The Saudi Civil Transactions Law: Contracts, Compensation, Changes

The Civil Transactions Law (نظام المعاملات المدنية) is Saudi Arabia's first written civil code. It was issued by Royal Decree No. (M/191) dated 29/11/1444H, and it brings together in one text the rules on contracts, obligations, compensation and ownership, which were previously derived from juristic reasoning case by case. It affects anyone who signs a contract, suffers harm or claims compensation. This guide explains its main provisions in plain language, and what has changed in practice.

This is a general explanation. The reference is the official text of the law.

What does the Civil Transactions Law govern?

Contracts: what you most need to know

• The contract is the law of the parties: what you agreed is binding, and can only be amended or cancelled by your agreement or for a reason set out in the law.
• Good faith: a contract must be performed in good faith, not with a literalism that empties the agreement of its purpose.
• Interpreting the contract: what counts is what the parties intended, and clear wording is not departed from by interpretation.
• Breach of contract: the injured party may claim performance or termination, with compensation as the case may be.

Exceptional circumstances

If general, exceptional circumstances arise that could not have been foreseen when the contract was made, and they make performance severely onerous for the obligor, even if not impossible, the court may reduce the onerous obligation to a reasonable level. This matters for long-term supply and construction contracts.

Harmful acts and compensation

Anyone whose fault causes harm to another must compensate for it. One of the most notable features of the law is that compensation covers moral (non-material) damage as well as material damage, such as harm to reputation or feelings, as assessed by the court. Compensation is measured by the harm suffered by the injured party, and the gain they lost as a natural result of the harmful act.

Unjust enrichment

Anyone enriched at another's expense without a lawful cause must return what they gained, up to the loss the other suffered. An example is money transferred by mistake to someone else's account.

Lapse of time: when a claim will not be heard

The law introduced periods after which a claim for civil rights will not be heard if the defendant denies it and there is no acceptable excuse, and the period varies by type of right. The practical result: do not wait years to claim your rights, and check the period that applies to your case in the official text or with a lawyer.

What has changed in practice?

1. The rules on contracts and compensation are now written and known in advance, so the outcome of a dispute is easier to predict.
2. Contract drafting carries more weight: clear clauses settle disputes, and unclear ones are interpreted under the law's rules.
3. Compensation for moral damage is now expressly provided for.
4. A long delay in claiming may now prevent a claim from being heard.

Frequently asked questions

Is there an official English version of the Civil Transactions Law?

The official text is the Arabic one, published by the Bureau of Experts at the Council of Ministers on laws.boe.gov.sa, which also offers English translations of many laws for reference. In court, only the Arabic text applies, so an English translation helps you understand the law but is not what a judge relies on. This guide summarises the main rules in plain English.

Does the law apply to contracts made before it came into force?

In principle, the law applies to events after it came into force, with transitional provisions for earlier cases. Review the position of an older contract with a lawyer.

Does the law cancel the terms written in my contract?

No. Agreed terms are effective unless they breach a mandatory rule or public order. But a void term has no effect.

Does it replace the Companies Law or the Labor Law?

No. Specific laws such as the Companies Law and the Labor Law apply in their own fields, and the Civil Transactions Law is referred to for anything they do not govern.

Need a contract drafted, or a compensation claim?

The team at Usus Law Firm handles contract drafting and review under the Civil Transactions Law, and compensation claims and general court cases, from its offices in Riyadh and Tabuk. Court proceedings are in Arabic; we advise in English. See also our explanation of the Law of Evidence.

Read also: The Companies Law explained.

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.