SAUDI ARABIA Trends and Developments Contributed by: Zeyad Khoshaim, Abdullah Alajlan and Kamil Mehiz, Khoshaim & Associates
• Presumptions – contracts and conditions are pre - sumed valid and binding, and parties are presumed free from liability unless proven otherwise. • Harm must be removed – the law prioritises elimi - nating harm, with the principle that greater harm should be prevented even if it requires tolerating lesser harm. • Precedence of prohibition over benefit – where a prohibition conflicts with a benefit, the prohibition prevails. • Hardship facilitates ease – hardship justifies relief or facilitation in fulfilling contractual obligations. • Literal meaning of words – words are presumed to bear their literal meaning and to be significant. • Estoppel applies – a party attempting to renege on a matter may be estopped. • Ignorance is no excuse – parties cannot rely on ignorance of the law as a defence. In practice, these maxims ensure that the CTL oper - ates within the framework of Islamic legal tradition, providing continuity between the codified law and Shari’ah principles, and offering guidance whenever the law itself is silent or ambiguous. In addition to these codified principles, the CTL’s application is further clarified by Royal Decree No (M/191) dated 18 June 2023, which explicitly states that the CTL shall not be applied retroactively in cases where existing legal provisions or judicial principles contradict the CTL and such provisions or principles have been relied upon by either party. This reinforces that the CTL operates without undermining estab - lished rights or rulings grounded in Shari’ah or prior judicial practice. The decree serves two important functions: it safe - guards legal stability by preventing retroactive dis - ruption to ongoing legal relationships, and it affirms the primacy of Shari’ah and previously upheld judicial principles within Saudi law. For international investors and arbitration practitioners, this means that: • the CTL’s provisions will generally apply prospec - tively and will respect established contractual and legal arrangements concluded before its enact - ment;
• parties can continue to rely on applicable Shari’ah- based rules or judicial principles that predate the CTL where such reliance was established in their agreements or legal claims; and • dispute resolution processes, including arbitration, must carefully consider whether the CTL or prior legal principles govern particular issues, especially in legacy contracts. This dual framework of codification under the CTL alongside the enduring primacy of Shari’ah principles, as codified in Article 720 and supported by the Royal Decree, defines the uniquely Saudi blend of legal tra - dition and modern commercial law. Understanding these nuances and seeking advice from qualified Saudi counsel is essential when struc - turing agreements and anticipating dispute outcomes in the Kingdom. This is particularly important given that the CTL represents a modernisation of, not a departure from, Saudi Arabia’s longstanding Islamic legal tradition. Core Principles Underpinning the CTL Relevant to International Investors Freedom of contract subject to Shari’ah and public policy The CTL upholds contractual freedom, permitting par - ties to negotiate terms according to their commercial needs, provided these do not violate Shari’ah prin - ciples or public order. This freedom extends to the choice of contractual structures, obligations and dis - pute resolution mechanisms. For international investors, this flexibility allows incor - poration of widely accepted commercial clauses – such as liquidated damages, limitation of liability and arbitration clauses – subject to compliance with Shari’ah. For example, contracts involving financing must avoid interest payments ( riba ), reflecting Shari’ah prohibitions. The CTL expressly validates contracts concluded through offer and acceptance, recognising commer - cial customs and usages to interpret terms. This rec - ognition aligns Saudi contract law more closely with international practice.
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