Share
On 19 June 2023, the Kingdom of Saudi Arabia (the Kingdom) enacted the Civil Transactions Law (the Civil Code or Code) promulgated by Royal Decree M/191 dated 18 June 2023 (Dhul-Qi’dah 29 1444 AH).
The Code enters into force on 16 December 2023 (Jumada II 3, 1445 AH). It represents a major milestone in the Kingdom’s aim to codify its legal landscape and offers assurances to investors looking to be part of the Kingdom’s economic growth plan.
The Civil Code is composed of 7 Chapters and contains 720 articles covering a range of topics, from contracts, construction and property rights. Prior to the Civil Code, the Basic Law of Governance, promulgated by Royal Decree A/90 dated 2 March 1992 (Sha’ban 27, 1412 AH), as amended, provided for the application of Islamic Law (i.e., Sharia). As widely know in the region, the soon to be phased out legal system is uncodified and does not rely on judicial precedent. While the Civil Code offers a much needed clarity and consistency when it comes to legal interpretations, however it does not introduce any form of binding precedent known to exist in the common law. In this respect, the Kingdom has streamlined its Civil Code with those applied in the region.
The temporal application of the Civil Code
The Civil Code applies retroactively to contractual and non-contractual scenarios entered into prior to 16 December 2023. This includes all rights and obligations falling under any one of the areas covered by the scope of the Civil Code. Typically, one of the characteristics of a civil code is that it is not gapless. The Civil Code includes 41 legal principles maintaining the application on the Sharia in the event of any gaps not provided for in the Code. Again, some of these principles are consistent with those found regionally in other civil codes.
Contractual transactions
The Civil Code provides for a number of legal principles confirming the binding force of contracts as being the law of the parties (pacta sunt servanda) and enforceability of contractual obligations. The Civil Code also adopts the principle of good faith in the performance of contracts.
With regard to the rules of contractual interpretation, the Civil Code adopts the same rule of literal interpretation that exists in other regional jurisdiction. In the event there is any ambiguity in the language of the contract, courts shall have resort to the mutual intention of the parties, taking into account customs and nature of the transaction.
Damages
Similarly to other jurisdictions in the region, damages form an essential element in commercial transactions, specifically in the event of any delay or default in performing one’s obligations. The Civil Code allows the parties to determine the amount of damages in their contract and provide for liquidated damages, which is typically found in construction contracts, with the caveat that the judiciary can increase or decrease the amount of damages depending on the actual loss incurred by the complainant.
With regard to other types of damages, the Civil Code does not include any reference to an entitlement for ‘lost profits’. Therefore, it remains to be seen whether the Saudi Courts will confirm an entitlement to the same.
Summary
The Civil Code is a welcome development in the Kingdom’s aim towards codification and offering the Saudi market as a business-friendly environment. It will provide further certainty and assurances in civil and commercial transactions across a variety of sectors that are vital to the Kingdom. Those dealing in the Saudi are invited to get familiar with the provisions of the Civil Code and seek legal advice where necessary on its implementation.
United Arab Emirates
Sultanate of Oman