We here at Levelset are really interested in lien law, much more than we probably should be. So, when we come across something to which we don’t immediately know the answer, we try to figure it out. In that vein, this post will discuss whether there are lien rights in Saudi Arabia.
Pledges in Saudi Arabia
Saudi Arabia is governed by sharia (also spelled Shari’ah), or Islamic, law. Under sharia law, a rahn, or pledge, is defined variously as “an assurance of liability,” “mortgage,” “collateral,” or “possessions offered as security for a debt so that the debt will be taken from it in case the debtor failed to pay back the due money.” For the sake of this post, we will refer to rahns by another common definition, or “pledge.” In order to establish a valid pledge, different Islamic law scholars mandate that certain requirements must first be fulfilled.
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One source lists nine requirements that must be met in order for a valid pledge to exist. In summary:
- The party cannot be coerced into giving collateral
- An orphan’s property cannot be put up as collateral by the trustee
- The collateral must be a liquid asset
- The collateral must be “distinct” from other properties
- The owner or pledgor is responsible for the upkeep of the collateral and can benefit from possessing it
- The owner or pledgor, depending on the interpretation, may be able to continue to use the collateral
- If the collateral is non-negligently lost or damaged, the trustee no longer has a guarantee
- The collateral ownership changes only when the debt is settled
- If the borrower cannot pay back the debt, a judge will order the property pledged as collateral to be sold in the open market, even if it is the residence of the borrower (emphasis added)
Saudi Arabia’s New Unified Center for Lien Registration
The similarity between a pledge and a lien is made concrete by the fact that the Saudi Arabian General Investment Authority recently implemented regulations under an agency called The Unified Center for Lien Registration (Center).
The Center has its own body of law. For example, Article 8 states that:
The Debtor/Pledgor and the Creditor must register the pledge at the Unified Center for Lien Registration is there is not, for the pledged asset, a competent authority responsible for issuing the pledge deed.
Interestingly, competent pledge registration authorities already exist for aircrafts, ships, real estate, and listed shares, amongst other assets.
As a law firm with a Saudi Arabian office noted, however, the regulations are silent as to whether non-registration with the Center necessarily means that the pledge is unenforceable. Even if the pledge is registered, the pledgee has numerous avenues to challenge the pledge’s enforceability, such as invalidating any contract involved in the exchange.
Additionally, the Commercial Pledge Law and the Center’s regulations explicitly adopt many of the requirements of a valid pledge discussed above. For example, the pledge property must be currently in existence, capable of transfer, and distinct from other property.
Once a pledge is registered, the Center will issue a certificate of registration, which will accompany any documents supporting the pledge at the Center itself.
Pledges: Are They Similar to Liens?
To the casual owner, this list of pledge requirements, especially number nine, seem somewhat similar to the modern day American mechanics lien. Although some of the other requirements seem more reminiscent of, for example, collateral needed in order to obtain a mortgage or loan, the fact that the collateral or pledge can be ordered by a court to be sold in order to satisfy the debt is much like an American court ordering a property to be sold in a suit to foreclose on a mechanics lien.
However, although the Center is still in its infancy, registering pledges in Saudi Arabia seems to be, as the law firm mentioned above notes, nothing more than a way of producing more evidence that a party is entitled to certain property in case a debt goes unpaid.
The comparison between pledges and liens ends entirely when questions of the timeframe in which parties must file pledges, the enforceability of pledges, and who the adjudicating pledge authority is arise. Essentially, the Center’s regulation have no requirements on any of the above. Furthermore, there are no listed criteria as to what limitations there are on who can file a pledge and what rights a pledge entails. In contrast to the Center’s regulations, American states have extensive statutes describing who can file a lien, when that lien must be filed, what kind of notice must be provided, how and when the lien can be enforced, what rights attach when a lien is filed, and what courts can hear suits relating to liens.
Perhaps as the idea that pledges for all assets must be listed in the Saudi Arabian Unified Center for Lien Rights takes more hold, pledges will eventually attain the strength that liens in America currently have. Currently, the only similarities are on paper and disappear almost completely in practice.