JEDDAH, 12 November 2006 — The review division of the Investment Court, which is part of the Arab League, has fixed Jan. 20 as the date for a decision in the case of a Saudi investor who is demanding SR296 million in compensation from the Tunisian government for breach of a contract between him and the Tunisian government.
The investor is Adel Al-Maddah. In 1999 Al-Maddah’s company, the Development Company for Marketing and Consulting, signed a contract with the Tunisian government, which granted his company exclusive rights to broadcast the Mediterranean Games in Tunisia and abroad.
However, Al-Maddah says that contracts on similar lines had already been signed with various other companies four months before his company signed the contract. This was in spite of the fact that it clearly stated on the contract that the Tunisian government had not signed and would not sign the rights to the Mediterranean Games to any other company.
The Investment Court’s announcement of a date for a decision comes after the Saudi authorities intervened in the case through the Saudi Embassy in Cairo. Al-Maddah told Arab News that following a directive from Custodian of the Two Holy Mosques King Abdullah that called for the Saudi government to support him, the embassy in Cairo took up his case.
Al-Maddah said he is demanding compensation for the breach of contract as well as the time he has had to wait for the court to review his case — more than 89 months. Al-Maddah says he has so far already paid 30 percent of the contract.
At the end of 2004, the Investment Court issued a decision rejecting Al-Maddah’s case against the Tunisian government and against the committee organizing the Mediterranean Games in 2001. The decision also forced the plaintiff to pay the cost of the case.
The decision was delivered by a committee at the Investment Court, in spite of a member of the committee, Fayez Hussein, objecting to it. Hussein considered the decision unjust to the plaintiff and demanded the court select experienced people to look into the case in order to estimate the loss and pay Al-Maddah damages for the breach of contract.
Al-Maddah said he tried solving the problem according to the details of the contract with the relevant authorities in Tunisia, but to no avail. According to the Saudi investor, these authorities did not adhere to their contract and did not respond to calls to settle the problem amicably.
The Saudi ambassador to Tunisia, Ahmad Al-Salem, also took up the matter with the Tunisian government. Al-Maddah said the company held a meeting with a minister from Tunisia in the presence of the ambassador. The meeting, however, failed to reach a solution. Al-Maddah says that the Tunisians canceled the contract without any legal justification.
To make matters worse, Al-Maddah said he was surprised to learn that the committee organizing the Mediterranean Games filed a lawsuit and managed to cancel an arbitration clause that was included in the contract. This led the finance minister and the chairman of the Saudi Chambers of Commerce and Industry to intervene in the case.
Al-Maddah added that the Tunisian minister of investment promised to solve the problem within two weeks in the presence of ambassadors from both countries.
The Saudi government has intervened in various cases during the last three years to solve the problems faced by Saudi investors abroad. The government has managed to end major financial disputes that would have potentially put Saudi businessmen in big trouble including compensating their money and property. The problems relating to Saudi businessmen investing abroad are becoming widespread in recent years. There are no detailed statistics about how much Saudis invest abroad, but according to sources there is an estimated $600 billion invested abroad by Saudis. More than 22 Saudi investors own properties abroad and have had their properties seized because of violation of foreign laws. This is mainly due to a lack of legal knowledge about laws in those countries and because many investors do not bother getting help from local legal consultants in the countries they have investing in.
Majdi Al-Kurdi, a Saudi legal consultant, said that based on his experience with many Saudi businessmen in a number of European and African countries, the main problem that Saudi investors face is a lack of knowledge about the local tax system in foreign countries.
“Saudi investors totally trust their foreign partners without getting proper assurances that guarantee their rights and money in case a dispute occurs between the two parties. This also applies to Saudi investors who bring money into a foreign country illegally, which causes many problems while distributing profit,” he said.
Al-Kurdi added: “If Saudi investors do not get help from local legal consultants and lawyers in the countries they are investing in or from government departments, they would end up facing problems. They should get special information on how to bring money into a country and to be informed about the countries’ tax system. Saudi investors should consult lawyers on how to protect their investment in case they have a local partner and to be familiar with the legal ways and the projects approved for investments.”
Al-Kurdi said that most problems begin when Saudi investors take money into foreign countries through the black market in order to avoid paying taxes. “Most problems happen when people follow such illegal ways. Most of the time local partners or the middleman take advantage of the illegal way in which Saudi money is brought into a country. This is because Saudi investors fear questioning from authorities, which drive the legal partner or the middleman to put their hands on the money,” he said.
Al-Kurdi also pointed out that Saudi investors did not take punishments and financial fines seriously. He said that people should realize that foreign countries have tax rules, that unpaid taxes can accumulate and incur interest, that there are financial fines, that property and money can be seized and Saudi investors can also ultimately be deported and banned from entering a country.
He stressed the importance of signed international agreements and treaties and pointed out that some countries clearly violate these signed agreements. Violations include the overtaxing of Saudi investors and not following the rules of tax exemption agreements signed between foreign countries and Saudi Arabia. “This has driven many Saudi ministries in the Kingdom to intervene in cases to protect Saudi businessmen and their rights,” he said.
Kurdi added that he is surprised that many Saudi investors are ignorant about their local partners in foreign countries and have little information about the country they are investing in. He said that they never ask about their financial status and become easy prey to fraudsters.
“It is advised that the Saudi businessmen ask about their local partners before they start investing through the Saudi chambers. They should not be in a position where they are involved in a financial dispute and nor should they be on the Saudi chambers’ black list. Even if a Saudi businessman has to pay money to a local lawyer then he should make sure that the local partner has a clean record,” he said, adding that there are many local law offices in the Kingdom that have branches in foreign countries. Consulting them would put Saudi investors under the protection of these lawyers in case of a problem.
The Saudi Chambers Council provides information and signs agreements that help the flow of investments in the private sector between Saudi Arabia and other countries through the establishments of a joint business council. Its main role is to provide a healthy environment for investment both at the local and international level. Their role is also to prevent problems from cropping up.
All countries around the world are competing to provide the best environment to attract foreign investment. Kurdi said that the Saudi Chambers Council is trying to increase awareness among Saudi investors on the risks that face their foreign investments and people who try to trick them.
An Arab News source said the signing of economic agreements with foreign countries is a way of organizing cooperation. “We, as representatives of the private sector at the Saudi Chamber Council, have an agreement with the private sector in countries abroad. We have 21 existing committees. Through the commercial chambers and the commercial unions in the countries abroad we intervene to support Saudi businessmen. We always encourage Saudi businessmen to be more involved in their committees,” he said.
Recently, the Saudi government, together with the development committee at the Saudi Chambers Council and the minister of commerce and industry, organized a campaign across a number of countries to attract investments estimated at SR2.3 trillion in the coming 15 years. These investments would create more investment opportunities in the Kingdom.
Saleh Al-Turki, chairman of the Jeddah Chamber of Commerce and Industry, stressed the difficulties the authorities face in educating investors about local laws. He said the chamber has a legal department to cater to the needs of foreign investors. He added that many Saudi investors are not turning to the chamber for advice.
“The capital money abroad could be brought back to Saudi Arabia by creating strong investment opportunities. This is what the government of Saudi Arabia is doing now and it has attracted Saudi investors to the Saudi market, in addition to facilitating laws on investors,” said Al-Turki.
He stressed the importance of adhering to the laws of the countries in which Saudis invest. He said that the Saudi law is both honest and neutral and has the ability to solve big investment cases quickly once a case is looked at.
Saudi Arabia has many alliances and agreements with countries across the world. This helps Saudi investors and protects their rights. Under some of the agreements signed there are committees which one can approach in the event of legal disputes and there are joint teams that solve problems according to agreement signed. The international arbitration is a solution to solve investment cases.
Economist say that if businessmen see good returns in a foreign investment in terms of the facilities provided and the low amount of risks involved, they would not hesitate to invest abroad.
Muhammad Saeed, an economist, said that in the past few years, a lot of Saudi capital has returned to the Kingdom for two main reasons. The first reason was fear of the freezing of Arab investment abroad, especially after 9/11. The second reason is the improvement of the local economy after positive returns on oil.
The case of Saudi businessman Harb Saleh Al-Zuhair is a prime example of what Saudi investors face abroad. The Financial Ministry intervened in a case which was brought against him by the French government, which had imposed a 9 million euro tax on him. The French government seized the properties of Al-Zuhair, saying he was living in France and managing his business from there and that throughout the period he was living there, he had not paid taxes. The French government had also rejected all the documents that proved that Zuhair was handling his business from Saudi Arabia.
Al-Zuhair faced various procedures that do not go in line with the double taxation agreement signed between Saudi Arabia and France. Saudi Arabia has signed many agreements with a number of countries around the world and currently is in the final stages of finishing negotiations with more than 16 countries, including Holland, Malaysia, Germany and India.