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Legal considerations for maritime companies in Saudi Arabia

In this interview with Seatrade Maritime, Khurram Ali, Partner at Ince & Co Middle East LLP, discusses the top opportunities for maritime companies in Saudi Arabia, as well as the legal considerations that companies should be aware of when doing business in the Kingdom.

Khurram advises foreign investors to carefully review the Saudi investment rules and regulations, as well as the Kingdom's new civil transaction law, which comes into effect in December 2023. He also recommends that foreign investors consider partnering with a local company that has expertise in the maritime industry and can help them navigate the legal system in Saudi.

Seatrade Maritime: What do you see as the top opportunities for maritime companies in Saudi Arabia?

Khurram Ali: We need to break it down to the sectors within the maritime industry.

Let's look at the oil and gas sector. In the oil and gas sector, Aramco's demand is increasing for vessels, and I think over the next five years, it will increase significantly, which means there are huge opportunities for local maritime shipping companies to increase the volume of their ships and grow their business.

If you look at the port sector, there are huge opportunities there, because the port sector has recently released tenders for port management and port support services. So again, that's a growth area and opportunities.

Finally, I would look at the commercial shipping sector.  The traditional shipping company here is Bahri, which is the national shipping company. However, you've got the international operators who've set up here, so there are opportunities for them. Trade volumes are increasing, so the trade is increasing. Exports are increasing, other than non-oil, so there are opportunities for them to expand into the Kingdom and grow their business.

Seatrade Maritime: The Kingdom presents a lot of business opportunities – from a legal standpoint what do companies need to be aware of in doing business in Saudi?

Khurram Ali: The first thing foreign investors need to check is what the investment rules and regulations are here. Can they set up by themselves? Do they need a local partner? If they need a local partner what's the percentage that is minimum required?

Then, from a wider perspective, you need to look at the legal regime that is governing the contracts, etc.

One of the things they need to look at immediately is the first civil transaction law of Saudi Arabia that was approved a couple of months back. It comes into effect in December and will have a huge impact on the contracts that companies enter into. So, they need to engage someone familiar with that law, because going forward, that will have a huge impact on the way you do business in Saudi Arabia, at least from a legal point of view, you need to understand what your exposure and risk is.

Seatrade Maritime: What advice would you offer to a company looking to set up in Saudi Arabia?

Khurram Ali: You have one or two choices: you can set up by yourself. Some companies who are already operating in the region and have some exposure in Saudi Arabia may prefer to do that depending on the sector that they're getting into.

But if you're a fresh entrant into the market, you need to understand the culture and the way of doing business here. And for that, you may want to go with a partner. But then again, which partner do you choose?

The key question is to choose a partner who knows the industry that you're getting into, not any random partner. I think that becomes a key for the companies to invest, because a local partner if they are specialists in the industry, and they know the rules and regulations, can help the international investor, guide them through it, set up properly, and give them the relevant support as well.

Just do not have a local partner for the sake of having a local partner, because you need to meet a minimum percentage of a shareholding because the Foreign Investment Law says you need X amount from like a Saudi partner.

Look at what value would that partner add other than just the requirement of 25% Saudi shareholding or 30% or 50%. What is the added value to your business to your sector?

Seatrade Maritime: What impact 2019 Saudis maritime law had on the industry'?

Khurram Ali: The law has still not been fully tested before the courts. It's still going through the phase where it still is being tested.

However, the impact it has had, it has given confidence to companies to come here and invest. Because before that law came into effect, the law that was in place was just not fit for modern-day shipping or the maritime sector. Foreign investors were always cautious because they said we don't understand the risk we're getting into.

The maritime law has given them that framework when they understand the risk, they know what they're getting into and what their exposure is, which helps them to make an informed business decision. Which in turn, is helping the investors to come in and grow the business here and the economy.

Historically, foreign companies have been very reluctant to go before the Saudi courts. And that's still the case. I still get asked a question from some foreign client, who's first time litigating in Saudi Arabia, "I'm litigating against a Saudi company, does that mean I'm going to lose the case full stop?" No, you're not. There is a justice system, you will go through it.

There are certain aspects which have been tested, and the results we're seeing are more in line with what takes place in the rest of the region. The other question I get asked quite often is "we've got this issue or claim with a government entity. Are we on a losing streak if we go against them? " No, you're not. There is a justice system in place, and it doesn't matter if you're pursuing a government entity.

One of the biggest cases that I've had was winning an appeal against the customs authorities here. We went all the way through the court system, and we ended up with the Royal Court, got an order from the King, His Royal Highness King, directing the customs authority to return the confiscated cargo because they had confiscated it incorrectly or wrongly or unlawfully.

The concept is there, and I don't think people need to be afraid of the legal system or be hesitant of it. Yes, it is very different to what they are used to in the Western world, but there is due process. Judges don't always get it right. But which country the judges always get it right?

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