Most commercial disputes that reach the courts don't start with bad faith. They start with a contract that was written incompletely: a vague clause, an undefined period, or nothing about what happens if someone is late. A good contract won't always prevent a dispute, but it makes the dispute quick to resolve, with a predictable outcome. Here are the most common commercial contract mistakes in Saudi Arabia, and how to avoid each one before you sign.
Ten common mistakes in commercial contracts
| The mistake | What happens in a dispute | How to avoid it |
|---|---|---|
| 1. Parties not precisely identified | Argument over who is bound: the company or the owner personally | Write the official name, the Commercial Registration number, and the signatory's capacity and authority |
| 2. A general description of the work or goods | Each side reads "what was required" its own way | A detailed specifications annex and a delivery schedule |
| 3. A price with no payment mechanism | Disputes over when instalments are due and on what terms | Payments tied to clear delivery milestones |
| 4. Nothing about delay | You must prove the loss and its amount in court | A clear penalty clause, and a notice period before termination |
| 5. No payment security | A judgment for the amount takes time and is then hard to collect | A promissory note, a bank guarantee or a surety |
| 6. No delivery and acceptance procedure | Disputes over whether and when the work was delivered | A signed handover record, and a set period for objections |
| 7. No termination clause | One party is stuck in a contract that no longer serves it | The grounds for termination, its effects, and what is paid on termination |
| 8. Ignoring intellectual property and confidentiality | Disputes over who owns designs, software or customer lists | An express clause on ownership, confidentiality and a reasonable non-compete |
| 9. No chosen method of dispute resolution | An extra dispute over which court or body has jurisdiction | Choose the competent court or arbitration, plus its seat and language |
| 10. Verbal amendments | Later agreements with no evidence | A clause requiring every amendment to be in writing and signed |
The penalty clause: why it deserves attention
A penalty clause (الشرط الجزائي) sets in advance what the late or defaulting party pays, which spares you the burden of proving your loss in detail. The Civil Transactions Law regulates agreed compensation, including the court's power in certain cases to review the amount if it is excessive or if the actual loss is greater. So keep the clause reasonable and linked to a real, foreseeable loss.
Contracts and security: make enforcement easy
The difference between a contract that "wins you the case" and a contract that "gets you paid" is security. A document that counts as an enforceable instrument (سند تنفيذي), such as a promissory note, often lets you go straight to the Enforcement Court without a long lawsuit. Read promissory notes and the Enforcement Court.
Before you sign: a quick checklist
- Does the person signing for the other party have authority to sign?
- Is every number, amount and period written down, with no phrases like "as soon as possible"?
- Does the contract say what happens on delay, on breach and on termination?
- Is there security for payment or performance?
- Are the annexes signed and referred to in the contract?
- Is the dispute resolution method clear? Read commercial arbitration.
If you sign a bilingual contract, check that the Arabic and English texts match. Saudi courts work in Arabic, so the Arabic text is the one a judge will read.
Frequently asked questions
Are an electronic contract or emails enough?
They can serve as evidence, especially since the Law of Evidence recognised digital evidence, but a detailed written contract remains stronger and resolves a dispute faster.
Should I use a ready-made contract template from the internet?
A generic template is a starting point, but it knows nothing about the details or risks of your deal. The most dangerous clauses in a contract are the ones that were never written.
Need a contract drafted or reviewed?
The Usus Law Firm team handles contract drafting and review and commercial claims between companies, in Riyadh and Tabuk, with advice in English.
This article is general legal information and is not a substitute for advice on your specific case. Court proceedings in Saudi Arabia are in Arabic; the official Arabic text of each law prevails.
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