e., domestic law) provides for the application of the CISG. At the same time, Saudi law contains no conflict rules whatsoever, which in part explains why international commercial dispute resolution in Saudi Arabia is particularly problematic.
It is noteworthy that if Saudi Arabia had not made a reservation under Art. 92 CISG, but joined the CISG without any reservations, Saudi courts would still apply the CTA in all cases. According to Meskic and Al-Eissa, “the lack of conflict rule regulation leaves Article 1(b) CISG without any scope of application before Saudi courts”. Consequently, the CTA “always applies before Saudi courts to sale of goods contracts, when Parts I or II of the CISG are not applicable”. By virtue of this, the CTA fills all gaps left by the CISG in Saudi law.
The lack of conflict rules explains why, under Art. 1(b) CISG, the CTA will apply to international sales contracts to the extent that they conflict with the provisions of Part I, II or III CISG. According to Meskic and Al-Eissa, any gaps left by the CISG would be filled by the Saudi CTA, for instance under Art. 7(2) CISG when a party raises an issue that is not regulated by the CISG. The fact that Saudi law is devoid of any conflict rules is even more surprising given that other Gulf States do have conflict rules.
The Status Between Litigation and Arbitration Becomes Disconnected Due to Differences in the Applicable Law
It is noteworthy that the situation is less complicated under arbitration than under litigation. According to Art. 38 of the Saudi Arbitration Law, the Saudi Center for Commercial Arbitration can apply the CISG to the extent that it does not violate Islamic Sharia law. Given that Saudi law also adheres to Sharia law, the SCCA can apply the CISG when it does not contradict Sharia law. At the same time, the kingdom adheres to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and therefore foreign arbitral awards are recognized and enforced in Saudi courts, provided, of course, that they do not conflict with Sharia law or public policy.
Consequently, when it comes to arbitration, disputes can be resolved in accordance with CISG Part III without the need for additional reservations or declarations, provided, of course, that its application does not conflict with Sharia law. Thus, under Art. 38 of the Saudi Arbitration Law, international commercial disputes can be resolved according to the CISG. According to Meskic and Al-Eissa, this places arbitration in a clearly advantageous position over litigation for international commercial disputes. Consequently, it can be assumed that many commercial disputes will be resolved through arbitration rather than through protracted and complicated litigation proceedings in Saudi courts.
Challenges Regarding Sharia and Interest are Likely to Become Particularly Acute Under Art. 78 and 84(1) CISG
It may be premature to expect an immediate change in the status quo regarding the application of interest in Saudi Arabia. Sharia law strictly prohibits Riba, and Saudi judges are known to have declined to enforce awards that stipulate interest payable to a creditor. This sensitive issue was the reason why Saudi authorities decided to make a reservation under Art. 92 CISG. Meskic and Al-Eissa explain that when the CISG was being negotiated, the problem of harmonizing Sharia law with the CISG provisions on interest became acute. For instance, CISG Art. 78 concerns interest on overdue payments, whereas CISG Art. 84(1) stipulates that in case of price reduction upon resale, the reduced amount shall be refunded to the buyer with interest.
According to the authors, this issue could potentially be resolved by making an interpretation of CISG Art. 78, according to which in case of a conflict with Islamic Sharia law, the interest rate would be zero per cent. The same approach could be applied to CISG Art. 84(1). Such a solution would be acceptable when one of the parties to a sales contract has its place of business in a country that employs Sharia law. In this case, interest rate under CISG Art. 78 would be interpreted as zero, thus complying with Sharia principles. However, Meskic and Al-Eissa note that such an approach would not be compatible with Saudi law. According to the authors, Saudi Arabia “does not (yet) accept conflict rules, and a Saudi judge is very unlikely to follow such hidden conflict rule within Article 78 CISG”. Furthermore, even if Saudi Arabia amended its domestic law and accepted Part III of the CISG, a judgment or an arbitral award containing interest would still be unenforceable in Saudi Arabia. This is because such a decision would violate Sharia law and hence public policy. In this regard, it is noteworthy that Saudi courts have already refused to enforce several arbitral awards that stipulated interest.
According to Meskic and Al-Eissa, the problem stems from the fact that the negotiators of the CISG adopted Art. 78 without addressing the possibility that a contracting state might be unable to apply it to one of its domestic laws. During the negotiations, the representatives of Egypt, Iraq and Canada argued that those countries’ legal systems based on Sharia law would be unable to accept the application of interest and suggested that either a general reservation to Art. 78 CISG or addition of a phrase” or any other corresponding fee” after the word “interests” would have remedied the situation. Nevertheless, neither of these proposed solutions was adopted, and Art. 78 CISG was eventually adopted. If those suggestions had been implemented, Saudi Arabia would not have needed to make a special reservation under Art. 92 CISG. Consequently, as the authors conclude, “The exclusion of the Sharia countries from the application of Art. 78 CISG could have been easily avoided”.
Multiple Courses of Action Open to Saudi Arabia to Address the Current Legal Discrepancy Situation Exist
There are several ways for Saudi Arabia to address the current situation and eliminate potential sources of conflict of laws. First, Saudi Arabia may repeal the reservation under Art. 92 CISG and adopt Part III of the CISG, possibly with an interpretative declaration concerning the application of CISG Art. 78 and 84(1) within Saudi law. Alternatively, Saudi Arabia may continue relying on the CTA as the law governing international sales contracts, but apply the CISG Part I and II to interpret the terms of contracts and apply the relevant trade customs. In this regard, Meskic and Al-Eissa note that the current Saudi approach “is certainly not optimal”, but “at the same time it was achieved without any amendments and modifications to the CTA, which will certainly continue to function as the general law of obligations and contracts.
At the same time, this approach does not eliminate the possibility of conflict between the CTA and the CISG, which means that international commercial disputes may still arise. According to Meskic and Al-Eissa, “it is inevitable that many parties would feel safer either by excluding the CISG entirely, or by incorporating Part III of the CISG into their contract, with the exception of Articles 78 and 84, to ensure that the CISG would become applicable in its entirety”.
This possibility is supported by the fact that parties to an international sales contract can incorporate the substantive law of the CISG into their contract, thereby avoiding the possibility of a conflict of laws. However, this approach is limited by the fact that a contract governed by Saudi law will still be subject to mandatory rules and considerations of public policy (for instance, the prohibition of applying interest). According to Meskic and Al-Eissa, the incorporation method would allow for resolving potential difficulties with the application of the CISG, but not completely since the problem of the absence of conflict rules would remain. Consequently, the authors explain that the incorporation method is used “as a practical alternative to a direct choice of law by contract”.
It is also necessary to consider the possibility of adopting conflict rules, as such a solution would benefit both the Kingdom and other Gulf States, all of which are parties to the CISG. Conflict of laws rules would allow the Saudi courts to apply the CISG in international sales contracts to the maximum extent possible (including Part III), but with the ability to deviate from its application when it conflicts with Sharia law and public policy.
Conclusion
As mentioned above, Saudi’s accession to the CISG, albeit with the reservation under Art. 92 CISG, represents a major step towards the goal of Vision 2030. At the same time, Saudi’s partial accession to CISG creates numerous complications, with the most acute ones concerning the application of Part III and the lack of conflict rules. Consequently, the current situation in Saudi law represents a case of legal harmonization with some conflict of laws issues. As such, Saudi Arabia has several options to address the current situation, including the adoption of conflict rules as well as interpretative declarations and/or amendments to the CTA to resolve the issues concerning the application of Part III of the CISG.