July 25, 2023

The New Saudi Civil Transactions Law: What You Need to Know


Other Author:      Huwayda Mohammed H Abuthiyab, Associate, Al Akeel & Partners

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In accordance with the Saudi vision 2030 and its remarkable developments in striving to establish an enhanced legislation providing modernized laws and regulations, the Kingdom issued on June 14, 2023 the Civil Transactions Law, which provided a major shift in the legislative system in the Kingdom in an effort to stabilize contracts and enhance transparency.

The newly issued Civil Transactions Law contains a set of general rules and regulations aiming to regulate the provisions of contracts and financial transactions between individuals.  The Civil Transactions Law governs all civil transactions in the Kingdom unless there is a specific law regulating special transactions such as “provisions related to the employment contract” which are regulated by the Labor Law.  If there is no special provision for an incident in the Labor Law, then the Civil Transactions Law will be referred to.

The new Civil Transactions Law consists of about 720 articles regulating the legal capacity of persons, gifts, donations and endowments, provisions for compensation for material and moral damage, contracts of all kinds, validity of contracts and their effects, provisions for nullity and termination of contracts, property rights, and usufruct provisions.  The Civil Transactions Law is also concerned with the rules related to the statutory periods and the statute of limitations.

One of the most important articles in the Civil Transactions Law is the considered hierarchy between the legislative sources, where the special legal provision took priority and then the legal provision included in the Civil Transactions Law.  In the absence of a provision, the general rules mentioned in the folds of the conclusion of the Civil Transactions Law should be applied, and then the provisions derived from Islamic law (Shari'a) that are most appropriate to such Civil Transactions Law.  Article (12) of the Civil Transactions Law details the discrepancy in the age of majority, as it provided that the age of majority is at the completion of (18) Hijri years. 

The Civil Transactions Law urges the principle of good faith in dealings in accordance with the jurisprudential rule “the intention of a thing is associated with its action.” Accordingly, article (41) of the Civil Transactions Law affirms that negotiating a contract does not create an obligation on the parties to the negotiation, except that whoever has bad faith in negotiation, such as lack of seriousness, or deliberate failure to make a substantial statement to the contract, must compensate the other party for the damage. 

If a contract is negotiated, this does not entail an obligation on the negotiating parties to conclude this contract.  However, the party that terminates the negotiation in bad faith is liable for the damage incurred to the other party, and this does not include compensation for the missed expected profit from the contract, subject of the negotiation.  It is considered bad faith not to be serious in the negotiation, or deliberately not to make a substantial and influential statement in the contract.

The Civil Transactions Law also urges the principle of the promise to contract and its impact in the event that the essential issues to be concluded are identified, the period within which the contract must be concluded, and the availability of its conditions.

With regard to compensation, article (138) of the Civil Transactions Law ended the judicial instability regarding compensation for moral damage, as the article permitted compensation for the resulting damage.

Article (144) of the Civil Transactions Law dealt with enrichment without cause.  This is represented in the fact that every person, even if such person does not have legal capacity, gets enriched without a legitimate reason at the expense of another person, is obligated, within the limits of what he has enriched, to compensate the other person for the loss he suffered, and this obligation will remain in place and valid even if the enrichment ceases later.

The Civil Transactions Law also exposed the principle of fictitious contracts and stipulated that if one of the two contracts is fictitious and the other is real, then the real contract is the one that is enforceable between the two contracting parties.

If you would like further information, please feel free to reach out to one of our team members listed in this update. 

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