The Government of Saudi Arabia has announced the issuance of the long-awaited Civil Transactions Law (“CTL“), the third of the four laws announced as part of the specialized legislations reform (the others being the Family Law, Evidence Law (both have been issued) and the Criminal law (expected to be issued soon)). The CTL was officially published in the Saudi official gazette on 19 June 2023. The CTL contains 721 articles and marks an important advancement in the legal system of the Kingdom of Saudi Arabia (KSA), which until now has primarily applied the fundamentals of traditional Islamic law in its civil transactions and was largely uncodified. The CTL has been drafted to incorporate the most modern trends and effective legal and judicial practices, while remaining conscious of the aims and principles of Islamic law. It also takes into consideration the international obligations of the Kingdom, as well as the developments of modern societies.
Overview of the Civil Transactions Law
The law aims to enhance the principles of property ownership protection, stability and validity of contracts, identification of the sources and effects of rights and obligations, and clarity of legal positions. The law also aims to make the business environment more attractive and to contribute to the regulation of economic activities and the stability of financial rights and to facilitate investment decision-making. This is expected to have a very positive impact on enhancing transparency and increasing the predictability of judicial rulings and minimizing discrepancies in judicial discretion in order to achieve speedy and predictable justice.
Key Provisions of the Civil Transactions Law
The CTL governs civil and commercial transactions, to the extent the law does not contradict the nature of commercial transactions or a specific text in a commercial law. The CTL has a crucial goal of addressing an extensive array of matters concerning contracts and the ownership of assets, including the validity, consequences, termination, and dissolution within the Kingdom. Through the provision of explicit guidelines and regulations, the law strives to streamline legal procedures, fostering transparency and efficiency in transactions.
Rules of Interpretation
The CTL will apply to all matters which are addressed directly or indirectly in the law. If the matter is not addressed, the general rules of interpretation provided for in the CTL will apply. These rules have been used by courts and legislative authorities in practice but have not been officially recognized up until the publication of the CTL. If the matter was still not addressed, the general rules of Islamic law most appropriate to the CTL provisions and aims will apply.
Effectiveness and Retroactive Application
The law will become effective in December 2023 (180 days after its official publication). Notwithstanding that, the law will apply retroactively to all matters even if such matters arose before the issuance of the law, with the exception of a couple of situations as specified in the Royal Decree issuing the law.
Multiple government entities have been directed to review different other laws to assess the impact of CTL on such laws, and to propose the required amendments to align these laws with the CTL.
The CTL includes provisions covering all matters related to contracts, including the elements of the contract, its validity, good faith negotiations, rights and obligations, provisions related to contractual invalidity and rescission, and provisions related to harmful acts and compensation for such acts. Parties to the contracts are provided with the flexibility to vary many of the default positions set out in the CTL. The CTL also covers different types of contracts including sale and purchase, leases, exchange, gifts, loans, construction, agency, guarantees, and settlements.
Compensation & Ownership
The CTL includes specific provisions that compensate damages in certain events where a person causes harm to others, including property damage, and regulate such compensation. The CTL also recognizes the right to compensation for expected earnings and moral damages, which have historically been an area of uncertainty in Saudi law governed contracts. The CTL also covers matters relating to ownership of assets and the rights and restrictions associated with such ownership, including gaining the ownership, transferring it, and losing it.
The CTL is one of the most comprehensive laws in the country’s history, affecting critical personal and commercial matters. Given its complexity and its retroactive application, government entities, corporations, domestic and foreign investors are highly encouraged to review the law and study its immediate and long-term impact on their business dealings.
We will aim to provide our clients with further detailed briefs on particular matters of interest in the upcoming period.