Reconciliation, Mediation, and Commercial Arbitration in Saudi Arabia: Taradhi, the Force of a Settlement Deed, and How the Methods Differ

What Is Settlement Under Saudi Law?

Settlement is a contract by which two parties resolve an existing dispute between them or avoid a potential one, with each waiving part of their claim. The Civil Transactions Law regulates the settlement contract among the nominate contracts, setting out its elements and effects, the most important being that settlement ends the dispute it covers and extinguishes what each party waived.

Settlement is permitted in financial, commercial and labor rights and in many personal status matters, but it is not permitted in matters of public order, such as permitting what is prohibited or waiving a right that the party has no power to dispose of. Settlement may also take place before a lawsuit is filed or while it is being heard; at any stage of the case, the litigants may ask the court to record the settlement they agreed on in the hearing minutes, and the court issues a deed accordingly. To read the general rules of contracts under the new law, see the Civil Transactions Law guide.

What Is Taradhi and How Does It Work?

Taradhi is the electronic platform of the Reconciliation Center of the Ministry of Justice. It allows parties to request settlement and hold its sessions in person or remotely, through automated procedures that begin with submitting the request and end with issuing the settlement document. Sessions are conducted by conciliators from the Ministry’s staff or accredited conciliators, selected according to the type of dispute.

• Log in to Taradhi and select a new settlement request.
• Enter the details of the parties, the subject of the dispute and the requests.
• Notify the other party and schedule the session.
• Hold the settlement session in the presence of the conciliator.
• Issue the settlement document upon agreement, or close the request if agreement is not reached.

Participation in settlement is optional in principle; if the parties do not agree, each retains the right to go to the competent court. Parties usually make sure that offers in settlement sessions are made without acknowledging the underlying right, so they are not used later in the lawsuit if agreement fails.

Is a Settlement Deed an Enforceable Instrument?

Yes. Article 9 of the Enforcement Law in force provides that enforceable instruments include “settlement records issued by authorized bodies or certified by the courts,” and the Ministry of Justice confirms that settlement documents issued through Taradhi are enforceable instruments that can be submitted directly to the Enforcement Court without the need for a new lawsuit.

This is the real value of a documented settlement: an ordinary written agreement between the parties is a binding contract, but if one party breaches it, the other often needs a lawsuit to prove it and obtain a judgment, whereas a settlement deed is enforced directly. A new Enforcement Law was issued by Royal Decree No. (M/237) dated 3/11/1447H, and it had not entered into force as of the date of writing this article, so the current Law remains applicable until it takes effect. To learn about enforcement procedures, read the Enforcement Court guide.

What Is Mediation and How Does It Differ from Settlement?

Mediation is a process in which a neutral third party helps the parties negotiate and reach a solution they both accept, without having the power to impose a decision on them. Mediation is the route, and settlement is the outcome it may lead to.

Mediation in Saudi Arabia takes several forms: settlement through the Reconciliation Center at the Ministry of Justice, amicable settlement of labor disputes at the Ministry of Human Resources, as in amicable settlement of labor disputes, and commercial mediation offered by specialized centers such as the Saudi Center for Commercial Arbitration. The important practical difference lies in the force of the resulting agreement: if it is issued by an authorized body or certified by the court, it is an enforceable instrument; if it remains a private, undocumented agreement, it is a binding contract whose enforcement upon breach requires a lawsuit. It is therefore advisable, when reaching an agreement through private mediation, to document it in a way that gives it enforceability.

What Is Commercial Arbitration and How Does It Differ from Settlement and Mediation?

Arbitration is an agreement between the parties to refer their dispute to an arbitrator or arbitral tribunal that issues a binding award instead of the court. It is governed by the Arbitration Law issued by Royal Decree No. (M/34) dated 24/5/1433H, which requires the arbitration agreement to be in writing, whether it appears as a clause in the contract or as a separate agreement after the dispute arises.

• Who decides: In settlement and mediation, the parties decide; in arbitration, the arbitral tribunal decides.
• Binding effect: A mediator does not impose a solution, whereas an arbitral award is binding even if one party does not accept it.
• Enforcement: A settlement deed issued by an authorized body is directly an enforceable instrument, while an arbitral award is enforced after an enforcement order is issued under the Arbitration Law.
• Challenge: An arbitral award cannot be appealed; only an annulment action is permitted, on grounds exhaustively listed in the Law.
• Relationship: Settlement and mediation often preserve the relationship, while arbitration is full litigation, even if more private than the courts.

Note that commercial arbitration is not available in every dispute: matters in which settlement is not permitted cannot be arbitrated either, and some contracts with government entities require special approval before agreeing to it. The drafting of the arbitration clause also directly affects its validity and cost; a clause that does not specify how arbitrators are appointed or the seat of arbitration may open a procedural dispute before the merits are reached.

When Should You Choose Settlement, Mediation or Arbitration?

There is no route that is best in absolute terms; the choice depends on the nature of the dispute, the relationship between the parties, and what they want to achieve:

• Settlement or mediation: When the relationship is ongoing, such as partners or a supplier and a regular customer, when the disagreement is about the amount rather than the underlying right, or when a quick, low-cost and confidential solution is needed.
• Arbitration: In large or technical commercial contracts that require a specialized arbitrator, when a foreign party is involved, or when confidentiality is a priority and a binding award is needed.
• The courts: When the other party refuses any negotiation, when interim measures not available through other routes are needed, or when there is no arbitration agreement.

They can also be combined; many contracts provide for negotiation, then mediation, then arbitration or litigation if those fail. In commercial disputes before the Commercial Court, the door to settlement remains open at any stage.

How to Prepare for a Settlement or Mediation Session

The success of a settlement session usually depends on what happens before it: knowing your minimum acceptable outcome, understanding the other party’s position, and estimating what the lawsuit will cost in time and effort if agreement fails.

• Gather the contract, correspondence, invoices and account statements that prove the claim.
• Calculate the amount claimed precisely, separating the principal right, compensation and expenses.
• Decide in advance what can and cannot be conceded, and which alternatives are acceptable, such as installments or set-off.
• Verify that whoever attends for the other party has authority to sign the settlement.
• Check the limitation period for hearing the claim, as lengthy negotiation does not suspend it in all cases.

A hasty settlement may be worse than the dispute itself if a party waives a right whose value it has not assessed, so the draft agreement deserves a careful reading before signing, especially comprehensive release clauses.

How to Draft an Effective Settlement Agreement or Settlement Clause

An ambiguous agreement may open a new dispute instead of ending the old one. The following points should therefore be observed when drafting a settlement:

• Define precisely the dispute that the settlement resolves, and whether it covers all claims or only some.
• State the amounts, their payment dates and method, and the effect of a delay in any installment.
• Provide for a mutual release limited to what the settlement covers.
• State what happens to pending lawsuits, such as withdrawing them or recording the settlement in them.
• Document the agreement through an authorized body or the court so that it acquires enforceability.

In contracts, the dispute resolution clause is written before any dispute arises: does it begin with negotiation? For how long? Is the dispute referred to mediation and then arbitration? What are the seat and language of arbitration and the number of arbitrators? You can request a consultation to review a settlement agreement or settlement clause before signing it.

Frequently asked questions

What Is the Difference Between Settlement and Arbitration?

In settlement, the parties themselves agree on resolving the dispute through mutual concessions, and a conciliator or mediator may assist them. In arbitration, they refer the dispute to an arbitral tribunal that issues an award binding on them even if they do not accept its content, and it can only be challenged by an annulment action on specified grounds.

Is a Taradhi Settlement Document Binding?

Yes. A settlement document issued through Taradhi is an enforceable instrument, as confirmed by the Ministry of Justice, based on Article 9 of the Enforcement Law, which treats settlement records issued by authorized bodies as enforceable instruments, so it can be submitted directly to the Enforcement Court upon breach.

Is Settlement Mandatory Before Filing a Lawsuit?

In principle, settlement is optional, but some laws require a settlement stage before litigation, such as amicable settlement at the Ministry of Human Resources in labor disputes. The law applicable to each dispute should be checked to determine whether a mandatory prior stage exists.

Can a Settlement Be Reached While the Case Is Being Heard?

Yes. At any stage of the case, the litigants may ask the court to record the settlement they have agreed on, and the court issues a deed accordingly, ending the litigation as to the matters covered by the settlement.

Is a Private Mediation Agreement Directly Enforceable?

A private agreement resulting from undocumented mediation is a binding contract, but it is not in itself an enforceable instrument, so enforcing it upon breach usually requires a lawsuit. It is therefore advisable to document it through an authorized body or have it certified by the court so that it acquires enforceability.

Must an Arbitration Agreement Be in Writing?

Yes. The Arbitration Law issued by Royal Decree No. (M/34) requires the arbitration agreement to be in writing, whether it is a clause in the contract before the dispute or a separate agreement after it arises; otherwise, it is not recognized.