SAUDI ARABIA Trends and Developments Contributed by: Zeyad Khoshaim, Abdullah Alajlan and Kamil Mehiz, Khoshaim & Associates
Conclusion The enactment of the CTL marks a pivotal develop - ment in Saudi Arabia’s legal landscape. It represents a significant step in codifying core civil law principles in a manner consistent with Shari’ah, offering greater clarity and structure to previously uncodified areas of private law. For international investors and arbitration practition - ers, the CTL enhances legal certainty by improving predictability in contract enforcement and dispute resolution. However, understanding its provisions – and their relationship with Shari’ah, as reaffirmed by Article 720 and Royal Decree No (M/191) – is essential for effective contractual structuring and anticipating the outcome of disputes. Given that the CTL was issued in Arabic and that the Arabic text prevails over any English translation, it is strongly recommended that parties seek advice from qualified Saudi lawyers. Their expertise is critical to ensuring that agreements comply with the CTL and broader Shari’ah principles, and that any translations or interpretations reflect the authentic legal meaning. As Saudi Arabia advances its Vision 2030 reforms, the CTL serves as a cornerstone in aligning the King - dom’s legal infrastructure with international commer - cial standards – further strengthening its position as a leading destination for foreign investment and cross- border business.
Clear, well-drafted contracts reduce litigation risk and facilitate dispute resolution. Risk allocation and liability management The CTL’s tort provisions extend liability beyond direct damages and may include moral damages. Investors must therefore carefully consider indemnity clauses, insurance and liability caps in contracts. Reviewing pre-existing agreements Contracts executed before 16 December 2023 are automatically governed by the CTL and will be affect - ed by its principles if ongoing obligations exist. Parties should review legacy contracts to identify inconsisten - cies and consider amendments for CTL compliance. Illustrative Example: Structuring a Renewable Energy Joint Venture in Saudi Arabia Consider a multinational energy company partnering with a Saudi state-owned entity to develop a solar power project. • Contractual structure – the joint venture agreement is drafted to comply with Shari’ah, using profit- sharing arrangements instead of interest-based financing. • Good faith clause – both parties agree to negoti - ate in good faith to resolve unforeseen issues and commit to transparent communication. • Force majeure and hardship – the contract includes detailed provisions addressing risks such as gov - ernment policy changes or supply chain delays, expressly citing CTL definitions. • Dispute resolution – arbitration under Saudi law governed by the CTL is chosen, with the SCCA administering proceedings in English. • Liability management – insurance covers environ - mental damage, and liability is capped to balance risk. Such an approach illustrates how the CTL enables commercial flexibility while respecting legal and cul - tural norms.
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