Landmark Saudi Civil Transactions Law sets a new milestone for legislative reform in the Kingdom

The Kingdom of Saudi Arabia has in recent history set about to introduce legislative reforms, with a view to increasing the efficiency of judicial institutions and court processes and to develop the uniform application of Saudi law by the courts. On 19 June 2023, the new landmark Civil Transactions Law was issued in Saudi Arabia by Royal Decree No. M191/1444. This announcement follows numerous significant reforms to the KSA legal system of late.

The publication of the new law, consisting of 721 articles, marks a significant moment in the development of the codification of Saudi Law, which has to date been derived primarily from the principles of the Holy Qur’an and the teachings of the Prophet Muhammad. Its impact will undoubtedly be felt widely, at a time in which the Kingdom seeks to attract investment into the country, under the umbrella of its Vision 2030. 

The new law will come into force within 180 days of the date of its publication in the Official Gazette. We expect therefore, that the new law will come into force by mid-December 2023.

The new law has retrospective effect. Accordingly, its provisions will apply (where relevant) in most cases to contracts entered into both prior to the date on which the new law takes effect, and those entered into thereafter. 

The new law contains a set of Final Provisions, which in effect codify 41 Shariah principles. Where the new law does not contain a specifically relevant provision, it provides that the Final Provisions (the codified Shariah principles) shall be applied. These principles include (amongst others):

• Priority in contracts is given to meaning and intention, and not necessarily to the text and formation;
• Assignment by custom is similar to assignment by text;
• Certainty is not removed by doubt;
• A saying is not attributed to a silent person, but silence in the event of the need for a statement is a statement;
• If impediment conflicts with the requirement, the impediment takes precedence; and
• Any debt is outstanding until paid.

Where no such principle/maxim is applicable, the new law provides that the broader principles of the Shariah shall be applied, as a fallback position. 

Additionally, the new law has introduced a plethora of new articles to be applied by the courts. These include, amongst others:

• Entering negotiations with no intention of reaching an agreement, or failing to inform the contracting counterparty of any substantial term of the contract are acts that constitute bad faith. In such case, the defaulting party, as a result of its deemed bad faith, shall compensate the counterparty for any loss incurred, excluding any loss of profit which may otherwise have been earned through the performance of the contract.
• Doubt shall be interpreted in favor of the one who bears the burden of the obligation or the condition.
• Where any provision of the contract is invalid or voidable, such provision only shall be revoked, unless it is evident that the contract would not have been concluded without such provision. In the event that the contract would not have been concluded without the inclusion of specific provision in question, the contract shall be revoked in full.
• The compensation for damages can include moral damages.
• The parties may agree to liquidated damages, which shall not be due if the defaulting party proves that the claimant did not suffer any damage.
• A new regime of statutes of limitation, starting from one year and going up to ten years in specific cases.

Over the next few weeks and months, stay tuned as we continue to digest the expansive provisions of the new law, and bring you the key updates.