Saudi Civil Transactions Law: A Contracts Overview
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The Civil Transactions Law sets the general framework for contract rules in Saudi Arabia, covering how a contract is formed, performed, breached, and the periods after which claims for the rights it creates will no longer be heard. Understanding this framework helps a business assess its contracts better, both before signing and while performing them.
Issuance, Entry into Force and Scope
The Civil Transactions Law was issued under Royal Decree No. M/191 dated 29/11/1444H, corresponding to 18 June 2023, and published in the Umm Al Qura Gazette on 1/12/1444H, corresponding to 19 June 2023. It applies from 180 days after its publication (Article 721), and its application does not prejudice any specific legal provision (Article 1). Under Council of Ministers Resolution No. 820 dated 24/11/1444H, its provisions apply to commercial transactions in so far as they do not conflict with the nature of the commercial transaction and no special provision exists in the commercial laws. They also apply to facts that occurred before the law came into force, except where a legal provision or judicial principle relating to the fact conflicts with the law and a party relies on it, or where the matter concerns a period for the non hearing of claims that began to run before the law came into force.
Contract Formation
Under Article 33 of the law, offer and acceptance may be made by any means that indicates intent. Intent may be expressed verbally, in writing, by an understandable sign, or by conduct such as an exchange, and it may be express or implied, unless legal provisions, the parties' agreement, or the nature of the transaction require otherwise.
Adhesion Contracts
The law addresses adhesion contracts, where acceptance amounts to no more than accepting set terms laid down by the offeror that are not open to negotiation (Article 40). Where such a contract contains abusive terms, Article 96 allows the court to amend them or relieve the adhering party from them as fairness requires, and any agreement to the contrary is void.
Unforeseen Circumstances (Hardship)
Where extraordinary events of a general nature that could not have been foreseen at the time of contracting make performing a contractual obligation so onerous for the debtor that it threatens heavy loss, Article 97 allows the debtor, without undue delay, to invite the other party to negotiate. A request to negotiate does not entitle the debtor to stop performing. If no agreement is reached within a reasonable period, the court may, in light of the circumstances and after weighing the interests of both parties, reduce the onerous obligation to a reasonable level. Any agreement contrary to these provisions is void.
Limitation of Claims
Under Article 295, a right is not extinguished by the passage of time, but a claim for it will not be heard against a party who denies it once ten years have passed, unless a legal provision sets another period or the right falls within the exceptions the law sets out. These include five years for certain rights, such as professionals' fees and renewable periodic rights (Article 296), and one year for certain rights, such as merchants' rights for goods and services supplied to persons who do not trade in them (Article 297). Unless a provision states otherwise, the period runs from the date the right becomes due (Article 299). A court will not decline to hear a claim on this ground unless the debtor or another interested party asks it to (Article 306), and the parties cannot agree to shorten or extend the period (Article 305). For claims within the jurisdiction of the Commercial Courts, Article 24 of the Commercial Courts Law provides that, absent a special provision, a claim will not be heard after five years from the date the right claimed arose, unless the defendant acknowledges the right or the claimant presents an excuse the court accepts.
When a Contract Question Is Worth Getting Legal Input On
Drafting a contract before it is signed, and assessing each party's position once a dispute over performance arises, are moments when legal input can help, since it is more useful before a decision is made than after it. This is a general overview of the legal framework, not a substitute for reviewing a specific contract.
Frequently asked questions
The Civil Transactions Law was issued under Royal Decree No. M/191 dated 29/11/1444H, corresponding to 18 June 2023, and published in the Umm Al Qura Gazette on 1/12/1444H, corresponding to 19 June 2023. It applies from 180 days after its publication (Article 721).
The law sets the general framework for contract rules in Saudi Arabia, covering how a contract is formed, performed, breached, and the periods after which claims for the rights it creates will no longer be heard. It also addresses adhesion contracts and abusive terms in them, and unforeseen circumstances that make performing a contractual obligation onerous for the debtor.
Yes, its provisions apply to facts that occurred before the law came into force, under Council of Ministers Resolution No. 820 dated 24/11/1444H. This does not apply where a legal provision or judicial principle relating to the fact conflicts with the law and a party relies on it, or where the matter concerns a period for the non hearing of claims that began to run before the law came into force.
Its provisions apply to commercial transactions in so far as they do not conflict with the nature of the commercial transaction and no special provision exists in the commercial laws, under Council of Ministers Resolution No. 820 dated 24/11/1444H. Its application does not prejudice any specific legal provision (Article 1).
Where extraordinary events of a general nature that could not have been foreseen at the time of contracting make performing a contractual obligation so onerous for the debtor that it threatens heavy loss, Article 97 allows the debtor, without undue delay, to invite the other party to negotiate, and a request to negotiate does not entitle the debtor to stop performing. If no agreement is reached within a reasonable period, the court may, in light of the circumstances and after weighing the interests of both parties, reduce the onerous obligation to a reasonable level. Any agreement contrary to these provisions is void.
A claim for a right will not be heard against a party who denies it once ten years have passed (Article 295), unless a legal provision sets another period or the right falls within the exceptions the law sets out, although the right itself is not extinguished by the passage of time. These exceptions include five years for certain rights, such as professionals' fees and renewable periodic rights (Article 296), and one year for certain rights, such as merchants' rights for goods and services supplied to persons who do not trade in them (Article 297). For claims within the jurisdiction of the Commercial Courts, Article 24 of the Commercial Courts Law provides that, absent a special provision, a claim will not be heard after five years from the date the right claimed arose, unless the defendant acknowledges the right or the claimant presents an excuse the court accepts.