Saudi Arabia's First ever codified Civil Code: A vital component of the Kingdom’s Vision 2030 initiative

Introduction

In a ground breaking and historic move, the Kingdom of Saudi Arabia (the “Kingdom”) unveiled its first ever codified Civil Transactions Law promulgated by Royal Decree No. 191 of 1444 (the “Civil Code”), marking a significant milestone in the Kingdom’s legal landscape’s evolution. This comprehensive legislation, which comes into effect on 16 December 2023 (the “Effective Date”), 180 days after its publication in the Gazette, seeks to modernize and streamline various aspects of the Kingdom’s civil law, bringing it in line with international standards. The Civil Code is a vital component of the Kingdom’s ‘Vision 2030' initiative aiming to enhance legal certainty, promote economic growth, and protect the rights of individuals and businesses. Prior to this law, the contracts and most commercial transaction in the Kingdom were based on Sharia principles.

At its core, the Civil Code brings unprecedented clarity of the general provisions regulating contracts. Further, it governs various contracts such as sale and purchase, lease agency and construction contracts. It will also apply to marine contracts such as, for example, carriage of good contracts (bills of lading) and charter parties that are subject to the laws of the Kingdom or ultimately enforceable in the Kingdom. One of the key provisions of Civil Code, as briefly discussed below, is its retroactive nature, meaning that it applies to contracts and transactions that occurred before its enactment.

Application

The Civil Code applies to all contracts and transactions that were entered into before the law’s Effective Date, except where (a) a party invokes a statutory provision or a judicial principle related to the contract or transaction that is in conflict with the Civil Code, and (b) a limitation period to hear the case is already effective prior to the Effective Date.

As we are only a few months away from the Effective Date of the Civil Code, those doing business in the Kingdom will be well-advised of ensuring compliance with the provisions of the Civil Code when entering into transactions and contracts during this period. The retroactive nature is expected to bring consistency and uniformity to the Kingdom’s legal framework, ensuring a smoother transition from the old system to the new.

The Civil Code is comprehensive and covers a wide range of civil matters, including 41 new rules. Among the rules listed are that (i) customary practices are enforceable, (ii) certainty cannot be refuted by uncertainty, (iii) a person is presumed relived from an obligation or duty, and (iv) a contract should be interpreted based on its true purport and meaning rather than on mere expressions and wording. Finally, in the absence of an applicable rule, the provisions derived from Sharia, and which are most compatible with the Civil Code, will continue to apply.

Key Provisions:

Contracts

The Civil Code sets out the general principles of contract law, including the requirement for a valid offer, acceptance, the capacity of the parties to enter into a contract and the legality of the contract's subject matter (bringing it in line with widely used international principles of contract law).

Similar to the civil provisions in the UAE and in the Middle East, the contract must be entered in good faith. Further, parties are bound by the clear provisions of a contract and if the terms are ambiguous and require interpretation, the shared intention of the parties must be sought by taking into consideration various factors such as (i) customary practice, (ii) nature of the transaction, and (iii) the general intentions of the contracting parties.

As part of the contract’s provisions, the Civil Code established clear provisions for the termination of a contract. Parties will have the right to (a) terminate a contract for breach, (b) the right to terminate a contract for a fundamental change in circumstances, and (c) the right to terminate a contract for a party's failure to perform its obligations.

The provisions on regulating contracts in the Civil Code are expected to have a significant impact on the business community in the Kingdom. They will provide greater clarity and certainty for businesses entering into agreements, which will facilitate smoother transactions and should, in turn, hopefully reduce legal disputes.

Property

In a modern twist, the Civil Code expands the traditional concept of property rights to include both tangible and intangible assets. This forward-looking stance has the potential to significantly impact sectors such as, for example, technology and intellectual property, offering a legal framework that is more in tune with the digital age.

Compensation

Specific provisions are set in the Civil Code introducing compensation for damages to the most possible pre-damage condition. Compensation can be agreed in advance as part of a contract. Parties may further specify the liquidated damages in advance by stipulating the same in the contract, which traditionally may not have been recoverable in the Kingdom under Sharia principles.

Conclusion

As the Kingdom continues its journey of modernising its legal landscape and development, the Civil Code provides a more harmonised and transparent legal landscape local and foreign investors. The Civil Code introduces a wide variety of provisions covering legal capacity, property rights, contracts and compensation for damages.

All the new provisions make the legal system in the Kingdom more navigable for local and foreign investors by reducing ambiguity around the application of the law. It will be intriguing to see how the Civil Code influences both domestic and regional legal norms.

If you have any question or would like any kind of assistance, please do not hesitate to contact Khurram Ali.

Note - this article was authored together with Paralegal, Reem Sharif.

Authors

Khurram Ali, Partner