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KSA Civil Transactions System

KSA Civil Transactions System

The Kingdom of Saudi Arabia (KSA) is set to enforce its new Civil Transactions Law from December 16, 2023, a significant legal milestone aligned with the Vision 2030 initiative. This legislation, comprising seven chapters and 720 articles, aims to enhance legal consistency, particularly in civil and commercial transactions, and attract international investments.

The law is inspired by civil laws in the Middle East, with modifications to align with Islamic Sharia principles. It accommodates international treaties, demonstrating KSA’s commitment to global business practices. The law’s retroactive effect covers cases and facts preceding its enactment, with exceptions outlined.

Key Provisions:

Binding Force of Contracts:

  • Emphasizes the essential elements of a binding contract.
  • Recognizes the administrative framework of contracts.
  • Parties must fulfill contract requirements.

Interpretation of Contracts:

  • Clear language in contracts is binding.
  • Room for interpretation considers the common will of the parties.
  • Pre-contractual correspondence aids in resolving ambiguity.

Principle of Good Faith:

  • Parties must implement obligations in accordance with good faith.
  • Obligation to negotiate contracts in good faith.

Compensation:

  • Regulations for compensation in case of default or delay.
  • Parties can agree on compensation and repair in advance.
  • Court authority to reduce agreed compensation under certain criteria.

Prescription:

  • The general limitation period is ten years.
  • Shorter periods for specific cases, e.g., five years for freelancers and renewable periodic rights, and one year for various rights.

Force Majeure:

  • Exemption from liability in the event of force majeure.
  • Parties are not liable for damage caused beyond their control.

Implications:

  • The law promotes clarity and reduces uncertainty in contract establishment, providing an incentive for investors.
  • Addresses legal risks and encourages contemporary business practices.
  • Recognizes the right to compensation for moral injury.
  • Retrospective application necessitates a review of existing contractual arrangements.

While the practical application of the law remains to be seen, its introduction aligns with Saudi Arabia’s developmental goals, marking a positive step toward a vibrant society and prosperous economy. Entities are advised to assess and possibly reformulate existing contracts in anticipation of the law’s retroactive impact.

If you need additional information, don’t hesitate to contact us!

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